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
I hope you are, by this time, at least, pretty much of my opinion, that there is just the same sort of harm, and no other, in making the best terms one can for one’s self in a money loan, as there is in any other sort of bargain. If you are not, Blackstone however is, whose opinion I hope you will allow to be worth something. In speaking of the rate of interest,
*3 he starts a parallel between a bargain for the loan of money, and a bargain about a horse, and pronounces, without hesitation, that the harm of making too good a bargain, is just as great in the one case, as in the other. As money-lending, and not horse-dealing, was, what you lawyers call, the
principal case, he drops the horse-business, as soon as it has answered the purpose of illustration, which it was brought to serve. But as, in my conception, as well the reasoning by which he supports the decision, as that by which any body else could have supported it, is just as applicable to the one sort of bargain as to the other, I will carry on the parallel a little farther, and give the same extent to the reasoning, as to the position which it is made use of to support. This extension will not be without its use; for if the position, when thus extended, should be found just, a practical inference will arise; which is, that the benefits of these restraints ought to be extended from the money-trade to the horse-trade. That my own opinion is not favourable to such restraints in either case, has been sufficiently declared; but if more respectable opinions than mine are still to prevail, they will not be the less respectable for being consistent.
The sort of bargain which the learned commentator has happened to pitch upon for the illustration, is indeed, in the case illustrating, as in the case illustrated, a loan: but as, to my apprehension, loan or sale makes, in point of reasoning, no sort of difference, and as the utility of the conclusion will, in the latter case, be more extensive. I shall adapt the reasoning to the more important business of selling horses, instead of the less important one of lending them.
A circumstance, that would render the extension of these restraints to the horse-trade more smooth and easy, is, that in the one track, as well as in the other, the public has already got the length of calling names.
Jockey-ship, a term of reproach not less frequently applied to the arts of those who sell horses than to the arts of those who ride them, sounds, I take it, to the ear of many a worthy gentleman, nearly as bad as
usury: and it is well known to all those who put their trust in proverbs, and not less to those who put their trust in party, that when we have got a dog to hang, who is troublesome and keeps us at bay, whoever can contrive to fasten a bad name to his tail, has gained more than half the battle. I now proceed with my application. The words in
italics are my own: all the rest are Sir William Blackstone’s: and I restore, at bottom, the words I was obliged to discard, in order to make room for mine.
“To demand an exorbitant price is equally contrary to conscience, for the loan of a horse, or for the loan of a sum of money: but a reasonable equivalent for the temporary inconvenience, which the owner may feel by the want of it, and for the hazard of his losing it entirely, is not more immoral in one case than in the other….
“As to selling horses, a capital distinction must be made, between a moderate and an exorbitant profit: to the former of which we give the name of
horse-dealing,*4 to the latter the truly odious appellation of
jockey-ship:*5 the former is necessary in every civil state, if it were but to exclude the latter. For, as the whole of this matter is well summed up by Grotius, if the compensation allowed by law does not exceed the proportion of the
inconvenience which it is to the seller of the horse to part with it,*6 or the
want which the buyer has of it,*7 its allowance is neither repugnant to the revealed law, nor to the natural law: but if it exceeds these bounds, it is then an oppressive
jockey-ship:*8 and though the municipal laws may give it impunity, they never can make it just.
“We see, that the exorbitance or moderation of the
price given for a horse*9 depends upon two circumstances: upon the inconvenience of parting with
the horse one has,*10 and the hazard of not
being able to meet with such another.*11 The inconvenience to individual
sellers of horses,*12 can never be estimated by laws; the
general price for horses*13 must depend therefore upon the usual or general inconvenience. This results entirely from the quantity of
horses*14 in the kingdom: for the more
horses*15 there are
running about*16 in any nation, the greater superfluity there will be beyond what is necessary to carry on the business of the
mail coaches*17 and the common concerns of life. In every nation or public community there is a certain quantity of
horses*18 then necessary, which a person well skilled in political arithmetic might perhaps calculate as exactly as a private
horse-dealer*19 can the demand for running
horses in his own stables:*20 all above this necessary quantity may be spared, or lent,
or sold, without much inconvenience to the respective lenders or
sellers: and the greater the national superfluity is, the more numerous will be the
sellers,*21 and the lower ought
the national price of horseflesh*22 to be: but where there are not enough, or barely enough
spare horses*23 to answer the ordinary uses of the public,
horse-flesh*24 will be proportionably high: for
sellers*25 will be but few, as few can submit to the inconvenience of
selling.”*26—So far the learned commentator.
I hope by this time you are worked up to a proper pitch of indignation, at the neglect and inconsistency betrayed by the law, in not suppressing this species of jockey-ship, which it would be so easy to do, only by fixing the price of horses. Nobody is less disposed than I am to be uncharitable: but when one thinks of the 1500
l. taken for Eclipse, and 2000
l. for Rockingham, and so on, who can avoid being shocked, to think how little regard those who took such enormous prices must have had for “the law of revelation and the law of nature?” Whoever it is that is to move for the municipal law, not long ago talked of, for reducing the rate of interest, whenever that motion is made, then would be the rime for one of the Yorkshire members to get up, and move, by way of addition, for a clause for fixing and reducing the price of horses. I need not expatiate on the usefulness of that valuable species of cattle, which might have been as cheap as asses before now, if our lawgivers had been as mindful of their duty in the suppression of
jockey-ship, as they have been in the suppression of
It may be said, against fixing the price of horse-flesh, that different horses may be of different values. I answer—and I think I shall shew you as much, when I come to touch upon the subject of champerty—not more different than the values which the use of the same sum of money may be of to different persons, on different occasions.