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Projectors as Men of System ADAM SMITH’S ADVOCACY FOR USURY LAWS
EDWARD AUSTIN MIDDLETON
GEORGE MASON UNIVERSITY
JULY 21, 2015
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The legal rate [of interest] … ought not to be much above the lowest market rate.
Adam Smith Wealth of Nations
II.iv.15
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…the greater part of the money which was to be lent would be lent to prodigals and projectors…
WN II.iv.15
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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.3.6
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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”
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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 shock
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Projector’s Use in Literature
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Projectors Reconsidered in Context Sturteveant, Metallica (1611): inventor
Brugis, Discovery of a Projector (c. 1630): rent-seeker
Wilson, The Projectors (1665): trickster
Hartlib, the Royal Society, (1660’s): scientist
Defoe, An Essay upon Projects (1697): social engineer
Swift, Gulliver’s Travels (1727): fashion-trender
Shaftesbury, Characteristics of Men etc (1737): social scientist
Diderot, Encyclopedie (1752): grand designer
Johnson, Dictionary (1755): imprudent planner
Ferguson, Essay on the History of Civil Society (1767): legislative reformer
Millar, Origin of the Distinction of Ranks (1771): legislative reformer
Burke, various sources (1770-1790): manipulative statesman
Jefferson, Letter to Benjamin Rush (1811): philosopher
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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 streams
In Life of Adam Smith:
Projectors - and government - impose on markets in similar fashion
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Projectors (Red) and Entrepreneurs (Blue)
Related, but distinct: Entrepreneurs as a Subset:Identity:
Adam Smith Jeremy BenthamPost-Bentham
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Projectors are those with revolutionary, large-scale, and systematic designs.
Entrepreneurship is not a necessary characteristic.
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Projectors as Gamblers
Let x be a simple gamble with:
winning payoff x2 with probability p
losing payoff x1 with probability (1-p)
status quo x
Assume x1 < x < x2
Reclusive 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)) > 0
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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.16
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Esotericism Justified