Nicholas Barbon - Economics

Economics

During the later part of his life, Nicholas Barbon wrote extensively on economic theory. His pamphlets and books on political economy are considered important because of their innovative views on money, trade (especially free trade) and supply and demand. His works, especially A Discourse of Trade (written in 1690), influenced and drew praise from 20th-century economists such as John Maynard Keynes (in The General Theory of Employment, Interest and Money) and Joseph Schumpeter. He was one of several late 17th-century economic, social and political theorists with a medical education background; contemporaries included Benjamin Worsley, Hugh Chamberlen, William Petty and John Locke.

His early writings sought to explain and advertise his insurance and mortgage schemes and his building developments; for example, in his Apology for the Builder: or a Discourse showing the Cause and Effects of the Increase of Building of 1685—written in the aftermath of his fight with the lawyers of Gray's Inn—Barbon justified (anonymously) his expansionary building policy by describing the benefits it would bring to London and Britain as a whole. His A Discourse of Trade, written five years later, was much more significant, however. As a broad explanation of his economic and political views, it brought together all of his ideas and became the basis for his reputation as an economic theorist.

Barbon observed the power of fashion and luxury goods to enhance trade. Fashion demanded the replacement of goods before they had worn out; he believed this directed people towards the continuous purchasing of goods, which therefore created constant demand. These views were contrary to standard moral values of the time, influenced by the government and the church. He was one of the earliest writers to draw this distinction between the moral and economic aspects of purchasing.

His views on interest were praised by Joseph Schumpeter. Barbon described as a "mistake" the standard view that interest is a monetary value, arguing that because money is typically borrowed to buy assets (goods and stock), the interest that is charged on the loan is a type of rent—"a payment for the use of goods". From this, Schumpeter extrapolated the argument that just as rent is the price paid for the use of what he called "unwrought stock, or the natural agents of production", interest is the price paid for "wrought stock—the produced means of production".

One of the main arguments in A Discourse of Trade was that money did not have enough intrinsic value to justify a government's hoarding of it; policies intended to help accumulate supposedly "valuable" commodities such as silver and gold were not appropriate, because the laws of supply and demand were the main determiner of their value. Such criticism of mercantilism—the view that a country's prosperity can be measured by its stock of bullion—helped to lay the foundation for classical economics, and was unusual at the time. Along with John Locke, with whom he debated his theories, Barbon was one of the first theorists to argue that money's value was principally symbolic and that its main function was to assist trade. These views were expanded upon in his 1696 pamphlet, A Discourse Concerning Coining the New Money Lighter.

Barbon was influenced by populationism; he identified a country's wealth with its population. He also advocated the use of paper and credit money, and postulated the reduction of interest rates, which he thought impeded the growth in manufacturing and trade. He discussed these issues in his 1696 pamphlet, which also considered the effects of the Recoinage of that year, in which the Royal Mint recalled large quantities of silver coins, melted them down and reminted them, resulting in a temporary fall in the supply of money.

Despite the importance of some of his theories, Barbon's work (especially A Discourse of Trade) has been criticised for an excess of "definition and classification" instead of analysis and a disjointed style which lacked rigour. This has been attributed to the early period in which he wrote, when economic thought was not yet fully developed.