CREDIT AND THE PROBLEM OF TRUST IN THE THOUGHT OF JOHN LOCKE, c. 1668–1704

Abstract

AbstractThis article presents a reinterpretation of John Locke's contribution to debates about the interest rate in the seventeenth century. It suggests that his argument that England should maintain the ‘natural’ rate, rather than impose a lower rate, was motivated by his theological, moral, and social conceptions of credit and its dependence on trust. In order to solve the endemic shortage of metal coin limiting the growth of monetary exchange in England, Locke stressed that the higher, ‘natural’ rate of interest would facilitate interpersonal borrowing and lending among neighbours, allowing currency to flow more freely around the country. By contrast, while he acknowledged that institutional creditors such as goldsmith-bankers could quicken the circulation of money by issuing debt instruments like bills of exchange, he saw institutional credit as a threat to the moral community. Not only did he question how people could rationally trust financiers without any epistemic apprehension of their personal probity, but he moreover doubted whether individuals accumulating so much money were likely to act trustworthily. Finally, using an otherwise unstudied dialogue about the Bank of England, this article argues Locke extended his criticisms about the threats posted by private banks to the country's nascent system of public credit.