Jones and Smith are on an island. Each of them is capable of catching about 1 fish per day, which is nice because they need approximately 1 fish per day in order to survive. Over time, Smith has accumulated a small excess reserve of fish, maybe a few days worth. In any event, one day Jones has an idea: he believes he can create a tool which would permit him to catch more fish than he can by the ancient practice of noodling.

The problem for Jones is that, since he requires daily fish to survive, he can’t forgo his current production in order to invest his time otherwise in the development of this tool. Jones mentions the idea to Smith, lays out his plans and estimations and asks to borrow two fish in order that he may bring his invention to fruition.

Smith agrees to advance Jones the two fish he requires, but on condition that he repay him two plus one fish (despite the fact that smith does not maintain any position of “authority” over Jones on the island, according to some, Smith is guilty of usury); the extra fish being pledged in good faith because both men know that Jones’ invention may not work. In effect, he says “I will give you two fish, and you will repay me with three fish because there is a non-zero probability that you will be completely unable to repay me, in which case, although I will ask for a good-faith payment of whatever you can afford, we both lose. I accept only your promise in exchange for bearing this risk, and also for advancing your sustenance during the time you devote to your invention.”

Jones begins production forthwith, and after a day, has created a primitive net. Let us assume that this net then allows him to catch seven fish in one day, after which its useful life is exhausted. On the morning of the second day, Jones consumes the second fish loaned to him by Smith, and sets out to go fishing with his new net. He catches seven fish before the net falls apart in the surf. Of his bounty, he repays Smith the two plus one fish, four remaining to himself.

Smith: I could have enjoyed two days of repose immediately, but loaned my excess instead, realizing a gain of one. Now I may enjoy three days of leisure in the future.

Jones: Although it requires only two to produce, its value-add is five.  I paid three therefore realizing a gain of two; now I may enjoy the “weekend” for once.

Both men are better off as a result: Smith needed only work five days this week (as a result of his previous thrift), but works four instead. And Jones who otherwise would’ve worked seven days, works but five.

Question 1: What justification is there, if any, for denouncing the initial grant of loan (two fish to be repaid plus one)?

Question 2: The question of usury hinges upon some sort of exploitation. How precisely has Jones (or Smith) been exploited by the other, under the above scenario?

Question 3: At what price would the loan from Smith to Jones not be considered “usury”?

Concluding Remarks:

If both men enjoy their leisure to its fullest, their reserves will be exhausted and in order to survive each will be compelled by hunger to work the full seven days next week.

On the other hand, if they are wise and cooperative, they will in short time realize that they may obtain the same amount of food with far less effort in the following manner: Jones works twice weekly to produce nets, and Smith uses those nets twice weekly to catch fourteen fish, divided equally between them. Each man may then enjoy five days of leisure where he previously enjoyed none.