Responses to Johnson on Bentham’s defense of usury

Earlier this month, Peter Johnson gave an account of Karl-Heinz Brodbeck's critique of the famous utilitarian philosopher Jeremy Benhtam's defence of usury, the charging of high rates of interest on money. Below, Tony Curzon Price and then Thomas Ash respond.
Tony Curzon Price
Thomas Ash Tony Curzon Price
27 October 2009

Tony Curzon Price response to Johnson/Brodbeck

The Deuteronomic injunction against usury--at the basis of Islamic finance as much as the Roman Church's injunctions against it--prohibits interest from being charged within the tribe, but leaves the door open for receiving interest from outside the tribe. (For universalising religions like Chirstianity or Islam, the tribe becomes all of humanity, hence the strengthening of the injunction.)

There are many layers of logic to the prohibition. The first is broadly inspired by Nobuhira Kiyotaki and John Moore's theory of "inside and outside money" (see "Evil is the root of all money") . Within the group, there is a great deal of information about prople, their behaviour and their abilities allowing investment to be financed without recourse to the broad-brush insurance scheme of charging interest. It is when you don't have the information needed for subtle assessments of projects that you supply surplus (savings, capital) only if there is insurance against default.

But that is only the start of it. When money is supplied to outsiders, the boundary of the "inside" changes. The investor starts to exchange more than just gold with the adventurer--the love between Jessica and Lorenzo in the Merchant of Venice would presumably never have flourished had there not first been outside interest. Once interest flows, so can much more--usury, in the best of cases, weakens the boundary between the inside and the outside.

This suggests another reason for the traditional prohibition on usury: it defines a border, maintains a strong sense of "us" and "them". If  investment only comes where traditional trust bonds are strong, then the returns and losses from risky ventures all become part of the social calculation of the group. They reinforce the group's meanings, rituals and stories. The energy of meaningful social interaction is all kept inside. That may be good for the tribal priests and the tribe as a collective entity, but it means a particular sort of human flourishing is crowded out: self-creation and self-discovery are subborned to the interests of the group and its hierarchies.

I agree with Peter Johnson that Bentham picked the wrong argument in his Defense of Usury. But the right argument for usury is not addressed by the Johnson/Brodbeck critique: 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 not to excuse the fraudulent and irresponsible extension of  money we have seen in this credit crunch and others. The justification proposed for usury is still instrumental: does it help or hinder the creation of that particular type of human flourishing that comes from weakening the bonds of the tribe? When it becomes self-realisation only for fraudsters and a new type of "insider"--the tribe on the inside of the creation of  money--at the expense of others, I agree it is no longer working. But to solve this through a return to traditional money would be oppressive. The challenge that Johnson and Brodbeck rightly pose is how do we reap the social dividends of usury without creating a new kind of tyranny of money.

Thomas Ash comments on Johnson/Brodbeck

Peter Johnson has written a very interesting and detailed account of Karl-Heinz Brodbeck's critique of Bentham for openEconomy. Nonetheless, readers are at risk of forming an uncharitable picture of Benthamite utilitarianism.

Peter sometimes writes as if utilitarianism is an ethic of greed, but nothing could be further from the truth. It accords every person's happiness equal weight to our own, and as such is notorious for demanding improbable levels of self-sacrifice - the donation of all but a small remainder of one's income to charity, an end to ‘favouritism' for one's children, and perhaps a highly restricted diet to boot.

Bentham did sometimes flirt with psychological egoism - the view, which he found in Hobbes, that human motives are inevitably self- interested. Since someone cannot be obliged to do something that is impossible for them, such as jumping the Atlantic, this would rule out any obligations to act other than out of self-interest. (This observation is sometimes summarised as ‘ought implies can'.) However, when this conflict with his ethical theory was pointed out to Bentham, he reacted by modifying his account of human psychology. Utilitarianism's altruistic characteristics took precedence.

If utilitarianism cannot be described as an ethic of greed, it can be described as an ethic of accumulation - not, as we have seen, as it applies to one's own ‘accounts', but in those of humanity as a whole. In this respect, Brodbeck's apparent charge that it is "the money- subject's book-keeping interpreted as a spiritual process" might find its mark. However, it is natural to see the psychological goods Bethamite utilitarianism deals with as cumulative: the more the better, with the value of two goods simply being the sum of their respective values. To show that this is inappropriate would need an argument. It is more plausibly inappropriate of other goods such as freedom which utilitarianism does not recognise as intrinsically (as opposed to instrumentally) valuable, but utilitarians have their reasons for not recognising these, which are a separate matter.

A more direct connection between Bentham and the money-subject's attitude is found in the line Peter quotes: "Money is the instrument of measuring the quantity of pain or pleasure. Those who are not satisfied with the accuracy of this instrument must find out some other that shall be more accurate, or bid adieu to politics and morals." The fact that this device was not alien to Bentham and his audience is certainly telling, but it was only a device: 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.

The use of money as a measure in this way may be subject to some of Peter's criticism. It has its flaws - for example, it is undermined by a phenomenon Bentham himself noticed, the diminishing marginal utility of wealth. An additional hundred dollars is not worth as much to a rich man as to a poor one, so the rich man might not trade away a pleasure for it which the poor man would gladly swap. However, this flaw in Bentham's measure only further shows that the value he was trying to appraise cannot be identified with money.


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