Journaltalk - Gulphs in Mankind’s Career of Prosperity: A Critique of Adam Smith on Interest Rate Restrictions

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1. In the excerpts from letters Bentham wrote to Smith, Bentham takes to task Smith’s belief that rates of interest should be capped to prevent usury. Approaching his former teacher with repeatedly expressed respect, Bentham uses many of Smith’s own beliefs and arguments to attempt to persuade Smith to recant his defense of usury laws. In pointing out that capping interest chokes off financing possibilities for projectors, Bentham’s pleas to Smith are a brilliant early defense of what we now call entrepreneurs.

   Smith never revised the section of Wealth of Nations that covers usury or his views on projectors; though one historical account shows that Smith essentially admitted in private that Bentham was correct. In the editor’s preface Dan Klein says he fancies the idea that Smith’s awareness of his own cultural status in Scottish society and desire to protect it prevented him from attacking usury. Klein also speculates that “Smith was telling Bentham that we do not want to unbridle ambition and proud genius, because of the frightful hazards of unleashing them in the governmental realm.”

   If Smith understood the value and importance of the projector (entrepreneur), why couldn’t he have revised Wealth of Nations to defend the projector—even if he maintained his defense of usury laws? Smith could have used his influence to carve out a legitimate place for projectors, and their projects, and left the task of going after usury laws to Bentham and others (as ultimately happened). Klein notes that some have considered Bentham’s essay the “beginning of the modern world.” If the defense of the projector is of this great importance, and Smith realized it, why would he leave his censure of projectors intact in the final version of Wealth of Nations? Despite Klein’s defense, it still makes sense to ask whether Smith had a sufficient enough understanding of the importance of projectors for economic growth and human betterment.

   posted 11 Mar 2011 by Brandon W. Holmes