Weighing in on the side of John Locke, not only on interest rates but also in a general and comprehensive vision of economic laissez-faire that even surpassed Locke, were two brothers, Dudley and Roger North, who came from a distinguished Tory family. Here was a fascinating convergence of views of a radical Whig, and high Tories and zealous subjects of Charles and James II. This juncture presaged a later meeting of minds of ‘extreme Left’ and ‘extreme Right’ during the eighteenth century, when the imperialist–Whig–mercantilist one-party Establishment, from 1715 to the 1750s, was opposed on the Left by radical libertarian Commonwealthmen and on the Right by the anti-imperialist, Catholic or proto-Catholic opposition, all agreeing on denunciations of the mercantilistic, high tax, high public debt, central banking state.21
Dudley and Roger North were sons of the fourth Baron North. Showing little aptitude for schooling, Dudley (1641–91), went to Turkey and became a prominent trader, as well as a director of both the Levant Company, which had been granted a monopoly of English trade with the Middle East, and the African Company, which enjoyed a monopoly of trade with that continent. Dudley North returned to London from Turkey in 1681, just in time to aid King Charles and his elder brother, Francis, Lord Guilford (1637–85), in the patriotic cause of trying to indict John Locke's patron, Lord Shaftesbury, on the charge of treason. Francis, a distinguished jurist, had risen swiftly from solicitor-general to attorney-general, to Lord Chief Justice of the Common Pleas, and finally, in 1682 at the age of 45, to Lord Keeper of the Great Seal, the highest law office in England. Indictments for treason had to be handed down by grand juries appointed by sheriffs of London, and so Dudley North, in a famous and irregular election, ran for and was elected sheriff, after which he and his juries became scourges of the Whig party.
At the end of the year, Dudley North was knighted by the king for his services, and soon rose in appointive office, becoming commissioner of the customs, MP and manager for King James II of all revenue matters in Parliament.
Toward the end of his brief but distinguished term in government service, Sir Dudley was inspired to think deeply about the two main monetary and financial questions agitating Parliament: the 1690 law to push down the rate of interest, and the recoinage question. Dudley wrote two Discourses upon Trade in 1691, one on interest and one on coinage, along with a postscript, that was scheduled for publication as a pamphlet when Dudley North died unexpectedly on December 31. His younger brother Roger (1653–1734), who was helping Dudley edit the booklet, then revised the draft, added a preface, and published it anonymously in early 1692. Despite the booklet's brilliance, and its systematic devotion to laissez-faire and hard-money views, the tract sank without a trace, and was not at all influential in the development of eighteenth century economic thought or in monetary or financial policy.
Roger North was not only the youngest of the brothers, he outlived them all by decades. Himself a queen's attorney-general, he spent much of his life defending his brothers’ reputations. He wrote voluminously in his lifetime on music, accounting, law, the English constitution, and on numerous philosophic and scientific subjects, but natural reticence led him to keep all these writings unpublished. A decade after Roger's death, his biographies, or Lives, of three of his eminent brothers were published, in two volumes, in 1742 and 1744.22
Even the publication of these two well-written volumes, however, made no dent in the history of economic thought until resurrected and praised by James Mill and by John Ramsay McCulloch in the early nineteenth century.23
Roger North, who in his preface explained the groundwork and methodology of his brother and made his conclusions more consistent, pointed out the innovation in Dudley's method of economic analysis. For Dudley pioneered, at least in the history of English thought, the method which would later be adopted by Cantillon and Say and Senior, and which Ludwig von Mises would, in the twentieth century, call ‘praxeology’. Praxeology is economic theory resting on a few broad, self-evident axioms grounded in apprehension of reality, then logically deducing the implications of these emphatically true axioms. But if A implies B, C, etc., and A is definitely true, the deductions can be accepted as truths as well.
Roger wrote of Dudley's method in his preface: ‘I find trade here treated at another rate than usually has been; I mean philosophically; for... he begins at the quick, from principles indisputably true....24 The older method of reasoning, Roger North added, ‘dealt in abstracts more than truths’, in ‘forming hypotheses to fit abundance of precarious and insensible principles’. In contrast, the new method, which North attributed to Descartes, builds knowledge ‘upon clear and evident truths’.
In addressing trade and its problems, Dudley North began in his first discourse by setting forth the clear and simple general axiom or principle: ‘Trade is nothing else but a commutation of superfluities’. In other words, as Buridan and the scholastics had emphasized but the world had forgotten: men only ‘commute’ or exchange goods or services because each benefits more from the good he receives than from the good he gives up in exchange (his ‘superfluity’). Trade, therefore, whether intranational or international, benefits both parties; trade is not a Montaigne–mercantilist form of warfare where one party or nation exploits, or benefits at the expense of the other trader. Wealth and riches, then, are the goods that people are able to produce and accumulate, and not the money, the gold or silver, that enables them to buy those goods. Dudley North concludes that ‘he who is most diligent, and raises most fruits or makes most of manufactory, will abound most in what others make or raise, and consequently be free from want and enjoy most conveniences, which is truly to be rich, although there were no such thing as gold, silver or the like...’.
There is no magic, then, to gold or silver; they are simply commodities selected by the market for their special qualities to be monies; as Dudley North says, gold and silver, in contrast to other market metals, are ‘by nature very fine, and more scarce than others’, and ‘imperishable, as well as convenient for easy storage...’.
Proceeding from there, North rediscovers the scholastic analysis of money. If gold and silver are commodities, their value is determined, as are all other commodities on the market, by supply and demand.
Having laid the groundwork in systematic and general analysis, Dudley North proceeds to the vexed question of the rate of interest. In the market, North points out, some people, in consequence of hard work and judgement, are able to accumulate property. If the property is accumulated in the form of land, the landowners will rent out some of the land to those who wish to cultivate it. Similarly, those who accumulate property in terms of money will ‘rent out’ their money, charging a rate of interest. And just as the rental price of land on the market will be determined by the supply and demand of land, so the interest rate – the price of loans – will be determined by the supply and demand for credit.
Since interest is a market price, government control will have consequences as injurious as the control of any price. Interest is low because the supply of capital is high; low interest itself does not create abundance of capital. As Letwin paraphrases North: ‘Nothing can lower interest rates except
an increased supply of capital and as no law can by fiat increase the community's supply of capital, the proposed law is futile and injurious’.25 Furthermore, North pointed out: usury laws will reduce the supply of savings and capital and thereby raise instead of lower the market rate of interest; and the quantity of trade will diminish. Moreover, intervention to reduce interest rates is unjust, because all prices should be treated alike, and be equally free.
In his discourse on coinage, North did not really deal with the recoinage question, but he anticipated Smith, Ricardo and the classical economists in his keen and principled hard-money analysis. Everyone cries about a ‘shortage of money’, North noted, but what they really want is more goods, or, in the case of merchants, what they really mean is that the prices for their goods are not satisfactory. Analysing the components of the demand for money and its supply, North traced transactions and emergency demands, as well the different aspects of money supply. Unfortunately, he faltered when discussing how much money a nation really needed, failing to realize that any supply on the market is optimal; he believed that an increase in trade required an increase in the supply of money, not understanding that an increased demand for money could simply raise the market value of money (i.e. lowering prices), thereby increasing the value of each unit of currency.
Despite this failure, however, North ended up in the right laissez-faire place, for he pioneered breaking down the supply of money into coin and bullion. He demonstrated that coin, being more suitable for exchange, would tend to command a market premium over bullion. However, the coin premium is regulated by the respective supplies and demands for coin and bullion. Thus, if there is an increase in the stock of coin, the premium over bullion would fall, and coin would tend to be melted down into bullion. If, on the other hand, there is a shortage of coin, the coin premium would rise, and more people would mint bullion into coin. In this way, coin and bullion would tend to be kept in equilibrium. North likened the process to two ‘buckets’: ‘Thus the buckets work alternately; when money is scarce, bullion is coined; when bullion is scarce money is melted’.
So although Dudley North never reached the point of saying that the supply of money, compared to trade, is always optimal, he arrived at a similar laissez-faire, or market-equilibrating, conclusion by saying that no one has to worry about the supply of coin, which will always be kept optimal on the market.
As a result of his systematic, praxeological analysis, Dudley North arrived at firm, principled laissez-faire conclusions across the board. He opposed any usury laws: ‘It will be found best for the nation to leave the borrower and the lender to make their own bargains’. He opposed any sumptuary laws; he denounced laws trying to keep gold and silver inside a country as doomed to failure. Government laws and decrees could only diminish, and never promote human energy, thrift and ingenuity.
But it was Dudley's brother Roger who took the final step, not only in explaining his brother's methodology, but also in expounding consistent laissez-faire conclusions. Attacking government intervention across the board, Roger North declared:
There can be no trade unprofitable to the public, for if it prove so, men leave off; and wherever the trades thrive, the public, of which they are part, thrives also. No law can set prices in trade, the rates of which must and will make themselves. But when such laws do happen to lay any hold, it is so much impediment to trade... All favour to one trade or interest against another is an abuse...
Therefore, concluded Roger, ‘Laws to hamper trade, whether foreign or domestic, relating to money or other merchandises, are not the ingredients to make a people rich...’
What can government do for a prosperous economy? ‘If peace be procured, easy justice maintained, the navigation not clogged, the industrious encouraged...’ in short, wrote North: ‘It is peace, industry and freedom that brings trade and wealth, and nothing else’