Theories of Financial Disturbance
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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.
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Chapter 1: Adam Smith’s Economic Case Against Usury

Jan Toporowski


The relationship of finance with the rest of the economy has been argued over since the emergence of money and the concentration of trade in particular geographical locations and at times that did not coincide exactly with production and consumption. The trade in money that this concentration required lies at the origin of finance. Social attitudes towards it were focused on the distribution of gains or losses arising out of that trade. In the past, those attitudes were obviously influenced by religious proscriptions against usury and, among the less religious, by Aristotle’s argument that the mere trade in money is sterile. Aristotle’s view reached the highest point of its sophistication in Marx’s analysis of circuits of capital, showing how the application of money capital (or what Marx termed ‘fictitious capital’) to production releases from labour the surplus that is the real basis of interest and gain from money. Modern finance is inextricably bound up with the emergence of capitalism and corporate requirements for money that exceed the pockets of entrepreneurs. The emergence of capitalism changed the terms in which that argument was conducted. This, however, has not been very well reflected in histories of economic thought about finance. These have tended to follow the view of John Stuart Mill, and the financial interest that influenced classical political economy. According to this view, arguments against usury follow from religious prejudice or, in the case of Aristotle, misunderstanding of the functions of money and finance.1 Classical political economy is supposed to have...

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