T.234 (1849.02) Capital and Rent (Capitale et rente) Published as pamphlet, Capitale et rente (Paris: Guillaumin, 1849). [OC5.3, pp. 23-63.] [CW4]
Previously translated by David A. Wells in 1877: Frédéric Bastiat, Essays on political economy. English translation Revised, with Notes by David A. Wells (G.P. Putnam Sons, 1880). First ed. 1877. Contains "Capital and Interest," pp. 1-69; "That Which is Seen, and That Which is Not Seen," pp. 70-153; "Government" (The State), pp. 154-73; "What is Money?" (Damned Money), pp. 174-220; "The Law," pp. 221-91.
This is one of Bastiat's 12 Anti-Socialist Pamphlets which were published between late 1848 and July 1850 by the Guillaumin publishing firm and promoted as the "Petits Pamphlets" (Short or Little Pamphlets). 1284 It was part of a concerted campaign by the publishing firm to counter socialist ideas during the the Revolution and the Second Republic by appealing directly to the workers and to socialist intellectuals. In many of them, as with this essay here, Bastiat speaks directly to "les travailleurs" (the labourers), "les ouvriers" (the workers), and "les prolétaires" (the proletarians). A special four page Catalog entitled "Publications nouvelles sur les questions économiques du jour" (New Publications on the Economic Questions of the Day) listed 40 of the firm's books on the right to work (or the "right to a job"), socialism, the condition of the working class, and other similar topics. The catalog was included with the first of Bastiat's Petits Pamphlets Propriété et loi. Justice et fraternité (Paris: Guillaumin, 1848) which was published in late 1848.
By February 1849 when this essay was written Bastiat and his younger friend and colleague Gustave de Molinari had come to the realisation that the classical economists had opened themselves up to socialist criticism because of their hitherto poor defence of private property, interest, and rent. In their view the economists had either assumed the legitimacy of private property or had admitted that the rent from land was in effect "unearned" by the land owner as it was the product of the sun, soil, and rain and not of their own labour and exertions. Bastiat intended to rectify this oversight in his Anti-Socialist Pamphlets and his treatise on economic theory, the Economic Harmonies (1850, 1851), while Molinari would do the same in his articles and book reviews in the JDE , his book Les Soirées , 1285 and in his treatise on economics, which began as a series of lectures at the Athenée royale in Paris in late 1847. The latter were continued at the Musée royal de l'industrie belge when he moved to Brussels in 1852 and were eventually published as the Cours d'économie politique , which appeared in 1855. 1286
The title of this of essay should have been "Capital, Interest, and Rent" in order to better explain the content of the piece. He would return to these topics in more detail later in chapters on Exchange, Capital, and Rent which he was writing for his treatise Economic Harmonies . 1287 What is missing from the treatise is any extended treatment of money. He touches on it in this essay and also in some other writings such as "Damn Money!" written a couple of months after this (April 1849), the pamphlet "Capital" (mid 1849), and his long debate with Proudhon later in the year on "Free Credit." 1288
Traditionally the classical economists defined "rent" as the return which came from agricultural land; "profits" came from business activity, commerce, and manufacturing; and "interest" came from lending capital. Socialists like Proudhon, Louis Blanc, and Victor Considerant criticised interest, rent, and profit as unjust impositions on the labour of ordinary workers because they were "unearned" by the owners of capital, land, and business enterprises respectively. This criticism was responded to by free market economists such as Bastiat and Molinari, as well as Charles Dunoyer, Adolphe Thiers, Léon Faucher, Michel Chevalier, Louis Wolowski, and Joseph Garnier, in multiple works throughout the 1840s which reached a peak in 1848. It should also be noted that a small group of economists also founded a political club, the "Club de la liberté du travail", in March 1848 to confront the socialists head on on the streets of Paris to publicly debate these very questions. They were Charles Coquelin, Alcide Fonteyraud, Joseph Garnier, and Gustave de Molinari . 1289
Bastiat added another twist as this debate was taking place as he was radically rethinking the classical theories of rent and value not always with the agreement of his economist colleagues. 1290 The gist of his new idea was that he could generalise the theory of exchange by redefining exchange to cover any "mutual exchange of services," 1291 and to include under the rubric of "services" all physical goods, non-material goods (or services proper), as well as all returns on investments (whether from capital, land, or a business enterprise) which were more commonly known as interest, rent, and profit respectively. It was the latter aspect of his theory that his colleagues in the Political Economy Society rejected. For example, at the April 10, 1850 meeting of the Society the consensus view was that there was something unique about land rent and that it couldn't be folded into the more general group of "services" as Bastiat wanted to do, 1292 and Molinari thought that by replacing Say's classic formulation of trade as "goods being exchanged for other goods" with "services being exchanged for other services" was Bastiat just playing with words. 1293 In spite of this opposition, Bastiat continued to develop his theory of exchange during 1849 and 1850, using a variety of expressions such as "services pour services" (services are exchanged for other services), "la réciprocité des services" (the reciprocal exchange of services), and "la mutualité des services" (the mutuality of services, or the mutual exchange of services) which is the one he preferred to use here.
In the context of this pamphlet (written in February 1849) Bastiat is appealing to workers who had been influenced by socialists like Proudhon, and so he takes a phrase used by Proudhon, 1294 "la mutualité des services" (the mutual sharing of services), and adapts it for his own purposes (meaning here "the mutual exchange of services"). Proudhon, unlike his other socialist colleagues such as Considerant and Louis Blanc, approved of some transactions on the free market between equal parties where there was some mutual benefit to the exchange. However, he did did not think this was possible in the case of interest paid on loans. Thus, here Bastiat was trying to turn Proudhon's own argument back on himself in a rhetorical turn of phrase which he was much skilled at, as his Economic Sophisms demonstrate, to show that profit, interest, and rent provide mutual benefits to both sides involved in the transaction.
As Bastiat was still working on these new theories at the time this essay was written his use of the terms "interest," "rent," and "value" is sometimes a little confusing. In this translation we have retained Bastiat's use of these words and explain in the footnotes any issues which may arise. Bastiat believed that capital was productive, referring to "la productivité du capital" (the productivity of capital) which produced a return of some kind. Sometimes he referred to this return on capital as "interest" in the traditional sense, "intérêt des capitaux" (interest (earned) on capital), and sometimes as "rente" as in the phrase "le capital produise une Rente" (capital generates a rent). It could be that he just means by rent any annual income or return from an investment, whether capital or land. However, we have chosen to use Bastiat's preferred terminology throughout this essay as we explained above
Another innovative idea which Bastiat develops in this essay is that an exchange is a result of a comparative evaluation of two services by the two parties involved in a transaction. The "value" which is exchanged when services are given and received is determined by the individuals involved in the transaction rather than resides in the products themselves. This is one of Bastiat's most original and profound economic insights which went to the heart of the Smithian and Ricardian tradition of economic thought, which asserted that there was something inherent within the objects being exchanged (such as labour or utility) and that this thing could be objectively assessed, measured, and valued. Bastiat's insight was to reject the objectivity of this "value" and to see that it was the subjective valuations, the "appréciation comparée" (comparative evaluation or judgement), of the two parties to the exchange which made exchange both possible and worth while for both parties.
Although Bastiat rejects the idea that things of equal utility are exchanged he persists in thinking that "equivalent" services are exchanged. The difference between "equal" and "equivalent" is not always clear. However, Bastiat does argue that each individual "evaluates" the utility or value of the goods and services which they sell or purchase and does so based upon their particular place and circumstances. However, in Economic Harmonies he explicitly rejects Condillac's 1295 and Storch's 1296 idea that when exchanges occur because individuals place a different (and thus "unequal") value on things a "double profit" arises - one for each party. Bastiat believed that there was only "one profit" and not two. 1297 He is thus only half way towards a fully thought out theory of subjective value theory along the lines of the marginalist and Austrian schools which emerged in the 1870s.
As part of his critique of socialism, Bastiat criticised the idea of state imposed fraternity and defended the idea of voluntary fraternity which emerged in a free market. He refers to this briefly in "Capital and Rent" but discusses it in more detail in the essay "Justice et fraternité" (Justice and Fraternity) (June, 1848). 1298 Here Bastiat distinguishes between "la fraternité légale" (state imposed fraternity) and "la fraternité libre, spontanée, volontaire" (free, spontaneous, and voluntary fraternity) as he did between "la charité légale ou forcée" (state or coerced charity) and "la charité volontaire ou privée" (voluntary or private charity). Concerning fraternity, he argues that: 1299
|La fraternité, en définitive, consiste à faire un sacrifice pour autrui, à travailler pour autrui. Quand elle est libre, spontanée, volontaire, je la conçois, et j'y applaudis. J'admire d'autant plus le sacrifice qu'il est plus entier. Mais quand on pose au sein d'une société ce principe, que la Fraternité sera imposée par la loi, c'est-à-dire, en bon français, que la répartition des fruits du travail sera faite législativement, sans égard pour les droits du travail lui-même ; qui peut dire dans quelle mesure ce principe agira, de quelle forme un caprice du législateur peut le revêtir, dans quelles institutions un décret peut du soir au lendemain l'incarner ? Or, je demande si, à ces conditions, une société peut exister ?||Fraternity, in sum, consists in making a sacrifice for another, working for another. When it is free, spontaneous, and voluntary I can understand it and I applaud it. My admiration for sacrifice is all the greater where it is total. But when this principle, that fraternity will be imposed by law, is propounded within society, that is to say in good French, that the distribution of the fruits of work will be made through legislation, with no regard for the rights of the work itself, who knows to what extent this principle will operate, what form a caprice of the legislator will give it, and in what institutions a decree will bring it into existence from one day to the next? Well, I ask whether society can continue to exist in these conditions.|
Finally, throughout this essay Bastiat uses three different words for the "workers" to whom he was appealing, depending on the context: "ouvriers", "travailleurs", and "prolétaires" which we have translated as "workers", "labourers," and "proletarians" respectively, in order to preserve Bastiat's intention. Bastiat only uses the word "prolétaires" in the last part of the essay when he appeals directly to those workers who had been inspired by socialist ideas in an effort to win them back to a free market position.
The structure of the essay is a little unusual for Bastiat. It is based around three "economic tales" about "The Sack of Wheat," "The House," and "The Plane" which was standard practice in his Economic Sophisms. After an introduction where he sets out his theoretical arguments Bastiat turns to a series of stories or economic tales using stock characters to illustrate these concepts for the general reader. In this he is following the standard practice he established in the Economic Sophisms. In this essay the stories are "The Sack of Wheat" (Mathurin and Jérôme), "The House" (Mondor and Valère), and "The Plane" (Jacques and Guillaume). What was very different is that he wraps around these three stories an explanatory and somewhat theoretical analysis which makes it much longer and heavier going for the reader than his previous efforts at economic story telling.
In this article, I am trying to penetrate the inner workings of what is known as the i nterest on capital in order to prove its legitimacy and explain its perpetuity.
This may seem strange, but the fact is that what I fear is not to be obscure but rather to be too clear. I fear that readers will be put off by a series of genuine Truisms . How do I avoid pitfalls like this when my sole aim is to deal with facts that are familiar to all through personal, familiar and daily experience?
"This being so," people will tell me, "what is the use of this article? What good does it do to explain something that everyone knows?" 1300
Let us make a distinction, please. Once an explanation has been given, the clearer and simpler it is, the more superfluous it appears. Everyone is driven to exclaiming "I did not need anyone to solve the problem for me." This is the egg of Columbus. 1301
However, this very simple problem would seem much less so if we limited ourselves to setting it out. Let me put it in these words: "Today, Mondor lends out a tool that will be worn out in a few days' time. In spite of this, the capital will produce interest for Mondor or his heirs for all eternity." 1302 Reader, with your hand on your heart, does the answer to this question immediately spring to mind?
I have no time to turn to the economists. As far as I know, they have scarcely been concerned at all with probing Interest in terms of its raison d'être. We cannot blame them for this. At the time they were writing, Interest had not been called into question. 1303
This is no longer the case. The people who say and believe they are ahead of their century have organized active propaganda against Capital and Rent. They attack the Productivity of capital, not in a few abusive cases, but in principle .
A journal has been founded as a vehicle for this propaganda. It is directed by Mr. Proudhon and is said to enjoy huge publicity. 1304 The first issue of this sheet included the electoral Manifesto of Le Peuple. 1305 It says: "The Productivity 1306 of capital is what Christianity condemned under the epithet "Usury", 1307 and they are the true cause of poverty, constituting both the real principle of the proletariat and the eternal obstacle to the establishment of the Republic."
After saying excellent things about work, another journal, La Ruche Populaire 1308 , added: "But above all, work has to be carried out freely, that is to say, that work must be organized in such a way that it is not necessary to pay bankers, 1309 employers or masters for this freedom to work, this right to work that exploiters of men place at such a high price."
The only thought that I will raise here is the one expressed in the words in italics, implying opposition to the paying of Interest. Besides, this thought will be commented on later in the article.
Here is what Thoré, 1310 the famous social democrat, has to say:
The Revolution will always have to be started again for as long as consequences alone are being dealt with, absent the logic and courage needed to abolish the principle itself.
This principle is capital, the counterfeit kind of property, revenue, rent, and usury with which the old regime burdened work.
Since the day, a long time ago, when aristocrats invented this incredible fiction — that capital had the virtue of reproducing itself all by itself , workers have been at the mercy of the idle.
At the end of the year will you find one écu of one hundred sous more in a bag of one hundred francs? 1311
At the end of fourteen years, will your écus in the bag have doubled?
Will one work of art or industry have produced another once fourteen years have passed? 1312
Let us therefore start with the elimination of this disastrous fiction. 1313
At this point, I am neither discussing nor refuting; I am merely quoting, in order to establish that the productivity of capital is considered by a great many people to be a principle that is false, disastrous, and inequitable. But do I need quotations? Is it not a well-known fact that the people ascribe their sufferings to the exploitation of man by man and has not the phrase the Tyranny of Capital become proverbial? 1314
There can be nobody in the world, I think, who does not understand the full seriousness of the following question:
"Is interest on capital natural, fair, and legitimate and is it as useful to the person who pays it as to the one who receives it?"
People say " No " but I say " Yes. " We differ radically on the solution but there is one thing on which we cannot differ and that is the danger of persuading public opinion to accept the wrong solution, whatever it is.
Again, if the error is on my side, the harm is not very great. From this it has to be concluded that I understand nothing of the true interests of the masses, the progress of the human race, and that all my reasoning resembles so many grains of sand which will certainly not stop the juggernaut of the Revolution.
If Messrs. Proudhon and Thoré are mistaken, however, it follows that they are misleading the people and pointing out harm where none exists, that they are giving a wrong direction to the people's ideas, to their dislikes, the objects of their hatred and their political upheavals; it then follows that those who have been misled may rush into a dreadful and absurd conflict in which victory will be more disastrous than defeat since, according to this theory, what they are pursuing is the achievement of universal harm, the destruction of all their means of emancipation, and the bringing to pass of their own destitution.
This is what Mr. Proudhon acknowledged in total good faith. "The foundation stone of my theorizing", he told me, "is free credit ." 1315 If I am mistaken in this, socialism is nothing but a dream." I would add "It is a dream in which, while it lasts, the people will tear themselves apart; should we be surprised if they are bloody and bruised when they awake?"
This is enough to justify me if, during the discussion, I have let myself be carried away in a few trivialities and have written at some length.
I am addressing this article to the workers of Paris and in particular to those who have rallied to the banner of socialist democracy .
In it, I will be dealing with two questions:
1. Is it in the nature of things and in accordance with justice that capital generates Rent? 1316
2. Is it in the nature of things and in accordance with justice that the Rent from capital should be perpetual?
The workers of Paris will readily recognize that there is no more important subject that one could debate.
From the dawn of time it has been acknowledged, at least in practice, that capital had to produce Interest. 1317
In recent times it has been claimed that this is precisely the social error that has caused poverty and inequality.
It is therefore essential to know what to believe.
For if the payment of Interest to the profit of Capital is iniquitous, workers are within their rights to rise up against the current social order, and there is no point saying to them that they should have recourse only to legal and peaceful means, for that would be hypocritical advice. When on the one hand you have a man who is strong, poor, and a victim of theft and on the other hand one who is weak, rich and a thief, it would be quite odd to say to the first in the hope of persuading him: "Wait until your oppressor voluntarily renounces his oppression or until it ends of its own accord." That cannot be, and those who teach that Capital is unproductive by nature must be aware that they are provoking a terrible and immediate conflict.
If, on the contrary, the payment of Interest on Capital is natural, legitimate and consistent with the public good, favorable to borrower and lender alike, the political writers who deny this and the public speakers who exploit this alleged social scourge are inciting workers to a senseless and unjust conflict whose only outcome will be the misfortune of all.
In a word, they are arming Labor against Capital. This would be all to the good if these two forces were in opposition! Let the conflict soon be over! But if they are in harmony, the conflict is the greatest harm that can be inflicted on society.
Therefore, Workers, you can clearly see that there is no question more important than this: Is the rent from capital legitimate or not? If the first is true, you ought immediately to repudiate the conflict toward which you are being propelled; in the second case, you ought to pursue it energetically to the bitter end.
The Productivity of capital; the Perpetuity of rent. These questions are difficult to deal with. I will try to be clear. To do this I will use examples rather than demonstrations, or rather I will clothe the demonstration in an example.
I will begin by agreeing that, at first sight, it must seem strange to you for capital to claim payment, especially payment that is perpetual.
You must be saying to yourselves: Here are two men. One works from morning to night, from one end of the year to the next and, if he has consumed everything he has earned, perhaps out of absolute necessity, he will remain poor. On New Year's Eve, he will be no further forward than he was on the previous New Year's Day, and his only prospect is to start all over again. The other man does not use either his hands or his brain, at least, if he does so it is for pleasure; he has the option to do nothing because he receives rent . He does not work, and yet he lives well, having everything in abundance -- fine food, sumptuous furniture, and elegant clothes. This means that every day he uses up things that workers have had to produce by the sweat of their brow, for these things are not made by themselves and, as for him, he has not turned his hands to them. It is we, the workers, who have caused this wheat to germinate, varnished this furniture, and woven these carpets; it is our wives and daughters who have woven, cut out, sewn, and embroidered these fabrics. We therefore work both for him and for us; for him in the first instance and for ourselves if anything is left over. But here is something more striking: if the first of these two men, the worker, consumes all that has been left to him by way of profit during the year, he is therefore always at the starting point and his fate condemns him to turning endlessly in an eternal, monotonous circle of fatigue. Work is thus paid for just once. However, if the second man, the man of independent means, 1318 consumes his annual rent during the year, the following year, and the years following that for all eternity, he will have a revenue that is always the same, always inexhaustible, and perpetual . Capital is thus remunerated not once or twice, but an innumerable number of times! This means that, a hundred years later, the family that has invested 20,000 francs at 5 percent will have received 100,000 francs and this will not stop it receiving another 100,000 in the succeeding century. In other words, for 20,000 francs' worth of its own work, in two centuries the family will deduct ten times that sum from other people's work. Is there not a monstrous vice that needs to be reformed in this type of social order? This is still not all. If this family is willing to restrict its expenditure a little and, for example, spend only 900 francs instead of 1,000, with no work or trouble other than that of investing 100 francs per year, it can increase its Capital and its Rent to an extent that is so rapid that it will soon be in a position to consume as much as one hundred hard-working families of the toiling workers. Does this not show that current society carries a hideous cancer within it, which has to be cut out even if this risks a little temporary suffering?
These, I think, are the sad and irritating reflections that an active and too facile propaganda campaign against capital and rent must be arousing in your minds.
On the other hand, I am perfectly convinced that there are times at which your mind entertains doubts and your conscience scruples. You must be saying to yourselves, "But proclaiming that capital should not produce interest is to proclaim that loans should be free of charge, and that means that the person who has created Tools of production or Materials or Provisions of any sort has to hand them over for nothing. Is this just? And if this is how things are, who would want to lend these tools, materials, or provisions? Who would want to keep them in stock or even produce them? Each person would consume them as they went along, and the human race would never take a step forward. Capital would no longer be accumulated because there would no longer be any interest in doing so. 1319 It would become extremely scarce. This would be a strange kind of progress toward free loans; a strange way of improving the lot of borrowers by making it impossible for them to borrow at any price! What would become of production itself? For there would be no more loans in society and not a single branch of production can be named, not even hunting, that can be carried on without loans. And what would become of all of us? What! Would we no longer be allowed to borrow in order to work in our most productive years and to lend in our old age in order to be able to take some rest? Would the law snatch from us the prospect of accumulating a little property by forbidding us to draw any returns from it? Will it destroy in us both the incentive to save at present and the hope of rest in the future? No matter how much we wear ourselves out with fatigue, we will have to abandon the prospect of handing on a little nest-egg to our sons and daughters, since modern science has castigated it as unproductive and since we will become exploiters of men 1320 if we lend it for interest! Ah! This world that is opening up before us as an ideal is even more mournful and arid than the one being condemned, for at least in this one, hope has not been banished!
Thus, in all respects and from all points of view, the question is a serious one. We must hurry to find a solution.
The Civil Code has a section entitled "On the manner in which property is transmitted". 1321 I do not believe that this is a complete listing. When a man, by dint of his own work, has made something useful, in other words, when he has created something possessing value , it can pass into the hands of another man only by one of five routes: by gift, inheritance, exchange, loan, or theft . I'll only say a few words about each of them except the last, although it plays a larger role in the world that one would think. 1322
Gifts have no need to be defined. They are essentially voluntary and spontaneous. They depend exclusively on the giver, and it cannot be said that the person receiving them has any right to them. Doubtless the morality and religion have often made it a duty for men, especially wealthy ones, to hand over things they own freely to their more unfortunate brethren. But this is a wholly moral obligation. If it were to be proclaimed as a principle and accepted in practice, if it were enshrined in law that everyone had the right to the property of others, gifts would no longer be meritorious and charity and gratitude no longer virtues. What is more, a doctrine like this would abruptly and universally stop both work and production just as a sharp cold snap freezes water and puts life into suspended animation, for who would work if there were no correlation between our work and the satisfaction of our needs? Political economy has not dealt with gifts . From this it has been concluded that it rejected gifts and that it was a heartless science. This is a ridiculous accusation. This science, which examines the laws that result from the mutual exchange of services , 1323 had no need to research the consequences of generosity on the person receiving it, nor its effects perhaps even more precious, on the donor; as these consequences are obviously a question for moral philosophy. The various branches of science have to be allowed to limit their scope and above all, they must not be accused of denying or belittling those matters they deem to be outside their domain.
Inheritance , against which there has been a recent outcry, 1324 is one of the forms of a Gift, and certainly the most natural. What man has produced he is free to consume, exchange, or give away, and what is more natural than for him to give it to his children? It is this ability, more than any other, which inspires in him the courage to work and to save. Do you know why the principle of Inheritance is being contested? Because people think that property handed down in this way is being taken away from the masses. This is a disastrous error; political economy demonstrates in the starkest fashion that all value produced is a creation that does no wrong to anyone at all. This is why it can be consumed and above all why it can be handed down without harming anyone. However, I will not dwell on these considerations, which are not germane to my subject.
Exchange is the principal domain of political economy because it is by far the most frequent method of transferring property in accordance with agreements that are freely and voluntarily entered into and whose laws and effects this science studies.
Strictly speaking, Exchange is the mutual exchange of services. The parties say to one another: "Give me this and I will give you that" or "Do this for me and I will do that for you". It should be noted (as this will shed new light on the notion of value ) that the second formula is always implicit in the first. When people say "Do this for me and I will do that for you," they are offering to exchange one service for another. Similarly, when they say: "Give me this and I will give you that" it is as if they were saying "I will hand over to you this item that I have made; hand over to me one that you have made." The work is in the past instead of being in the present, but the Exchange is no less governed by a comparative evaluation of the two services, so that it is very true to say that the principle of value is inherent in the services given and received when products are exchanged rather than in the products themselves.
In fact, services are almost never exchanged directly. There is an intermediary involved, known as money. 1325 Paul has made a suit in exchange for which he wants to obtain a little bread, a little wine, a little oil, a visit to the doctor's, a seat at the theatre, etc. The Exchange cannot be made in kind, so what does Paul do? He first of all exchanges his suit for money, a procedure known as a sale . He then exchanges this money for the things he wants, a procedure known as a purchase and it is only at this point that the mutual exchange of services completes its evolution, that work and satisfaction are in balance for the same person and he is able to say "I have done this for society and it has done this for me". In short, it is only at this point that the Exchange has been fully accomplished . Nothing is more accurate then than this comment by J. B. Say: "Since the introduction of money, each exchange is broken down into two factors, sale and purchase. " It is the combination of these two factors that makes the exchange complete. 1326
It should also be said that the constant appearance of money in each exchange has overwhelmed and misled all previous ideas; people have ended by believing that money was the true wealth and that to increase it was to increase the number of services and products. This has led to the protectionist regime, 1327 paper money, and the famous aphorism: "What one person gains, another loses," 1328 and other errors that have ruined and bloodied the earth.
After a lengthy search, it was found that, in order for two services exchanged to have an equivalent value and for the exchange to be just, the best method was for it to be free. 1329 However attractive State intervention appears to be at first sight, it is soon apparent that it is always oppressive for one or other of the contracting parties. When you examine these questions closely, you are obliged always to reason from the given fact that equivalence is the result of freedom. Indeed, we have no other way of knowing whether, at any given time, two services are worth the same , than to see whether they are readily and freely exchanged for one another. Introduce the intervention of the State, which is based upon force, on one side or the other, and immediately any means of evaluation becomes complicated and confused instead of becoming clearer. The role of the State should be to forestall and above all to repress misrepresentation and fraud, that is to say, to guarantee freedom and not to violate it.
I have gone into some detail on Exchange , although my principal duty is to deal with Lending . My excuse for this is that, in my opinion, a real exchange occurs in lending, a genuine service is provided by the lender which makes the borrower responsible for returning an equivalent service; two services whose comparative value, like the value of all possible types of service, can be assessed only in the light of freedom.
Well, if this is so, the total legitimacy of what are known as rents for houses or land, as well as the paying of interest on capital, is explained and justified. 1330
Let us therefore consider Lending .
Let us assume that two men exchange two services or two items whose equivalence is beyond dispute. For example, let us assume that Pierre says to Paul "Give me ten ten-sou coins in exchange for one five franc coin". 1331 It is impossible to imagine a more manifest equivalence. When this barter has been completed, neither of the parties has anything he can claim from the other. The services exchanged are equal [se valent] 1332 The result of this is that if one of the parties wishes to bring into the bargain an additional clause that is favorable to him and disadvantageous to the other, the second party would have to agree to a second clause that restores the equilibrium and reinstates the law of justice. To see injustice in this second compensating clause would certainly be absurd. Let us suppose that this is the case. Now, if Pierre, after saying to Paul "Give me ten ten-sou coins and I will give you one five franc coin," now adds, "You must give me the ten ten-sou coins immediately and I, for my part, will give you the one hundred sou coin only in a year's time, " then it is quite clear that this new proposition alters the costs and benefits of the transaction and the relative magnitude of the two services. Does it not in effect leap to the eye that Pierre is asking Paul for a new service that is additional and of a different type? 1333 Is it not as though he were saying "Provide me with the service of being able to use your five francs for my own benefit for one year, a sum which you could be using for yourself?" And what good reason can be put forward to maintain that Paul is bound to provide this special service free of charge and ask for nothing further for this requirement and that the State should intervene to force him to do so? How then can the political writer 1334 who preaches a doctrine like this to the people reconcile it with his principle of the mutual exchange of services ?
I have brought money into the debate here. I have been led to do so by a wish to put before us two objects for exchange that are totally and indubitably equal in value. 1335 I wanted to deal with the objections but, from another point of view, my argument would have been even more striking if I had made the agreement bear on the services or products themselves.
For example, let us take a House and a Ship, whose values are so totally equal that their owners wish to exchange them by swapping one for the other, 1336 with no additional payment or discount involved. In fact the trade takes place before a notary. Just as they are each about to take possession, the shipowner says to the town dweller "Very well, the transaction is complete and nothing is better proof of its total equity than our free and voluntary agreement. Now that the conditions have been settled in this way, I now propose a small, practical modification to you. It is that you hand your House over to me today, but that I will only hand over my Ship to you in a year's time, and the reason I am asking you this is so that for this term of one year I can make use of the Ship." To avoid becoming involved in the considerations relating to the deterioration of the object lent, I will assume that the shipowner adds: "I will make sure that in a year's time, I will hand over the ship in the same condition as it is right now." I ask any person of good faith and even Mr. Proudhon himself, would the town dweller not be within his rights in replying "The new clause you are proposing changes the relative magnitude or the equivalence of the services exchanged. Through it, I will be deprived for one year both of my house and your ship. Through it, you will have the use of both. If, in the absence of this clause, the exchange of swapping one thing for another was fair, this is the very reason why it is an imposition on me. It stipulates a disadvantage for me and an advantage for you. It is a new service that you are requesting from me; I therefore have the right to refuse it or to ask you for an equivalent service in compensation."
If the parties agree on this compensation, the principle of which is incontestable, two transactions may be readily seen in the same transaction, two exchanges of services in one exchange. First of all, there is the exchange of the house for the ship, and then the delay granted by one party and the compensation corresponding to this period accepted by the other. These two new services are known generically and in the abstract as Credit and Interest, but names do not change the nature of things and I challenge anyone to be bold enough to say that basically there is not in this encounter one service exchanged for another or mutual exchange of services . To say that one of these services does not give rise to the other, or that the first has to be provided free of charge (surely an injustice), is to say that injustice consists in the reciprocity of services 1337 and that justice consists in one of the parties giving something and not receiving anything in return, which is a contradiction in terms.
To give an idea of interest and its mechanism, may I have recourse to two or three tales? But before doing so, I have to say something about capital.
There are some people who consider that capital is money, and this is precisely why its productivity is denied, since, as Mr. Thoré says, écus lack the ability to reproduce themselves. However, it is not true that Capital is synonymous with money. Before the discovery of precious metals there were capitalists in the world, and I will be so bold to say that then, as now, everyone was a capitalist to some degree.
What is capital, then? It is made up of three things:
1. Materials , on which people work, when these materials already have a value bestowed upon them by human effort of one kind or another, which has endowed them with the possibility of being bought and sold: wool, linen, leather, silk, wood, etc.
2. I mplements people use in order to work: tools, machines, ships, vehicles, etc., etc.
3. Provisions that they consume while they are working: foodstuffs, fabrics, houses, etc.
Without these things the work of man would be thankless and almost meaningless, and yet these things themselves have required lengthy periods of work, especially at the outset. This is why a high price is placed on possessing them, and it is also the reason why it is perfectly legitimate to exchange and sell them, and to gain a profit from using them and a payment for lending them.
Here, now, are my tales.
Mathurin, 1338 who was incidentally as poor as Job, and reduced to earning his living from day to day, was nevertheless the owner, through some inheritance or another, of a fine plot of land that was lying fallow. His burning wish was to clear it. "Alas!" he said to himself, "digging ditches, putting up fences, breaking up the soil, removing brambles and stones, fertilizing and sowing it, all this may well provide me with food in a year or two, but certainly not today or tomorrow. It is impossible for me to devote myself to farming until I have accumulated a few provisions to keep me going until the harvest, and I know through experience that prior work is essential for making current work truly productive." The honest Mathurin did not stop at reflections like these. He also resolved to work on a daily basis and save part of his earnings in order to buy a spade and a sack of wheat, things without which the finest farming dreams come to naught. He did this so well and was so busy and sober that at last he found himself the owner of the much desired sack of wheat . "I will take it to the mill," he said, "and this will provide me with the wherewithal to live until my field is covered with a rich harvest." When he was about to set out, Jérôme came to borrow his treasure. "If you are willing to lend me this sack of wheat," said Jérôme, "you would be doing me a great service , for I have in mind a highly lucrative job which I cannot undertake as I have no Provisions on which to live until it is finished." "I was in the same position", replied Mathurin, "and if I now have enough bread assured for a few months, I have earned it at the expense of my hands and stomach. On what principle of justice should it now be devoted to achieving your enterprise and not mine?"
You can well imagine that the negotiations were lengthy. However, they were concluded, on the following terms:
First of all, Jérôme promised to return in one year's time a sack of wheat of the same quality and the same weight, with not a grain missing. "This initial clause is only fair," he said; "without it Mathurin would not be lending it, he would be giving it away."
Next, he undertook to hand over five liters of wheat over and above the hectoliter . 1339 "This clause is no less fair than the other," he thought; "without it Mathurin would be providing me with a service for no reward. He would be depriving himself, abandoning the enterprise so dear to him, and would be enabling me to achieve mine. For a year he would be allowing me to enjoy the fruit of his savings, and all this for no charge. Since he is postponing his land clearance, since he is enabling me to carry out a lucrative task, it is only natural for me to allow him to participate to a certain extent in the profits that I will owe solely to his sacrifice."
For his part, Mathurin, who was something of an expert in such things, reasoned as follows. "Since, in accordance with the first clause, the sack of wheat will be returned to me at the end of one year," he said to himself, "I will be able to lend it again. It will be returned to me the second year; I will lend it again and so on for eternity. However, I cannot deny that it will have been eaten a long time ago. It is very odd that I will eternally be the owner of a sack of wheat in spite of the fact that the one I lent will have been totally used up. But this can be explained: it will be used up in providing a service to Jérôme. It will enable Jérôme to produce something of greater value and consequently Jérôme will be able to return a sack of wheat or its value without experiencing any hardship in the slightest. As for me, this value will unquestionably be my property for as long as I do not use it up for my own purposes; if I had used it to clear my land, I would have recovered it in the form of a fine harvest. Instead of this, I am lending it and will recover it in the form of repayment.
I learn another lesson from the second clause. At the end of the year, I will receive five liters of wheat over and above the hundred I lent him. If, therefore, I continued to work on a daily basis, and save some of my earnings as I have been doing, after a while I would be able to lend two sacks of wheat, then three and four, and once I had invested a sufficient number to enable me to live on the sum total of the five liters of payment from each one of them, I would be able to rest a bit in my old age. But then, wouldn't I be living at the expense of others? Certainly not, since it has just been acknowledged that by lending I am providing a service and advancing the work of my borrowers, for which I am paid just a small part of the additional production that is due to my loan and savings. It is marvelous that man is able to achieve leisure that harms no one and cannot be envied without injustice."
Mondor 1340 had a house. In building it, he had never extorted anything from anyone at all. He owed it to his personal work or, which amounts to the same thing, to work that was fairly paid for. His first care was to conclude an agreement with an architect by which, for a set fee of one hundred écus per year, the architect would undertake to keep the house in good condition. Mondor was already congratulating himself for the happy days he was about to spend in this sanctuary that our Constitution has declared to be sacred. However, Valère 1341 claimed the right to make it his home. "What are you thinking?" asked Mondor, "It was I who built it, it has cost me ten years of arduous work and you are the one who will benefit from it!" They agreed to take the matter to the courts. They did not seek out learned economists; there were none in the locality. But they chose just men with common sense, which amounted to the same thing: political economy, justice, and common sense are one and the same. Well, this is what the judges decided. If Valère wished to occupy Mondor's house for one year, he would have to observe three conditions. The first was the obligation to leave at the end of the year and hand back the house in good condition apart from normal wear and tear. The second was the obligation to repay Mondor the 300 francs that Mondor paid the architect each year to repair the ravages of time since this damage would be occurring while the house was in Valère's hands and in all fairness he should bear the consequences of it. The third obligation was that he would have to provide Mondor with a service equivalent to the one he was receiving. This equivalence of service would have to be freely negotiated between Mondor and Valère.
A very long time ago, there lived in a poor village a carpenter who was something of a philosopher, as are all my characters to some extent. Jacques 1342 worked morning and night with his strong hands, but his mind was not idle for all that. He liked to understand his own actions, both as to their causes and their effects. From time to time he said to himself "With my axe, my saw and my hammer I can make only rough furniture and I am paid accordingly for this. If I had a plane I would please my customers more, and they would please me more as well. This is only fair; all I can expect is to receive services that are proportional to the ones I myself supply. Yes, I have made up my mind; I will make myself a plane ."
However, just as he was about to begin, Jacques thought to himself "I work 300 days a year for my customers. If I take 10 of them to make my plane and assuming it lasts me one year, I will have only 290 days to make my furniture. In order, therefore, that I don't end up being duped in this affair , I will have, with the help of the plane, to earn as much from 290 days' work in the future as I do now from 300. Actually, I need to earn more than that, for unless I do, it will not be worth the trouble to venture into making innovations." Jacques therefore began to do his sums. He made sure that he would be selling his improved furniture for a price that would reward him amply for the ten days devoted to making the plane. And when he was quite certain of this, he started work.
I ask the reader to note that the power inherent in the tool to increase the productivity of labor is at the root of the solution that follows.
At the end of ten days, Jacques had a wonderful plane in his possession that was all the more precious since he had made it himself. He was overcome with joy for, like Perrette, 1343 he counted up all the profit he was going to make from this ingenious instrument; unlike her, he was fortunate enough not to be reduced to saying "Farewell cow, calf, pig and brood!"
He was in the middle of building his castles in Spain 1344 when he was interrupted by his colleague, Guillaume, a carpenter in the neighboring village. Once he had admired the plane, Guillaume was struck by the advantages he might obtain from it. He said to Jacques:
"You must do me a service ."
"Lend me this plane for one year."
As you can imagine, this proposition led to an inevitable outcry from Jacques:
"Are you out of your mind, Guillaume? And if I do you this service , what service will you do me in turn?"
"None. Do you not know that loans ought to be free of charge? Do you not know that capital is naturally unproductive? Do you not know that Fraternity has been proclaimed? 1345 If you do me a service only in order to receive one from me, what merit will it gain for you?"
"Guillaume, my friend, fraternity does not mean that all sacrifices have to be one-sided; and if they do, I do not see why they should not be made by you. I do not know whether loans ought to be free of charge, but I do know that if I lent you my plane free of charge for one year, it would be like giving it to you. To tell you the truth, I did not make it for that purpose."
"Well then, let us dispense with the modern axioms on fraternity that the socialists have discovered. I am asking you for a service; what service do you want from me in exchange?"
"First of all, in a year's time the plane would have to be scrapped 1346 for it would be useless. It would therefore be fair for you to give me back one exactly like it or enough money to have it repaired or compensate me for the ten days I will have to devote to making a new one. In one way or another, the plane has got to be returned to me in the same good condition as when I gave it to you."
"That is only fair and I accept this condition. I undertake to return to you either a similar plane or its value . I think you will be satisfied and have nothing further to ask of me."
"Quite the contrary, I think. I have made this plane for me and not for you. I was expecting an advantage from it, an improved level of work that was better paid and an improved standard of living. I cannot hand all that over free of charge. How could it be justified that I have made the plane while you gain the benefit? I might just as well ask you for your saw and axe. What a muddle! Is it not more natural for each to keep what he has made with his own hands just as he keeps his hands themselves? Making use of the hands of others for no reward, that is slavery ; can making use of others' planes for no reward, be called fraternity?"
"But we have agreed that in a year's time I will give it back to you as bright and shiny as it is today!"
"It is no longer a question of next year; it is a question of this one. I have made this plane to improve my work and my standard of living; if you limit yourself to giving it back to me in a year's time, you are the one that will have the benefit of it for a whole year. I am not bound to provide you with a service like this without any service from you; if therefore you want my plane, apart from the total restitution we have already stipulated, you have to provide me with a service which we will discuss; you have to compensate me."
And this was done. Guillaume gave Jacques a payment calculated to give Jacques back a brand new plane at the end of the year together with compensation consisting of a plank for the economic benefits he had gone without and had handed over to his colleague.
And if anyone heard of this transaction, he would have found it impossible to find any trace of oppression or injustice in it.
The striking thing is that, at the end of the year, the plane was returned to Jacques, who lent it again immediately, received it back, and lent it a third and fourth time. It passed into the hands of his son who rents it out still. Poor plane! How many times has its blade or handle been changed! It is no longer the same plane, but it still retains the same v alue , at least for Jacques' descendants.
Workers, let us now discuss the meaning of these tales.
First of all, I state that the Sack of Wheat and the Plane are in this instance the type, model, faithful representation, and symbol of all forms of capital, just as the five liters of wheat and the plank are the type, model, representation, and symbol of all forms of Interest. This having been said, the following is a series of consequences whose fairness cannot be contested:
1. If the handing over of one plank by the borrower to the lender is a payment that is natural, equitable, legitimate, and the fair price for a genuine service, we may conclude that, in general, it is in the nature of capital to generate interest. When this capital, as in the examples above, takes the form of w ork tools , it is very clear that it has to produce a return for its owner, the man who made it and who has devoted his time, intelligence and strength to it, otherwise why would he have made it? Tools of production do not satisfy any immediate need; we do not eat planes and drink saws, unless we are talking about Fagotin. 1347 In order for a man to decide to take time off for producing things of this sort, he will most certainly have had to come to this decision through a consideration of the power that such tools will add to his own, the time they will save him, and the improvement and speed they will give his work, in short, of the gains they provide. Well, are we obliged to hand over to someone else, free of charge, the gains we prepared for ourselves through our work and the sacrifice of time which might have been used for some more immediate purpose, just when we are about to enjoy them? Would it be an advance in the social order for the law to decide in this way, and for citizens to pay civil servants to ensure the execution by force of a law like this? I am bold enough to say that there is not a single one of you who would support this. This would be to legalize, organize, and systematize injustice itself, for it would be to proclaim that there are some men born to provide services free of charge and others to receive them. Let us affirm, therefore, that in fact interest is just, natural, and legitimate.
2. A second consequence, no less remarkable than the first and, if such were possible, even more satisfying, to which I draw your attention, is this: Interest does not harm the borrower . By this I mean that the obligation of the borrower to pay compensation for having the use of a certain capital cannot make his situation worse. 1348
Note that, in fact, Jacques and Guillaume are perfectly free with regard to the transaction to which the p lane may give rise. This transaction can take place only if it suits both parties. The worst that can happen is that Jacques will be too demanding and in this case, Guillaume will refuse the loan and his position will remain as it was before. By taking on the loan, Guillaume is making clear that he considers it advantageous; he is making clear that, having done his calculations and taking account of the compensation, whatever it is, for which he is responsible, he finds it more beneficial to borrow than not to borrow. He takes his decision only after comparing the gains and disadvantages. He has calculated that, on the day he hands back the plane together with the agreed compensation, he will have still produced more for the same work, thanks to this tool. He will retain some profit; if this were not so, he would not borrow.
The two services we are discussing here are exchanged in accordance with the law governing all exchanges: the law of supply and demand. Jacques' demands have a natural and impassable limit. This is the point at which the payment he demands would come to equal all the benefit that Guillaume would obtain from using the plane. In this case, the loan would not be made. Guillaume would have either to make a plane for himself or do without it, which would leave him in his original situation. He borrows, and therefore he benefits from borrowing.
I know full well what people will say to me. They will say "Guillaume may be making a mistake, or else he may be driven by necessity and have to comply with a hard law."
I agree, but my answer is "With regard to mistakes in calculation, these result from weaknesses in our nature, and using these as an argument against the transaction under discussion is to object to all possible transactions and all human actions. 1349 Error is an accident that is constantly being put right by experience. In the end, it is up to each person to be careful. As for hard necessity, which obliges people to take out burdensome loans, it is clear that these situations existed before the loan. If Guillaume is in a situation such that he absolutely cannot do without a plane and this obliges him to borrow one at any price, does this situation arise because Jacques has taken the trouble to manufacture this tool? Is it not independent of this circumstance? However hard and brutal Jacques is, he would never be able to make the current position of Guillaume worse. Certainly, from the moral point of view, the lender can be blamed, but from the economic point of view the loan itself could never be considered responsible for previous necessities that it had not created and which, to some extent it relieves.
But this proves one thing to which I will be returning and that is that Guillaume's obvious interest, the personification here of all borrowers, is that there should be a great many Jacques and planes, in other words, of lenders and capital. It is very clear that if Guillaume can say to Jacques "Your demands are exorbitant, I will go elsewhere; there is not a shortage of planes in the world," he would be in a better situation than if Jacques' plane was the only one available for lending. Clearly, there is no truer aphorism than this: A service in return for a service. However, we should never forget that no service has a fixed and absolute value compared with others. The parties entering into an agreement are free. Each of them makes his demands as high as possible and the circumstance that favors these demands most is the absence of competition. From this it follows that if there is a class of people more interested than others in the creation, increase, and abundance of capital, it is above all the class of borrowers. Well, since capital is created and accumulated only when stimulated by the prospect of a just return, that class should therefore understand the damage it does itself by denying the legitimacy of interest, proclaiming free credit, declaiming against the alleged tyranny of capital, discouraging saving, and thus encouraging the scarcity of capital and consequently a high level of rent.
3. The tale I have told you also sets you on the path to explaining the apparently strange phenomenon that is known as the longevity or perpetuity of interest. Since, when lending this plane, Jacques was very legitimately able to stipulate the condition that at the end of the year the plane would be returned to him in the same condition as it was when lent, is it not obvious that he is able, when this period is over, either to use it for his own purposes or lend it again on the same conditions? If he takes the latter option, the plane will be returned to him at intervals of one year indefinitely. Jacques will thus also be able to lend it indefinitely, that is to say, draw from it a perpetual rent. People will say that the plane will wear out. That is true, but it is worn out by the hand of and for the benefit of the borrower. The borrower has included this gradual deterioration in his accounts and has taken responsibility for the consequences, as he should. He has calculated that he will draw from this tool sufficient benefit to be able to agree to hand it back in its original condition after having made a profit as well. For as long as Jacques does not use up this capital buying things for himself for his own personal benefit, for as long as he forgoes these advantages, this will enable him to restore the plane to its original condition, and he will have an indisputable right to its return over and above the interest payments.
Please note as well that if, as I think I have demonstrated, Jacques, far from doing Guillaume wrong, has done him a service by lending him his plane for a year, for the same reason he will not do harm but on the contrary do a service to the second, third, and fourth borrower in successive periods. From this you will understand that interest on capital is as natural, legitimate, and useful in the thousandth year as in the first.
Let us go further still. It may be that Jacques will lend just one plane. It is possible that, by dint of work, saving, doing without, organization, and activity, he manages to lend a host of planes and saws, that is to say, to provide a host of services . I stress the point that if the first loan is a social good this will be true for all the others, for they are all of a kind and based on the same principle. It may then happen that the total of all the payments received by our honest artisan in exchange for the services he provides is enough to provide him in turn with a living. In this case, there will be one man in the world with the right to live without working. I do not say that he will do well by devoting himself to rest; I say that he will have the right to do so, and if he does take up this right it will not be at the expense of anyone at all, quite the contrary. If society understands the nature of things a little, it will acknowledge that this man is living from the services he doubtless receives (as we all do) but that he receives these quite legitimately in return for the other services he himself has provided, that he continues to provide, and which are perfectly genuine, since they are freely and voluntarily accepted.
And here we can glimpse one of the finest harmonies in the social world. I am referring to Leisure , 1350 not that leisure that the warlike and dominating castes organized for themselves through the plundering of the workers, but the leisure that is the legitimate and innocent fruit of past activity and saving. By expressing myself in this way, I know that I am upsetting a great many preconceived ideas, but look, is not leisure an essential spring in the social mechanism? 1351 Without it there would never have been any Newtons, Pascals, or Fénélons in the world; 1352 the human race would have no knowledge of art, the sciences, nor any of the marvelous inventions originally made by investigation out of pure curiosity. Thought would be inert, and man would not have the ability to advance. On the other hand, if leisure could be explained only as a function of plunder and oppression, if it were a benefit that could be enjoyed only unjustly and at the expense of others, there would be no middle way between two evils: either the human race would be reduced to squatting in a vegetative and immobile life, in eternal ignorance because one of the cog wheels in its mechanism was missing, or it would have to conquer this cog wheel at the price of inevitable injustice and be obliged to offer the world the sorry sight in one form or another of the division of human beings into masters and slaves as in classical times. I challenge anyone to suggest an alternative outcome within the terms of this analysis. We would be reduced to contemplating the providential plan that orders society with the regretful thought that something is very sadly missing. The driving force of progress would either have been forgotten, or what is worse, this driving force would constitute nothing other than injustice itself. But no, God has not left out an element like this from his creation. Let us be careful to acknowledge fully his wisdom and power. Let those whose imperfect thinking fails to explain the legitimacy of leisure at least echo that astronomer who said: "At a certain point in the heavens there has to be a planet which we will one day discover, for without it the celestial world is not harmony but disharmony." 1353
Well then! I say that, once it is understood properly, the tale of my humble plane, although very modest, is enough to elevate us to the contemplation of one of the most comforting and unacknowledged of the social harmonies. 1354
It is not true that we must choose between a denial of leisure or regarding it as illegitimate. Thanks to rent and its natural longevity, leisure may arise from work and saving. This is a pleasant prospect everyone can keep in mind and a noble reward to which each individual may aspire. It has appeared in the world and is spreading, distributed in proportion to the exercise of certain virtues. It opens all the avenues to intelligence and renders the souls of the human race more noble, more moral and spiritual, not only without putting any weight on those of our brethren who are condemned by circumstances to heavy labor, but also gradually relieving them as well of all the most heavy and distasteful tasks that this labor involves. All that is needed is for capital to be created, accumulated, increased, and lent at rates that are increasingly less onerous and for this capital to reach down and to penetrate all social strata and there will result the most admirable social progress, first serving to emancipate the lenders, and then hastening the emancipation of the borrowers themselves. For this to happen, all laws and customs have to be in favor of saving, which is the source of capital. All that needs to be said is that the most important condition for this is to avoid scaring off, attacking, combating, and negating what is the stimulus of saving and its raison d'être: rent.
As long as we see passing from hand to hand in the way of loans merely provisions, materials, and tools , things that are essential for the productivity of work itself, the ideas set out up to now will not encounter many opponents. Who knows whether I will not even be criticised for making a great effort to preach to the converted, as they say. But as soon as money is involved as the means of the transaction (and it is almost always money), objections rise up again in droves. Money, it is said, does not reproduce itself as your sack of wheat does; it does not assist work as your plane does. It does not provide direct satisfaction as your house does. It is, therefore, of its very nature incapable of producing interest or increasing in size, and the payment it exacts is real extortion.
Who does not see the sophism in this? Who does not see that money is just a transitory form that people assign temporarily to other values , to things that are genuinely useful, with the sole aim of facilitating their affairs? At the very heart of society's complications, is the fact that the person who is in a position to lend almost never has the actual thing a borrower needs. Jacques has a plane all right, but perhaps Guillaume wants a saw. They would not be able to agree, a transaction favorable to both would not ensue, and what would happen then? What would happen is that Jacques would first exchange his plane for money, then lend the money to Guillaume who would exchange the money for a saw. The transaction has become complicated and broken down into two factors, as I have explained above with reference to exchange. 1355 However, it has not changed its nature for all that. It does not embody any fewer of the elements of a direct loan. Jacques has no less deprived himself of a tool that was useful to him, Guillaume has no less received an tool that improves his work and increases his profits; there is no less of a service provided by the lender that gives him the right to receive an equivalent service from the borrower, and this just equivalence is no less established by free and open negotiation between the two parties. 1356 The very natural obligation to hand back the entire value at the due date is no less the basis of the longevity of interest.
"At the end of one year", says Mr. Thoré, "will you find one additional écu in a bag of one hundred francs?" 1357
Certainly not, if the borrower tosses the bag into a corner. If this happens, neither the plane nor the sack of wheat will reproduce by themselves. However, it is not to leave money in a bag or the plane on a hook that people borrow them. They borrow the plane in order to use it or the money in order to acquire a plane. And if it has been clearly demonstrated that this tool enables the borrower to make a profit that he could not have made without it, if it has been demonstrated that the lender has given up the opportunity to make this additional profit for himself, people will understand that the requirement of a share in this additional profit by the lender is fair and legitimate.
Ignorance of the true role of money in human transactions is the source of the most disastrous errors. I have set myself the task of devoting an entire pamphlet to it. 1358
From what we can infer from Mr. Proudhon's writings, what has led him to think that free credit was a logical and definitive consequence of social progress is the observation of the phenomenon that shows us interest decreasing almost directly with the progress of civilization. In barbaric times it can be seen in effect to be 100 percent or more. Later it goes down to 80, then 60, 50, 40, 20, 10, 8, 5, 4 and finally 3 percent. In Holland, it has even been seen to be 2 percent. The following conclusion is then drawn: "If interest becomes close to zero as society progresses, it will achieve zero when society is perfect. In other words, what characterizes social perfection is free credit. Let us therefore abolish interest and we will have achieved the final rung of progress." 1359
This is just a specious argument, and since this erroneous line of reasoning may contribute to popularizing the unfair, dangerous, and subversive dogma of free credit by representing it as coinciding with social perfection, the reader will forgive me for examining this new point of view in slightly more detail.
What is interest ? After a process of free negotiation, it is the service provided to the lender by the borrower who pays for the service he has received as a result of the loan.
What law governs the rate for these repayment services on the loans? The general law that governs the equivalence of all services, that is to say, the law of supply and demand. The easier it is to acquire an item, the less of a service is provided in selling or lending it. A man who gives me a glass of water in the Pyrenees is not providing me with as great a service as one who lets me have a glass of water in the Sahara desert. 1360 If there are a great many planes or sacks of wheat or houses in a region, you can obtain the use of them ( ceteris paribus ) 1361 on more favorable conditions than if they are scarce, for the simple reason that the lender is providing less of a service relatively speaking .
It is therefore not surprising that the greater the supply of capital, the lower interest rates become.
Is this to say that they will ever reach zero? No, because, I repeat, the justification for the repayment of loans lies irrefutably in the loan itself. To say that interest will be eliminated is to say that there will no longer be any incentive to save, to deprive yourself, or to build up new capital, nor even to maintain the capital that already exists. If this happens, the dissipation of capital will immediately create a vacuum and interest will immediately reappear. 1362
In this respect, the type of services with which we are dealing is the same as any other. Through the progress made by industry, a pair of stockings that used to be worth 6 francs has seen its value decrease to 4, 3, and 2 francs successively. Nobody can see how low this value will drop, but what you can be sure of is that it will never reach zero, unless stockings finally make themselves spontaneously. Why? Because the principle of remuneration is inherent in labor /production, and because the person who works for someone else is providing a service and has to receive a service in return. If stockings were no longer being paid for, they would stop being made, and with the return of scarcity, a price for them would inevitably reappear.
The sophism that I am combating here is rooted in the possibility of dividing something infinitely, which applies to value as well as to materials.
At first sight, it appears paradoxical but it is well known to mathematicians that it is possible to remove fractions from a weight from minute to minute throughout eternity without ever succeeding in eliminating the weight itself. It is enough for each successive fraction to be less than the previous one in a determined and regular proportion.
There are countries in which people concentrate on increasing the size of horses or reducing the volume of the head of a sheep. It is impossible to say just how far these efforts will reach. Nobody can say that he has seen the largest horse or the smallest sheep's head that will ever appear on the earth. However, it can be stated that the size of a horse will never attain infinity any more than the heads of sheep will attain nothingness.
In the same way, nobody can say just how far the price of stockings or the interest on capital will decrease, but it can be affirmed, given a knowledge of the nature of things, that neither will ever reach zero, since work and capital can no more exist without payment than a sheep without a head.
Mr. Proudhon's argument is thus reduced to this: Since the most skilled farmers are those who have reduced the size of the heads of sheep the most, we will have achieved farming perfection when sheep have no heads. In this case, in order to reach this level of perfection ourselves, let us cut off their heads.
I have reached the end of this boring dissertation. Why is it that the flood of bad doctrine makes it necessary to go so far into the inner nature of rent? I will not end without drawing attention to a fine moral lesson that we can draw from this law: "Interest decreases in proportion to the abundance of capital." Given this law, if there is one class of people more closely interested than any other in creating, accumulating, and increasing capital and ensuring that it is abundant and plentiful, it is without doubt the class that borrows it, whether directly or indirectly, it is the people who use materials , who are assisted by tools, and whose livelihood is ensured by provisions that have been produced and saved by other people.
Imagine a nation of a thousand inhabitants in a vast and fertile country who are without any form of capital as we have defined it. It will perish for certain in the tortures of hunger. Let us move to a set of arrangements scarcely less cruel. Imagine that ten of these primitive people are equipped with tools and provisions in sufficient quantity to work and keep themselves alive until harvest as well to pay for the services of ninety workers. The inevitable result will be the death of nine hundred human beings. It is also clear that since 990 people driven by need will rush to get food which can maintain only 100, the 10 capitalists will be masters of the marketplace. They will obtain labor on the most arduous conditions, for they will put it out to auction. And you should note this: If these capitalists have any shred of human feeling that leads them to deprive themselves personally in order to decrease the suffering of a few of their brethren, this generosity that is linked to a moral philosophy will be as noble in its principle as it will be useful in its effect. However, if they are duped by the false philanthropy that people want so thoughtlessly to combine with economic laws, and are determined to pay handsomely for labor, far from doing good they will do harm. Let them double the wages they pay. But in this case, forty-five men will be better provided for, while forty-five others will increase the number of those headed to the grave. In these conditions, it is not the lowering of earnings that is the true scourge but the scarcity of capital. Low earnings are not the cause but the effect of the damage. I add that to a certain extent they are the remedy for it. They act to spread the burden of suffering as far as it can be spread, and save as many lives as a predetermined level of food productionmakes it possible to save. 1363
Let us now assume that, instead of ten capitalists, there are one hundred, two hundred, or five hundred. Is it not obvious that the situation of the entire nation, especially that of the proletarian class 1364 will be increasingly improved? Is it not obvious that, setting aside any consideration of generosity, they will obtain more work and a better reward for their labor and that they themselves will be in a better position to create capital , there being no identifiable limit on their ever-increasing ability to achieve equality and well-being? How crazy would they be therefore if they accepted doctrines and carried out acts likely to dry up the source of earnings and paralyze the driving force and the stimulus to save! Let them therefore learn this lesson: Who can deny that capital is good for those who possess it? But it is also useful for those who have not yet been able to create it, and it is important to those who lack it that others have it.
Yes, if the proletarian class were aware of their true interests, they would seek to discover with even greater care the circumstances that were favorable or unfavorable to saving in order to encourage the former and discourage the latter. They would welcome with joy any measure that led to the rapid creation of capital. They would be enthusiastically in favor of peace, freedom, order, security, the union of classes and nations, economy, the reduction of public expenditure, and the simplification of the system of government, 1365 for it is under the sway of all these circumstances that saving does its work by putting abundance within the reach of the masses, inciting the very people to amass capital who in the past were reduced to borrowing it under duress. They would strenuously reject the warlike spirit that deflects such a major proportion of human labor from its proper end, the spirit of monopoly that upsets the equitable distribution of wealth that only freedom can achieve, the multiplication of public services that only impinge on our purses in order to restrict our freedom, and finally the subversive, hateful, and reckless doctrines that frighten capital, prevent it from being created, force it to flee, and in the end make it more expensive, to the detriment of the workers who put it to work.
Well then! Is not the February Revolution a hard lesson in this connection? Is it not obvious that the insecurity that it caused in the world of business, together with the generation of the disastrous theories to which I refer, and which, originating in the political clubs, 1366 came close to infiltrating the corridors of the Chamber of Deputies, 1367 have raised the rates of interest everywhere? Is it not obvious that, once this had happened, it became more difficult for the proletarian class to obtain these materials , tools, and provisions without which work is impossible? Is this not the cause of unemployment, and does not unemployment in turn bring about a fall in earnings? Thus, work is made unavailable to the proletarian class by exactly the same causes – an increase in interest rates -- that increase the prices of the things they use. An increase in interest rates, and a fall in wages means in other words that the same object retains its price but the share of the capitalist has encroached on the share of the worker, without any profit for the latter.
One of my friends, assigned to carrying out a survey on industry in Paris, 1368 assured me that manufacturers revealed a striking fact to him, which proves better than any line of reasoning how far insecurity and uncertainty undermine the creation of capital. It had been noted that, during the most disturbed period, popular expenditure of the most irrational kind had not decreased. Small theatres, sporting rings, bars, and tobacconists were just as frequented as in prosperous times. In the survey, the workers themselves explained this phenomenon. "What is the good of saving? Who knows what the future will bring? Who knows whether interest is not going to be abolished? Who knows whether the State, once it has become the universal lender at no cost, is not going to eliminate all the benefits we might expect from our thrift?" Well then! I say that if ideas like this were able to predominate for just two years, it would be enough to turn our beautiful France into a Turkey. Poverty would become general and endemic, and what is most certain is that the first to suffer would be the poorest.
Workers, 1369 you are told a great deal about the artificial organization of labor; do you know why? Because people do not know the laws governing its natural organization, 1370 that is to say, the wonderful organization that results from freedom. You are told that freedom generates what is called the radical antagonism between the classes, that it creates and brings to blows two opposing sets of interest, the interests of capitalists and those of the proletarian class. However, what needs to be shown to start with is that this antagonism exists because of the intention of nature, and then it would remain to be proved how the system of coercion is worth more than that of freedom , for between freedom and coercion I do not see a middle road. It would also remain to be proved that coercion would always be to your advantage and to the detriment of the wealthy. No, no, this radical antagonism and this natural conflict of interest do not exist. They are the bad dreams of perverted imaginations in delirium. No, a plan so full of faults has not emanated from the Divine Mind. To claim that this was so, you would have to begin by denying God. And, by virtue of social laws and for the sole reason that men exchange their work and products freely between each other, see what harmonious links bind the classes to each other. Take landowners; what is in their interest? That the soil is fertile and the sun benevolent. What is the result of this? That wheat is abundant, its price decreases, and the advantage shifts to those who have no inherited property. Take manufacturers; what is constantly in their minds? To improve their working processes, increase the power of their machines, and to procure their raw materials under the best possible conditions. And what is the result of all these things? The abundance and low price of products, that is to say, that all the efforts of manufacturers, without their realizing it, result in benefits for the consuming public of which you are members. This is true for all types of occupations. Well then! capitalists do not escape this law; here they are, fully occupied in producing value, making savings, and producing the best return on their investments. That is very good, but the more they succeed, the more they encourage capital to become plentiful and, as a necessary corollary, interest rates to decrease. Well, who benefits from a decrease in interest rates? Is it not borrowers first of all and in the end the consumers of the items that capitalists compete to produce?
It is thus certain that the final result of the efforts made by each class is the common good of all.
You have been told that capital tyrannizes labor. I do not disagree that each person seeks to gain the best advantage from his situation, but in this they achieve only what is possible. Well, it is never possible for capital to tyrannize labor unless capital is scarce, as in this case capital dictates its terms and gets workers to bid against one another. Such tyranny is never so impossible as when capital is abundant, for in this case labor is in command.
Away then with class envy, malice, unfounded hatred, and unjust distrust. These depraved passions harm those who harbor them in their hearts. This is not moral bombast; it is a sequence of causes and effects that can be strictly and mathematically proven and it is no less sublime because it satisfies the mind and the heart equally.
I will summarize this dissertation in these words: Workers, laborers, proletarians, and those classes that are destitute and in suffering, do you wish to improve your lot? You will not succeed in this by conflict, insurrection, hatred, and error. However, there are three things that cannot improve the entire community without extending their benefits to you and these three things are PEACE, FREEDOM, and SECURITY.