Theories of Financial Disturbance

Theories of Financial Disturbance

An Examination of Critical Theories of Finance from Adam Smith to the Present Day

Jan Toporowski

Theories of Financial Disturbance examines how the operations of market-driven finance may initiate and transmit disturbances to the economy at large, by looking in detail at how various economists envisaged such disturbances occurring.

Chapter 2: The Vindication of Finance

Jan Toporowski

Subjects: economics and finance, financial economics and regulation, post-keynesian economics


JEREMY BENTHAM’S DEFENCE OF USURY Within years of the publication of The Wealth of Nations, Jeremy Bentham took issue with Smith over his views on usury. Bentham was an ardent enthusiast for Adam Smith’s laissez-faire political economy, which complemented his own liberal political and legislative ideas. He read The Wealth of Nations soon after it was published, and re-read it. According to the editor of Bentham’s economic writings, Werner Stark, ‘a most thorough study of Smith’s illustrious treatise was the mainspring of all Bentham’s economic knowledge’.1 Bentham acknowledged that ‘as far as your track coincides with mine, … I owed you everything’.2 Perhaps for this reason he was outraged by Smith’s argument for regulating the rate of interest. Travelling in Russia, he heard a rumour that the administration of William Pitt the Younger was planning to cut the legal rate of interest down from 5 per cent to 4 per cent. This turned out to be a false rumour, but it proved to be the catalyst for Bentham to bring his thoughts together in a pamphlet entitled The Defence of Usury. The pamphlet was in the form of a set of rhetorical letters to Adam Smith, making clear that it was Smith rather than Pitt to whom Bentham’s reproaches were addressed. The Defence of Usury mounted a serious political case against the usury Laws. The literary critic Hazlitt considered it to be Bentham’s most perceptive work.3 In Bentham’s view, banking is like any other business and it was no business of...

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