section_path: Ideas/Economics/On price theory
section_name: On price theory
paragraph_text: On price theory
  
  Locke's general theory of value and price is a supply-and-demand theory, set out in a letter to a member of parliament in 1691, titled Some Considerations on the Consequences of the Lowering of Interest and the Raising of the Value of Money. In it, he refers to supply as quantity and demand as rent: "The price of any commodity rises or falls by the proportion of the number of buyers and sellers" and "that which regulates the price… is nothing else but their quantity in proportion to their rent."
  
  The quantity theory of money forms a special case of this general theory. His idea is based on "money answers all things" (Ecclesiastes) or "rent of money is always sufficient, or more than enough" and "varies very little". Locke concludes that, as far as money is concerned, the demand for it is exclusively regulated by its quantity, regardless of whether the demand is unlimited or constant. He also investigates the determinants of demand and supply. For supply, he explains the value of goods as based on their scarcity and ability to be exchanged and consumed. He explains demand for goods as based on their ability to yield a flow of income. Locke develops an early theory of capitalisation, such as of land, which has value because "by its constant production of saleable commodities it brings in a certain yearly income". He considers the demand for money as almost the same as demand for goods or land: it depends on whether money is wanted as medium of exchange. As a medium of exchange, he states, "money is capable by exchange to procure us the necessaries or conveniences of life" and, for loanable funds, "it comes to be of the same nature with land by yielding a certain yearly income…or interest".