D'ALEMBERT & INTEREST RATES
"...elle tournera sa convexité vers son axe..." — D'Alembert

AM | @HDI1780

In a section of his book on the history of usury and debt, under the subtitle "Adam Smith, d'Alembert and Newton", Charles R. Geisst tells the story of how "d'Alembert was accused of being an apologist for usury for suggesting that compound interest could actually benefit a borrower" (p. 121) (*). While I am a bit confused with the calculations provided in the book, it is quite true that, at a 6 per cent interest rate, the amount of interest paid on the first six months of a £100 loan would be £3 using simple interest, which is slightly higher than the £2.95 amount resulting from compound interest (1.06^0.5 = 1.02956).

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Mr. Geisst does not quote d'Alembert directly. In Encyclopédie, the article INTÉRÊT (Arith. & Algéb.) that deals with simple and compound interest was penned by Rallier des Ourmes, with an addendum by d'Alembert [see]. There are several things to note:

1.- The definition of interest. "L'intérêt est le profit que tire le créancier du prêt de son argent (ou de tel autre meuble)". In typical eighteenth-century fashion, Rallier des Ourmes presents a 'dual' definition, both monetary and 'real', of credit markets.

2.- The importance of annuities. "Cette question au reste n'est pas de pure curiosité ; cette manière de faire le commerce est, dit-on, fort d'usage en Angleterre". By 1750, French authors on money and trade are keenly aware of the impact that well-developed credit markets are having on trade.

3.- The controversy about compound interest. This point needs further analysis — Mr. Geisst's book is the place to start (pp. 119-122). In Encyclopédie, d'Alembert complains about "une imputation très-injuste, dont nous croyons nous être suffisamment justifiés par une lettre insérée dams le mercure de Décembre 1757. Nous y renvoyons le lecteur".

To be continued...

(*) Charles R. Geisst. Beggar Thy Neighbor. A History of Usury and Debt. University of Pennsylvania Press, 2013. 
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