John Locke’s and Max Weber’s Finance Ideas Case Study

John Locke

Unavoidable consequences of lowering interest rate

John Locke’s ideas on finance were widely utilized in western economies. Moreover, most of Locke’s ideas on finance are still exploited by economists to counter regulations on interest rates. In the late 17th century, the British government faced financial issues caused by the revolution. Even the country’s currency lost its value. Therefore, the government brought a bill to reduce the interest rate from six to four percent. The government hoped that by lowering the rate of interest, its currency would gain value. However, Locke opposed this move and instead gave a counter proposal on the best way to deal with interest rates. Locke believed that lowering interest rates would only act temporarily but will later lead to higher rates than before. In essence, Locke knew that this move would only benefit bankers and that it could lead the country to depression.

Price of money

Locke’s letter to the British parliament responded to a political situation of the time, which included growth in national life. The British government was facing economic issues with the American colonies, enterprises, and plantations in Ireland. Additionally, Britain was facing rivalry between Holland and France. The issues ranged from the value of the British currency to interest rates. These issues were of great significance during the seventeenth century. The government faced financial issues, which were triggered by the revolution. Locke’s letter was in response to the government’s proposed interference in trade (specifically, on interest rates). Moreover, Britain had to decide on either commerce or conquest to continue thriving as well as compete with rivals like France and Holland.

Nature of money

According to Locke, money “turns the wheel of trade.” For this reason, Locke did not favor the government’s intention to regulate interest rates. Locke argued that money should be left to follow its course without interference since it already had factors regulating it like buyers and sellers, among other factors. One of the consequences outlined by Locke for countries that regulate interest rates (lowering interest rate from 6% to 4%) was the possibility of falling behind other countries in terms of economic viability as well as trade. In particular, Locke believed that the country that put ceilings on the interest rate would fall into depression, a fact that was later corrected by David Hume. That is, he argued that a country must always work to increase its stock, which thereby determines the currency exchange rates for the countries. According to Locke, supply and demand are important to the price and value of money. He went on to state that demand is regulated by the quantity of money. In essence, the balance of trade works to determine the price of money.

Interest rate and bankers

In his letter to the parliament, Locke argued that lowering the interest rate would benefit bankers since he considered interest as a price and believed that lowering it would be counterproductive. That is, the public would try to dodge government limits and thus bring about an unexpected increase in interest rate, which would surpass the limit. This would then earn bankers more money. According to Locke, money should be left to find its path in the market through the balance of trade, in this regards, he argued that by putting a ceiling or lowering the interest rate, the government would be interfering with the “natural interest of money.” Moreover, he argued, “money turns the wheels of trade,” which again raised the question of interfering with the “natural interest of money.”

Wealth creation

Based on this reading, it is clear that the balance of trade decides the value of money between countries. Additionally, it depicts money as the answer to everything in trade. However, it also argued that gold and silver are more sable and trusted in foreign exchange than money. Nonetheless, money is shown as central to a country’s development and balance in trade.

Moreover, according to the reading, wealth is created by the accumulation of money, which does not go bad. Money can, therefore, be used to acquire silver and gold. Locke shows a preference for honesty and hard work to accumulate wealth. He believes that a country can only achieve development through conquest or commerce. He, therefore, prefers commerce to conquest as a way of developing a country.

Locke’s preference for commerce

Locke’s argument prevailed in the parliament during the reign of William III. The government went on to shaping its financial institution to achieve its desire for a strong, stable, and uniform measure of value. Locke’s argument helped bring stability to a government that faced financial as well as political issues after the revolution. Introduction of a stable means of exchange was vital since, as Locke argued, the introduction of durable goods like land, gold, and silver could be exchanged with perishable ones to last longer instead of going to waste. The moral implication of the argument comes in terms with choice of commerce against conquest for countries like Britain, which did not have adequate resources. Locke gave countries a direction to follow to develop their economies while appreciating a free and voluntary community.

Max Weber

Creditworthiness

According to Weber, religious affiliation was not the original cause of capitalism but rather its result. After the break during the onset of Protestantism, most countries that were wealthy favored Protestants. This brought about a struggle for economic dominance among the different religious affiliations. Creditworthiness was therefore pegged on the economic status of a given society. That would work best for the religious affiliation that won favors from lenders. It should also be noted that religious affiliations like Protestantism and Calvinism frowned on wastage of hard-earned money. In this regard, people stopped sharing money as was done before.

Additionally, they started investing their hard-earned cash. This worked greatly to develop capitalism since these religious affiliations attracted large masses. Interestingly, religious affiliations discouraged giving to charities and beggars since they believed that by doing so, their followers would encourage begging. With this kind of perception, Christians in the 19th century, America became responsible and investment-oriented. Christians therefore, shaped their perception of creditworthiness since they had the required capital.

Protestantism vs. Catholicism

Membership in protestant sect drew much favor from wealthy countries of the time as opposed to the Catholic Church. Additionally, membership in the protestant church made people more aligned to capitalism than the traditional Catholic Church. This is quite evident when Weber notes that both Calvinism and Protestantism discouraged charity since they believed that it would encourage begging. However, the Catholic Church, on the other hand, encouraged offering, both to beggars and charity.

Additionally, it can also be noted that members of the protestant sect were more aligned to modern doctrines than the Catholic Church. Protestant ethic, therefore, influenced most people to engage in secular tasks as a way of maximizing wealth. They, therefore, engaged in wealth creation, something that the Catholic Church did not favor. Furthermore, wealth created in Protestantism was meant for investment as opposed to the Catholic Church in which wealth was meant for building churches and nourishing the needy. Essentially, Protestantism developed a different ethic from the Catholic Church.

Move to secularism

According to Max Weber, Calvinism was significant in encouraging people to amass wealth as well as maximize it as opposed to previous traditions, which made them amass ‘adequate’ wealth. As society became increasingly secular, monitoring was lessened, and people tended to capitalism in full swing. Protestantism encouraged hard work, honesty, and investment, which increased capital, thereby developing worldly wealth. In that respect, judging in society became less important as days went by. Close monitoring of religious activities in Calvinism diminished drastically.

Similarly, Protestantism also moved away from strict regulations of religious activities, giving way for commercialization and trade to make a profit. In essence, monitoring was lessened as society became increasingly secular. Additionally, people become more involved with income-generating activities as opposed to religious involvement. Moreover, concentration was realized in worldly activities other than in church activities. In essence, it became clear that capitalism was becoming more dominant than religious values. Moreover, the love of self as compared to love for all increased as people amassed wealth for themselves.

Money and Status

As days went by, Protestants acquired more wealth. This made them rich and prominent. Acquisition of wealth came with increased consideration in society. Increase in money also lifted one’s status. People were now known by how much they hold and not by their actions or age. Capitalism encroached with all its factors.

It should be noted that among Protestants, success in worldly things became one way of determining self-confidence or self-actualization. In particular, success in worldly things became a priority in a Christian’s life more than the basic tenets of his/her faith. Therefore, fame increased with the amount of wealth one owned. In essence, religious underpinnings were lost and in its place, the spirit of capitalism, which emphasized the size of one’s wealth, embraced in religious affiliations. ‘Social honor’ was hence acquired based on the amount of wealth acquired in both the United States of America and Germany.

Protestant sects and the middle ages

The middle ages were characterized by complete submission to God. The spirit of obedience, self-denial, and suffering was prominent during these times. This could be witnessed in monks, Jesuits, among other followers of Catholic Church teachings. However, protestant sects brought about a new lifeline for its members. Self-denial was based on hard work and intent only on profitability and increased investment. In essence, even though there was hard work and self-denial as was in the Middle Ages, it was done for self-actualization as opposed to the middle ages when it was done for religious purposes. It can be noted that the spirit of hard work was renewed yet it now worked to benefit an individual rather than a congregation. That is protestant ethic was centered on capitalization rather than on religious underpinnings.