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
Reasons for Restraint.—Prevention of Usury.
I will begin with the
usury: because in the sound of the word
usury lies, I take it, the main strength of the argument: or, to speak strictly, of what is of more importance than all argument, of the hold which the opinion I am combating has obtained on the imaginations and passions of mankind.
Usury is a bad thing, and as such ought to be prevented: usurers are a bad sort of men, a very bad sort of men, and as such ought to be punished and suppressed. These are among the string of propositions which every man finds handed down to him from his progenitors: which most men are disposed to accede to without examination, and indeed not unnaturally nor even unreasonably disposed, for it is impossible the bulk of mankind should find leisure, had they the ability, to examine into the grounds of an hundredth part of the rules and maxims, which they find themselves obliged to act upon. Very good apology this for John Trot: but a little more inquisitiveness may be required of legislators.
You, my friend, by whom the true force of words is so well understood, have, I am sure, gone before me in perceiving, that to say usury is a thing to be prevented, is neither more nor less than begging the matter in question. I know of but two definitions that can possibly be given of usury: one is, the taking of a greater interest than the law allows of: this may be stiled the
legal definition. The other is the taking of a greater interest than it is usual for men to give and take: this may be stiled the
moral one: and this, where the law has not interfered, is plainly enough the only one. It is plain, that in order for usury to be prohibited by law, a positive description must have been found for it by law, fixing, or rather superseding, the moral one. To say then that usury is a thing that ought to be prevented, is saying neither more nor less, than that the utmost rate of interest which shall be taken ought to be fixed; and that fixation enforced by penalties, or such other means, if any, as may answer the purpose of preventing the breach of it. A law punishing usury supposes, therefore, a law fixing the allowed legal rate of interest: and the propriety of the penal law must depend upon the propriety of the simply-prohibitive, or, if you please, declaratory one.
One thing then is plain; that, antecedently to custom growing from convention, there can be no such thing as usury: for what rate of interest is there that can naturally be more proper than another? what natural fixed price can there be for the use of money more than for the use of any other thing? Were it not then for custom, usury, considered in a moral view, would not then so much as admit of a definition: so far from having existence, it would not so much as be conceivable: nor therefore could the law, in the definition it took upon itself to give of such offence, have so much as a guide to steer by. Custom therefore is the sole basis, which, either the moralist in his rules and precepts, or the legislator in his injunctions, can have to build upon. But what basis can be more weak or unwarrantable, as a ground for coercive measures, than custom resulting from free choice? My neighbours, being at liberty, have happened to concur among themselves in dealing at a certain rate of interest. I, who have money to lend, and Titius, who wants to borrow it of me, would be glad, the one of us to accept, the other to give, an interest somewhat higher than theirs: why is the liberty they exercise to be made a pretence for depriving me and Titius of ours?
Nor has blind custom, thus made the sole and arbitrary guide, any thing of steadiness or uniformity in its decisions: it has varied, from age to age, in the same country: it varies, from country to country, in the same age: and the legal rate has varied along with it: and indeed, with regard to times past, it is from the legal rate, more readily than from any other source, that we collect the customary. Among the Romans, till the time of Justinian, we find it as high as 12 per cent.: in England, so late as the time of Hen. VIII, we find it at 10 per cent.: succeeding statutes reduced it to 8, then to 6, and lastly to 5, where it stands at present. Even at present in Ireland it is at 6 per cent.; and in the West-Indies at 8 per cent.; and in Hindostan, where there is no rate limited by law, the lowest customary rate is 10 or 12. At Constantinople, in certain cases, as I have been well informed, thirty per cent. is a common rate. Now, of all these widely different rates, what one is there, that is intrinsically more proper than another? What is it that evidences this propriety in each instance? what but the mutual convenience of the parties, as manifested by their consent? It is convenience then that has produced whatever there has been of custom in the matter: What can there then be in custom, to make it a better guide than the convenience which gave it birth? and what is there in convenience, that should make it a worse guide in one case than in another? It would be convenient to me to give 6 per cent. for money: I wish to do so. “No,” (says the law) “you shan’t.”—Why so? “Because it is not convenient to your neighbour to give above 5 for it.” Can any thing be more absurd than such a reason?
Much has not been done, I think, by legislators as yet in the way of fixing the price of other commodities: and, in what little has been done, the probity of the intention has, I believe, in general, been rather more unquestionable than the rectitude of the principle, or the felicity of the result. Putting money out at interest, is exchanging present money for future: but why a policy, which, as applied to exchanges in general, would be generally deemed absurd and mischievous, should be deemed necessary in the instance of this particular kind of exchange, mankind are as yet to learn. For him who takes as much as he can get for the use of any other sort of thing, an house for instance, there is no particular appellation, nor any mark of disrepute: nobody is ashamed of doing so, nor is it usual so much as to profess to do otherwise. Why a man who takes as much as he can get, be it six, or seven, or eight, or ten per cent. for the use of a sum of money should be called usurer, should be loaded with an opprobrious name, any more than if he had bought an house with it, and made a proportionable profit by the house, is more than I can see.
Another thing I would also wish to learn, is, why the legislator should be more anxious to limit the rate of interest one way, than the other? why he should set his face against the owners of that species of property more than of any other? why he should make it his business to prevent their getting
more than a certain price for the use of it, rather than to prevent their getting
less? why, in short, he should not take means for making it penal to offer less, for example, than 5 per cent. as well as to accept more? Let any one that can, find an answer to these questions; it is more than I can do: I except always the distant and imperceptible advantage, of sinking the price of goods of all kinds; and, in that remote way, multiplying the future enjoyments of individuals. But this was a consideration by far too distant and refined, to have been the original ground for confining the limitation to this side.