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How Capitalism Viewed Interest, edited by Dr. Jürg Conzett
The justification for charging interest evolved historically in works promoting capitalism. One recurring theme was to attack Aristotle. Francis Bacon's Works (1610) thrashed the Scholastics. In William Petty's 1682 book, usury is redefined as: "A reward for forbearing the use of your own money for a term of time agreed upon...". Also Adam Smith's 1776 The Wealth of Nations, capitalism's "bible", justified usury in economic terms: "The interest or the use of money…is the compensation which the borrower pays to the lender." This is how interest is popularly viewed today. But Smith overlooked that the lender gets his profit even when the enterprise loses; he ignored the successful business structures used by Venice for centuries, where the lender's return was based on actual profits. Smith's endorsement did not remove the stigma against usury; and the debate continued. Jeremy Bentham's In Defense of Usury (1787) created the present mis-definition of usury as: "The taking of a greater interest than the law allows." He dismissed the harmful effects of usury on the common man.
The various justifications for usury proved inadequate in 1836 when John Whipple, an American lawyer wrote: "If 5 English pennies ... had been ... at 5 per cent compound interest from the beginning of the Christian era until the present time, it would amount in gold of standard fineness to 32,366,648,157 spheres of gold each eight thousand miles in diameter, or as large as the earth." Whipple knew that answering the usury question required an accurate view of the nature of money. One can imagine how advanced the world of finance would be today if someone like Whipple were present at the Constitutional Convention in 1787. Had his viewpoint been distilled into law many unnecessary hardships could have been avoided. Instead the delegates operated under a primitive commodity concept of money, similar to that of the ancient oriental system, and ignored the crucial monetary questions
The justification for charging interest evolved historically in works promoting capitalism. One recurring theme was to attack Aristotle. Francis Bacon's Works (1610) thrashed the Scholastics. In William Petty's 1682 book, usury is redefined as: "A reward for forbearing the use of your own money for a term of time agreed upon...". Also Adam Smith's 1776 The Wealth of Nations, capitalism's "bible", justified usury in economic terms: "The interest or the use of money…is the compensation which the borrower pays to the lender." This is how interest is popularly viewed today. But Smith overlooked that the lender gets his profit even when the enterprise loses; he ignored the successful business structures used by Venice for centuries, where the lender's return was based on actual profits. Smith's endorsement did not remove the stigma against usury; and the debate continued. Jeremy Bentham's In Defense of Usury (1787) created the present mis-definition of usury as: "The taking of a greater interest than the law allows." He dismissed the harmful effects of usury on the common man.
The various justifications for usury proved inadequate in 1836 when John Whipple, an American lawyer wrote: "If 5 English pennies ... had been ... at 5 per cent compound interest from the beginning of the Christian era until the present time, it would amount in gold of standard fineness to 32,366,648,157 spheres of gold each eight thousand miles in diameter, or as large as the earth." Whipple knew that answering the usury question required an accurate view of the nature of money. One can imagine how advanced the world of finance would be today if someone like Whipple were present at the Constitutional Convention in 1787. Had his viewpoint been distilled into law many unnecessary hardships could have been avoided. Instead the delegates operated under a primitive commodity concept of money, similar to that of the ancient oriental system, and ignored the crucial monetary questions