A mistake of Mr. Locke.
I should not have been so particular in giving a proof of so plain a proposition, had it not escaped the penetration of the great Mr. Locke.
In 1695 there was a proposal made to the government of England, to diminish the value of the pound sterling by 20 per cent. by making a new coinage of all the silver, and by making every shilling ⅕ lighter than before. The author of this project (Mr. Lowndes) having given his scheme to the public, was answered by Mr. Locke, That this debasing the value of the money-unit was effectually defrauding all the landed interest of 20 per cent. of their rents. Lowndes replied, that silver was augmented 20 per cent. in its value, and that therefore the pound sterling, though reduced 20 per cent. in its weight of pure silver, was still as valuable as before. This proposition Mr. Locke exploded with the most solid reasoning, and indeed nothing could be more absurd, than to affirm, that silver had risen in value with respect to itself. But though Mr. Locke felt that all the landed interest, and all those who were creditors in permanent contracts, must lose 20 per cent. by Mr. Lowndes’s scheme, yet he did not perceive (which is very wonderful) that the debtors in these contracts must gain. This led him to advance a very extraordinary proposition, which abundantly proves that the interests of debtors and creditors, which are now become of the utmost consequence to be considered attentively by modern statesmen, were then but little attended to, and still less understood.
We find in the 46th page of Mr. Locke’s Farther Considerations concerning the raising the value of Money, that Mr. Lowndes had affirmed in support of his scheme, that this new money would pay as much debt, and buy as many commodities as the then money which was one fifth heavier. Then adds Mr. Locke, “What he says of debts is true; but yet I would have it well considered by our English gentlemen, that though creditors will lose ⅕ of their principal and use, and landlords will lose ⅕ of their income, yet the debtors and tenants will not get it. It may be asked, who will get it? Those, I say, and those only, who have great sums of weighty money (whereof one sees not a piece now in payments) hoarded up by them, will get it. To these, by the proposed change of our money, will be an increase of ⅕ added to their riches, paid out of the pockets of the rest of the nation.”
If the authority of any man could prevail, where reason is dark, it would be that of Mr. Locke; and had any other person than Mr. Locke advanced such a doctrine, I should have taken no notice of it.
Here that great man, through inadvertency, at once gives up the argument in favour of his antagonist, after he had refuted him in the most solid manner: for if a man, who at that time had hoarded heavy money, was to gain ⅕ upon its being coined into pieces ⅕ lighter, Mr. Locke must agree with Mr. Lowndes, that a light piece was as much worth as a heavy one.
Those who had heavy money at that time locked up in their coffers, would gain no doubt, provided they were debtors; because having, I shall suppose, borrowed 4000l. sterling in heavy money, and having it augmented to 5000l. by Mr. Lowndes’s plan, they might pay their debt of 4000l. and retain one thousand clear profit for themselves. But supposing them to have no debts, which way could they possibly gain by having heavy money, since the 5000l. after the coinage, would have bought no more land, nor more of any commodities, than 4000l. would have done before the coinage.
When the value of the unit is diminished, creditors lose; when it is augmented, debtors lose.
We may therefore safely conclude, that every diminution of the metals contained in the money-unit, must imply a loss to all creditors; and that in proportion to that loss, those who are debtors must gain.
That on the contrary, whatever augmentation is made of the money-unit, such augmentation must be hurtful to debtors, and proportionally advantageous to creditors.