Retrospectives: From Usury to Interest

Since the Middle Ages, each epoch has participated in the debate over the conditions in which lending should be prohibited as usury. While disagreements over the definition of usury remain, the debate came to its modern climax on the eve of the industrial revolution, in a well-known interchange between Jeremy Bentham and Adam Smith in the late 1780s. Smith, for all his faith in a system of natural liberty, proved unwilling to let the interest rate float. Bentham argued anything else must reduce total welfare. From a superficial perspective, the entire affair amounts to nothing more than a modest dispute between a failing master (Smith died in 1790) and an over-eager disciple. (Bentham acknowledged in the Defence that all he knew of political economy originated in Smith's works.) Yet the argument struck a fundamental chord. Gilbert K. Chesterton identified Bentham's essay on usury as the very beginning of the "modern world." I tend to agree.