We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first … Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper … Melancholy as all these delusions were in their ultimate results, their history is most amusing.

Charles Mackay, 1843, Extraordinary Popular Delusions and the Madness of Crowds, on financial-market manias and panics.


The term invest has been so extensively conflated with usury and outright gambling that those who actually practice what properly deserves the name have to be qualified as angel investors, to distinguish them from the so-called investors who are really just usurers or gamblers. This is a shame – and a major contributor to financial crises – so it seems worth pausing to explain what investment properly is. Let me begin with summaries contrasting it with two things that don't deserve to be conflated with it:


is where you deploy your wealth in order to empower someone to achieve some end for which they need it;


is where you lend your money to someone in order to get them to give you back more than you lent to them.


is where you buy something (whether it's a lottery ticket, a house or a portfolio of stocks and shares) that you hope shall be worth a lot more when you subsequently redeem it. (Yes, that's also called speculation; no, I don't care about the difference.)

Notice that the difference is all about motivation and intent; and that they're not mutually exclusive – it's entirely possible (and indeed common) for any particular deployment of resources to be each to some degree. There are smart and dumb ways to do each. A surfeit of money put dumbly into any one of them can cause markets to collapse; a sufficiency of money put smartly into any of them can make the economy sound. While investment is more apt to be wisely entered into than usury, and usury likewise more so than gambling, I would not wish to forbid any of them; and – while I hope it is easy to see how imprudence in connection with gambling may be immoral, and I recognise and have some sympathy with the mediæval and biblical view of usury as immoral (which it can be, but need not be) – I must caution that even investment may be done immorally. It remains, however, that I consider investment the most wholesome (and gambling the least) of the three.


Investment without thought to getting the wealth back may be very altruistic, but is apt to leave the investor without resources to invest in later projects. Whatever your objectives, you can typically further them better if your wealth first empowers one beneficial activity, then returns to you to be deployed in some kindred activity. Furthermore, at least when investing in a business, attending to how and when you'll get your wealth back makes for a good framework in which to discuss, with those who shall run the business, how they are going to manage it and how they propose to make it self-sustaining, for which it needs to become profitable – generally, the benefits of investing in a business depend upon its ability to prosper in the long term; and it is greatly beneficial, to those proposing to embark on a business, to have their attention focussed on how they can get to the point where they are no longer dependent on outside aid.

Naturally, reality shall complicate plans in due course: the wise investor shall review progress from time to time with the venture, to be clear about how they are adapting the plan to fit reality – and to discuss how that affects the program of repayment. So long as the venture remains essentially sound, the investor's long term goals are better served by being patient about repayment. However, if circumstances doom the venture, it is best for all involved to recognise this as early as possible: those employed by the venture deserve to know, in good time, that they need to seek alternative employment; struggling along to the bitter end is a grim business all would be better off without; and a venture is typically better able to repay, even if incompletely, its creditors if it deals with its failure as gracefully and early as practical. Attention to repayment thus need not be a vice – although allowing it to over-shadow broader goals can negate the virtue of investment.

The boundary between repayment and repayment with interest (and hence between investment and usury) is endlessly fuzzy. So long as inflation happens in the interval between investment and repayment, the sum of money initially invested does not represent, by the time of repayment, the same wealth initially invested. The investor may have a choice of ways to invest that wealth: so long as each is able to achieve goals the investor wishes to pursue, the ones whose prospects allow them to be more prosperous (hence more surely self-sustaining) more swiftly are apt to both make best use of the investment and be able to repay quicker (so that the investor can put that wealth to further use sooner) and more. Further, just as the dialog about repayment is a good way to keep a venture focussed on how it plans to reach self-sustainability, so also the prospect of paying a modest rate of interest can serve as a gentle goad to focus on reaching that goal quickly. Thus can a little usury justly be mixed in with investment – although, if the attention to return on investment overshadows broader goals, it can annul the virtue of investment.

In reality, no amount of attention to the plans of a venture can avoid the possibility that the slings and arrows of outrageous fortune may bring it to ruin. Thus every investment is, to some degree, a gamble. Whatever program of repayment the venture agrees to, and plans to fulfil, the investor must be aware that the real repayment shall be less – possibly none at all – if the venture fails. To assess the wisdom of gambling, one must attend to the laws of probability: the average (formally, expected value of the) repayment from any given investment can (in principle – in practice, the probabilities involved can at best be estimated roughly) be computed by considering the diverse ways the venture may progress and, for each possibility, multiplying its probability by the actual repayment it shall yield. Since there are possibilities involving repayment of less than that initially agreed upon, this average is apt to be less than the agreed amount. Thus, to achieve the modest return on investment the investor choses to pursue, the prudent investor shall ask for a (carefully thought-out) higher repayment. Again, there is no vice in taking into account the uncertainties, although the wise investor takes care to ask no more than reasonably and justly balances the risks of failure against the opportunity to achieve broader goals; aside from any other reason, the less debt a venture is burdened with, the more likely it is to succeed.

Such probabilistic analysis of the risks can serve to protect the investor only on average: but reality can deviate from averages, sometimes spectacularly. An investor must, then, attend to whether the probability of failure is large; when it is, only the courageous or foolish shall invest. Yet an investor, who is too wary of the risk of failure, shall be hampered in supporting broader goals.

In any case, investment supports some goal that the investor wishes to see pursued – the pursuit of which is, I must presume, of some value to the investor, who should thus not ignore this value in considering the amounts to be repaid. Even an investment which repays less than the wealth put into it may be counted a success if, along the way, it achieves the investor's goals, even if only partially. An investment which may both fall short in its repayment and fail to achieve the investor's goals may yet be worth embarking on if its success would achieve goals the investor values highly.

Note, by the way, that the above all applies independently of the goals the investor pursues, whether they be virtuous or vicious. One may invest in a business for the simple reason of wanting the goods or services it aimst to provide – for example, in the early 1990s, many geeks gladly invested in ISPs so that they could also be their customers and enjoy the internet at home. Another may invest in diverse businesses in their neighbourhood in order to promote employment (and consequent prosperity) for those around them. All too many invest solely for the usurous goal of enriching themselves; and some, by playing the strategy of controlling the availability of capital, pursue such usurous goals so viciously as to undermine the very free markets that others have worked so hard to promote.


The term usury refers to charging interest on loans; but it carries connotations from the era when it was more commonly used than it is today. Various cultures, historically, found that having folk lend money at interest lead to unpleasant consequences, so they outlawed this practice. This tended to discourage lending, but the wisdom of the advice neither a borrower nor a lender be has been recognized for a long time, so this was not seen as a problem. The prohibition on usury got embedded in some religions and duly passed to later cultures.

The virtue of usury

However, as economies became more sophisticated, opportunities opened up that could be hugely profitable but that required so much capital that very few could afford to pursue them, especially when they came with significant risks. To this end, various rulers tried to find ways to make such ventures profitable – after all, when their citizens come home and make huge profits, the resulting stimulation of the national economy leads to increased revenue for the ruler (not just via taxes: wealth has many ways to trickle up an economy). The early prototypes for modern corporations and insurance came out of this: and relaxations on the prohibitions against usury lead to a revolution in banking. For all that there have been ill effects of these changes, their over-all effect has been to empower the vast improvements in material well-being that have come to at least some parts of the world over the last half millennium, essentially because they made investment a great deal more practical.

Where the investor's analysis focusses on the goals of a venture and whether its plans are apt to achieve them, the usurer's focus is money. The usurer lends you money subject to a contract under which you grant the usurer authority to recover his loan from you (by one means or another) if you fail to honour your schedule of repayments. One common mode of this is the secured loan (this is how most mortgages work): the usurer gets to take something you own and sell it to recover what you owe, if you fail to keep your end of the bargain. The usurer assesses the profit he'll likely make off lending you the money, the risk of you failing to repay, the costs of enforcing the contract and the likelihood of making a profit over-all. In doing so, the usurer likely looks at your plans as carefully as an investor would, but attending above all to the financial implications of the plan. The usurer's only interest in whether your venture succeeds or fails is the impact thereof on how much money he gets.

That may seem heartless: but, even in this raw form, usurers have done much good for the world, by making funds available that have enabled ventures to prosper. A decent usurer makes sure the borrower is well aware of the consequences of failure: and, while those whose ventures fail may complain at the harshness they suffer in satisfying the failure clauses of their contract – that inevitably seem like further cruelty heaped on the back of the failure that has precipitated it – they did agree to the contract. The usurer would not have given the venture its chance at success without that agreement; nor did the usurer pretend to any other motive. To make a contract worth the usurer's while to enter into, it must give the usurer an expected net benefit comparable with what he could get by lending his wealth to others. If you want the failure clauses to be gentle, the usurer's gain on your failure is thereby reduced; so the net benefit can only come out good if you also agree to give the usurer a bigger cut of your winnings if you succeed. Since embarking on risky ventures takes a certain basic optimism, those who go to the usurer for a loan generally attend only to the implications of success; wanting to share as little as possible of their hard-won gains with the usurer, they prefer the contract with the harsher failure clauses – after all, they don't expect to fail – since that is the one that cedes least to the usurer on success.

Pure usury may be decent: when it is, it hides nothing of the contract's implications. For all that it is heartless, it is not without a certain generosity: the usurer gives you a chance, for all that he demands his price for doing so. Usury may also be alloyed with genuine investment; when it is, you are apt to get more favourable terms than when it is pure, albeit with the greater over-sight of your venture that comes with the investor's interest in its success.

The vice of usury

While it is traditional to blame the ills that can arise from usury on the lender, a close scrutiny of them generally implicates the borrower at least as clearly. This is partly due to a piece of filtering: among potential borrowers one can find the full spectrum from caution to optimism; but the over-cautious are statistically under-represented among those who do borrow; consequently borrowers are more apt, than the general population, to be ignoring the possibility of failure. (The same, indeed, may be said of investors, usurers and gamblers.) Making it possible to borrow money also makes it possible to borrow beyond one's means: the prudent lender is careful to check that borrowers do not make this mistake, but the borrower is ultimately responsible when it happens. None the less, it is not unheard of for usurers to aggressively market the loans they offer, talking up the short term benefits – Buy Now ! (pay later) – while making it sound like repayment isn't a big issue. The borrower may be a fool to fall for these blandishments, but such usurers are pushers, at least as vicious as those enticing naïve youths to mess with their neuro-chemistry.

Usury is all about the money – in particular, that which is known as return on investment in a culture that mistakes usury for investment. While this need not be vicious, the usurer is naturaly susceptible to the vice of greed. In particular, in the modern world, the usurer is often a corporation for which economic yield – essentially a formalisation of greed as a duty – is the prime directive. A decent usurer will take reasonable efforts to assess the would-be borrower's potential for success and, if those prospects are poor, endeavour to steer the borrower away from a rash choice – even if the usurer would still profit handsomely despite failure of the borrower's plans. All too often, greedy usurers take what they can get, without concern for the borrower's fate. Particularly when they solicit borrowing – with scant concern for the harm the borrower may suffer, or for whether the borrower truly understands the risks – this is vicious, both in the modern sense (cruelty and nastiness) and in the older sense (it is a vice to behave thus).

Even the benefits that flow from the ready availability of loans contain the seeds of trouble: although I could feel grateful that a mortgage enables me to pay the two million or so krone price on my flat, I am acutely aware that it would not cost so much but for the ready availability of mortgages. In the absence of borrowing, one can only buy a home by saving up until one has enough to meet some seller's asking price: but, as this is true for everyone, those who ask more than potential buyers can afford do not sell their property. The more readilly one can borrow, the more one can afford to pay for one's home: but this is true for everyone, including those with whom you are competing in the bidding war for the home you want to buy. The result is that those most willing to borrow can afford better homes; which, in turn, puts economic pressure on all to borrow more. Thus house-prices spiral, but at the cost of putting everyone in debt. While the price of homes is the most dramatic example, the price of many other goods has likewise inflated thanks to the availability of easy credit. Usury enables economic growth, but does so at the expense of provoking price-inflation which makes debt a pre-requisite of owning basic necessities of life.

Ultimately, the vice of usury – and the wisdom of neither a borrower nor a lender be – lies in the fact that debt is an impediment to freedom. A few times in my life, I've taken a year out from my career to do something different; but now, having a mortgage obliges me to remain in full-time employment in as well-paid a job as I had when I bought my flat. That this is commonplace – nearly every adult lives with such a limitation on their freedom – is no comfort: quite the opposite. Just as every man's death diminishes me, so that which impedes anyone's liberty imperils the liberty of all. The commitments of raising a family do impose similar restraints so, for those with children, this is a relatively minor loss of freedom (although, all the same, it is some loss): but what I find most troubling is that the economic necessity of borrowing and the quarter century time-scales of modern mortgages largely compel even those young folks who have no family to shoulder the burden of debt as soon as they are able. This prevents them from exploring the other options that might be open to them – they are tied to the career whose lowest run was within their reach when they entered the labour market, with no practical prospect of exploring what else they might do with their lives. Worse, since couples who both have jobs can better afford to buy homes, home prices are driven up to the level at which most folk cannot even buy a first home except as a joint venture with a partner, which rushes them into marriage (or its functional equivalent) when they might do well to take a bit more time over such an important decision.


Gambling has been damned down the ages by more voices than I care to count. It all too easily creates opportunities for mischief – and, even when conducted honestly, encourages follies to which folk are too readilly prone, all of which are exacerbated by human intuition being poor at assessing risks.

The discussion is somewhat complicated by gambling for fun, particularly when it is done between friends. Just as people gladly pay to ride on a roller-coaster, watch a movie, spend an evening bowling to knock down skittles or in diverse other ways amuse themselves, so also people gladly pay to take part in a game which might give them back more money than they paid to take part. The thrill of hoping for that pay-back adds enough to the fun of the game that many can enjoy such a game even when they lose. So long as that holds true, I do not care to distinguish such gambling from any other entertainment. Let people enjoy it and pay to be entertained. My concern here is gambling in so far as at least some of the parties to it are engaged in it for the sake of its outcome rather than for the enjoyment of the activity itself. If someone goes to the stock exchange with a vast sum of money and amuses himself by placing bets on the players in that game, his actions affect the welfare of the empolyees of the businesses whose shares are his betting-slips, so he is a part of the discussion; but if he goes back to his club and joins a game of poker with his peers and the stakes are tiny compared to the wealth at the disposal of the players, this is no concern of mine.

Gambling wisely

It is possible to gamble wisely, if one has a good enough grasp of probability theory. The first thing a wise gambler must do is to chose which game to join: in some games, the gambler's expected winnings are negative – the wise gambler generally avoids these games.

There are many who gamble unwisely, or more for fun than for profit; consequently, there are games one can play in which one's expected winnings are positive. Running a lottery or a casino would be obvious examples: for those with a fairly good knowledge of the horses apt to be involved, being a bookmaker (i.e. one who earns a living by accepting bets on horses) can be another. The means to make these reliably profitable businesses are fairly well understood: as such, I decline to consider them truly gambling. They are businesses, which cater to those who can afford to gamble for fun. If they are decent businesses, they shall watch out for those who may be becoming addicted to the hope of winning; these are not their proper customers. Such a business has an ethical duty to steer their customers away from addiction, even though this may mean persuading them to stop being customers: and it is bad for their industry when the news carries stories of fools who have ruined themselves by gambling compulsively. It is unethical to market such a business by portraying gambling (as its customer) as the road to prosperity: but I have no objection to touting it as a fun way to spend some leisure time (for all that it's not my way to have fun).

As a general rule, if someone is earning a living by offering you the option of gambling, they're probably a business of the preceding kind: it's safe to assume that your expected winnings are negative (so the wise gambler abstains), since his earnings must come from the over-all losses of his customers. This is not a hard and fast rule – if you have some relevant skill or special knowledge (for example, you know the racing form of the horses better than the bookie does), it may tip the scales in your favour. In such a case, you are likely to find the offer to gamble withdrawn once the offerer has seen that you consistently win at his expense (always, of course, assuming he's honest, so doesn't turn to under-hand methods to beat you).

Once we eliminate gambling for fun (in so far as it does not cross the border into gambling addictively) and the businesses who provide the service of a place to do such gambling, we are left only with the forms of gambling in which the participants all play on an equal footing and do it for real money, in amounts which matter to their economic well-being. Such games may reasonably be divided by comparing the sum of the winnings of the players, counting losses as negative wins. For the classic game of poker, in which the money the players bring to the table gets redistributed among them, what some gain consists exactly of what others lost: the sum of winnings is thus zero, so this is called a zero-sum game. Of course, in reality, it is traditional to drink while playing this game: if we take account of the cost of the drink, it is a negative-sum game, since the players put in, collectively, more than the sum of what they took out. If we treat the drink as a separate activity the players engaged in and valued the effects of equally to the price they paid for the drink, the game is again zero-sum; and if all the players enjoyed the game and valued that enjoyment, even if not as much as the losses some of them made, then the game can even be construed as a positive-sum game. In practice, if the stakes are materially important to the players, the value of the fun of playing or the cost of the drink shall be ignorable, so we may construe the classic game of poker as a zero-sum game in practice.

Generally, although there are exceptions, the wise gambler only plays positive-sum games; and – at least if we ignore net winnings on the order of the value, to the players, of the fun of playing – the only way that a game can yield more winnings for the players than they all brought to the game is by using the wealth some brought to the game to empower others to produce goods or provide services which are of sufficient value to others that these shall pay more for those goods or services than it cost to supply them. In short, decent usury is the only positive-sum game if we only count money: but alloying it with investment allows for diverse games in which at least the expected net sum is positive, at least when some of the non-monetary consequences of the game are of significant value to the participants.

I mention that there are exceptions. The most obvious exceptions are war and kindred vicious fights: these are always negative-sum games, and consequently the wise gambler looks for better alternatives. Unfortunately, one is not always in a position to chose the games one plays: an opponent may chose to force you into a negative-sum game, hoping to take a win for himself, at the expense of a greater loss on your part. It is consequently important to recognize when that happens and be ready to teach such opponents the folly of their choice – by ensuring that they do indeed suffer a loss, even if you have to endure one yourself. This may be grim – but teaching players, in the short term, to avoid negative-sum games ensures that the long-term game has some chance of being positive-sum.

Other than this, the exceptions I can think of are all actually positive-sum games disguised as less favourable ones by the effects of counting the money instead of assessing the value, to the players, of what they have before and after. That such evaluation is hard to quantify numerically does not change the fact that, for example, the loss or gain of a thousand euros by a billionaire has less impact on his quality of life than the same would have on the quality of life of a freshly-trained young practitioner of some useful craft, for whom that sum would suffice to purchase the tools of her trade and thereby enable her to become self-sufficient. A game apt to transfer that sum from the former to the latter might be a zero-sum game when assessed in terms of money, but it is really just a positive-sum game in disguise.

The folly of gambling

fable One of the deceptive phenomena of gambling is that those who win broadcast that they have done so (or have this broadcast about them, whether they like it or not), while those who lose keep quiet about it (and make a less interesting story for the media, so their loss is only ever news if they ruin themselves with obsessive gambling); consequently, one hears more about wins than about losses, skewing the preceived likelihood of winning. This can be reinforced by the game giving spectacular wins (everyone hears about those) to a tiny proportion of players and more modest wins to enough (though few) of the other players that most players know at least someone who has had a win, albeit modest. Thus players all know that winning really does happen, fueling their natural optimism's tendency to focus on the unrealistic possibility of a Big Win.

Unethical businesses reinforce such illusions by reminding potential gamblers of the possibility of winning, without attempting to give any balancing reminder that losing is more likely by a larger factor than the ratio of the theoretically possible Big Win to the actual and certain stake they'll almost certainly lose. The giant posters saying It could be You do not even come with small print to remind you that, none the less, you almost certainly make a net loss unless you actually enjoy the game enough that you'd have gladly paid your stake just for the fun of playing. Even if they do give some of their winnings to worthy causes, and their political allies have so written the laws as to allow them to get away with it, this doesn't change the fact that they got those winnings unethically.

Most people are very poor at assessing risks, probabilities and their implications, so make decisions relating to them in ways that take a short-cut that over-simplifies the analysis. Commonly, such short-cuts are optimistic, especially when they hear more about wins than losses. The businesses which offer the opportunity for gambling rely on the fact that a significant proportion of the population optimistically misjudge the balance of outcomes from gambling; this, inescapably, puts them on rather shaky moral ground, even without deceptive advertising.

Meanwhile, gambling feeds into another common flaw in human reasoning processes; the falacy that it's worth putting more resources into something you've previously put a lot into. This combines with common misintuitions about probabilities, notably the delusion that the likelihood of winning next time is greater, after losing many times in the past. These errors of judgement lead some gamblers to compulsively gamble, pushing all the money they can towards the always-hoped-for Big Win. Even on low-stake games, this can lead to financial ruin (especially if time spent gambling interferes with more reliable methods of obtaining income, such as honest work).

All of this is destructive enough when the game only involves the economic welfare of the gambler and the business providing the game, as is the case for lotteries and (mostly) for sports gambling. However, each stock exchange is a business that provides the game of gambling on the stock market; and, in this case, the game entangles the economic welfare of the businesses whose stocks and shares are traded and the people who work for them. A stock exchange may fairly object that gamblers are not its intended clientelle – its purpose is to be a forum in which investors can connect up with ventures – but it remains that the potential for gambling is present, all the same. Worse, a large part of what determines a stock's success or failure is the number of players who, believing it likely to succeed, put money into that stock; consequently, gamblers tend to destabilise stock markets. Prudent stock exchanges thus endeavour to limit gambling; but it's hard to distinguish gamblers from other participants, especially in light of my observations above about all investment involving, to some degree, a degree of gambling.

Worse yet, the dynamics of gambling on the stock exchange encourage a herd mentality (see quote at the top of this page): when everyone else thinks a stock is valuable its price goes up, so buying it turns out to actually have been profitable – but this apparent value is illusory, lasting only as long as the delusion. In so far as the price continues to rise, it must eventually get to be more than can be afforded by enough to sustain the rise; at this point, the price necessarily levels off – and the only sense in which the inflated stock was worth buying, at such a high price, was that its price was rising. As soon as it stops rising, that apparent value evaporates, leaving the stock worth far less than most of those holding it paid for it. Those who sold shortly before the final collapse made money out of the game; but knowing the right moment to sell is intrinsically difficult – if more than a small proportion of the players in this game believe, at any time, that the end is near then their efforts to quit the game actually precipitate the end sooner than they realised. Participating in such a boom (and its inevitable bust) is thus a gamble. While the initial rise in price that starts the game may be founded in reality – genuine investors or wise usurers assessing the venture's plans and seeing that its stock was worth more than it was selling for – its subsequent explosion and collapse are largely disconnected from the true value of the stock.

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