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Projectors as Men of System Projectors as Men of System

Projectors as Men of System - PowerPoint Presentation

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Projectors as Men of System - PPT Presentation

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

nations projectors smith wealth projectors nations wealth smith adam markets edition frequently society entrepreneurship expected policy probability legislative iii princes 2003 projects

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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