Natural Law, Natural Rights, and Economics

History of Economic ThoughtBoise State University

Fall 2015Prof. D. Allen Dalton

The Ancient Foundations• Stoicism

– God (supreme intelligence) is the beginning, the middle, and the end

– Human science is working out of that which is determined by the supreme intelligence

• Cicero (106 – 43 BCE)– By nature, human beings possess reason, which

enables man to discover the principles of justice and, therefore, just law

– Any valid law is rooted in nature, and any law not rooted in nature (such as a law made by a tyrant) is no law at all

– The gods share in reason; because of this they can be said to be part of a community with humanity

The Medieval Transition• Thomas Aquinas (1225-1274)– The Natural Law is “nothing

else than the rational creature’s participation in the eternal law.”

– All law, including natural law and human law, if derived from “right reason,” is derived from God’s eternal law; reason can add or subtract to natural law

The Medieval Transition Development of Natural Rights Language– William of Occam (1280-1349)

• Breviloquium (1346) concerned with extent of Papal authority, is perhaps first rights-based treatise on political theory.

• Natural rights and natural law both derived from “right reason”- an underlying view of humans as rational, free and morally responsible; inalienable natural right of “self-preservation.”

– Jean Gerson (1363-1429)?• Conciliarism – Roman Catholic reform movement

holding final authority rests with Christians as a corporate body, not the Pope.

• Formulated theory of individual subjective rights, including natural right to fulfill God’s law, natural right to liberty, natural right to self-defense, natural right to necessities of life

The Medieval TransitionDevelopment of Natural Rights Language– Francisco de Vitoria (1480/83-1546)

• From Aristotle’s argument for natural slavery, derived a defense of natural rights of native Indians of the Americas; asserted that natural law concedes rights to all persons, including right to travel freely, right to trade, right to equal treatment with other strangers, right to acquire citizenship

– Francisco Suarez (1548-1617)• Tractatus de legibus develops theory of state

based on human will and consent• Natural law discerned by reason • Natural law allows first occupation of

unoccupied land; individual rights arise from the use of things and is intrinsic to human nature

The Age of Scientific Discovery

Francis Bacon (1561-1626)– argues for experimental, empirical science; natural laws induced from collected facts

René Descartes (1596-1650)– science built upon the foundation of axioms, self-evident truths; emphasis on deduction

The Age of Scientific Discovery• Natural law returns to its Stoic

basis, without God• Natural laws are viewed by both

Bacon and Descartes as primarily having to do with natural philosophy

• Basis of natural law differs between Baconians and Cartesians

• Bacon has a more Stoic view, emphasizing experience

• Descartes has a view closer to Cicero and the Scholastics, emphasizing reason.

Moral Philosophy and Natural Law

• Hugo Grotius (1583-1645)– On the Law of War and

Peace (1625)• natural law as perceptive

judgment in which things are good or bad by their own nature; and those things that by themselves are good are associated with the nature of man

• break with dominant Calvinism of Dutch republic

Moral Philosophy and Natural Law• Samuel von Pufendorf

(1632-1694)– On the Law of Nature and of

Nations (1672)• conception of natural law based

on the notion of humans as social animals, and he argued that each individual had the right to equality and freedom

• viewed natural relations of nations (as of men) are peaceable, and war is justified only to punish an infraction of international law after attempts at pacific redress have failed

Moral Philosophy and Natural Law

• John Locke (1632-1704)– using reason to try to grasp the

truth, and determining the legitimate functions of institutions, will allow human flourishing with respect to both material and spiritual welfare

– government is founded by social contract to protect the natural rights of individuals to life, liberty, and estates, which they do not give up in forming civil society

Natural Law and Economics• Three notions of Natural Law– Natural Laws are statements concerning

regularities in the world; Natural Laws are the 'principles' which govern the natural phenomena of the world (laws of Nature)

– Natural Law ethical theory; that moral standards that govern human behavior are objectively derived from nature of human beings

– Natural Law legal theory; authority of legal standards derives from moral merit of those standards

Natural Law and Economics• Economy and Commercial Activity– Understanding of economic interactions as

regularized behavior; self-regulating system of natural order

– Commercial actions are natural to man; moral content to peaceful commercial activity• Mutual beneficence of exchange• Economy as voluntary cooperation

– Human laws that prevent the natural commercial actions of man are themselves “unnatural” and void

Natural Rights and Economics• Natural Rights and Natural Law

– Natural Rights as moral claims of individuals upon each other arising from their nature as human beings• “life, liberty, and estates” (Locke)• “life, liberty, and the pursuit of happiness” (Jefferson)

• Natural Rights and “Possessive Individualism”– Central feature of nature of man is self-ownership

– Radical renunciation of divine right of kings, feudalism, slavery

– Self-ownership and property ownership as central institutions of the commercial society

John Locke (1632-1704)

– Born to attorney who collected import taxes

– Rejected ministry to study medicine

– Became doctor and then advisor to Ashley Cooper

– political activity from 1666 onward influenced by association with Cooper (later First Earl of Shaftesbury)

– Letter on Toleration (1689); Two Treatises of Government (1690); Essay Concerning Human Understanding (1690)

John Locke (1632-1704)

• Purely economic writings stem from brief memo written for Ashley in 1668 during initial agitation by Josiah Child for lowering interest rate

• Some Considerations of the Consequences of Lowering of Interest, and Raising the Value of Money (1691)

• Further Considerations concerning Raising the Value of Money (1693)

John Locke (1632-1704)• Labor Theory of Property (and Value?)– Property in one’s self and one’s labor; applied to

external things, labor transforms common property into private property

– Rights and possessions not surrendered by entry into civil society; agreed use of money (contractual) allows accumulation of money and the use of money to acquire additional land and personal property

– Labor is source of most value, and labor deserves its whole reward, but market prices are not determined by amount of labor embodied in goods

John Locke (1632-1704)• On Interest

– arguments against lowering legal maximum• increase difficulty of borrowing• prejudice to widows and orphans• advantage to bankers and scriveners• increase crime (perjury)

– natural rate of interest argument• supply and demand; loanable funds or liquidity

preference?

– justifies interest as yield to capital just as rent is yield to land • money subject to same laws of value as all else

John Locke (1632-1704)• On Money and Prices– develops quantity theory of money and

determination of the price level• first extensive analysis of velocity of circulation

• clear understanding of problem of bimetallism and working of Gresham’s Law

– discussion of the supply and demand influences upon price• concerned with market (not just) price

– discussion of the incidence of taxation• argues that most taxation of his time eventually

settles upon land owners

John Locke (1632-1704)• On the Coinage– substantial debasement of silver coinage since

Restoration– controversy of how much silver in new coinage– Locke argues original weight of silver in shilling– first six months, old shillings accepted equal to

new shillings, Gresham’s Law, export of new shillings and defacto gold standard and deflation

– convertibility of Bank of England notes problem

Dudley North (1641-1691)• Born 1641, son of the fourth Baron North• Kidnapped as child for his clothing• Apprenticed to English merchant,

earned fortune in Turkish trade• Returned to London in 1680• Sheriff of London, 1682; later argued he

packed juries to condemn leading Whigs (Algernon Sidney) in persecution of that year

• Later, became commissioner for the customs, a Treasury agent, and Tory member of Parliament during reign of James II

• After Glorious Revolution, returned to commercial activities

Dudley North (1641-1691)• Discourses upon Trade (1691)– explicit Cartesian focus– exchange arises from differences among people in

production; people exchange surpluses– same true of money stocks– interest and rent are both returns to use of

productive asset– money is simply a weight of metal whose value is

determined in exchange– wealth is “land at farm, money at interest, or goods

in trade.”– brother Roger in preface argues all regulations on

trade are harmful