Our Gemara on Amud Aleph discusses what penalties are incurred should someone flout the prohibition of usury, and draw up a contract, and actually lent the money:

תָּנוּ רַבָּנַן: שְׁטָר שֶׁכָּתוּב בּוֹ רִבִּית – קוֹנְסִין אוֹתוֹ, וְאֵינוֹ גּוֹבֶה לֹא אֶת הַקֶּרֶן וְלֹא אֶת הָרִבִּית, דִּבְרֵי רַבִּי מֵאִיר. וַחֲכָמִים אוֹמְרִים: גּוֹבֶה אֶת הַקֶּרֶן וְאֵינוֹ גּוֹבֶה אֶת הָרִבִּית. בְּמַאי קָמִיפַּלְגִי? רַבִּי מֵאִיר סָבַר: קָנְסִינַן הֶתֵּירָא מִשּׁוּם אִיסּוּרָא, וְרַבָּנַן סָבְרִי: לָא קָנְסִינַן הֶתֵּירָא מִשּׁוּם אִיסּוּרָא.

The Sages taught: In the case of a promissory note in which the details of a loan with interest were written, we penalize the lender, and therefore he may not collect the principal and may not collect the interest; this is the statement of Rabbi Meir. And the Rabbis say: He may collect the principal but he may not collect the interest. The Gemara asks: With regard to what principle do they disagree? The Gemara explains: Rabbi Meir holds: We penalize him with regard to that which is permitted due to that which is prohibited, and the Rabbis hold: We do not penalize him with regard to that which is permitted due to that which is prohibited.

This is an interesting psychological and moral idea about punishment and deterrence.  This is unlike other Talmudic discussions, such as whether we penalize an unwitting offender due to an intentional offender (Eiruvin 100a).  In that case, the issue is a concern that people might be lax or try to claim that their offenses were unintentional. Here, this has nothing to do with intention per se, but to what degree there is a need to deter.  Must we simply subvert the profit motive, or must we also add a penalty effect.  

In secular law and social psychology there are also various theories regarding the degree of pain required to successfully deter would-be wrong-doers.  We will discuss some key elements and thinking in this regard, because it is both relevant as institutional leaders or parents, and can help shed light on possible elements of Chazal’s thinking in this regard.

According to researchers Polinsky & Shavell (Mitchell Polinsky & Steven Shavell, Punitive Damages: An Economic Analysis, 111 HARv. L. REV. 869 (1998).There is a question about what form punishment should take as an effective deterrent. Should punitive damages aim to deter up to the appropriate level by internalizing costs, that is making the person pay for all the damage he caused, or should they aim to eliminate the offender's expectation of gain?

Sometimes the profit is far in excess to the loss, and other times the loss is far more than the profit. For example, if a thief fences a gold heirloom and pawns it at 20% of the value, he makes a quick $2,000 to buy his next hit, but the victim loses $10,000.  On the other hand, taking interest might offer more gain to the lender than loss to the borrower. After all, the borrower needs the money, and in some way, may not mind paying a little interest for it.  This may help explain why the question comes up here in our Gemara, as the deterrence cannot merely focus on repaying the loss to the borrower or even society, and the ill-gotten profit is mostly separate and much less than the damages. This might be compared to the crime of insider trading. While society does suffer from market instability and trader’s lack of confidence, the bigger issue is the insane amount of profit. Thus, a deterrence must focus on the expectation of gain. 

OK then, what is the rationale for the other side. Why shouldn't Chazal go for the maximum pain and deterrence and cancel the loan completely, and not just the interest?  For this we need to turn to the 1764 work of Cesare Beccaria's, “On Crimes and Punishments”. Beccaria held that penalties should eliminate the gain to the offender, but not much more, because harsh penalties tend to encourage retaliation and cruel behavior in the long run. He wrote:

In proportion as torments become more cruel, the spirits of men, which are like fluids that always rise to the level of surrounding objects, become callous, and the ever lively force of the passions brings it to pass that after a hundred years of cruel torments the wheel inspires no greater fear than imprisonment once did. The severity of punishment itself emboldens men to commit the very wrongs it is supposed to prevent; they are driven to commit additional crimes to avoid the punishment for a single one.

Whether Beccaria is right is a matter of opinion, but it is important to appreciate the nuance and thought that social systems involve, of which Chazal were cognizant.

Translations Courtesy of Sefaria, except when, sometimes, I disagree with the translation

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