352 THE GENERAL THEORY OF EMPLOYMENT bk. vi

now read these discussions as an honest intellectualeffort to keep separate what the classical theory hasinextricably confused together, namely, the rate ofinterest and the marginal efficiency of capital. For itnow seems clear that the disquisitions of the schoolmenwere directed towards the elucidation of a formula whichshould allow the schedule of the marginal efficiency ofcapital to be high, whilst using rule and custom and themoral law to keep down the rate of interest.

Even Adam Smith was extremely moderate in hisattitude to the usury laws. For he was well aware thatindividual savings may be absorbed either by invest-ment or by debts, and that there is no security thatthey will find an outlet in the former. Furthermore,he favoured a low rate of interest as increasing thechance of savings finding their outlet in new investmentrather than in debts; and for this reason, in a passagefor which he was severely taken to task by Bentham , 1he defended a moderate application of the usury laws . 2Moreover, Bentham ’s criticisms were mainly on theground that Adam Smith ’s Scotch caution was toosevere on “projectors” and that a maximum rate ofinterest would leave too little margin for the reward oflegitimate and socially advisable risks. For Bentham understood by -projectors “all such persons, as, in thepursuit of wealth, or even of any other object, endea-vour, by the assistance of wealth, to strike into anychannel of invention . . . upon all such persons as, inthe line of any of their pursuits, aim at anything thatcan be called improvement. ... It falls, in short, uponevery application of the human powers, in which in-genuity stands in need of wealth for its assistance.”Of course Bentham is right in protesting against lawswhich stand in the way of taking legitimate risks.“A prudent man”, Bentham continues, “will not,in these circumstances, pick out the good projects

1 In his Letter to Adam Smith appended to his Defence of Usury.

2 Wealth of Nations, Book II, chap. 4.