William Petty - The Interest Rate

The Interest Rate

The natural rate of rent is related to his theories on usury. At the time, many religious writers still condemned the charging of interest as sinful. Petty also involved himself in the debate on usury and interest rates, regarding the phenomenon as a reward for forbearance on the part of the lender. Incorporating his theories of value, he asserted that, with perfect security, the rate of interest should equal the rent for land that the principal could have bought – again, a precocious insight into what would later become general equilibrium findings. Where security was more 'casual', the return should be greater – a return for risk. Having established the justification for usury itself, that of forbearance, he then shows his Hobbesian qualities, arguing against any government regulation of the interest rate, pointing to the 'vanity and fruitlessness of making civil positive laws against the laws of nature' (p. 48).