section_path: Ideas/Economics/Monetary thoughts
section_name: Monetary thoughts
paragraph_text: Monetary thoughts
  
  Locke distinguishes two functions of money: as a counter to measure value, and as a pledge to lay claim to goods. He believes that silver and gold, as opposed to paper money, are the appropriate currency for international transactions. Silver and gold, he says, are treated to have equal value by all of humanity and can thus be treated as a pledge by anyone, while the value of paper money is only valid under the government which issues it.
  
  Locke argues that a country should seek a favourable balance of trade, lest it fall behind other countries and suffer a loss in its trade. Since the world money stock grows constantly, a country must constantly seek to enlarge its own stock. Locke develops his theory of foreign exchanges, in addition to commodity movements, there are also movements in country stock of money, and movements of capital determine exchange rates. He considers the latter less significant and less volatile than commodity movements. As for a country's money stock, if it is large relative to that of other countries, he says it will cause the country's exchange to rise above par, as an export balance would do.
  
  He also prepares estimates of the cash requirements for different economic groups (landholders, labourers, and brokers). In each group he posits that the cash requirements are closely related to the length of the pay period. He argues the brokers—the middlemen —whose activities enlarge the monetary circuit and whose profits eat into the earnings of labourers and landholders, have a negative influence on both personal and the public economy to which they supposedly contribute.