Defence of Usury
By Jeremy Bentham
Jeremy Bentham’s clever application of applied economics,
Defence of Usury, Shewing the Impolity of the Present Legal Restraints on the Terms of Pecuniary Bargains in a Series of Letters to a Friend. To Which is Added a Letter to Adam Smith, Esq; LL.D. on the Discouragements opposed by the above Restraints to the Progress of Inventive Industry was first written while Bentham was visiting Russia in 1787. (“Impolity” was changed to “Impolicy” in a later edition.)The book was an immediate success, and a total of four editions were published in Bentham’s lifetime (1748-1832).In this work, Bentham accomplishes two things. First, in an orderly manner replete with concrete examples he covers every possible objection to the regulation of
usury (charging of interest rates that are apparently above the market rate), from religious restrictions that tainted the connotation of the word, to the economics of risk premiums. Second, throughout the work he champions those who are marginalized by society. He tears apart anti-Jewish bigotry. He argues strongly for the rights of the poor and even the feeble-minded to make their own choices in life. His emphasis on the ability of individuals to be the best judges of their own particular circumstances, and their right to use their own best methods for the pursuit of happiness, became the basis of modern utility theory.Bentham’s ability to entertain his readers is well-illustrated in his classic horse-trading satire in
Letter IX. Here, he uses the words of Sir William Blackstone (renowned jurist, whose works later became the basis of legal education throughout England and the United States) to highlight Blackstone’s own inconsistencies. Bentham’s sentence structures often seem ornate and overly-complex today. Yet, these very ornaments enabled him to spoof and poke at the foolish ideas of legislators and judges while maintaining decorum, delivering what we would today call “zingers”.The editions differ little, and the 4th edition (1818) is reproduced here with only minor typographical corrections.Bentham wrote, but decided against publishing, a tentative Preface to the second edition and a tentative “Postscript”, covering tangential material he’d been led to think about. He also penned a subsequent letter to Adam Smith (beyond the hypothetical letter in the book proper), of which there is a surviving draft, hoping for Smith’s concurrence with his intellectual critiques. (The critiques addressed the effects of a government attempting to
lower interest rates below the market rate, and the influence of “projectors”. [In today’s language, “inventors”.]) Smith (1723-1790), who died shortly after receiving Bentham’s plea, acknowledged the letter by sending a dedicated copy of his book, but never conceded the points to Bentham. The interested reader can find these items of Bentham’s transcribed and published in
Jeremy Bentham’s Economic Writings, by W. Stark (London: The Royal Economic Society, 1952, vol. 1, pp.191-207). Mr. Stark observes the extensiveness and disarray of Bentham’s many surviving boxes of handwritten notes, and includes in his introduction a thorough discussion of these additional, previously unknown, materials.Note, to give historical and scientific perspective to the difficulty of assessing inventions, research, and lending for those purposes, that at the time of the publication of Smith’s 1776 and Bentham’s 1787 work, and Bentham’s brief actual correspondence with Smith (1790), there would have been enormous difficulty for a lending/investing “venture capitalist” to distinguish between credible scientific inventions and such skeptically-held but still ambiguous fields even such as alchemy! Alfred Jenner’s smallpox vaccine was released only a decade later (in 1796, after inspiring Jenner’s attention after an English epidemic in 1788). Eli Whitney’s (1765-1825) cotton gin was patented only in 1794, and his drawings on it not even begun till 1792. Foucault’s pendulum was set up in Paris only in 1852. Mendeleev’s periodic table was not published until 1869. Marie Curie (1867-1934) was hired by the Sorbonne only in 1906, after having won her first Nobel Prize in 1903. But, wild, though collapsed, speculations about the potential financial gains from discoveries (the
Mississippi Land Scheme and the
South Sea Bubble of the 1720s), were rife in the mid-1700s. On a successful scientific front, though, the planet Uranus was discovered by William Herschel in 1781, re-exciting an interest in astrophysics that had been rejuvenated by Newton (1643-1727). Thus, Bentham—and Smith—wrote at a time when the discovery of the physical world and its financial potential was fraught with attention and hope, but yet not concrete enough to sort out with conviction.Lauren F. Landsburg
Editor, Library of Economics and Liberty
First Pub. Date
London: Payne and Foss
4th edition. First edition used spelling of 'Impolity' in subtitle.
The text of this edition is in the public domain. Picture of Jeremy Bentham courtesy of The Warren J. Samuels Portrait Collection at Duke University.
- LETTER I. Introduction.
- LETTER II. Reasons for Restraint. Prevention of Usury.
- LETTER III. Reasons for Restraint. Prevention of Prodigality.
- LETTER IV. Reasons for Restraint. Protection of Indigence.
- LETTER V. Reasons for Restraint. Protection of Simplicity.
- LETTER VI. Mischiefs of the anti-usurious laws.
- LETTER VII. Efficacy of anti-usurious laws.
- LETTER VIII. Virtual Usury allowed.
- LETTER IX. Blackstone considered.
- LETTER X. Grounds of the Prejudices against Usury.
- LETTER XI. Compound Interest.
- LETTER XII. Maintenance and Champerty.
- LETTER XIII. To Dr. Smith, on Projects in Arts
Grounds of the Prejudices against Usury.
It is one thing, to find reasons why it is
fit a law
should have been made: it is another to find the reasons why it
was made: in other words, it is one thing to justify a law: it is another thing to account for its existence. In the present instance, the former task, if the observations I have been troubling you with are just, is an impossible one. The other, though not necessary for conviction, may contribute something perhaps in the way of satisfaction. To trace an error to its fountain head, says Lord Coke, is to refute it; and many men there are who, till they have received this satisfaction, be the error what it may, cannot prevail upon themselves to part with it. “If our ancestors have been all along under a mistake, how came they to have fallen into it?” is a question that naturally presents itself upon all such occasions. The case is, that in matters of law more especially, such is the dominion of authority over our minds, and such the prejudice it creates in favour of whatever institution it has taken under its wing, that, after all manner of reasons that can be thought of, in favour of the institution, have been shewn to be insufficient, we still cannot forbear looking to some unassignable and latent reason for its efficient cause. But if, instead of any such reason, we can find a cause for it in some notion, of the erroneousness of which we are already satisfied, then at last we are content to give it up without further struggle; and then, and not till then, our satisfaction is compleat.
In the conceptions of the more considerable part of those through whom our religion has been handed down to us, virtue, or rather godliness, which was an improved substitute for virtue, consisted in self-denial: not in self-denial for the sake of society, but of self-denial for its own sake. One pretty general rule served for most occasions: not to do what you had a mind to do; or, in other words, not to do what would be for your advantage. By this of course was meant temporal advantage: to which spiritual advantage was understood to be in constant and diametrical opposition. For, the proof of a resolution, on the part of a being of perfect power and benevolence, to make his few favourites happy in a state in which they
were to be, was his determined pleasure, that they should keep themselves as much strangers to happiness as possible, in the state in which they
were. Now to get money is what most men have a mind to do: because he who has money gets, as far as it goes, most other things that he has a mind for. Of course nobody was to get money: indeed why should he, when he was not so much as to keep what he had got already? To lend money at interest, is to get money, or at least to try to get it: of course it was a bad thing to lend money upon such terms. The better the terms, the worse it was to lend upon them: but it was bad to lend upon any terms, by which any thing could be got. What made it much the worse was, that it was acting like a Jew: for though all Christians at first were Jews, and continued to do as Jews did, after they had become Christians, yet, in process of time, it came to be discovered, that the distance between the mother and the daughter church could not be too wide.
By degrees, as old conceits gave place to new, nature so far prevailed, that the objections to getting money in general, were pretty well over-ruled: but still this Jewish way of getting it, was too odious to be endured. Christians were too intent upon plaguing Jews, to listen to the suggestion of doing as Jews did, even though money were to be got by it. Indeed the easier method, and a method pretty much in vogue, was, to let the Jews get the money any how they could, and then squeeze it out of them as it was wanted.
In process of time, as questions of all sorts came under discussion, and this, not the least interesting, among the rest, the anti-Jewish side of it found no unopportune support in a passage of Aristotle: that celebrated heathen, who, in all matters wherein heathenism did not destroy his competence, had established a despotic empire over the Christian world. As fate would have it, that great philosopher, with all his industry, and all his penetration, notwithstanding the great number of pieces of money that had passed through his hands (more perhaps than ever passed through the hands of philosopher before or since), and notwithstanding the uncommon pains he had bestowed on the subject of generation, had never been able to discover, in any one piece of money, any organs for generating any other such piece. Emboldened by so strong a body of negative proof, he ventured at last to usher into the world the result of his observations, in the form of an universal proposition, that
all money is in its nature barren. You, my friend, to whose cast of mind sound reason is much more congenial than ancient philosophy, you have, I dare to say, gone before me in remarking, that the practical inference from this shrewd observation, if it afforded any, should have been, that it would be to no purpose for a man to try to get five per cent. out of money—not, that if he could contrive to get so much, there would be any harm in it. But the sages of those days did not view the matter in that light.
A consideration that did not happen to present itself to that great philosopher, but which had it happened to present itself, might not have been altogether unworthy of his notice, is, that though a
daric would not beget another daric, any more than it would a ram, or an ewe, yet for a daric which a man borrowed, he might get a ram and a couple of ewes, and that the ewes, were the ram left with them a certain time, would probably not be barren. That then, at the end of the year, he would find himself master of his three sheep, together with two, if not three, lambs; and that, if he sold his sheep again to pay back his daric, and gave one of his lambs for the use of it in the mean time, he would be two lambs, or at least one lamb, richer than if he had made no such bargain.
These theological and philosophical conceits, the offspring of the day, were not ill seconded by principles of a more permanent complexion.
The business of a money-lender, though only among Christians, and in Christian times, a proscribed profession, has no where, nor at any time, been a popular one. Those who have the resolution to sacrifice the present to future, are natural objects of envy to those who have sacrificed the future to the present. The children who have eat their cake are the natural enemies of the children who have theirs. While the money is hoped for, and for a short time after it has been received, he who lends it is a friend and benefactor: by the time the money is spent, and the evil hour of reckoning is come, the benefactor is found to have changed his nature, and to have put on the tyrant and the oppressor. It is an oppression for a man to reclaim his own money: it is none to keep it from him. Among the inconsiderate, that is among the great mass of mankind, selfish affections conspire with the social in treasuring up all favour for the man of dissipation, and in refusing justice to the man of thrift who has supplied him. In some shape or other that favour attends the chosen object of it, through every stage of his career. But, in no stage of
his career, can the man of thrift come in for any share of it. It is the general interest of those with whom a man lives, that his expence should be at least as great as his circumstances will bear, because there are few expences which a man can launch into, but what the benefit of it is shared, in some proportion or other, by those with whom he lives. In that circle originates a standing law, forbidding every man, on pain of infamy, to confine his expences within what is adjudged to be the measure of his means, saving always the power of exceeding that limit, as much as he thinks proper: and the means assigned him by that law may be ever so much beyond his real means, but are sure never to fall short of them. So close is the combination thus formed between the idea of merit and the idea of expenditure, that a disposition to spend finds favour in the eyes even of those who know that a man’s circumstances do not entitle him to the means: and an upstart, whose chief recommendation is this disposition, shall find himself to have purchased a permanent fund of respect, to the prejudice of the very persons at whose expence he has been gratifying his appetites and his pride. The lustre, which the display of borrowed wealth has diffused over his character, awes men, during the season of his prosperity, into a submission to his insolence: and when the hand of adversity has overtaken him at last, the recollection of the height, from which he has fallen, throw the veil of compassion over his injustice.
The condition of the man of thrift is the reverse. His lasting opulence procures him a share, at least, of the same envy, that attends the prodigal’s transient display: but the use he makes of it procures him no part of the favour which attends the prodigal. In the satisfactions he derives from that use, the pleasure of possession, and the idea of enjoying, at some distant period, which may never arrive, nobody comes in for any share. In the midst of his opulence he is regarded as a kind of insolvent, who refuses to honour the bills, which their rapacity would draw upon him, and who is by so much the more criminal than other insolvents, as not having the plea of inability for an excuse.
Could there be any doubt of the disfavour which attends the cause of the money-lender, in his competition with the borrower, and of the disposition of the public judgment to sacrifice the interest of the former to that of the latter, the stage would afford a compendious, but a pretty conclusive proof of it. It is the business of the dramatist to study, and to conform to, the humours and passions of those, on the pleasing of whom he depends for his success: it is the course which reflection must suggest to every man, and which a man would naturally fall into, though he were not to think about it. He may, and very frequently does, make magnificent pretences, of giving the law to them: but wo be to him that attempts to give them any other law than what they are disposed already to receive. If he would attempt to lead them one inch, it must be with great caution, and not without suffering himself to be led by them at least a dozen. Now, I question, whether, among all the instances in which a borrower and a lender of money have been brought together upon the stage, from the days of Thespis to the present, there ever was one, in which the former was not recommended to favour in some shape or other, either to admiration, or to love, or to pity, or to all three; and the other, the man of thrift, consigned to infamy.
Hence it is that, in reviewing and adjusting the interests of these apparently rival parties, the advantage made by the borrower is so apt to slip out of sight, and that made by the lender to appear in so exaggerated a point of view. Hence it is, that though prejudice is so far softened as to acquiesce in the lender’s making some advantage, lest the borrower should lose altogether the benefit of his assistance, yet still the borrower is to have all the favour, and the lender’s advantage is for ever to be clipped, and pared down, as low as it will bear. First it was to be confined to ten per cent., then to eight, then to six, then to five, and now lately there was a report of its being to be brought down to four; with constant liberty to sink as much lower as it would. The burthen of these restraints, of course, has been intended exclusively for the lender: in reality, as I think you have seen, it presses much more heavily upon the borrower: I mean him who either becomes or in vain wishes to become so. But the presents directed by prejudice, Dr. Smith will tell us, are not always delivered according to their address. It was thus that the mill-stone designed for the necks of those vermin, as they have been called, the dealers in corn, was found to fall upon the heads of the consumers. It is thus—but further examples would lead me further from the purpose.