Adam Smith, Jeremy Bentham, and Keynes

A correspondent (Nelson Neo)* writes, raising some questions about Adam Smith’s attitudes to usury in connection with Jeremy Bentham’s criticism of Smith’s preferences for official prohibitions of high usury rates. Bentham thought this stance was contrary to principles of natural liberty, otherwise espoused by Smith.

This discussion was accompanied by the correspondent’s reference to recent work by Michael Brady linking Smith’s writing on probability and interest rates in comparison with Keynes.

I was not aware of Michael Brady’s work, though I am familiar with Smith’s differences with Bentham on usury. The Keynes’ connection is new to me and I am inclined to agree that Bentham did not understand Smith’s pragmatic complaint about usurious rates of interest because they encouraged prodigality among reckless borrowers, and drew investment/savings to unproductive (i.e., not producing a revenue that contributed to the spread of opulence, and either indirectly or directly penalised the poor) and were to be discouraged because such usury was attractive to prodigals whose reckless borrowing caused the loss of their investments, at the expense of possible use in productive endeavours. Losses in business were regarded by Smith as equally ‘unproductive’ to prodigality. Of related interest is the assertion that Smith ‘recanted’ his original position in favour of Bentham, which is a suspect anecdote, in my view.

Now, while looking through my ‘to-be-read papers’, I found a copy of one of Brady’s papers: ‘The “Early” Logical Empiricism of J.M.Keynes Versus The Rhetoric of Subjectivism’ (HERE): but which I have not yet read carefully. However, I did read the Brady paper that the correspondent sent ("A Comparison-Contrast of Adam Smith, JM Keynes and Jeremy Bentham on Probability, Risk, Uncertainty, Optimism-Pessimism and Decision Making with Applications Concerning Banking, Insurance and Speculation") HERE: and I recommend it to readers.

Michael Brady is a working scholar and on these subjects is well-informed and writes well, without obscuring his analysis with dense abstractions. His case seems to me to be well founded. It is a new area for Smith scholars. I have not noticed the Keynes relationship elsewhere (though I am sure that those who do know of the relationship will correct my relative ignorance). Keynes, of course, was much better known to most economists prior to the ‘monetarist’ revival in the 1970s, when many of those economists of that generation had to re-learn our ‘macros-economics’ from what we were taught as undergraduates in the 1960s.

(*) I receive occasional posts from correspondents, which I sometimes share with readers, but always do so anonymously unless I received permission to identify them.

Also, please note, I always give citations to scholarly work accessible to readers, such as working papers and early drafts published in such networks as the Social Science Research Network (SSRN), which source I recommend readers subscribe to (free downloads), where recent and past work is accessible, such as on Adam Smith studies (my interest area).