Adam Smiths Advocacy for Usury Laws Edward Austin Middleton George Mason University JuLY 21 2015 The legal rate of interest ought not to be much above the lowest market rate Adam Smith ID: 374133
Download Presentation The PPT/PDF document "Projectors as Men of System" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Projectors as Men of System
Adam Smith’s Advocacy for Usury Laws
Edward Austin Middleton
George Mason University
JuLY
21, 2015Slide2
The legal rate [of interest] … ought not to be much above the lowest market rate.
Adam Smith
Wealth
of
Nations
II.iv.15Slide3
…the greater part of the money which was to be lent would be lent to prodigals and projectors…
WN II.iv.15Slide4
Problem
Prodigals
:
“Let
[kings
and ministers] look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.”
WN II.iii.36
“Princes, however, have frequently engaged in many other mercantile projects … [and]… have scarce ever succeeded. The profusion with which the affairs of princes are always managed renders it almost impossible that it should.”
WN V.ii.3.6Slide5
Responses to Smith
1787: Jeremy Bentham’s
Defense of Usury
1800’s:
Dugald
Stewart’s
Lectures on Political Economy
1811: William
Playfair’s
edition of
Wealth of Nations
1828: J.R. McCulloch’s edition of
Wealth of Nations
1835: E.G. Wakefield’s edition of
Wealth of Nations
Afterwards all adopt Bentham’s “Projector
qua
Entrepreneur”
Slide6
Modern Explanations of Smith
Stiglitz
(1981): imperfect information in credit markets
Levy (1987):
macroprudential
encouragement of particular sectors
Stigler (1988): unsystematic lapse of judgment
Sen (1999): wasn’t committed to markets
Hollander (1999): lender risk-preference mitigation
Rockoff
(2003): excludes high-risk entrepreneurship
Paganelli
(2003): moral constraints on public policy
Toporowski
(2004): compels a Real Bills Doctrine policy
Rockoff
(2009): regulatory response to credit shockSlide7
Projector’s Use in LiteratureSlide8
Projectors Reconsidered in Context
Sturteveant
,
Metallica
(1611):
inventor
Brugis
,
Discovery of a Projector
(c. 1630):
rent-seekerWilson, The Projectors (1665): tricksterHartlib, the Royal Society, (1660’s): scientistDefoe, An Essay upon Projects (1697): social engineerSwift, Gulliver’s Travels (1727): fashion-trenderShaftesbury, Characteristics of Men etc (1737): social scientistDiderot, Encyclopedie (1752): grand designerJohnson, Dictionary (1755): imprudent plannerFerguson, Essay on the History of Civil Society (1767): legislative reformerMillar, Origin of the Distinction of Ranks (1771): legislative reformerBurke, various sources (1770-1790): manipulative statesmanJefferson, Letter to Benjamin Rush (1811): philosopherSlide9
Uses in Smith’s Corpus
In
Wealth of Nations:
I
.x.b.42-43: projectors create new channels of commerce
II.ii.59-106: projectors are unsecured debtors
II.iv.15: projectors make gambles
II.v.37: projectors propound agricultural development
V.iii.67: projectors optimistically estimate future revenue streamsIn Life of Adam Smith: Projectors - and government - impose on markets in similar fashionSlide10
Projectors (Red)
and Entrepreneurs
(Blue)
Related, but distinct: Entrepreneurs as a Subset: Identity:
Adam Smith Jeremy Bentham Post-BenthamSlide11
Projectors are those with revolutionary, large-scale, and systematic
designs.
Entrepreneurship is not a necessary characteristic.Slide12
Projectors as Gamblers
Let x be a simple gamble
with:
winning
payoff x
2
with probability p
losing
payoff x
1
with probability (
1-p)
status quo x Assume x1 < x < x2Reclusive expected gains:E(x) = p∙x2 + (1-p)∙x1 – x Sympathetic expected gains:E(A(x)) = p∙A([x,x2]) + (1-p)∙A([x,x1])Take bet when E(x) + E(A(x)) > 0Slide13
The proud minister of an ostentatious court may frequently take pleasure in executing a work of splendor … which is frequently seen by the principal nobility, whose applauses not only flatter his vanity, but even contribute to support his interests at court.
WN V.i.3.I.16Slide14
Esotericism Justified