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Sir Dudley North, knighted for his service as a sheriff of London in 1682, was born at Westminster in 1641, the third of five sons of the fourth Baron Guilford. He died at Covent Garden on the last day of December 1691. After a highly successful merchant career in the Levant, he returned to England in 1680 and was appointed a Commissioner of the Customs in 1683. He was promoted to Commissioner of the Treasury in 1685, and when that Commission was dissolved a few months later he returned to the Customs where he remained until the Revolution of 1688.

North’s place in the history of economic theory is due to his essay Discourses upon Trade, published in 1691 (or early 1692). His clear-sighted advocacy of free trade principles, his opposition with John Locke, to the proposals advocated by Sir Thomas Culpeper and Sir Josiah Child for a legal maximum rate of interest, and his advanced views of the beneficial effects of monetary circulation make the Discourses a high-water mark in the pre-classical literature.

The Discourses, first published anonymously, were summarized in the biography of Sir Dudley published by his brother Roger in 1744. The Preface to the Discourses, the concluding paragraph of the second Discourse, and the final paragraph of the Postscript appear to be the work of Roger. The work was rediscovered and evaluated very highly by the classical economists and J.R. McCulloch published a reprint of the Discourses in 1822.

Applying a general supply and demand theory of prices to the determination of interest rates, North argued that a law to restrict the interest rate to a specified maximum level would be ineffective. The market rate of interest depended heavily on the availability of loanable funds which depended on the savings made out of income, a ‘surplus’ that provides an accumulation of investable ‘stock’. A fourfold proposition follows. First, ‘ as more buyers than sellers raiseth the price of a commodity, so more borrowers than lenders will raise interest’. Second, ‘as the landed man letts his land, so these still let their stock; ... thus to be a landlord or a stock-lord is the same thing’. Third, ‘it is not low interest that makes trade, but trade increasing, the stock of the nation makes interest low.’ Fourth, as the largest part of the demand for loanable funds was for consumption purposes (leading to a prodigality and thrift theory of interest, rather than one of productivity and thrift) ‘an ease of interest will rather be a support to luxury than to trade’.

North argued that it was not so much that trade depended on money as that the money supply depended on trade. For ‘nations which are very poor, have scarce any money, and in the beginnings of trade have often made use of something else, ... as wealth increased, gold and silver hath been introduced and drove out the other’. A money supply adequate to the needs of trade would be assured, moreover, by the ‘ebbing and flowing of money’, the coining, melting, and recoining of bullion. ‘The buckets work alternately.’ Emphasizing the significance of monetary expenditure and circulation, and not simply the money supply as such, complaints against a shortage of money were met by the argument that the remedy for a depressed economy was not ‘the increase of specific money’ but a disposition to spend rather than hoard.

‘The nation ... never thrives better than when riches are tost from hand to hand.’

See Also

Selected Works

  • 1691. Discourses upon trade. London. Ed. J.H. Hollander. Baltimore: Johns Hopkins University Reprint, 1907.