Broadening social interaction
Tony develops a picture of in-group and out-of-group transactions, and argues that we generally have much to gain from widening our social and cultural interaction from the traditionally narrow scope of the tribe or city. In trade, interest provides a mechanism by which weaker trust in our counter-parties is compensated: interest as insurance. As Tony says, “Well-used, interest dissolves the boundaries of the tribe and opens a space for a new kind of human flourishing. In terms of human history, that is the great value of finding substitutes to traditional structures of trust.”
This is an attractive idea, and I agree with the premise and strongly support the benefits. I therefore also agree that societies need mechanisms to facilitate social exchange beyond the limits established by personal or community trust, but I don’t see an argument specifically for interest here – understanding ‘interest’ in the natural and usual sense of a charge made for the use of a sum of money whose level depends on both the amount advanced and the time for which it is advanced.
Clearly any social structures that rely on charges to provide money are already advanced and with pretty good information about counter-parties and the reliability of their undertakings. Where these are absent, different approaches apply. For example, people trading with entities in the newly Former Soviet Union had no or mostly adverse information about their credit-worthiness, honesty, capacity to contract, ownership of assets, enforceability of contracts etc., and so constructed all kinds of practical safeguards in order to expand into these regions. It would have been absurd to worry about a few percentage points of interest given what else was at stake.
We see this at home too. For many significant domestic purchases (such as a car or a sofa) we are routinely asked to make a deposit against the purchase price. The deposit stands in place of the personal trust the seller may not have.
If the law of large numbers starts to apply, then providers of credit can reduce the deposit needed, ultimately perhaps to a tiny proportion of the principal. And this can be paid up-front, just like an insurance premium. (I realise that insurance premiums are in fact calculated with reference to the rate of interest, but this is accidental: the purpose of insurance is to aggregate costs so that “the losses of the few are borne by the many.” This purpose would be very well served without interest.) All the benefits of broader social interaction would be achieved without having to adopt mechanisms having the specific character of interest.
We might also on this argument expect that more and better information about people and companies from every part of the world might itself reduce interest rates, but there is little sign that the information revolution has done this and no economist suggests this as a determinant of the interest rate. Perhaps interest really is charged for reasons more connected with the desire to make money.
Finally, I’d like to pick up Tony’s reference to The Merchant of Venice. Antonio has stood surety for Bassanio to borrow money from Shylock. He charges no interest and in this case, nor does Shylock, insisting instead on his pound of flesh should Antonio default. Antonio and later the court agree that this is a lawful contract, even though on a quibble it turns out to be impossible to satisfy. One might read this as an exploration of just how far the charging of interest can go. A society that permits interest implicitly permits all other kinds of gouging for the use of money. Even in monetary theory, Shakespeare is darkly suggestive!
The use of utility
In contrast, Tom focuses on the ethics of Bentham’s utilitarianism. If I may say so, there is a risk of playing the man rather than the ball. By all accounts, Bentham was good and altruistic. But the question is about his intellectual system, and this, however well-intentioned, might be unsound, even pernicious.
First of all, it is hard to judge what the ethical content of utilitarianism is. The underlying principle is that more happiness is preferable to less happiness. On this rests what Tom describes as an ethic of accumulation, which depending on one’s viewpoint may be understood at a personal, community, or humanity level and subject to all kinds of refinements. But the connection of this with ethics has to be explained rather than assumed, since it is not self-evident that happiness, however desirable, is an ethical category. As Kant observed, “... morals ... [is] a science that teaches, not how we are to become happy, but how we are to become worthy of happiness.” In other words, ethics is psychologically deeper than the consideration of a person’s welfare. The critique of Bentham is perhaps that his theory is not ethics at all: by using the terminology of economics it leads us to think that because happiness might be a good, then happiness must be good.
To move on, Tom writes, “Bentham did not think a person's welfare was equivalent to their wealth, but suggested that goods be measured by the sum their possessor would swap for them. These ‘goods' need not be goods: some, like the enjoyment of freedom, might be neither monetary nor available for purchase.”
This is the nub of the problem. Can we possibly arrive at a sum we would swap for a good that was not monetary or available for purchase? What sort of good would it be? And why do I need to arrive at a sum anyway? Once again, the central question has been shunted off somewhere else – if the measure of ethics is this sum, then I would like to know why, and what the meaning of this sum is. Surely the fact that I can conceive of exchanging a good – whether it be freedom or a loaf of bread – for money means that it is at least conceptually available for purchase. It seems to me that the proposition that there are non-monetary goods to which we can put monetary value is self-contradictory.
The wider point is that there are many things we would not willingly give up but nevertheless would not contemplate exchanging for money or anything else. For example, another’s love or respect; a photograph of one’s grandparents; sometimes, freedom; to a beggar, the loaf that represents the difference between life and death. An account that concentrates on money and money-like calculations is bound to ignore or at best instrumentalise many of the most important things in our lives.
The notion that all goods can in principle be swapped leads us into all sorts of confusion. We can’t say in general whether we would swap an electric kettle for a symphony concert: were we ever faced with this choice, our answer would depend entirely on the context. The problem is multiplied without limit when we think about allocating goods between different people. Does Amy enjoy ice-cream more than Boris enjoys football? Can I share a haircut with Charlie?
These are impossible questions that we pretend to answer by introducing economic concepts such as marginal utility, but in fact only skirt around the difficulty. What is required is some kind of commensurability – we must really be able to compare our experiences of different goods and the experiences of different people. That in turn requires objectivity – the assumption that we can meaningfully describe things, including experiences, from the outside, without reference to the people experiencing them. Both these requirements are satisfied by adopting money as the standard of measurement. It’s a manoeuvre to get us past the fatal flaw of the whole system.
In this respect, therefore, I think it is unfair to Bentham to say that his adoption of money as the instrument of measuring pain and pleasure was only a device. It is in fact central to his ethical system and we should assume that he saw and meant this. If we abandon money as the measure, we have to abandon all quantitative measures; if we do that, we must also abandon any idea of objectivity or commensurability; and in that case, there is not much left of Bentham’s ethics.