T.241 Free Credit (Oct. 1849 - March 1850, Voix du peuple )


T.241 (1849.10.22) Gratuité du crédit. Discussion entre M. Fr. Bastiat et M. Proudhon (Free Credit. A Discussion between M. Fr. Bastiat and M. Proudhon). An exchange of 14 Letters between Bastiat and Proudhon in The Voice of the People , (22 Oct. 1849 to 11 Feb. 1850, with Bastiat's final say in Letter 14 on 7 March 1850.

First published by Proudhon without Bastiat's final letter as Intérêt et principale. Discussion entre M. Proudhon et M. Bastiat sur l'intérêt des capitaux (Extraits de la Voix d Peuple) (Interest and Principle. A Discussion between M. Proudhon and M. Bastiat on Interest from Capital (Originally The Voice of the People)) (Paris: Garnier frères, 1850) [first 13 Letters].

Bastiat responded with his own edition with his final letter (7 March 1850), Gratuité du crédit. Discussion entre M. Fr. Bastiat et M. Proudhon (Free Credit. A Discussion between M. Fr. Bastiat and M. Proudhon) (Paris: Guillaumin, 1850). [OC5, pp. 94-335.] [CW4]

Editor's Introduction

Marche, marche, capital ! poursuis ta carrière, réalisant du bien pour l'humanité ! C'est toi qui as affranchi les esclaves ; c'est toi qui as renversé les châteaux forts de la féodalité ! Grandis encore ; asservis la nature : fais concourir aux jouissances humaines la gravitation, la chaleur, la lumière, l'électricité ; prends à ta charge ce qu'il y a de répugnant et d'abrutissant dans le travail mécanique ; élève la démocratie, transforme les machines humaines en hommes, en hommes doués de loisirs, d'idées, de sentiment et d'espérances ! March on, Capital, march on! Pursue your career doing good for the human race! It is you that have freed slaves and overturned the fortified castles of feudal times! Grow even greater; make nature subject to you; make gravity, heat, light, and electricity contribute to human satisfaction! Take upon yourself what is repulsive and mind-numbing in mechanical work; make democracy rise up and transform human machines into men, men endowed with leisure, ideas, feelings, and hopes!

[Source] 1613

So ends Letter 6 of this debate between the socialist anarchist Proudhon and Frédéric Bastiat. It is one example of several in this collection which demonstrates the passion Bastiat expressed for the free market (another is his "hymn to leisure" in Letter 4 discussed below) in his efforts to appeal to the working class readership of Proudhon's magazine La Voix du peuple (The Voice of the People).

Free Credit is one of the twelve Anti-Socialist Pamphlets which consisted of 15 separate essays and were written by Bastiat between May 1848 and July 1850. 1614 They were promoted by the Guillaumin publishing firm as a collection which was marketed as "Petits Pamphlets de M. Bastiat" (Mister Bastiat's Little Pamphlets) although several of them were by no means "small" in length, such as this one which was 292 pages. Paillottet tells us that one of these "Petits Pamphlets," Capital and Rent (Feb. 1849) (see above, pp. 000), was very critical of Proudhon's ideas and had made an impression on the working class readership of his magazine, some of whom began to question his standing within the socialist movement. The magazine therefore considered it necessary to attempt to refute Bastiat's criticisms. The editor in charge of the magazine while Proudhon was in prison in late 1849, F.C. Chevé, wrote the first critique of Bastiat in the October 22, 1849 issue and Bastiat asked for the opportunity to reply and obtained it. However, he was told after that first response that, for the rest of the discussion, Mr. Proudhon would take the place of Mr. Chevé, such was the threat they perceived Bastiat to be. After six Letters each Proudhon abruptly ended the debate on 11 February 1850, thinking he had won hands down, and published it as a book Interest and Principal . 1615 However, Bastiat also wanted to have the last word on the subject so he published his edition of the debate with a new title, Gratuité du crédit (Free Credit) , and an additional 14th Letter dated 7 March 1850 which had not appeared in the original series in La Voix du Peuple. 1616

Proudhon on Money and Banking

Proudhon was involved with a string of short-lived magazines during the Revolution and the Second Republic, some of them while he was in prison for various political offences. 1617 La Voix du peuple appeared in 223 issues between 1 Oct. 1849 to 14 May 1850 while Proudhon was incarcerated in Sainte-Pélagie prison. On March 28, 1849 Proudhon had been sentenced to three years in prison and a 3,000 franc fine for "offending the President of the Republic" (Louis Napoléon) who had been elected in December 1848. Proudhon had written some articles attacking the President's decision to send troops to Italy, and was convicted of a kind of "lèse-majesté" even though he had been elected to the Assembly in June 1848 and should have enjoyed parliamentary immunity. He continued to write articles attacking the President while he was in jail such as "Vive l'Empereur" (5 Feb. 1850) in which he compared President Louis Napoléon to an emperor and predicted that he would engineer a coup d'état to make himself emperor in the near future (which he did on 2 Dec. 1851 when he seized power in a coup and then proclaimed himself Emperor Napoléon III on 2 Dec. 1852). 1618 Proudhon ran the risk of being sentenced to additional time in prison but was eventually put into solitary confinement and transferred to another prison. This may explain some of the extraordinarily nasty personal language Proudhon used against Bastiat during the debate, attacks which Bastiat showed great strength in ignoring in spite of his deteriorating health.

Proudhon was well know to the Economists as he had written an article for the JDE in 1845 on subsidies for the railways and its impact on river transport which was not subsidised, and he had a book on Système des contradictions économiques (The System of Economic Contradictions) published by Guillaumin in 1846 1619 which had been reviewed by Molinari. 1620 He was highly regarded by some of the economists (like Molinari) because of his knowledge of economics, but they disagreed with him on several fundamental questions such as the legitimacy of interest and the justice of the ownership of private property. They were also very aware of his campaigns throughout 1848 and 1849 to reform the banking system with his schemes for a "Peoples' Bank" which he advocated within the Chamber of Deputies, where he was a Deputy like Bastiat, and in print.

Monetary matters came to a head after the Revolution and the creation of the Second Republic. Serious budget deficits confronted the new government as tax receipts collapsed and demands for spending on new programs like the National Workshops increased rapidly. There were calls for tax reforms from both sides of the political spectrum. The Minister of Finance in the Provisional Government, Garnier-Pagès, immediately increased direct taxes by 45% (the so-called 45 centimes tax) 1621 which fell on the lower classes most heavily; and Bastiat and the other political economists wanted to cut or abolish all direct taxes and replace them with a uniform low 5% tariff on all imported goods; while Proudhon argued for a kind of VAT on all economic exchanges and a tax on capital.

Another option instead of reforming the tax system was to nationalise the Bank of France (which had been a private monopoly) and to use it to expand the money supply and to issue very low or zero interest loans to ease the bad economic recession which followed the Revolution. It was as part of this discussion about the future of the Bank of France and the budgetary problems of the new government that Proudhon put forward his own ideas for an "Exchange Bank" between March and June 1848, culminating in his book Organisation du crédit et de la circulation in July 1848. When this came to nothing, he developed another scheme for a "Peoples' Bank" in January 1849 which would issue very low interest rate loans to ordinary workers. 1622 He attempted to raise money to get a People's Bank running with a prospectus for the formation of such a bank through popular subscription. The key features of the bank was that it would use the assets of the French nation to provide very low or zero interest loans to workers to set up their businesses and workshops, that gold coins and other hard currency would be replaced by paper currency, and that the banks would act as a clearing house to cancel out debts among the workers. Proudhon attempted to establish this bank between January and April 1849 but it failed to get the funds it needed and was forced to close. When Proudhon, the anarchist, tried to get government support for his failed bank, he was mocked by economists like Bastiat for his hypocrisy.

In addition to his attempts to reform the banking system, Proudhon also attempted, like Bastiat, to reform the system of taxation. Tax reform was debated in the Chamber in July 1848 during which Citizen Proudhon introduced a radical proposal to "simplify" taxes by eliminating many taxes (such as personal property taxes, taxes on doors and windows) and reducing others (1% tax on wine and beer, 2% on sugar, 1% octroi tax), but also introducing new taxes such as an across the board 1% tax on net capital above the value of 200 francs. This was completely rejected by the Chamber which defeated his motion 691-2. 1623 Elsewhere in his writings Proudhon argued against a separate tax on capital or on income, but for a universal and low tax on all economic transactions (or what he called "circulation"). It should be noted that Proudhon addressed his proposal to the Finance Committee of the Chamber of which Bastiat was Vice-President and where he might have found some support as they were similar to Bastiat's own views in many respects. Bastiat also lobbied for the reduction of taxes and the "simplification" of the French tax system from within the Finance Committee and gave several speeches in the Chamber on this topic. 1624 He wanted to abolish or reduce the same taxes as Proudhon but he would have strongly opposed the introduction of any taxes on capital or "transactions" (an early form of VAT). He wanted to replace all existing taxes with a low 5% tariff on both imports and exports for revenue purposes only (not for protection). In the long run he also wanted eventually to replace all indirect taxes with a low universal tax on income similar to the one proposed by Sir Robert Peel and William Ewart. 1625 Bastiat had about the same success as Proudhon did in getting his reforms accepted in the Chamber.

Bastiat's Response to Proudhon

It was most likely that Proudhon's advocacy of a People's Bank throughout 1848, both in the Chamber (where he sat with Bastiat on the left) and in his magazines and books, prompted Bastiat to more fully address the question of what he called "la papier-monnaie forcé" (compulsory paper money) and "la fausse monnaie légale" (legal counterfeit or false money) which would be issued by the state with the legal protection provided by "le cours forcé" (coerced exchange) either by the suspension of redeeming bank notes for gold, or by the imposition of legal tender laws for the new paper currency. This he did only in passing to begin with in the essay "Justice et fraternité" (Fraternity and Justice (JDE, June 1848) in which he used the expression "la papier-monnaie forcé" (compulsory paper money), 1626 and most importantly and in much more detail in the essay "Damn Money!" (JDE, April 1849) in which he used the phrase "la fausse monnaie légale" (legal counterfeit or false money) along with many other similar terms. 1627

However, it was in the Letters on Free Credit that Bastiat was able to expound at some length on his previously under-developed ideas about money and banking. Ideas about "free banking," 1628 or the "de-monopolisation" of the banking industry and the competitive issuing of currency were circulating among the economists in the mid-1840s largely as a result of the pioneering work of Charles Coquelin. 1629 In these "Letters" Bastiat adopted Coquelin's views on free banking and presented them as the solution to the problem of interest. As with any other business in a free market, competition among banks which can issue their own currency would lead to greater choice for consumers, more efficient and greater output, and thus lead to a lowering of cost of borrowing across the entire economy. Interest would not disappear, but it would drop to a very low level as the prices of goods and services would in any competitive industry. His clearest statement in support of free banking can be found in L10 where he states that "we claim and vigorously pursue the freedom of transactions, those that relate to capital, money, and bank notes as well as all the others. I would like it to be possible quite freely to open money shops and offices for loans and borrowing 1630 just as you open shoe shops or grocery shops." Several, but not all, economists in the Guillaumin circle advocated free banking. The most radical advocates were Bastiat, Molinari, and Coquelin himself. 1631 In his conclusion to the debate with Proudhon Bastiat makes another clear statement in favour of "la liberté des banques" (free banking) but slightly rephrases it to better align with Proudhon's advocacy of "la gratuité du crédit" (free credit). His slogan is now "la liberté du crédit" (freedom to issue credit): 1632

La gratuité du crédit, c'est l'absurdité scientifique, l'antagonisme des intérêts, la haine des classes, la barbarie. ... (F)ree credit is a scientific absurdity, involving antagonism to established interests, class hatred, and barbarity.
La liberté du crédit, c'est l'harmonie sociale, c'est le droit, c'est le respect de l'indépendance et de la dignité humaine, c'est la foi dans le progrès et les destinées de la société. Freedom of credit is social harmony, it is right, it is respect for human independence and dignity, and it is faith in the progress and destiny of society.

In Letters 12 and 14 Bastiat gives his most detailed criticism of "la papier-monnaie" (paper money). In Letter 12 he makes it clear that he is not referring to bank notes which can be redeemed for hard currency like gold or silver upon presentation of the note at a bank. He is referring to "la monnaie de papier" (money which is made out of paper) which he considers to be a kind of "false" or "counterfeit" or "fictif" (fictitious or imaginary) money. Once this point has been established he goes back to referring to this kind of money generally as "paper money." 1633 The danger France faced in the difficult post-February period was that the new government, under pressure from various interest groups (especially the socialists like Louis Blanc and Proudhon) would turn the Bank of France into "une fabrique inépuisable de papier-monnaie" (an inexhaustible paper money factory) which would result inevitably in the debasement of the currency.

In Letter 14 he uses the metaphor of water to describe what happens when the currency is debased in this fashion. Whereas today we talk about the "inflation" of the money supply (using the metaphor of air), Bastiat used words like "gorger" (to swamp), "saturer" (to saturate), and "affluer" (to flood), as in "la circulation en sera tellement saturée, qu'ils seront dépréciés" (the circulation of money will be so saturated with it that they (the paper notes) will be depreciated (in value)). 1634 The result will be the opposite of that hoped for by advocates of a Central Bank or a Peoples' Bank like Proudhon. The people who will benefit the most will not be the poor or the working class but the better off, the existing large property owners, the politically well-connected, and the "craftiest" opportunists who can spot a quick deal to be made before anybody else. 1635 This makes the prescient point that those who have first access to the new, false money will benefit the most before it depreciates in value as it goes into general circulation.

Hayek's accusation of Bastiat's neglect of Money and Banking issues

Friedrich Hayek accused Bastiat of neglecting in his writings "one of the main dangers or our time," namely the topic of money and inflation, because he had been distracted with the task of refuting "various queer proposals for using credit which were current in his time." 1636 However, as we argue here, Bastiat devoted a considerable amount of time to issues concerning money, banking, credit, and interest in the last two years of his life, and in doing this he inevitably discussed the problem of paper money and inflation, especially the historical example offered by the use of paper Assignats during the 1790s in the first Revolution and the threat of something similar happening if reformers like Proudhon had his way in 1849. It is true that before the Revolution of February 1848 he had spent most of his time writing on taxes, tariffs, and free trade, although he did touch on monetary matters in "Nominal Prices" (ES1 11 (Oct. 1845) and "The Export of Bullion" (LE, Dec. 1847). 1637 He did not take this matter any further as he was significantly distracted by the outbreak of the Revolution, standing for election in the new Constituent Assembly, serving on the Chamber's Finance Committee (where he was forced to confront monetary issues head on), and opposing the rise of socialism throughout 1848. In the year between the appearance of his pamphlet Capital and Rent (Feb. 1849) and his last Letter to Proudhon in March 1850 Bastiat wrote two lengthy essays, a shorter article, and seven Letters to Proudhon for a total of 58,000 words on the topics of money, capital, and interest. His most extensive treatment of money was of course Damn Money! (April 1850) which was designed to refute the monetary ideas of socialists like Proudhon. 1638

After this flurry of activity ended, Bastiat's failing health meant he had to devote himself to other matters, such as finishing his treatise Economic Harmonies and his last three major essays on "Plunder and Law" (May 1850), The Law (June, 1850), and What is Seen and What is Not Seen (July 1850). 1639 Bastiat no doubt intended to have a chapter on money in the Economic Harmonies and his posthumous editor Paillottet dutifully indicated where it would have gone had the volume ever been finished. Unfortunately, it is an empty chapter with only a footnote telling the reader to consult the pamphlet "Damned Money!" to learn what Bastiat's views were. After the debate with Proudhon Bastiat did not write any more on the topic of money and banking, other than some brief remarks on the topic of capital and thrift (saving) in his last work What is Seen and What is Not Seen (July 1850). It would seem that Hayek's assertion about Bastiat's neglect of monetary issues is unfounded.

The Debate between Proudhon and Bastiat on Credit

As Roderick Long notes in his essay on the debate, in many ways it was "a dialogue of the deaf". 1640 Neither party seemed to understand or appreciate what the other was saying, and both had methodologies of analysis which were vastly different: "Kantian antinomies and Hegelian contradictions" for Proudhon versus the "natural laws of economics and Providential harmony" for Bastiat. Although they shared some common ground, such as their hostility to state intervention, an early appreciation of subjectivist value theory, and certain ideas about class theory and the exploitation of the workers by the politically privileged, there never was a real meeting of the minds as one might have hoped for, and on a couple of occasions the debate degenerated into name calling and ad hominem attacks especially by Proudhon. Bastiat kept his cool throughout although he was badly insulted by Proudhon who accused him of not knowing "the first thing about political economy" (L9), of not being "even a man" (L13), and the very hurtful insult, given Bastiat's fatal health condition, of being "a dead man" (L13). 1641 Proudhon's list of all Bastiat's intellectual "sins" in L13 provided Bastiat with an opportunity for a very witty and damning reply to the anti-religious and rather dyspeptic Proudhon. Bastiat quotes a real 9th century excommunication and the similarity of language and personal venom allows him to imply that Proudhon is running a kind of "economic high church" which has just excommunicated the heretic Bastiat. Perhaps one might excuse Proudhon for his bad temper and name calling as he conducted the entire debate from the prison in which he had been incarcerated in June 1849 for lèse-majesté against the new President of the Republic. But, then again, Bastiat was seriously ill and would have had his own reasons for behaving badly, but he didn't.

Some key issues which were raised during the debate include the following:

  1. their very different definitions of capital
  2. their different use of theory and history to make their debating points
  3. the use of thought experiments by both men
  4. the use of class analysis of contemporary French society
  5. their common interest in the idea of the "mutuality of services"
  6. Proudhon's very Keynesian notion of the stimulatory effects of an increase in the circulation of money
  7. both Proudhon and Bastiat were close to developing a subjective value theory similar to that of the Austrian school
  8. Proudhon's notorious habit of inventing new words which complicates the understanding of what he was trying to say
  9. Bastiat's quite lyrical reflection on the importance of leisure and the role capital plays in making this increasingly possible for ordinary people
  10. Bastiat's understanding of the importance of time (an early notion of time preference) versus Proudhon's lack of understanding of this

(1.) their very different definitions of capital

Bastiat's most succinct definition of capital can be found in the pamphlet Capital and Rent (Feb. 1849): 1642

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.

Proudhon's definition of capital is harder to pin down. It can be anything of "la valeur faite" (created value) which is exchanged and put into circulation. In L9 he states that " in the same way as in society net product is indistinguishable from gross product, so in the overall make-up of economic reality capital is indistinguishable from output (or product). These two terms in fact do not designate two distinct things; they distinguish only relationships. Output is capital, capital is output." And also that "Money, above all, money! This is capital par excellence, capital that is lent, that is to say that is hired out."

In L11 and in L5 he states that these "products" do not become capital until they are exchanged or put into "circulation," as in this quotation "Everything that is capital is of necessity a product, but everything that is a product, even when accumulated and even intended for reproduction, like the tools and implements of work in manufacturers' workshops, is not capital because of that. Capital, once again, supposes a prior evaluation, an act of exchange, or having been put into circulation, without which there is no capital."

His most succinct statement can also be found in L11, where he states that "I therefore call capital anything of created value in the form of land, tools, or implements of production, goods, food products, or cash, which is used or can be used for production ."

(2.) their different use of theory and history to make their debating points

Both men made very different use of theory and history to make their points. Proudhon did not believe that there were any universal economic "laws" which were valid at all times and in all places. He believed in Kantian "antinomies," that something could be true at one time in one respect and be false at other time in another respect. This lead him to believe that human institutions and ideas about what was right and proper evolved over time, and that what was legitimate and necessary in an earlier epoch, such as the charging of interest on high risk maritime cargo in the late middle ages or early modern period, was no longer legitimate and necessary in the modern period with its greater wealth, division of labour, and different social relations. Bastiat on the other hand, believed that economists have identified aspects of human behaviour, such as time preference and incentives to work, which were universal, and had also discovered certain "natural laws of economics" which could not be violated by either individuals or societies without incurring severe penalties. Among the latter were Malthusian limits to rapid population growth and the problem of the scarcity of or the competing uses for physical resources. Too often the debate collapsed into Proudhon saying that "things have changed" and that therefore there was no longer any need to charge interest on loans; to which Bastiat would reply that certain things may have changed but human nature and the physical fact of scarcity had not, and therefore interest was still necessary. The result was not a very productive or enlightening discussion which went round and round.

(3.) the use of thought experiments by both men

Another issue concerns the difference between what one might learn from abstract economic theory and the study of actually existing human societies with all their imperfections and injustices. Both Proudhon and Bastiat liked to use "thought experiments" in order to explore the logical and moral problems of making economic choices. This was central to Bastiat's invention and use of "Crusoe economics", in which he used the fictional figure of Robinson Crusoe on the Island of Despair to explore, even in the absence of exchange with others, how a single individual economises on their scarce time, labour, and resources in order to survive as best they can, most often by attempting to build capital goods like a fishing hook or an axe. 1643 The modern Austrian economist Murray Rothbard thinks that this way of thinking was one of Bastiat's most original insights which places him squarely in the Austrian praxeological camp. 1644 He uses this method of abstracting the logic of human action several times in the letters: such as the stories of the Carpenter and the Worker in L4, the Borrower and the Lender in L6, the Joiner and the Blacksmith in L10, and the rebuilding of the world by Hellen following the flood in L14. A common thread is Bastiat's discussion of opportunity costs and economic incentives and how these influence the decisions individuals will make. Although Proudhon dismisses them as mere "fables" their apparent simplicity masks deep economic insights which is a topic we discuss at more length in the Introduction to the CW3. 1645 On occasion, Proudhon also uses some "thought experiments" of his own, as if he were attempting to beat Bastiat at his own game, but his stories lack the wit and insight of Bastiat's. In L7 he has two, one on "the Millionaire and the Proletarian" which is a classic example of a "life boat" situation (here literally), which is followed by his own version of Crusoe economics with "Robinson and the Castaway." One might also consider Proudhon's very long and elaborate discussion of the "accounting" done by "A", who represents the entire class of landowners, capitalists, and businessmen, and the rest of the alphabet, which represents all wage earners, as a very clumsy thought experiment which eventually collapses under its own weight of overelaborate and invented detail.

(4.) the use of class analysis of contemporary French society

Proudhon is on better ground when he points out the widespread injustices which exist throughout French society, which benefit a minority of privileged landed, business, and financial elites, and which adversely affect the welfare of the ordinary working person. Many of these were also recognised and opposed by Bastiat, such as legal bans on the formation of trade unions, restrictions on who could work in certain industries, indirect taxes on food, salt, and other essential items for working people (interesting also including wine), and of course tariffs on imported goods. 1646 Thus it is odd that neither seems to make the best use of these historical examples drawn from how the actual French state functioned in practice. Proudhon for example, although an anarchist, thinks that the privileged monopoly Bank of France could and should be used to put his idea of a Peoples' Bank into practice, or that the state should guarantee the subscription for a loan to start his own bank - hypocrisies which Bastiat naturally, and perhaps with some enjoyment, points out in L10. On the other hand, Bastiat correctly argues that his use of thought experiments to explain how individuals make economic decisions does not make him "l'avocat du privilége capitaliste" (an advocate or apologist for capitalist privilege), yet he does not discuss here his own quite detailed and radical ideas about institutionalised "legal plunder" 1647 and the vast array of "causes perturbatrices" (disturbing factors) such as war, slavery, the seizure of land, legal monopolies, and subsidies which interfered with the harmonious operation of free markets. 1648 In other writings he develops a theory of how societies evolve through various eras such as slavery, theocracy, monopoly, and governmental exploitation in which each stage has its own kind of ruling "oligarchy" and "la classe spoliatrice" (plundering class). He would be the last to admit that the France in which he lived was an example of the kind of free market, voluntary society which he advocated. In fact, he thought it was becoming increasingly ruled by "une classe de fonctionnaires" (a class of government bureaucrats) who were "un parasite légal" (legal or state-supported parasites) who sucked the life blood out of the industrious working class. 1649 Bastiat's language is very similar to that used by Proudhon in L9 where he makes a similar contrast between "la classe travailleuse" (the labouring classe) and"la classe parasite" (the parasitic class), 1650 so it is strange that they didn't seek some common ground on this issue in the debate.

The following is an example of how Bastiat too could become as impassioned on the issue of class as his socialist opponents. This passage comes from the Conclusion of the first edition of the Economic Harmonies which appeared in print in January 1850 as this debate with Proudhon was underway: 1651

La Spoliation ! voici un élément nouveau dans l'économie des sociétés. Plunder! This is a new element in social economics.
Depuis le jour où il a fait son apparition dans le monde jusqu'au jour, si jamais il arrive, où il aura complétement disparu, cet élément affectera profondément tout le mécanisme social ; il troublera, au point de les rendre méconnaissables, les lois harmoniques que nous nous sommes efforcés de découvrir et de décrire. From the day it first appeared in the world to the day, if ever that should arrive, when it will have completely disappeared, this element will profoundly affect the entire social mechanism. It will perturb the laws of harmony that we have endeavored to elucidate and describe, to the extent of making them unrecognizable.
Notre tâche ne sera donc accomplie que lorsque nous aurons fait la complète monographie de la Spoliation. Our task will therefore be completed only when we have written a detailed monograph on Plunder.
Peut-être pensera-t-on qu'il s'agit d'un fait accidentel, anormal, d'une plaie passagère, indigne des investigations de la science. Perhaps some will think that it is an accidental contingency, abnormal, a short-lived wound unworthy of scientific investigation.
Mais qu'on y prenne garde. La Spoliation occupe, dans la tradition des familles, dans l'histoire des peuples, dans les occupations des individus, dans les énergies physiques et intellectuelles des classes, dans les arrangements de la société, dans les prévisions des gouvernements, presque autant de place que la Propriété elle-même. But be careful. In family tradition, in the history of nations, in individual occupations, in the physical and intellectual energy of classes, in the organization of society or in government forecasts, plunder plays nearly as large a part as Property itself. [p. 409, CW5] ...
On entre ainsi dans l'ère des priviléges. La Spoliation, toujours plus subtile, se cantonne dans les Monopoles et se cache derrière les Restrictions ; elle déplace le courant naturel des échanges, elle pousse dans des directions artificielles le capital, avec le capital le travail, et avec le travail la population elle-même. Elle fait produire péniblement au Nord ce qui se ferait avec facilité au Midi ; elle crée des industries et des existences précaires ; elle substitue aux forces gratuites de la nature les fatigues onéreuses du travail ; elle fomente des établissements qui ne peuvent soutenir aucune rivalité, et invoque contre leurs compétiteurs l'emploi de la force ; elle provoque les jalousies internationales, flatte les orgueils patriotiques, et invente d'ingénieuses théories, qui lui donnent pour auxiliaires ses propres dupes ; elle rend toujours imminentes les crises industrielles et les banqueroutes ; elle ébranle dans les citoyens toute confiance en l'avenir, toute foi dans la liberté, et jusqu'à la conscience de ce qui est juste. Et quand enfin la science dévoile ses méfaits, elle ameute contre la science jusqu'à ses victimes, et s'écriant : À l'Utopie ! Bien plus, elle nie non-seulement la science qui lui fait obstacle, mais l'idée même d'une science possible, par, cette dernière sentence du scepticisme : Il n'y a pas de principes ! We thus enter the era of privilege. Plunder, ever more subtle, is enshrined in Monopoly and hidden behind Restriction. It displaces the natural flow of exchanges, it impels capital in artificial directions, with capital, labor, and with labor, the population itself. It makes the North produce with difficulty what the South would produce with ease. It creates precarious industries and existences. It substitutes the costly fatigues of effort for the free forces of nature. It sets up establishments that cannot sustain any rivalry and invokes the use of force against their competitors. It triggers international jealousy, flatters patriotic pride, and invents ingenious theories that use its own dupes as accessories. It renders crises in production as well as bankruptcies constantly likely and undermines all the citizens' confidence in the future, all faith in freedom and even the understanding of what is just. And when science at last strips the veil from its misdeeds, it whips up its victims against science by exclaiming: "Utopia!" What is worse, it denies not only the science that bars its path but the very idea of a possible science, through this final skeptical sentence: There is no such thing as principles!

The similarity to Proudhon's own rather "fiery" language about class is striking and one would have thought they should have found considerable common ground here. Yet, for some reason Bastiat held back from making these sorts of arguments in his Letters and thus allowed Proudhon to paint him as not caring about the condition of the poor and being a typical economist who was "sans entrailles" (heartless). Here we have another example of Proudhon and Bastiat talking past each other. They both used class analysis to expose the groups who benefited unjustly from access to state power at the expence of ordinary working people but there was no meeting of minds and no acknowledged agreement on these matters.

(5.) their common interest in the idea of the "mutuality of services"

See the glossary entry on "Service for Service" on Bastiat borrowing this term from Proudhon and adapting it to his own purposes.

(6.) Proudhon's very Keynesian notion of the stimulatory effects of an increase in the circulation of money

Special note should be made of the references by Proudhon to a very Keynesian notion of the stimulatory effects of an increase in the circulation of money and how the issuing of large quantities of paper money by a "central" bank (controlled by "the People") could bring this economic stimulation about. 1652

(7.) both Proudhon and Bastiat were close to developing a subjective value theory similar to that of the Austrian school

In addition, in spite of their intellectual differences, both Proudhon and Bastiat were close to developing a subjective value theory which would later become the hallmark of the Austrian school of economic thought. In L13 there is a very interesting passage where Proudhon argues that the value placed on products by different people is "purely subjective for individuals" but unfortunately does not develop it further:

Puisque la valeur n'est autre chose qu'une proportion, et que tous les produits sont nécessairement proportionnels entre eux, il s'ensuit qu'au point de vue social les produits sont toujours valeurs et valeurs faites : la différence, pour la société, entre capital et produit, n'existe pas. Cette différence est toute subjective aux individus  : elle vient de l'impuissance où ils se trouvent d'exprimer la proportionnalité des produits en nombre exact et de leurs efforts pour arriver à une approximation. Since value is nothing more than a proportion, and that all products are necessarily proportional to each other, it follows that from the social point of view products are always values and created values. The difference between capital and product, as far as society is concerned, does not exist. (There is no difference ...) This difference is purely subjective for individuals . It comes from their inability to express the proportionality (between) products in an exact number and from their efforts to arrive at an approximation. (Emphasis added.)

Bastiat's most detailed remarks about value can be found in Chapter V "On Value" in EH, and scattered remarks in his pamphlet Capital and Rent (Feb. 1849) and some of the early chapters of EH which were published in the JDE in late 1848. For example, in "Economic Harmonies IV" he states the essence of subjectivist value theory. His 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:

Economic science, therefore, unlike the so-called exact sciences, does not (have) the advantage of a yardstick, an absolute standard to which it can refer everything, a graduated measure that it can use to calibrate the intensity of desires, efforts, and satisfactions. … 1653

With regard to needs and desires, we have said that no two men are alike. This is also true of our satisfactions. They are not equally appreciated by all, and this boils down to the trite saying: tastes differ. Well, it is the acuteness of desires and the variety of tastes that determine the direction of (our) efforts. … 1654

(V)alue therefore consists in the comparative evaluation of the reciprocal services, and (thus) it may also be said that political economy is the theory of value. … 1655

(8.) Proudhon's notorious habit of inventing new words which complicates the understanding of what he was trying to say

Proudhon was notorious for inventing new words. His creative use of neologisms is shown throughout his writings which make understanding quite hard for the reader, not to mention the translator. We indicate in the footnotes when Proudhon is making up new words as he goes along. Some examples include, "le produit fait valeur" (the product made or transformed into something of value), "les non-valeurs" (things of no value), "la société consommatrice et reproductrice" (the consumer and producer firm or business), "la société capitaliste et propriétaire" (the capitalist and landowning firm or business), "propriétaire-capitaliste-entrepreneur" (a landowner-capitalist entrepreneur), that is a capitalist-minded landowner who acts as a businessman or entrepreneur, "le producteur-consommateur" (the producer-consumer), and "la spoliation bancocratique" (bankocratic plunder, or plunder by a ruling elite of bankers). One of his most widely used neologisms in these letters was the idea of "la valeur faite" (created, made, or produced value).

(9.) Bastiat's quite lyrical reflection on the importance of leisure and the role capital plays in making this increasingly possible for ordinary people

At the end of L4 Bastiat has some quite lyrical reflections on the importance of leisure in which he argues that there is more to life than just working. This would seem quite unusual for an economist regularly accused of being "heartless (sans entrailles) by the socialists. He goes on to argue that it is only by increasing wealth and capital accumulation that leisure is made possible for an increasing number of people, and how this in turn is so important for the development of a person's affections, mind, and sense of the beautiful. See the glossary entry on "The Importance of Leisure" for more information about Bastiat's thoughts on leisure.

(10.) Bastiat's understanding of the importance of time (an early notion of time preference) versus Proudhon's lack of understanding of this

Jean-Baptiste Say, who greatly influenced Bastiat's thinking on economics, had a much broader understanding than other economists of the period of what constituted productive activity. In addition to recognising the importance of "non-material goods" (or what we would call today "services") Say also thought transport was a productive activity in that it got needed goods and services into the hands of consumers. An interesting complexity he added was to see that "transport" could be both "geographical" (the movement of goods across physical space, such as the importation of grain) as well as "temporal" (entrepreneurs buying goods and storing them for use at a later time when they might be in greater demand, or what he called "speculation"). As he put it it: "Ce commerce tend, comme on voit, à transporter, pour ainsi dire, la marchandise d'un temps dans un autre, au lieu de la transporter d'un endroit dans un autre." (As one can see, this type of commerce is designed to transport merchandise from one time to another, so to speak, instead of transporting it from one place to another.) Molinari and Bastiat would take this notion of "transport through time" to another level with the realisation that granting a loan to somebody at interest meant that people placed different "evaluations" on the worth of present goods over later goods and thus "time" was also a valuable commodity and had to be paid for. 1656

Three Final Things to Notes

Bastiat may have "won" the debate, at least in the sense of winning the moral support of some of the working class readers of Proudhon's journal. Paillottet relates the following in a note: 1657

"A few people found Bastiat's patience during this discussion excessive. This and the preceding paragraphs explain his attitude clearly. He set great store by succeeding in instilling a few salutary truths in the workers, with the help of La Voix du Peuple itself. He was shortly to feel entitled to congratulate himself for having pursued such an outcome. One morning, a few days before the closure of the debate, he was visited by three workers, the delegates of a certain number of their fellow workers who had rallied to the banner of Free Credit . These workers came to thank him for his good intentions and for his efforts to enlighten them on an important question. They were not converted to the legitimacy and usefulness of interest, but their faith in the opposing thesis had been badly shaken and were held only by the strength of their support for Mr. Proudhon. "Mr. Proudhon is very concerned for our well-being", they said, "and we owe him much gratitude. It is a shame that he often uses words and sentences that are so difficult to understand." Finally, they expressed the wish that Messrs. Bastiat and Proudhon might come to an agreement and declared themselves ready to accept without comment any solution whatever put forward jointly by the two men."

In his last Letter 14 Bastiat managed to deliver a final parting shot across Proudhon's bows which Proudhon must have found very irritating. After repeatedly chastising Bastiat for not understanding the slightest thing about Kantian antinomies and Hegelian contradictions Bastiat returns the favour by wittily and intentionally returning to what he did best in the Economic Sophisms , namely the use of fables, stories, and "Robinsonian" thought experiments to make his points understandable to the ordinary reader. He ends his part of the conversation with a fable of the Flood (on capital accumulation) and the blind and the sighted who lived together in a Hospice (about how mutual jealousy between them prevents them from mutually benefiting from cooperation and exchange). Perhaps in the end Bastiat had the last laugh in what had had been at times a very bitter debate.

The editor of La Voix du peuple provided a summary of each Letter's content at the head of the piece, and this is something which we have retained.

Letter No. 1: F. C. Chevé to F. Bastiat (22 October 1849)

F. C. Chevé, 1658

One of the editors of La Voix du Peuple

To Frédéric Bastiat

Adhesion to the formula: A loan is a service that has to be exchanged for another service. - Distinction between the different types of services. - The service that consists in handing over the temporary use of an item of property does not have to be paid for ultimately by the handing over of some other property. - The disastrous consequences of interest for the borrower, the lender himself and for society as a whole.

22 October 1849

All the principles of social economy that you have propagated with such remarkable talent lead surely and inevitably to the abolition of interest and rent. Since I am curious to know by what strange contradiction your logic, always so lively and so sure, drew back in the face of this final conclusion, I looked at the arguments of your pamphlet entitled Capital and Rent 1659 and noted, with a mixture of surprise and joy, that there was no longer any difference between you and us more substantial than a simple ambiguity.

This ambiguity rests entirely on the confusion of two things, which are nevertheless quite distinct, use (of something) and ownership (of something) .

Like us, you start from the fundamental and uncontested principle of the reciprocity, mutuality, and equivalence of services. 1660 The trouble is that by confusing use and property and treating as one two things of diverse nature, such that no equivalence between them is possible, you destroy all mutuality, all reciprocity, and all genuine equivalence, thus overturning by your own hands the principle you have established.

It is this principle that has come to set you against yourself. When you yourself have invoked the argument against rent, how can you repudiate it when it calls for the latter's abolition?

You would not accuse us, Sir, of lacking courtesy. We, the first to be attacked, leave you the choice of the place, the time, and the weapons and, without complaining about the disadvantages of the terrain, we accept the discussion according to the terms you have laid down. What is more, we are content to follow all the examples and demonstrations in your pamphlet Capital and Rent , one by one, and will merely put right the misunderstanding, the unfortunate ambiguity that alone has prevented you from reaching a conclusion hostile to rent. Do the terms of this debate seem fair to you or not?

Let us now deal with the subject.

Paul exchanges ten 50 centime coins with Pierre for 100 sous. 1661 This is a barter, an an exchange of one piece of property for another. However, Pierre says to Paul: "You will give me the ten 10 sous coins right now and, for my part, I will give you the 100 sous coin in a year's time." Here is "a new service and one of a different type that Pierre is asking of Paul."

But what is the nature of this service? Is Pierre asking Paul to hand over the ownership of a new sum, whatever it is? No, but he is simply asking Paul to allow him the use of this latter for a year. Well, since any service should be paid for by an equivalent service, the service of use should therefore be exchanged for a service of use , no more no less. Pierre will say to Paul: "You give me the use of ten 10 sous coins for a year and I will therefore owe you the same service in return, that is to say, the use of ten 10 sous coins also for a year." Is this or is this not just?

A man exchanges a ship for a house; this is barter, an exchange of one piece of property for another. However, the ship owner also wants to have the use of the house for a period of one year before handing over his ship. The owner tells him "This is a new service you are asking of me. I have the right to refuse or to ask you for an equivalent service in compensation." 1662 'It is clear,' replies the ship owner, 'that, for a period of one year, you are giving me the use of something that is worth 20,000 francs; I suppose that I therefore will owe you the use of something also worth 20,000 francs in exchange. Nothing would be more just. But since I am paying for your property with that of my ship, it is not a new piece of property but its simple use that you are allowing me and therefore I just have to allow you the use of something of equal worth for an equal period of time. "Services exchanged are equal in value." To demand more would be theft.'

Mathurin lends a sack of wheat "to Jérôme who promises to return a sack of wheat of equal quality and weight in one year's time, without a single grain being short." In addition Mathurin would like five liters of wheat over and above the hectoliter for the service he is provid ing Jérôme. 'No,' replies Jérôme, 'this would be unjust and an act of plunder; you are giving me the ownership of nothing at all since in a year's time I have to hand you back the exact value of what you are giving me today. What you are allowing me is the use of your sack of wheat for a period of one year and you therefore have the right to the use of something of equal value for one year as well. Nothing more, otherwise there would no longer be any mutuality, reciprocity, or equivalence of service.'

For his part, "Mathurin, who is a bit of an accountant, calculates the matter thus": Jérôme's objection is incontestable and in effect, 'if "at the end of a year he gives me back five liters of wheat in addition to the hundred liters I have just lent him, and if some time later, I am able to lend two sacks of wheat, then three or four, when I have invested a sufficiently large number to live on the total of these repayments," I will be able to eat without doing anything and without ever spending my capital. Well, someone will have produced what I will be eating. As this someone will not be me but someone else, I will be living at the expense of someone else, which is theft. And this is understandable, since the service I will have given is just the loan or use of something of a particular value, while the service that I will have been given in exchange will be a gift or the ownership of something.' Thus, there will be justice, equality, and equivalence of services only in the sense understood by Jerome.

Valère wishes to occupy Mondor's house for a period of one year. "He will have to submit to three conditions. The first is that he will have to move out at the end of one year and give back the house in good condition except for the inevitable wear and tear that result simply from the passage of time. The second is to pay Mondor the 300 francs that he pays each year to the architect to make good this wear and tear since, given that this wear and tear occurs while the house is in Valère's service, it is only fair that he bears the consequences. The third is to provide Mondor a service equivalent to the one Valère is receiving." Now, this service lies in the use of a house for a period of one year. Valère will thus owe Mondor the use of something of the same value for the same period of time. This value will have to be freely negotiated between the two parties to the contract.

Jacques has just completed the manufacture of a plane. Guillaume says to Jacques: 1663

'I need a service from you.'

'What service?'

'Lend me this plane for a year.'

'Are you serious, Guillaume? If I do you this service, what will you do for me in exchange?

'The same, of course; and if you lend me something worth 20 francs for a year, I will have to lend you in turn something of the same value for an equal period of time.'

'First of all, in a year's time the plane will have to be scrapped, as it will no longer be good for anything. It is therefore just for you to return to me one that is exactly similar, or for you to give me enough money to have it repaired, or for you to replace the ten days that I would have to devote to rebuilding it. In one way or another, the plane has to be returned to me in good condition, just as I am handing it over to you.'

'This is only fair; I agree to this condition. I undertake to give you back either a plane that is similar or its value.'

'Apart from the total restitution already agreed upon, you have to provide me a service which we will discuss.'

'The service is very simple. In the same way as for the plane you lend me, I have to give you a similar plane or its equal value; in the same way, for the use of this value for a period of one year, I owe you the use of a similar sum also for a period of one year. In either case "services exchanged are equal in value".'

Having established this, I think what we have here is a series of consequences whose justice it is impossible to question:

1. If use pays for use, and if the purely temporary handing over by the borrower of the use of an equal value "is a natural and equitable payment, the just price for a service of use," we may conclude as a generalization, that it is CONTRARY to the nature of capital to generate interest." Indeed it is very clear that, following the reciprocal use of the two services exchanged, since each owner has merely received the exact value of what he possessed previously, there is no interest or productivity of capital for either party. And this cannot be otherwise, since the lender could draw interest from the value lent only to the extent that the borrower himself draws no interest from the value provided in return. This being so, interest on capital is the negation of itself and it exists for Paul, Mathurin, Mondor, and Jacques only on condition that it is not allowed in the case of Pierre, Jérôme, Valère, and Guillaume. Since all things are in reality the tools of production on the same basis, the former group can levy interest on the value lent only if the latter in return levy interest on the value provided in exchange, which destroys the interest on capital of itself and reduces it to a simple right of use for use. Wanting to exchange the use of something for ownership of something is to dispossess and plunder one person in favor of another, "it is to legalize, organize, and systematize injustice itself." Let us state in fact that interest is illegitimate, iniquitous, and plunderous.

2. A second consequence, no less remarkable than the first, is that interest is harmful to the borrower, to the lender himself, and to society as a whole. It is harmful to the borrower and plunders him since it is obvious that if Pierre, Jérôme, Valère, and Guillaume have to return a greater value that the one they have received there is no equivalence in service, and that since the excess value that they return is produced by them and taken by others they are plundered to this extent. It is harmful to the lender, since when he needs to take out a loan he becomes a victim of the same (kind of) plunder. It is harmful to both and to society as a whole, since as the interest or rent increases considerably the cost of all products, each consumer is plundered by this amount on everything he buys. When workers can no longer buy back their products out of their wages, they are forced to reduce their consumption, and this reduction in consumption leads to unemployment. This unemployment leads to a new reduction in consumption and requires the unproductive gift of enormous sums swallowed up by public or private assistance and the repression of crimes that are constantly on the increase and generated by the lack of work and poverty. This leads to a terrible disruption in the law of supply and demand and in all the relationships of social economy, an obstacle "to the formation, growth, and abundance of capital" that cannot be overcome, the absolute autocracy of capital, the radical servitude of workers, with oppression everywhere and freedom nowhere. Let society "then understand the harm it is inflicting on itself when it proclaims the legitimacy of interest."

3. The anecdotes we have related also put us on the right track to explain all that is monstrous in the phenomenon that we call the perennial or perpetual nature of interest. As soon as Paul, Mathurin, Mondor, and Jacques cease to adhere to the principle of the equivalence of services and wish to exchange not use for use but use for ownership, in approximately fourteen years, they will end up receiving the value of their property, 1664 in a century ten times this value and, as they lend it indefinitely in this way, they will receive a thousand, a hundred thousand or a million times its value, without ever ceasing to be its owners . In this way, the simple use of a sack of wheat, a house, a plane will be equivalent to the ownership not of one but a million, a billion, and so on, of sacks of wheat, houses, or planes. This entails the ability to sell the same object again and again and receive again and again the same price without ever handing over the ownership of what is being sold. Are the values exchanged equal? Are reciprocal services equal in value? For note this well: the tools of production are a service for the lenders just as they are for borrowers and if Pierre, Jérôme, Valère, and Guillaume have received a service that consists of the use of a hundred sou coin, a sack of wheat, a house, or a plane, they have provide d in exchange a service which consists in the ownership of a billion hundred sou coins, sacks of wheat, houses, and planes. Well, unless you can demonstrate that the use of 5 francs equals the ownership of 5 billion, it has to be acknowledged that interest on capital is theft.

As soon as an individual or succession of individuals are able, by means of interest or rent, to exchange 5 francs, a sack of wheat, a house, or a plane for a billion or more 5 franc coins, sacks of wheat, houses, or planes, there is someone in the world who is receiving a billion times more than he has produced. Well, this billion is the subsistence of one hundred or a thousand other people and, assuming that the income that remains to these thousand plundered people is still enough to feed them as they labor till their last breath, it is the leisure time of one thousand individuals that a single person swallows up, that is to say, their whole moral and intellectual life. These men from whom their entire spiritual life and thought is thus removed for the benefit of a single man might perhaps have become Newtons, Fénelons, or Pascals, 1665 producing marvelous discoveries in the sciences and arts and advancing the progress of humanity by a century. But no, "thanks to rent and its monstrous perennial nature," leisure has been forbidden precisely to all those who work from the cradle to the grave and becomes the exclusive privilege of a few idlers who, thanks to interest on capital, appropriate to themselves, without lifting a finger, the fruit of the crushing labor the workers endure. Almost all "humanity is reduced to wallowing in a life that is vegetative and immobile, in eternal ignorance" because of this plundering by rent, first of all removing their subsistence and then their leisure. If there were on the contrary no rent, with everyone receiving exactly what he has produced, an immense number of men now idle or condemned to work that is unproductive and often destructive will be compelled to work, which will increase accordingly the sum of general wealth or possible leisure, and this leisure will belong forever to those who have genuinely acquired it through their own work or that of their fathers.

But, it is said that, "if capital can no longer produce interest, who will want to create the tools of production, the materials and provisions of all sorts that make it up? Each person will consume what they have and humanity will never take a step forward. Capital will no longer be built up since there will be no interest in doing this." This really is a strange contradiction. Does a farmer not have something to gain by producing as much as possible, even though he merely exchanges his harvest for an equal value once it is paid with no rent or interest on capital? Does an industrialist not have something to gain by doubling or tripling his products even though he merely sells them for a sum that is equivalent to just one payment, without any interest on capital? Do 100,000 franc pieces cease to be worth 100,000 francs because they no longer produce interest? Do 500,000 francs in land, houses, machines or other things cease to be 500,000 francs because rent is no longer drawn from them? In a word, is acquired wealth, in whatever form in might be or however it might have been acquired, no longer wealth because I cannot use it to plunder someone else? Who would want to create wealth? All those who want to be rich! Who will save their money? All those who want to live the next day on the work of the day before. What motivation will there be to establish capital? The incentive of owning 10,000 francs when you have produced 10,000 francs, of owning 100,000 when you have produced 100,000 and so on.

You say, "The law will rob us of the prospect of acquiring a certain amount of property since it will forbid us from obtaining any advantage from it." On the contrary, the law will ensure for all the prospect of acquiring as much wealth as they have produced by working, at the same time forbidding everyone from plundering his neighbor of the fruit of his labor and requiring that services exchanged should be of equal value: use for use and property for property. "It will destroy," you add, "both the incentive to save in the present and the hope of rest in the future. Even though we may drop from exhaustion, we will have to abandon the thought of handing a small inheritance down to our sons and daughters since modern economic science makes it sterile, since we will become exploiters of men if we lend at interest." Quite the contrary, the abolition of interest on capital will regenerate in you the incentive to save today and will ensure you the hope of rest in the future, since it prevents you, the workers, from being dispossessed, through the payment of rent, of the greater part of the fruit of your work and, also making you spend only the exact sum that you have earned, it makes saving even more essential for all, whether rich or poor. Not only will you be able to hand down to your sons and daughters a small inheritance, without becoming exploiters of men, but you will obtain it now with much less effort. This is because at present if you earn 10 francs a day and spend 5, the other 5 are taken from you by all the forms of rent and interest on capital and then after forty years of backbreaking work, you are left with not one obole to leave to your children. 1666 Once rent has been abolished, however, you will have more than 60,000 francs to leave to them.

All the economic sophisms 1667 relating to interest on capital insist, exclusively, that the question should be discussed from just one aspect rather than from its two related sides. They show quite admirably that the lending of something of value is a service, a means of work and production for the borrower, but forget to show that the value given in return is also a service, a means of work and production of precisely the same kind for the lender, and that since the use of the same service balances out in the same period of time, interest on capital is an absurdity as much as it is plunder. 1668 They trumpet the benefits of saving which, when multiplied indefinitely by rent, produce scandalous opulence for a few idlers, but forget that these benefits, taken by someone who does nothing from someone who works, lead to the dreadful poverty of the masses, from whom their subsistence is often taken and always at least their savings, their leisure, and the opportunity of leaving something to their children. At great expense the need for capital formation is proclaimed, and nobody sees that interest restricts this formation to an almost imperceptible number of people, whereas the abolition of rent would summon to it everyone without exception, and capital would increase to an extent that would be all the greater in that each person would have to use the interest abolished to increase the value of the capital formation. "To say that interest will be eliminated is therefore to say that there will be one more incentive to save, to deprive yourself, and to build up new capital while maintaining the capital that already exists," 1669 first of all, since any wealth acquired will always remain wealth, and secondly since each person will always be able to enrich himself to the exact extent of his work and savings, then nobody will be encouraged by excessive opulence or poverty to indulge in dissipation or improvidence. Finally, since everyone will live no longer on interest, but on the stock of capital, it will be essential for the level of capital to compensate for the amount of rent abolished.

Everyone knows that zero, although in itself without intrinsic or absolute value, nevertheless has service and use value in the calculation or multiplication of numerical values, since each number grows by ten depending on the number of zeros that follow it. To say that the natural and true rate of interest is zero is therefore simply to say that use can be exchanged only for use and never for ownership. In the same way as a pair of stockings is paid for at its value, maybe 2 francs, for example, the use of something of value should be paid for with the use of something of an equal value for the same period of time. Doubtless this prevents the plunder of property by property, but it certainly does not make it toothless.

You want the savings that makes possible the establishment of capital. Then abolish the rent that takes away the savings of workers, makes saving superfluous for the rich who will always find in revenue the wealth that they continue to spend, and impossible for the poor whose income never exceeds, if ever it equals, their subsistence needs. You want capital to be abundant? Then abolish the rent that prevents ninety-nine percent of workers from ever acquiring and retaining capital or wealth. You want the reconciliation of capital and labour? Then abolish the rent that makes the antagonism between these two entities eternal by destroying the equivalence and reciprocity of services and by leading to the exploitation of labor by capital so that, in a given period of time, labor pays capital 5 billion for the use of a single hundred sou coin, as we have shown above. You want harmony between the classes? Then abolish rent so that, with services constantly being exchanged for equal services of the same nature, each person will always remain the owner of the exact sum corresponding to his work, and thus it will no longer be possible for exploiters or the exploited, masters or slaves, to exist.

When this happens there will be security everywhere, because there will be no injustice anywhere. When this happens workers will be the first to make themselves the natural guardians of a society whose ruin they now plot to bring about because it is ensuring theirs. When this happens nobody will talk about the artificial organization of work because there will be a natural and genuine system of organization. 1670 When this happens social arrangements based on coercion will be rejected, because people will have social arrangements based on freedom. When this happens "class jealousy, ill-feeling, unfounded hatred, and unjustified mistrust" will disappear of their own accord, for the perfect equality of exchange, the unquestionable equivalence of services "will be able to be strictly and mathematically demonstrated" and the absolute justice it will consecrate "will be no less sublime because it will satisfy both intellect and sentiment."

As you see, Sir, I have followed step by step and I might say letter by letter, each of the examples and each of the demonstrations contained in your article entitled Capital and Rent , and it was enough for me to re-establish the distinction between use and ownership and thus avoid the ambiguity that separates us to conclude from your own thoughts and words that rent should be abolished. It is not my letter but your work itself that contains this conclusion from the very first line to the last. I have therefore merely reproduced it, often literally and by changing just the terms that have given rise to this unfortunate ambiguity. This refutation comes not from me but from you. How then can you deny your own witness?

It is the very principle of rent that you wished to justify. Your task was limited to that.

It is the very principle of the abolition of rent that I think I have mathematically demonstrated, using your own words. My work also has to be limited to that.

I have stopped where you yourself judged it necessary to stop.

Once the question of principle has been settled, if it should happen, and please God that it does, that you acknowledge as of right the injustice and illegitimacy of interest, probably all that would remain is to deal with the question of its application.

I do not want to jump to conclusions here, since it clearly steps outside the circle you yourself have drawn. However, a few words would perhaps be of some use in demonstrating not just the possibility but also the practicality of abolishing rent through freedom alone, even before the law sanctions it. Basically the entire problem can be reduced to this: Give the workers the means of acquiring, either by installments or by any other means, ownership of all the things the value of which they have to pay for eternally, in the form of interest, hire costs, farm rent, or leases, just in order to have their use . Now, these means are available.

Indeed, just suppose, and this fact is no longer a supposition but a work that is now in the full process of execution, 1671 that a kind of private bank is set up in order to issue notes that associations of workers in all the essential jobs undertake to accept for a fifth, for example, of all the purchases that will be made from them. Suppose that these notes, exchanged for cash by all those men who wish interest to be abolished and who find an immediate acceptance for them in the workers associations, generated a sum which was enough to build houses where rent would be abolished, and where the rental payments would always yield the right to an equal claim against the total value of the property itself, which would thus be acquired over twenty-five years simply by the paying of the installments.

Suppose that the operation continues in this way indefinitely through the issue either of old or new notes and that it includes, not only houses, but also all the tools for production and land, where the cost of hire and farm rental would reimburse the value of the property itself in the same way. Now we would have abolished rent in all its forms; not only for the capital on which this bank operates, which of necessity will reach a colossal figure, but very shortly for all the others, which according to the inexorable law of competition will fall to the same level, that is to say to the simple exchange of equal values for equal values, with no interest or rent paid on either side.

I will pass over the details in the interest of brevity and content myself by summarizing in two words the basic principle of its operation. You are too familiar with all the economic ideas involved, Sir, not to grasp instantly the result of this mechanism, which is simple anyway. It is enough for you to be able to see at a glance how it is possible, even perhaps easy, to kill off rent through the abolition of rent and the interest on capital by the removal of this interest, and so to lead freely, peacefully, and with no upheaval to the day when loans, hire, farm, or other rents will merely be among the forms of exchange of which they are now a monstrous deviation, and when your own principles are realized in the full richness of their truth: the principles of mutuality, reciprocity, and the equivalence of services.

Once the principle of the means of application is set out, vary its forms, elements, conditions, and mechanisms, simplify and perfect its basis, extend its action and make it universal, replace freely and everywhere t he symbol of exchange that cannot allow interest with that of money, rid the circulation of capital of its unproductive aspects, create the solidarity of labour voluntarily; in a word, reproduce this scheme for the abolition of rent in all its possible forms: there is the domain of freedom. It is enough to show that the practical means exist; leave man's genius to act and you will see whether he is capable of making use of it or not.

Be that as it may, and disregarding any views on the practical means, equality and justice do not remain any less than what they always are, truth is not less truth, and the interest on capital, illegitimate in law, absurd and monstrous in principle, and plunder in fact, is anathema to all upright men, the curse of oppressed races, and the just indignation of whomsoever has a generous spirit of sympathy for those who suffer and weep. It is in this respect, Sir, that I condemn it to your critical blows, convinced that after having viewed it afresh in its hideous iniquity, you will find no nobler a task than to devote your talent, which is remarkably lively, lucid, picturesque, and incisive, to combating this scourge, the source of all the indescribable poverty to which the world is prey.

Allow me therefore to end this over-long epistle with the following words taken from your article which are like the stepping stone and preamble to the great work of rehabilitation to which equality, justice, and the love of the people inclines you: 1672

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, 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, 1673 which has to be cut out even if this risks a little temporary suffering?

It is this hideous cancer that you, Sir, will help us to cut out. You want freedom of exchange; you should therefore want EQUALITY as well in order that fraternity , by crowning them both, will bring about the reign of justice, peace, and universal understanding over the world.

F. Chevé.

Proudhon's Preface to Bastiat's First Letter 1674

P ARIS , November 12, 1849.

We publish to-day a first article by M. Frederic Bastiat, a representative of the people, and one of the most distinguished economists of our country, upon the great question of the day, Interest or Rent of capital. We do for M. Bastiat, we will do for any serious economist who will honor us with his criticisms, a thing hitherto unknown in the annals of journalism. We open our columns to our opponent, we publish his article entire, we make no comment upon it, in order not to influence the judgment of our readers, and to equalize the advantages of the controversy between our antagonist and ourselves. It will not be our fault if the question of Interest , which, in the economic order, constitutes the whole object of the socialistic protest of the nineteenth century, is not discussed seriously before the country and before Europe, and probably ere long decided. When the writer's pen is able to effect or avert a revolution, what need of paving stones and bayonets? The abundance and multiplicity of our tasks not permitting us to reply to M. Bastiat to-morrow, we postpone our answer till next Monday, November 19, thus leaving our readers for a week under the influence of the arguments of our adversary.

Letter No. 2: F. Bastiat to the Editor (12 November 1849)

F. Bastiat

To the Editor of La Voix du Peuple

The use of an item of property constitutes a value. - Any value may be exchanged for another. - The productivity of CAPITAL. - Its contribution is not paid for at the expense of LABOR. - This payment is not exclusively linked to the conditions of the LOAN.

12 November 1849

The extreme enthusiasm with which the people in France have begun to examine economic problems and the scarcely credible indifference of the well-to-do classes 1675 with regard to these problems is one of the most characteristic traits of our era. While the longstanding journals, at once the voice and the mirror of upright society, stick to antagonistic and sterile party politics, the papers intended for the working classes are constantly turning over what might be labeled the fundamental question, that of "the social question." Unfortunately, I very much fear that they will lose their way as soon as they step out along this path. But can things be otherwise? At least they have the merit of seeking truth. Sooner or later they will be rewarded with its actual possession.

Since you, Sir, are willing to allow me the use of the columns of La Voix du Peuple , I will set the following two questions before your readers and endeavor to answer them:

1. Is interest on capital legitimate?

2. Is it exacted at the expense of labor and the workers?

We differ as to the solution, but there is one point on which we are certainly in agreement which is that (apart from religious problems), there are no more important questions which the human mind can confront.

If it is I who am mistaken, if (self) interest is an excessive tax levied by capital on all consumer products, I will have to criticise myself for having, through my arguments, unwittingly underpinned the oldest, most dreadful, and most universal abuse ever dreamed up by the spirit of plunder, an abuse to which in terms of the universality of its results, neither the systematic pillage of warlike nations, nor slavery, nor the despotism of the priests can be compared. 1676 This would mean that a deplorable error in economics had turned the democratic flame I feel burning in my heart, against democracy. 1677

However, if the error is on your side, if interest is not only natural, just, and legitimate, but also useful and profitable, even to those who pay it, you will agree that, in spite of your good intentions, your propaganda can only bring about immense harm. It leads workers to believe that they are the victims of an injustice, one which in fact does not exist, and to take for harmful something that is good. It sows discontent in one class of people and terror in another. It prevents those who are suffering from finding the true cause of their suffering by sending them down the wrong path. It calls their attention to an alleged act of plunder, which stops them seeing and combating real acts of plunder. It makes men's minds familiar with the disastrous view that order, justice, and union 1678 can arise again only through a universal transformation (at once as hateful as it is impossible according to my theory) of the entire system within which work and trade have been carried out since the dawn of time.

There can therefore be no more important question. I will take it up at the point where you left it.

Yes, Sir, you are right. As you say, we are separated only by a certain ambiguity concerning the words "use" and "ownership." However, this ambiguity is enough for you to believe you should stride out with the utmost confidence to the West while my beliefs propel me toward the East. Between us, at the point of departure, the distance is imperceptible, but it loses no time in becoming an immeasurable abyss.

The first thing to do is to retrace our steps until we have found the place where we agree. This terrain, which is common to both of us, is the mutual exchange of services . 1679

I had said: 1680 He who lends a house, a sack of wheat, a plane, a coin, a ship, in short, an item of VALUE, for a fixed length of time is providing a service . Therefore, he should receive, in addition to the return of this item of value at the due date, an equivalent service . 1681 You agree that he ought, in effect, to receive something . This is a major step towards a solution, for this something is what I call INTEREST.

Let us see, Sir, Do we agree on this starting point? For the whole of 1849, you lend me 1,000 francs in écus 1682 or some tool or implement estimated to be worth 1,000 francs a year, or a supply of something worth 1,000 francs, or a house whose annual rental is 1,000 francs. It is in 1849 1683 that I will receive all the advantages that this item of value , created by your work and not mine, can provide. It is in 1849 that you will, voluntarily and in my favor, deprive yourself of these advantages, which you might most legitimately retain for yourself. For us to be all square, for the services to be equivalent and reciprocal, and (or justice to be satisfied, would it be enough for me to return your écus, your tool, your wheat, or your house on the first day of 1850? Be careful, for if this is the case, I warn you that the part I would like to play in these kinds of transactions is that of the borrower: this role is convenient and totally profitable; it enables me to be housed and provided for right through my lifetime at the expense of others, on condition, however, that I find a lender, which, under this system, will be no easy task, for who will build houses to rent them gratis and be content just with simply returning them at the end of the loan period?

So, this is not what you are putting forward. You acknowledge (and this is what I want to establish clearly) that the man who has lent a house or any other item of value has provided a service , which is not repaid by the simple handing back of the keys at the end of the loan period or by the simple repayment (of the loan) at the due date. There is therefore, in your view as well as mine, something to be agreed upon in addition to the return of the item. We may fail to agree on the nature and name of this something, but something is due by the borrower. And since you accept, on the one hand, the mutual exchange of services since, on the other hand you admit that the lender has provided a service , allow me for the moment to call this thing due by the borrower a service .

Well, Sir, I think that the question has made a step and even a major step forward for this is where we are now.

According to your theory, as well as according to mine, the agreement between the lender and borrower that stipulates the following is perfectly legitimate:

1. The full return, at the due date, of the object lent;

2. A service to be provided by the borrower to the lender as compensation for the service he, the borrower, has received.

Now, what will the nature and name of this service due by the borrower be? I do not attach the scientific importance that you do to these matters. In each particular instance, they may be left to the parties to the agreement themselves. It is really their business to negotiate the nature and equivalence of the services to be exchanged as well as their specific names. Science stops when it has shown their cause, origin, and legitimacy. The borrower will pay in wheat, wine, shoes, or labor, depending on his situation. In most cases, and purely as a matter of convenience, he will pay in money, and as you acquire money only through work, it may be said that he pays with his work. Why do you forbid me to call this payment, that is just and legitimate according to you yourself, house rent, farm rent, installments, ground-rent, loan payments, or interest , depending on the circumstances?

But let us move on to the ambiguity that separates us: the alleged confusion, according to you, that I make between use and ownership , between the loan of an item and its complete transfer (of ownership).

You say: He who borrows a piece of property or an item of value and who is required to return it in full at the due date, has only been given in the end the use (of it). What he owes is not an item of property or an item of value, but the use of an equivalent item of property or item of value. To call these two things of quite different natures which have no possible equivalence , the same thing, is to destroy the mutual exchange of services .

To go to the root of the objection, I would have to turn upside down the entire foundation of social economy. 1684 You cannot expect such a project from me but I will ask you whether, according to you, the use of an item of value is not itself something of value . Can it not be evaluated ? According to what rule or principle do you prevent two parties to an agreement from comparing the use of something to a sum of money or an amount of labor, and trading on this basis if this suits them? You lend me a house worth 20,000 francs and in doing so, you provide me with a service. Do you mean that, in spite of my agreement and yours, I can pay you for this, in the name of science, only by lending you also a house of the same value? That is absurd, for if we all had houses each of us would stay in our own, and what would be the reason for making the loan? If you go so far as to claim that the mutuality of services implies that the two services exchanged have to be not only equal in value but also identical in nature , you eliminate the exchange as well as the loan. A hat maker will have to say to his customer: "What I am selling you is not money but a hat; what you owe me is a hat and not money."

If you acknowledge that services may be evaluated and exchanged precisely because they differ in nature, you will have to agree that the handing over of a use that is a service may very legitimately be valued in terms of wheat, money, or labor. Take care here, because although your theory clearly accepts the principle of interest, it tends to do nothing less than to make all transactions immobile.

You are not reforming (society). You are paralysing it.

I am a shoemaker. My trade has to provide me with a livelihood, but in order to exercise it I have to be housed and I have no house. On the one hand you have devoted your work to building one, but you do not know how to make your shoes, nor do you want to go barefoot. We might come to an agreement: you will provide me with a house and I will provide you with shoes. I will benefit from your work just as you will from mine; we will provide each other with a reciprocal service. All we need to do is to reach a fair evaluation, a genuine equivalence, and I cannot think of any other way to do this than by free negotiation.

And if under the pretext that a physical object is being transferred there is only the transfer of the use of something, the theory will tell us: "This transaction cannot take place; it is illegitimate, excessive, and an act of plunder. It involves two services which have no possible equivalence and you have neither the ability to evaluate them nor the right to exchange them"!

Do you not see, Sir, that a theory like this deals a deathblow to trade and freedom at a stroke? What authority is there, then, which can come and abolish our joint and free agreement? Is it the law? Is it the State? But I, for my part, thought that we made the law and that we paid the State to protect our rights, and not to destroy them.

So a short time ago, we were in agreement on this point that the borrower owes something in addition to just returning it. Let us agree now on this other point, that this something can be evaluated and consequently paid as it suits the parties to the agreement in any form that its value may assume.

It follows that, at the due date, the lender should recover:

1. The full value lent;

2. The value of the service provided by the loan.

I have no need to repeat here how the complete return of the object lent of necessity implies the perpetuity of the interest.

Let us now examine briefly this second question:

Is the interest on capital levied at the expense of labor?

You know as well as I do, Sir, that we would be putting forward a very limited idea of interest if we supposed that it appears only when a loan is involved. Whoever contributes capital to the creation of a product intends to be paid not only for his work, but also for his capital, in such a way that interest is one element in the price of all items which are consumed.

Perhaps it is not enough to demonstrate the legitimacy of interest to men who have no capital. They would doubtless be tempted to say: "Since interest is legitimate, we have to be subjected to it, but it is a great misfortune, for without it we would obtain everything more cheaply."

This complaint is totally erroneous; what enables human satisfactions to come ever closer to being free of charge and common to all is the intervention of capital. Capital is the democratic, philanthropic, and egalitarian power par excellence. For this reason, the man who will explain how it functions will provide the most important service to society, for he will put an end to this antagonism between classes, which is just based on error.

It is impossible for me to deal with the theory of capital 1685 in a journal article. I have to limit myself to indicating my line of thought through an example, an anecdote, or a hypothesis that typifies all human transactions. 1686

Let us go back to the beginning of the human race at the time when we can suppose that no capital existed. What then was the value, measured in terms of work, of an object of any sort, such as a pair of stockings, a sack of wheat, an item of furniture, a book, etc.; in other words, at what price (in terms of labour) (would) these things have been purchased? I am not afraid to say that the answer lies in this single word: Infinity . Objects like this were then completely unavailable to the human race.

Let us take the case of a pair of cotton stockings. No man would have managed to produce them in either a hundred or a thousand days of work.

How is it that today in France there is no worker so unfortunate that he cannot obtain a pair of cotton stockings with what he earns from a day's work? 1687 It is precisely because capital contributes to the creation of this product. The human race has invented tools which force nature to provide a contribution that is free .

It is very true that when the price of this pair of stockings is broken down you will find quite a considerable part of this price that relates to capital. The squatter 1688 who clears the land in Carolina certainly has to be paid, the sail that drives the ship from New York to Le Havre has to be paid for, and the machine that turns ten thousand spindles has to be paid for. But it is precisely because we pay for these tools that they cause nature to contribute and they substitute nature's share that is free of cost for labour's share that incurs a cost . If we eliminated successively this series of interest payments that have to be paid, we would, by this very act, eliminate the tools and the contribution of nature that they put to work; in a word, we would return to the the beginning (of the human race), to the time when a thousand days of work would not have been enough to acquire a pair of stockings. This is true for all other things.

You think that interest is levied by someone who does nothing on someone who works . Oh, Sir, before making this sorry and irritating assertion a second time before the public, examine its very basis. Ask what this assertion contains and you will ascertain that it contains just errors and angry rants. You quote my fable on the Plane; allow me to return to it. 1689

Here is a man who wants to make planks. 1690 He will not succeed in making one in a year, for he just has two hands. I lend him a saw and a plane, two tools, do not forget, that are the fruit of my work and which I might use for myself. Instead of one plank, he makes a hundred of them and gives me five. By depriving myself of my belongings, I have thus made it possible for him to have ninety-five planks instead of one and here you are, saying that I am oppressing and robbing him! What! With my saw and a plane that I have created with the sweat of my brow, a one hundred-fold increase in production out of nothing (so to speak), and society is able to enjoy a one hundred fold increase in their use; a worker who was unable to make a single plank has made one hundred of them, and because he freely and voluntarily gives me one twentieth of this surplus , you make me out to be a tyrant and a thief! The worker will see his work bear fruit, the human race will see the range of its satisfactions increase, and I, who am the author of these results, am the only person in the world who will be forbidden to be part of this, even with universal consent!

No, no, this cannot be so. Your theory is as contrary to justice, general utility, and the self interest even of the workers as it is to the experience everywhere down through the ages. Allow me to add that it is no less contrary to the reconciliation of the classes, the union of hearts, and the achievement of human fraternity, which is greater than justice but which cannot do without justice.


Letter No. 3: P. J. Proudhon to F. Bastiat (19 November 1849)

Disavowal of the distinction introduced by Mr. Chevé. -Belief in the slogan: A loan is a service; a service is an item of value. - Paradox. - The lender does not deprive himself. - The necessity of organizing free credit. - Categorical questions.

19 November 1849

The aim of the February Revolution, both politically and economically is to establish the absolute freedom of men and citizens.

The way this Revolution works politically is via the establishment of universal suffrage or in other words the absorption of political power in society; economically, it happens via the social organisation of money and credit, again working through absorption, this time by the workers absorbing the function of the capitalists.

Doubtless, this procedure on its own does not provide a complete understanding of the system; it is just its point of departure, its aphorism . But it is enough to explain the Revolution directly and as it is; it consequently permits us to say that the Revolution is not and cannot be anything other than this.

Everything that tends to advance the Revolution as it is thus understood, everything, from wherever it comes, that encourages its development, is essentially revolutionary and we classify it under the heading of Movement .

Everything that opposes the application of this idea, everything that denies or hinders it, whether it is the result of demagogy or absolutism, we call Resistance . If the author of this resistance is the government, or if such resistance acts with the connivance of the government, it becomes Reaction .

Resistance is legitimate when it is in good faith and when it is carried out within the limits of republican freedom; which is merely the recognition of freedom of inquiry, and the consequence of universal suffrage. Reaction, on the other hand, is an infringement of freedom, as it tends to suppress the expression of ideas violently in the name of public authority and in the interests of one party; if it is expressed through laws of exile, deportation, transportation, etc., 1691 it becomes a crime against the sovereignty of the people. Such ostracism is the suicide of republics.

When we gave an account in La Voix du Peuple of the project put forward by Mr. de Girardin to impose a tax on capital, 1692 we had no hesitation in seeing in this one of the boldest manifestations of the revolutionary idea, and although the author of this project was and perhaps still is attached to the Orléans dynasty, 1693 although his personal tendencies make him a man who is eminently on the side of the government, and finally even though he has consistently sided with the "Party of Order" 1694 against the Revolutionary party, we nevertheless think that his idea is part of the movement. For this reason, we have claimed it as our own and if Mr. de Girardin were ever to abandon his own thought, we would take it over as an underpinning of our work and make it one more argument against the adversaries of the Revolution.

It is in line with this elevated and so to say, impersonal rule of criticism that we will be replying to Mr. Bastiat.

Mr. Bastiat, contrary to Mr. de Girardin, is a writer totally imbued with the democratic spirit; if we cannot yet say of him that he is a socialist, he is certainly already more than a philanthropist. The manner with which he understands and sets out political economy places him, together with Mr. Blanqui, 1695 if not very much above, at least very much ahead of other economists who are faithful and unshakeable disciples of Mr. Jean-Baptist Say. In a word, Mr. Bastiat is devoted body and soul to the Republic, to freedom, to equality, and to progress; he has proved this on many occasions brilliantly through the way he has voted in the National Assembly.

In spite of the fact that we include Mr. Bastiat among the party of Resistance, his theory of capital and interest is diametrically opposed to the most authentic trends and the most pressing needs of the Revolution; and this leads us to formulate an important principle. We hope that our readers, following our example, will always be able to distinguish between personalities and principles! Both discussion and charity would be improved by this.

Mr. Bastiat starts his reply with an observation whose accuracy is striking and which we consider to be all the more relevant to recall as it hits straight back at him:

"The extreme enthusiasm," says Mr Bastiat, "with which the people in France have begun to examine economic problems and the scarcely credible indifference of the well-to-do classes with regard to these problems is one of the most characteristic traits of our era. While the longstanding journals, at once the tools and the reflection of upright society, stick to antagonistic and sterile party politics, the papers intended for the working classes are constantly turning over what might be labeled the fundamental or social questions."

Well then! We will say to Mr. Bastiat, the following: You yourself are, unsuspectingly, an example of this scarcely credible indifference with which men of the well-to-do class examine social problems and first-rate economist though you may well call yourself, you are totally ignorant of the current state of the question of capital and interest whose defense you have taken upon yourself. For this reason, as behind the times in ideas as you are in facts, you express yourself to us exactly as would a rentier 1696 before '89. Socialism, which for the last ten years has been protesting against capital and interest, is totally unknown to you; 1697 you have not read its theses, for if you had read them, how could it be that when you prepare to refute socialism, you pass over the whole socialist case in silence?

Truly, when we see you arguing against the socialism of our age, we might take you for an Epimenides waking up with a start after eighty years of sleep. 1698 Is it really to us that you are addressing your patriarchal dissertations? Is it the proletarian of 1849 that you wish to persuade? Then start by examining his ideas; put yourself in his shoes in the current debate. Address the reasons, whether true or false, that drive him and do not give him yours, with which he has been perfectly familiar since time began. Perhaps you may be surprised to hear it said that when you, a member of the Academy of Moral and Political Science, 1699 talk of capital and interest, you are no longer familiar with the subject! This is, nevertheless, what we are now endeavoring to prove to you. After this, we will go back to the question itself if you so wish.

First of all, we deny, and you know this only too well, we deny, in line with Christianity and the Gospel, the intrinsic legitimacy of loans bearing interest; we deny this in line with Judaism and paganism, with all the philosophers and lawmakers of antiquity. For you will note this initial fact, which is valuable in itself, usury 1700 had no sooner appeared on this earth than it was repudiated. Lawmakers and moralists have never ceased to combat it and, if they have not succeeded in eliminating it, at least they have succeeded to a certain point in clipping its wings by setting a limit or a legal rate on interest.

This is therefore our initial proposition, the only one, apparently, that you have heard of: When a loan is paid back, everything that is given over and above the loan is usury and plunder: Quodcumque sorti accedit, usura est . 1701

However, what you do not know and which perhaps will surprise you is that this fundamental denial of interest, in our view, does not destroy the principle or the right, if you wish, that gives rise to interest and which, in spite of the condemnations of both secular and ecclesiastic authorities, has kept it alive to the present day; the true problem for us is not to establish whether usury in itself is illicit (in this respect, we share the opinion of the Church) or if there is a reason for its existence (in this respect, we share the opinion of the economists). The problem is to establish how the abuse might be eliminated without infringing the right; how, in a word, we might escape from from this contradiction.

Let us explain this better, if we can.

On the one hand, it is very true, as you yourself establish from the start, that a loan is a service . And, since every service has a value and since it is part of the nature of a service to be paid for, it follows that a loan ought to have its price , or, to use the technical term, it should bear interest .

However, it is also true, and this truth exists alongside the preceding one, that the person who makes a loan in accordance with the standard conditions governing the profession of lending, does not deprive himself of the capital he lends, as you say he does. On the contrary, he lends it precisely because this loan is not a hardship for him. He lends it because he has no use of it for himself as he already has enough capital for himself. In the end, he lends it because he has no intention, nor is it in his power, to add value to it personally and because, by keeping it in his own hands, this capital that is sterile by nature will remain sterile, whereas by being lent and through the interest that results, it will produce a profit which will enable a capitalist to live without working. Well, living without working is, both from the standpoint of political economy and morality, a contradictory proposition and hence impossible.

Can a landowner who has two estates, one in Tours, the other in Orléans, and who is obliged to establish residence in the one he is working and consequently abandon the other, say that he is depriving himself of anything because he, unlike God, does not possess ubiquity of action and domicile? We might just as well say that we are deprived of residence in New York because we live in Paris. Would you not agree, therefore, that the deprivation of a capitalist is like the deprivation of a master who has lost his slave, like the deprivation of a prince deposed by his subjects, or like the deprivation of a thief who, on wishing to climb into a house, finds dogs on the lookout and its inhabitants at the window?

Well, faced with this statement and this denial that are diametrically opposed, each of which is supported by reasons of equal value but which do not answer each other and cannot mutually bring each other down, what position are we to adopt? You persist in your statement and say: "Do you not wish to pay me interest? So be it! I do not wish to lend you my capital. Try working without capital!" For our part, we persist in our denial and say: "We will not pay you interest because interest, in social economy, is the price of idleness, the basic cause of the inequality of wealth, but also of poverty." As neither of us is prepared to yield, we are reduced to immobility.

This, therefore, is the point at which socialism takes up the question. On the one hand there is the commutative justice of interest, and on the other the organic impossibility and immorality of this same concept of interest. And let us tell you from the start, socialism does not have the pretension of converting anyone, whether it is the Church, which opposes interest, or political economy, which supports it, especially since socialism is convinced that both are right. Here is how it analyses the problem and what it, in turn, proposes, rising over the arguments of the old lenders, whose interest is too strong for their word to be believed, and the declarations of the Fathers of the Church, that have remained dead letters.

Since the theory of usury has succeeded in winning over Christian customs and pagan usage, since the hypothesis or the fiction of the productivity of capital has entered into the practices of nations, let us accept this economic fiction as we have, for the last thirty-three years, accepted the fiction of constitutionalism, and let us see what this fiction is capable of producing when taken to its full conclusion. Instead of rejecting the idea of the productivity of capital purely and simply as the Church has done, a position which could never lead to anything, let us make a historic and philosophical deduction from it, and since the word is more than ever in fashion let us describe the revolution this idea has undergone. After all, the idea has to correspond to something real; it has to indicate some need of the commercial mind for nations never to have hesitated to sacrifice their most lively and sacred beliefs to it.

This, therefore, is how socialism, totally convinced of the inadequacy of both the economic theory and the ecclesiastical doctrine, in turn deals with the question of usury.

First of all, it observes that the principle of the productivity of capital is no respecter of persons and does not create a privilege. This principle is true of any capitalist, with no distinction of title or dignity. What is good for Pierre is good for Paul: each has the same right to usury as he has to work. When, therefore, and I return here to the example that you used, you lend me, in exchange for interest, the plane you manufactured to smooth your planks, if for my part I lend you the saw I have assembled to cut my tree stumps into lengths, I would equally have the right to interest. The rights of capital are the same for all; all individuals, to the extent of their benefits 1702 and loans, will necessarily collect and pay interest. This is the initial consequence of your theory, which would not be a theory without the generality and reciprocity of the right it creates. This is intuitively and immediately obvious.

Let us suppose, therefore, that of all the capital I employ, either in the form of working tools or of raw material, half is lent to me by you. At the same time, let us suppose that of all the capital you put into operation, half of it is lent to you by me; it is clear that the interest that we have to pay each other mutually will cancel out, and if on both sides the capital put forward is equal and the interest payments balance, the remainder, or debt, will be nil. 1703

In society, doubtless, things do not happen exactly like this. The benefits that producers provide to each other are far from being equal and on this basis the interest they have to pay each other are not equal either. This leads to the inequality of condition and wealth.

But the question is to establish whether there is a equilibrium in the benefits provided by capital, work, and talent; consequently whether the equality of income for all citizens, which is perfectly admissible in theory, can be achieved in practice; whether society is tending toward this result; and finally whether against all expectations this is not the fatal conclusion of the theory of usury itself.

Well, this is what socialism states now that it has succeeded in understanding itself, in this case no longer seeing any difference between itself and an economic science which it has examined both through the experience it has acquired and the power of its deductions. In fact, what do the history of civilization and the history of political economy tell us about this major question of interest?

It is that the mutual provision of benefits, whether material or non-material, by means of capital increasingly tend to reach equilibrium for a variety of reasons which we list below, and which the most backward of economists cannot fail to recognize:

1. The division of labour, or the specialisation of industry, which, as it infinitely increases the scale of its tools and machinery and its raw materials, increases the lending of capital to the same extent;

2. The accumulation of capital, which results from the variety of industries and whose effect is to produce competition between capitalists similar to that between merchants, and consequently to produce, imperceptibly, a decrease in the cost of capital and a reduction in the rate of interest;

3. The ever-increasing facility with which capital circulates, by means of cash and bills of exchange;

4. Finally, public security.

These are the general causes that, for centuries past, have led to a reciprocity of benefits which are increasingly in equilibrium between producers, followed by an increasingly equal compensation in the rate of interest, and a constant decrease in the cost of capital.

These facts cannot be denied; you acknowledge them yourself. The only thing is that you do not understand the principle behind them or their significance when you credit capital with the progress achieved in the domain of industry and wealth, when in reality the cause of this progress is not capital but the CIRCULATION of capital. 1704

With the facts analyzed and classified in this way, socialism asks itself whether, in order to stimulate this equilibrium between credit and income, it might not be possible to act directly, not on capital, and note this clearly, but on its circulation; whether it might not be possible to organize this circulation so as to produce simultaneously between capitalists and producers, two entities currently in opposition to one another, but which theory shows ought to be synonymous, the equivalence of benefits, that is to say, the equality of wealth.

To this question socialism also gives this answer: Yes, that is possible, and it can happen in several ways.

First of all, in order to remain within the present situation of credit, which is carried out on the basis of cash, let us suppose that all the producers in the Republic, more than ten million of them, each pays a sum that represents only one percent of their capital. This payment of one percent of the entire fixed and moveable capital of the country would constitute an amount of ONE BILLION francs.

Let us suppose that with the help of this sum a bank was founded to compete with the mis-named Bank of France, 1705 one which discounts and makes loans for mortgages at half of one percent.

It is obvious, in the first place, that if the discount on commercial paper were at half of one percent, the loan on mortgages also at half of one percent, and loans to business firms too kept at half of one percent, 1706 money capital in the hands of all usurers and moneylenders would immediately become totally unproductive; interest would be nil, and credit would be free.

If commercial and mortgage credit, in other words, capital in cash, the capital whose sole function is to circulate, were free, capital in business firms would soon become free as well. Business firms would no longer be capital in reality, they would become goods priced on the Stock Exchange like spirits and cheeses, and rented or sold, two terms that in these circumstances would become synonymous, at COST.

If capital in firms were free in the same way as money capital, which is the same as saying that if the use of it were paid as an exchange and not as a loan, the capital in the form of land would soon in turn become free, that is to say, that farm rent, instead of being the payment made to the owner who did not operate the land, would be the compensation for the difference in value between products from high quality or lower quality land or, to express it better, there would no longer in real terms be any tenants or landowners but just farmers and wine producers, just as there are joiners and mechanics.

Do you want another proof of the possibility of making all forms of capital free by developing economic institutions?

Let us suppose that, instead of this system of taxation that is so complicated, burdensome, and vexatious, bequeathed to us by the feudal nobility, a single tax 1707 was established, no longer on production, circulation, consumption, lodging etc. but, as justice demands and as economic science requires, on the net capital belonging to each individual. Capitalists, who will lose through tax as much or more than they gain through rent and interest, will be obliged either to produce something of economic value themselves or to sell: economic equilibrium would once more be re-established through this intervention by the Fisc (the tax authorities ) at once so simple, and what is more, inevitable.

This, in sum, is the theory of socialism with regard to capital and interest.

Not only do we state that, in accordance with this theory, which incidentally we share with economists, and given our faith in industrial development, that this is the trend and scope of lending at interest, in addition we prove, by citing the destructive consequences of today's economy and by making clear the causes of poverty, that this trend is necessary and the end of usury is inevitable.

In fact, since, as has been said, the cost of lending, the cost of capital, interest on money, in a word, usury, is an integral part of the cost of products, and since this usury is not equal for all, it follows that the price of products, composed as it is of wages and interest, cannot be paid by those who have only their wages and no interest with which to pay for it. The outcome is that because of usury, labor is condemned to unemployment and capital to bankruptcy.

This argument, one of the genre which mathematicians call reductio ad absurdum , which shows the organic impossibility of lending at interest, has been reproduced a hundred times in socialism. Why do economists not mention it?

Do you seriously wish to refute socialist ideas on lending at interest? These are the questions you will have to answer:

1. Is it true that if in outward appearance the benefits provided by capital is a service with a value that consequently ought to be paid for, in one's heart of hearts this benefit does not result in genuine deprivation for the capitalist, and consequently that it does not confer the right to demand something for the cost of the loan?

2. Is it true that, if it is to be above criticism, usury has to be equal, that the trend in society leads to this equalization, so that usury is beyond reproach only when it has become equal for all, that is to say, nil?

3. Is it true that a national bank that provides credit and discounts free of charge is possible?

4. Is it true that through the effect of this free credit and free discount, similar to that of taxation which has been simplified and restored to its true form, rent on property would disappear, together with interest on money?

5. Is it true that there is a contradiction and mathematical impossibility in the old system?

6. Is it true that, after having contradicted several thousand years of theology, philosophy and legislation on usury, political economy will achieve the same result through its own theory?

7. Finally, is it true that usury, as a providential institution, has merely been an instrument of equality and progress as absolutely as, in the realm of politics, the absolute monarchy has been an instrument of freedom and progress, and as, in the field of law, the ordeals of boiling water, dueling, and torture were in their turn instruments of belief and progress?

This is what our opponents will have to examine before they accuse us of scientific and intellectual weakness; these, Mr. Bastiat, are the points that your argument will have to address in the future if you wish it to prevail. The question is clearly and categorically set out; allow us to believe that, once you have read it, you will acknowledge that in nineteenth century socialism there is something that goes beyond the range of your outdated political economy.


Letter No. 4: F. Bastiat to P. J. Proudhon (26 November 1849)

The logical boundaries of the debate. Saying yes and no is not an answer. Futility of an objection based on the fact that a capitalist is not depriving himself of anything. The natural and essential productivity of CAPITAL demonstrated using examples. Considerations on leisure.

26 November 1849

Sir, you have asked me seven questions. Please remember that right now there is just one question between us:

Is interest on capital legitimate?

This is a very stormy question. It needs clearing up. In accepting the straightforward hospitality of your columns, my aim has not been to analyze all the possible combinations of credit that the fertile genius of socialists is capable of bringing forth. I have asked myself if interest, which forms part of the price of everything, is plunder, and if consequently the world is divided into capitalists who rob and workers who are robbed. I do not believe this, but others do. Depending on whether truth is on my side or theirs, the future reserved for our beloved country is one of peace or a bloody and inevitable conflict. For this reason, it is worth examining the question seriously.

Why are we not in agreement on this point of departure? Our work would be limited to eliminating disastrous errors and dangerous prejudices in the minds of the masses. We would show people that capital is not a greedy parasite but a friendly and fruitful power. We would show them capital, and here I am almost quoting you verbatim, being accumulated through activity, order, thrift, foresight, the division of labour, peace, and public security; capital being distributed as a result of freedom, among all classes; capital coming within reach of all as its payments become increasingly affordable; capital in short relieving humanity of the weight of fatigue and the yoke of need.

But how can we address different views of the social problem when your answer to this initial question: is interest on capital legitimate? is YES and NO?

YES, for "It is very true that a loan is a service and since every service has a value , consequently since it is part of the nature of a service to be paid for, it follows that a loan ought to have its price, it ought to bear interest ."

NO, for "Loans, through the interest they generate, produce a profit that enables capitalists to live without working. Now, living without working is, both in terms of political economy and in moral terms, a contradictory proposition, and thus something that is impossible."

YES, for "The fundamental denial of interest in our view does not destroy the principle or the right that gives rise to interest. The true problem for us is not to establish whether there is a reason for usury to exist, we share, in this respect, the opinion of the economists."

NO, for "Along with Christianity and the Gospels, we deny the intrinsic legitimacy of loans bearing interest."

YES, for "In its role as a providential institution, usury has been nothing more than an instrument serving both utility and progress."

NO, for "When a loan is repaid, everything paid back in addition to the loan is usury and plunder".

YES and NO finally, for "Socialism does not claim to convert anyone, neither the Church, which denies interest, nor political economy that supports it, and all the more since it is convinced that both of them are right."

Some people say that these contradictory solutions are an intellectual amusement with which Mr. Proudhon is indulging. Others say that these solutions have to be seen as pistol shots that Mr. Proudhon is firing in the street to bring the public to the windows. For my part, since I know that you apply them to all subjects: freedom, property, competition, machines, and religion, I hold them to be a sincere and serious application of your mind.

However, Sir, do you think that the people are able to follow you for any length of time in the labyrinth of your Antimonies ? 1708 Their genius has not been fashioned on the moth-eaten benches of the Sorbonne. The famous words " Quidquid dixeris, argumentabor " or " Ego vero contra, " "Whatever you say, I will contest" or "I will say the opposite," do not go down too well with them. The people want to get to the bottom of things and instinctively feel that at the bottom of things there is a Yes and a No but that there cannot be a Yes and a No that have been blended together. So as not to stray from the subject that we are considering, the people will tell you "Interest nevertheless has to be either legitimate or illegitimate, just or unjust, providential or satanic, property or plunder."

You may be certain that acceptance of contradiction is what is most difficult to achieve, even by subtle minds, and even more so by the people.

If I stop at the first half, and I venture to say at the good half of your thesis , how do you differ from the economists?

You agree that to advance capital is to provide a service , which gives the right to an equivalent service , which can be measured and is known as interest .

You agree that the only way to determine the equivalence of these two services is to allow them to be freely exchanged, since you reject State intervention and proclaim the freedom of men and citizens at the very start of your article.

You agree that, in its role as a providential institution, interest has been an instrument of equality and progress.

You agree that with the accumulation of capital (which certainly would not accumulate if it were denied any return). Interest tends to decrease thus making the tools of labour, raw materials, and supplies ever easier to obtain by an increasing number of classes.

You agree that the obstacles that hinder this desirable spread of capital are artificial and go by the names of privileges, restrictions, and monopolies; that they cannot be the inevitable consequences of freedom, since you appeal to freedom.

This is a doctrine that, by its simplicity, grandeur, consistency, and the sense of justice that it encapsulates, becomes part of our beliefs, wins over our hearts, and permeates the depths of the mind with the feeling of certitude. Why, then, are you cricitising political economy? Is it that it has rejected the various slogans of socialism, and consequently refused to take the name itself? 1709 Yes, it has fought against Saint-Simonism 1710 and Fourierism 1711 and you have fought alongside it against these. Yes, it has criticized the theories of the Luxembourg Palace 1712 and you have criticized them too. Yes, it has fought against Communism and you have done more, you have crushed it. 1713

You are in agreement with political economy on capital, its origin, its mission, its rights, and its direction; you are in agreement with it on the principle to be promoted, freedom; you are in agreement with it on the enemy to be fought against, the illegitimate intervention of the State in honest transactions; you are in agreement with it in its conflicts with previous manifestations of socialism; how is it then that you are turning against it? It is because you have found in socialism a new slogan: contradiction , 1714 or if you prefer, antinomy . For this reason you denounce political economy, saying to it:

"You are a century old. You are no longer up to date with current problems. You see the question from one point of view only. You base yourself on the legitimacy and usefulness of interest and you are right, for it is useful and legitimate, but what you do not understand is that it is at the same time harmful and illegitimate. This contradiction astonishes you; the glory of neo-socialism is that it has discovered this, and this is why that it goes beyond your grasp."

Before seeking to make these contradictory premises yield a solution, as you invite me to do, we must ascertain whether the contradiction exists, and we are thus brought back to examining in ever greater detail the following problem:

Is interest on capital legitimate?

But what can I say? My eyes are fixed on the sword of Damocles 1715 that you are holding over my head. The more conclusive my reasons are, the more you rub your hands and say: No better proof of my thesis could be found. If from the depths of communism a plausible refutation of my arguments is produced, you will also rub your hands and say: Here is support for my antithesis . Oh Antimony! You are genuinely an impregnable citadel. You are the spitting image of skepticism . How shall we persuade Pyrrho 1716 when he tells you: I doubt whether you are speaking to me or whether I am speaking to you; I doubt whether you exist or whether I exist; I doubt whether you are making a statement; I doubt whether I doubt?

In spite of this, let us see on what foundation you base the second half of the antimony.

First of all, you quote the Fathers of the Church, along with Judaism and paganism. Allow me to challenge them in matters of economy. 1717 You yourself admit that Jews and gentiles have said one thing and done another. When it is a question of examining the general laws that society obeys, the way men behave universally carries more weight than a few utterances.

You say: "The person who makes a loan does not deprive himself of the capital he is lending. On the contrary, he lends it precisely because he has no use of it for himself, as he has enough capital for himself otherwise. In the end he lends it because he has no intention, nor is it in his power, to add value to it personally." 1718

Well, what does it matter, if he has created it through his work precisely in order to lend it? In this there is just one ambiguity on the inevitable effect of the division of labour. Your argument attacks sales as well as loans . Do you want proof of this? I will quote your sentence, substituting the word Sale for Loan and Hat maker for Capitalist .

"The person who sells", say I, "does not deprive himself of the hat he is selling. On the contrary, he sells it because this sale does not constitute a deprivation for him. He sells it because he has no use for it himself, as he has enough hats for himself in any case. In the end, he sells it because he has no intention, nor is it in his power, to make use of it personally."

You still claim compensation in support of your antithesis .

"You lend me, at interest, the plane you manufactured to smooth your planks. If, for my part, I lend you the saw I have assembled to cut my tree stumps into lengths, I would equally have the right to interest … If on either side the capital advanced is equal, as the interest payments balance each other out, the outstanding amount would be zero."

Doubtless, and if the capital advanced was unequal, a legitimate outstanding amount will appear. This is precisely how things happen. Here again, what you say about loans may be said about exchanges and even about labor. Since the labor exchanged balances each other out, do you conclude that the labor has been destroyed?

Modern socialism, you say, aspires to achieving this mutual benefit from capital in order that interest, an essential part of the price of everything, would be the same for everyone and consequently cancel itself out. That it should cancel itself out is not ideally impossible and I do not ask for more. However, that requires other things than a newly invented Bank. Let socialism make activity, skill, honesty, saving, foresight, needs, tastes, virtues, vices, and even luck equal for all men and it will have succeeded. But in that case it would not matter whether interest is quoted at half of one percent or at fifty percent.

You accuse us of failing to recognize the significance of socialism because we do not attach much hope to its dreams of Free Credit . You tell us: "You give capital credit for the progress achieved in the fields of production and wealth, whereas the cause of this progress is not capital but the CIRCULATION of capital."

I believe it is you who are taking the effect for the cause here. In order for capital to circulate it has first of all to exist, and for that its emergence has to be stimulated by the prospect of a reward attached to the virtues that give rise to it. It is not because it circulates that capital is useful; it is because it is useful that it circulates. Its intrinsic usefulness makes some people demand it and others offer it; this gives rise to circulation that needs just one thing: TO BE FREE.

But above all, what I deplore is to see capitalists and workers divided into two antagonistic classes, as though there were a single worker in the world who was not to some extent a capitalist and as though capital and work were not the same thing, as though paying one was not to pay the other. It is certainly not to you that this proposition has to be demonstrated. Allow me, nevertheless, to elucidate it with one example, for, as you well know, we are not writing to each other but for the general public.

Two workers present themselves who have the same energy, the same strength and the same degree of skill. One of them just has his hands, the other an axe, a saw, and an adze. I pay the first man 3 francs a day and the second 3 francs 75 centimes. The wages appear to be unequal, but if we examine the matter further we will be persuaded that this apparent inequality is genuine equality.

First of all, I have to reimburse the carpenter for the wear and tear on the tools he uses in my service and for my benefit. 1719 His additional earnings have to provide him with the money to look after his tools and maintain his position. Under this heading, I give him 5 sous extra a day more than the simple worker, without equality being infringed in the slightest.

Next, and I call the reader's attention to this for we are at the heart of the matter, why does the carpenter have tools? Apparently because he has made them with his work or paid for them by his work , which is the same thing. Let us suppose that he has made them by devoting the entire first month of the year to this production. The manual laborer, who has not taken this trouble, can let me hire his services for 300 days, whereas the capitalist-carpenter 1720 will have only 270 days when he can work and earn. So 270 days with tools, therefore, have to produce as much for him as 300 days without tools, in other words, 270 days have to be paid at 5 sous more.

This is still not all. When the carpenter took the decision to make his tools, he had the aim, clearly totally legitimate, of improving his condition. The following words cannot be put into his mouth: "I am going to accumulate provisions and impose privations on myself in order to be able to work for an entire month for no pay. I will devote this month to making tools that will enable me to produce much more work for my customer's benefit. I will then ask him to pay my salary for the next eleven months so that I earn just as much overall as if I had remained a manual laborer." No, this cannot be so. It is obvious that what has stimulated insight, skill, foresight, and sacrifice in this artisan is the hope, the very fair hope, of obtaining a better rate of pay for his work.

In this way, we arrive at the following breakdown of the carpenter's wages:

1. 3 francs 0 centimes gross pay

2. 25c. wear on tools

3. 25.c compensation for the time spent on making the tools

4. 25c. fair payment for skill, foresight, and sacrifice


3 francs75 centimes

Where can you see injustice, iniquity, and plunder in this? What do all these cries mean that have so absurdly been raised against our carpenter who has become a capitalist?

And note clearly that the extra pay he receives is not obtained at the expense of anyone; I who pay him have less reason than anyone to complain. Because of his tools, additional production has, so to say, been drawn from nothing. This extra utility is shared between the capitalist and me, who as a consumer, here represents the community and the entire human race.

Another example, since it seems to me that these direct analyses of the facts are more instructive than controversy.

A farmer has a field that has been made almost barren because of excess water. As he is a rather ignorant man, he takes a container and goes out to take up the water that is drowning his furrows. This is very heavy work; who ought to pay for it? Obviously the person who buys the harvest. If man had never thought of another method of drainage, wheat would be so expensive, even though there was no capital to pay (or rather because there was none ) that nobody would produce it, and this has been the fate of humanity for many centuries.

However, our farmer has the idea of digging a drain. Here capital makes its appearance. Who ought to pay for the cost of this undertaking? It is not the person who buys the first harvest. That would be unjust, since the drain will obviously benefit countless successive harvests. How then should the division be made? According to the law of interest and amortization. The farmer, like the carpenter, has to recover the four components of remuneration that I set out above, or he would not dig the drain.

And although interest is here levied on the price of wheat, it would be economic heresy to say that this interest is a loss for the consumer. Quite the contrary, it is because the consumer pays the interest on this capital, in the form of a drain, that he is not paying for the much more expensive drainage done by hand. And if you examine the matter closely, you will see that it is always work that the consumer pays for; only in the second case, there is cooperation from nature that is very useful and very productive, but which is not paid for.

Your greatest complaint against interest is that it allows capitalists to live without working. "Well, you say, living without working is, both in political and moral economic terms, a contradictory proposition and something that is impossible."

For man, as God has seen fit to make him, to live without working is, in absolute terms, no doubt impossible. But what is not impossible for man is to live for two days on the work of just one. What is not impossible for the human race, and what is even a providential consequence of its perfectible nature, is the constant increase in the ratio of the results obtained for the efforts expended. If an artisan has been able to improve his lot by making rough tools, why would he not improve it still further by creating machines that are more complicated by devoting more activity, more ingenuity and more foresight, and by subjecting himself to longer sacrifices? If talent, perseverance, order, savings, and the exercise of all virtues were practised within a family, why should this family not achieve some degree of leisure in the long run, or to put it better, to move into a higher order of production?

In order for this leisure to generate, justly, a certain irritation and jealousy in those who have not yet achieved this, it would be necessary for it to have been achieved at the expense of others, and I have proved that this was not so. In addition, it would be necessary for it not to be the eternal aspiration of all men.

I will end this letter, which is already too long, with a reflection on leisure.

Whatever sincere admiration I have for the admirable laws of social economy, whatever period of my life I have devoted to studying this science, whatever confidence is inspired in me by its solutions, I am not one of those who believe that it embraces the entire destiny of man. 1721 Production, distribution, circulation, and the consumption of wealth are not the sum of all things for man. There is nothing in nature that does not have a final aim, and man also has to have a goal other than that of providing for his material existence. Everything tells us this. Where do the sensitivity of his feelings and the ardor of his aspirations, his ability to admire and experience enchantment come from? Whence comes his ability to find in the slightest flower a subject of contemplation, or the excitement with which his senses receive and transmit to his spirit, like bees to the hive, all the treasures of beauty and harmony that nature and art have spread around him? How shall we explain the tears that moisten his eyes when he hears about the slightest act of devotion? What is the origin of that ebb and flow of feeling which his heart fashions, much as it directs his life-blood? Where does his love of humanity and his reaching out for the infinite come from? These are the marks of a noble destiny, which is not limited by the narrow bounds of industrial production. There is a purpose to man's existence. What is it? This is not the place to raise this question. But, whatever it is, what we can say is that he cannot achieve it if, bowed under the yoke of inexorable and constant work, he has no leisure to develop his senses, his affections, his mind, his sense of the beautiful, and what is purest and most elevated in his nature; the germ of which is in all men but in a latent and inert form because of a lack of leisure in all too many of them.

What is the power that, to a certain extent, will lighten the burden of hardship for all? What will shorten working hours? What will loosen the bonds of the heavy yoke, which bows not only men but also women and children down to material things when they appear not to be destined for this? It is capital; the capital which, in the form of wheels, gears, rails, waterfalls, weights, sails, oars, or ploughs takes over such a great portion of the work originally carried out at the expense of our sinews and muscles; the capital that increasingly causes the free forces of nature to make a contribution for the benefit of all. Capital is therefore a friend, a benefactor to all men, and particularly to the long suffering classes. What they ought to want is that it accumulates, increases, and is spread around beyond reckoning or measure. And if there is one sad sight in the world, a sight that can be defined only by these words: material, moral, and collective suicide, it is to see these classes, in their misguidedness, wage relentless war on capital. It would not be more absurd nor sadder to see all the capitalists in the world join forces to paralyze arms and legs and kill labour.

To sum up, Mr. Proudhon, I will say this to you: the day on which we agree on this initial item, that interest on capital, agreed upon by free negotiation, is legitimate, I will make it my pleasure and duty to discuss with you fairly the other questions you put to me.


Letter No. 5: P. J. Proudhon to F. Bastiat (3 December 1849)

Complaint about the limits set on the debate. Interest has been but is no longer legitimate. Inferences drawn from history. Illegitimacy succeeds legitimacy. The incapacity and ill will of society. It is the circulation of CAPITAL and not CAPITAL itself that gives rise to the progress of social wealth.

3 December 1849

Sir, your latest letter ends with the following words:

"The day on which we agree on this initial item, that the interest on capital is legitimate, I will make it my pleasure and duty to discuss with you fairly the other questions you put to me."

I will, Sir, endeavor to give you satisfaction.

But first of all allow me to ask you this question, which I just wish I could make less tersely : What have you come to La Voix du Peuple to do? To refute the theoretical case for free credit, that is, the abolition of all forms of interest on capital, and all rent on property.

Why then do you refuse to enter the theoretical grounds of this argument immediately, to pursue it at the level of its principles, its method, and its development, and to examine its contents, the proofs of truth that it provides, and the meaning of the facts it quotes, which spectacularly contradict and nullify the facts or rather the fiction that you endeavor to support with regard to the productivity of capital? Is this a serious and fair discussion? Since when have we seen philosophers answer a philosophical system with such a flat refusal? Can we not first of all come to an agreement on the system in vogue, before we examine a new one? Since when has it been accepted in science that any fact, idea, or theory that contradicts the generally accepted theory has to be rejected mercilessly by prior definition?

What! Are you endeavoring to refute me and convince me and then, instead of grappling with my theory in a straightforward manner, you present me with yours? In answer to me you begin by demanding that I reach agreement with you on what I positively deny! Truly, would I not have the right to say to you immediately at this point: "Keep your theory on interest bearing loans since it pleases you and leave me my theory of free loans, which I find more advantageous, moral, useful, and much more practical? Instead of debating, as we hoped to do, we would be free to speak ill of each other and criticize each other mutually. May the better man win! …

This, Sir, is how the discussion would end if, unfortunately for your theory, it were not obliged to overturn mine in order to maintain its position. This is what I will have the honor of demonstrating to you by following your letter point by point.

You begin with a joke, doubtless very witty, about the law of contradiction that I used to trace the progress of socialist theory. Believe me, Sir, there is always little glory to be gained by an intelligent man laughing at things he does not understand, especially when these things are based on authority as respectable as the law of contradiction. Dialectics, established by Kant 1722 and his successors, 1723 is now understood and used by half of Europe, and when our neighbors have taken philosophical speculation so far it is certainly not a title of honor for our country to remain at the level of Proclus 1724 and Saint Thomas. 1725 Through eclecticism and materialism we have even lost an understanding of our traditions; we do not even understand Descartes, 1726 since if we understood Descartes he would lead us to Kant, Fichte, 1727 Hegel, 1728 and beyond.

However, let us leave contradiction, since it puts you out of sorts, and return to the old method. You know what is understood in ordinary logic by distinction. Not having a teacher of philosophy, Diafoirus 1729 the younger would have taught you this. It is the process that is most familiar to you and which gives the best example of the subtlety of your mind. To answer your question, therefore I will make use of the distinguo : 1730 perhaps then it will no longer be possible for you to say that you do not understand me.

You ask: Is interest on capital legitimate, yes or no ? Answer this question without antimony or antithesis.

My answer is: L et us make some distinctions , please. Yes, Interest on capital could be considered legitimate at one time; no, it can no longer be so considered in another. Does this present you with some confusion or ambiguity? I will endeavor to shine some light into all the shadows.

Absolute monarchy was legitimate at one time: it was one of the conditions of political development. It ceased to be legitimate at a different time because it became an obstacle to progress. The same has been true of constitutional monarchy; in '89 and up to 1830, is was the sole political form that suited our country but today it would be a cause of upheaval and decay.

Polygamy was legitimate at one time; it was the first step made out of communal promiscuity. In our time it is condemned as being contrary to the dignity of women, and we send people to the galleys for it.

Judicial combat, the ordeal of boiling water, and torture itself, if you read Mr. Rossi, 1731 also had their period of legitimacy. They were the first forms given to justice. We reject them now, and any magistrate who had recourse to them would be guilty of assault.

Under Saint Louis, 1732 arts and trades were feudalized, organized on a corporate basis, and riddled with privileges. This regulation was at that time useful and legitimate; its aim was to establish work on a feudal basis comparable to the feudalism of land and nobility. It has been abandoned since and rightly so: since '89 industry is free of it. 1733

I therefore say once more to you, and in all conscience I believe that I am speaking clearly: Yes, interest-bearing loans were at one time legitimate, when any kind of democratic centralization of credit and circulation of money was impossible. It is no longer so now that this centralization has become a necessity of the age and hence a duty of society and a right of its citizens. It is for this reason that I am rising up against usury: I say that society owes me credit and discount without interest; I call interest THEFT. 1734

Willy-nilly, you will have to come out onto the grounds to which I am calling you, for if you refuse to do so, if you shroud yourself in the good faith of your former authority, I will then accuse you of bad faith and will shout everywhere, like Molière's Mascarille 1735 : Stop thief! Stop thief! Stop thief!

To put an end finally to antinomy, I will now, with the help of the previously quoted examples, tell you in a few words what antinomy adds to the of making distinctions. This is germane to our argument.

You understand, therefore, that something can be true, just, and legitimate at one time and wrong, iniquitous, and criminal in another. You cannot fail to understand this, since this is how things are. 1736

Well, the philosopher asks himself, how can a thing that is true one day fail to be so on the next? Can truth be changed in this way? Is truth not truth? Ought we to believe that it is just a fantasy, a mirage, and a mere presumption? In short, is there or is there not a reason for this change? Above truth that changes, is there, by chance, a truth that does not change, a truth that is absolute and immutable?

In short, philosophy does not stop at facts as revealed by experience and history; it seeks to explain them.

Well then! Philosophy has found or, if you prefer, it thinks it has seen that this change in social institutions, this turnaround that these institutions have experienced after a certain number of centuries, results from the fact that the ideas of which it is the expression have in themselves an evolutionary power, a principle of perpetual motion arising from their contradictory essence.

Thus it is that interest on capital, legitimate when the loan is a service provided by one citizen to another but which ceases to be so when society has acquired the power of organizing credit free of charge for everyone, this credit, I say, is in essence contradictory, since on the one hand the service provided by the lender is entitled to remuneration and on the other hand all income implies that something is produced or gone without, which is not the case with a loan. The revolution that has occurred relating to the legitimacy of loans arises from this. This is how socialism formulates the question; this is also the ground on which the defenders of the old regime ought to be putting themselves.

Wrapping yourself up in tradition, limiting yourself to saying: A loan is a service provided and therefore it ought to be paid for, without being willing to go into the considerations that tend to annul interest is not answering the question. Socialism, redoubling its energy, protests and tells you: I have no use for your service, which is a service for you but plunder for me, when society is in a position to allow me to enjoy free of charge the same benefits that you are offering me. Imposing a service like this on me whether I like it or not by refusing to (socially) organize the circulation of capital is making me bear an unjust levy and robbing me.

Thus, your entire argument in favor of interest consists in mixing up the eras; 1737 I mean mixing up that which, in loans, is legitimate with what is not, whereas I, on the contrary, am making a careful distinction between them. This is what I will succeed in making intelligible to you through an analysis of your letter.

I will address all your arguments, one by one.

In my first reply, I pointed out to you that the person who lends does not deprive himself of his capital. Your answer is: What does it matter, if he has created his capital precisely in order to lend it?

And when you say this, you betray your own cause. With these words, you agree with my antithesis , which consists in saying: The secret reason interest-bearing loans, which were legitimate yesterday, are no longer so today, is that loans in themselves do not lead to anything done without. I take note of this admission.

However, you hang on to the intention: What does that matter, you say, if the lender has created this capital precisely in order to lend it?

To which I reply: And what in turn is your intention towards me, if I do not really need your service, and if the alleged service you wish to provide me has become necessary to me only because of the ill-will and incompetence of society? Your credit resembles the credit provided by the Corsair 1738 to the slave when he gives him his freedom in return for a ransom. I protest at your credit at 5 percent, since society has the power and duty to give it to me at zero percent, and if it refuses to do so I will accuse it as well as you of theft. I will say that it is a partner, trouble-maker, and organiser of theft.

Likening loans to sales, you say: your argument attacks sales as much as it does loans. In effect, a hat maker who sells hats does not deprive himself of them.

No, for he receives for his hats, or at least he is supposed to receive, their value, neither more or less , immediately. However, a capitalist lender not only does not forego anything, since he recovers his capital entirely, he receives more than his capital, more than he contributes to the exchange; he receives, in addition to the capital, interest that does not represent any positive product on his part. Well, a service that does not exact some work from the person providing it, is a service that is liable to become free: this is what you yourself were telling us a moment ago.

After having acknowledged that the loan involves nothing foregone, you nevertheless agree " that it is theoretically possible for interest , which is today an integral part of the price of things, may be offset for everyone and consequently cancel itself out . "But", you add, "other things are needed than a newly invented Bank. Let socialism make activity, skill, honesty, savings, foresight, needs, tastes, virtues, vices, and even luck equal for all men and it will have succeeded."

In this way, you go into the question merely to avoid answering it immediately. Socialism, at the point it has reached, claims precisely that it is with the assistance of bank and tax reform that it is possible to achieve this mutual compensation (or balancing out). Instead of passing over this claim by socialism, as you do, stop awhile and refute it; you will have put an end to all the Utopias in the world. For socialism states, and without this claim socialism would not exist, it would be nothing, that it is not by making "activity, skill, honesty, savings, providence, need, tastes, virtues, vices, and even luck" equal for all men that we will succeed in compensating for interest and making net income equal; socialism asserts, on the contrary, that it is necessary to start by centralizing credit and abolishing interest in order to equalize abilities, needs, and chances. If there were no more thieves among us, we would all be upright and happy! This is socialism's statement of principles! I feel the keenest regret at telling you this, but you have such little knowledge of socialism that you bump into it without seeing it.

You persist in attributing to capital all the progress made by social wealth, which I myself attribute to the circulation of capital, and you tell me with reference to this, that I am mistaking the effect for the cause.

But by supporting a proposition like this you are unwittingly undermining your own thesis. J. B. Say demonstrated, and you are fully aware of this, that the transport of something of value, whether this value is in money or goods, constitutes itself a value; 1739 that it is a product that is as real as wheat or wine, and that consequently the service provided by the shopkeeper or banker is as worthy of payment as the services provided by farmers and wine producers. It is on this principle that you yourself rely when you claim payment for capitalists who, by providing the benefit of their capital, whose return is guaranteed to them, carry out the functions of transport and circulation. For the sole reason that I make a loan, you said in your first letter, I am providing a service and creating a value. These were your words, which we have accepted: in this we were both in agreement with the master.

I am thus quite right to say that it is not the capital itself, but the circulation of capital, it is this aspect of the service, product, merchandise, object of value, or economic reality that is known as movement or circulation in political economy and which basically constitutes the entire subject matter of economic science, that is the cause of wealth. We pay all those who provide this service for it but we hold that, with regard to capital itself, or money, it is up to society itself to enable us to enjoy it free of charge. If it does not do so, there is fraud and plunder. Do you now understand where the true point of the social question lies? …

After having deplored the sight of capitalists and workers divided into two antagonistic classes, which certainly is not the fault of socialism, you take the perfectly useless trouble of demonstrating to me, using examples, that every worker is to some extent a capitalist and puts his capital to work, that is to say, (to engage in) usury. Who has ever considered denying this? Who has told you that what we acknowledge to be legitimate in capitalists at a particular time we condemn at the same time in workers?

Yes, we know that the price of goods and services is currently broken down into:

1. Raw materials;

2. Amortization of tools of work and expenses;

3. Payment for work;

4. Interest on capital.

This is true for all employment, for agriculture, industry, commerce, and transport. These are the Caudine Forks 1740 of all that is not parasitical, whether in the case of capitalist or worker. You do not need to give us lengthy details on this matter, interesting though they may be, as well as illuminating as to what your imagination delights in.

I repeat: the question as far as socialism is concerned, is to ensure that this fourth element which enters into the structure of the price of things, that is to say, interest on capital, is off set between all producers and consequently cancels itself out. We maintain that this is possible and that, if it is possible, it is society's duty to provide free credit for all, otherwise society would not be a proper society but a capitalist plot against the workers, a pact for pillage and murder.

Please understand therefore for once that it is not a question of your endeavoring to explain to us how capital is formed, how it increases with interest, how interest forms part of the price of products, and how all workers are themselves guilty of the sin of usury: we have known all this for a long time, just as we are likewise convinced of the good faith of rentiers and landowners.

We say: An economic system based on the fiction of the productivity of capital, which could be justified at one time, is now illegitimate. Its impotence and harmful nature have been proved; it is this which is the cause of all current poverty, it is this which still supports the old fiction of representative government, the latest formula for tyranny among men.

I will not follow you in the quite religious ideas with which you end your letter. Allow me to tell you that religion has nothing to do with political economy. 1741 True science is self-sufficient; if it does not fulfill this condition, it is not true science. If political economy requires religious sanction to make up for the powerlessness of its theories and if, for its part, religion pleads the imperatives of political economy to excuse the sterility of its dogma, the result will be that political economy and religion will indict one another instead of giving each other mutual support, and both will perish.

Let us begin by establishing justice and, in addition, we will have freedom, fraternity, and wealth: the happiness of the other life itself will be all the more assured. Is the inequality of capitalist income the prime cause of the physical, moral, and intellectual misery that today afflicts society or is it not? Should we make income more evenly balanced for all men and make the circulation of capital free of charge by integrating it with the exchange of products and cancelling interest? This is what socialism is asking for and what requires an answer.

In its more positive conclusions, socialism provides a solution in he democratic and free centralisation of credit, combined with a single tax system that replaces all the other taxes and is based on capital.

Let this solution be put to the test; let us attempt to put it into practice. It is the only way socialism can be refuted; other than this, we will sound our war cry ever louder: Property is theft! 1742


Letter No. 6: F. Bastiat to P. J. Proudhon (10 December 1849)

Is it true that lending is no longer the provision of a service today? Is society a capitalist obliged to lend free of charge? Explanation of the circulation of capital. Illusions given their rightful name. What is true is that interest frees people from paying a higher price.

10 December 1849

I wish to remain on my own ground; you wish to entice me on to yours and you tell me: "What have you come to La Voix du Peuple to do, if not to refute the theory of free credit, etc.?

We have a misunderstanding. I did not go to La Voix du Peuple; La Voix du Peuple came to me. Free credit was being discussed everywhere, and each day witnessed the birth of a new plan for achieving this idea.

I then said to myself: It is pointless to combat these plans one after the other. Proving that capital has a legitimate and eternal right to be paid for would bring all these plans down at the same time and overturn their common base.

So I published Capital and Rent .

Since La Voix du Peuple did not find my demonstration conclusive, it refuted it. I requested the opportunity to justify it and you very decently agreed to this. It is therefore on my ground that the discussion should be continued.

Moreover, society has always and everywhere developed according to the principle that I invoke. It is up to those who want it to develop according to an opposing principle from now on to prove that society has been in error. The burden of proof is on their shoulders.

And after all, how important really is this introductory debate? Is not the proof that interest is legitimate, just, useful, beneficial, and eternal, proof that free credit is an illusion?

Allow me then, Sir, to come back to this dominant question: Is interest legitimate and useful?

Taking pity on me for my ignorance of German philosophy in which you see me languish (as do a good number of our readers), you happily proceed to substitute the law of distinction for that of contradiction by metamorphosing Kant into Diafoirus.

Thank you for this gracious kindness. It puts me at my ease. I must admit that my mind categorically refuses to accept that two contradictory assertions can be true at the same time. I respect Kant, Fichte, and Hegel, as I am bound to, in good faith of course. But if their books lead the mind of the reader to accept such propositions as: Theft is property; Property is theft; day is night ; I thank Heaven every day of my life for not having placed these books before my eyes. Your intelligence has been honed on these sublime subtleties; mine would inevitably have succumbed and far from making myself understood by others, I would no longer be able to understand myself.

Finally, to the question: Is interest legitimate? You reply, no longer in German: Yes and no , but in Latin: Distinguo . "Let us make a distinction: yes, interest on capital could be considered legitimate at one time; no, it can no longer be so considered at another."

Well then, your kindness, it appears, is hastening the conclusion of this debate. Above all, it proves that I had chosen my ground well, for what are you claiming? You say that, at a given time, returns on capital go from being legitimate to illegitimate, that is to say divests itself of one nature to clad itself in an opposite one. Now assuredly the presumption is not in your favor. It is up to the person who wishes to overturn universal practice on the strength of such a strange statement to prove it.

I had drawn the legitimacy of interest from the fact that a loan is a service , which can be evaluated, and consequently has a value and may be exchanged for anything of equal value. I even believed that you were convinced of the truth of this doctrine in these words:

"It is very true, as you yourself establish at the same time, that a loan is a service. And, since any service has a value and since it is in the nature of any service to be paid for, it follows that loans must have their price or, to use the technical term, that they have to bear interest ."

This is what you were saying two weeks ago. Today you say: Let us make a distinction. In the past, lending provided a service but now it does not provide a service.

Well, if lending no longer provides a service, it goes without saying that interest is, I will not say illegitimate, merely impossible.

Your new line of argument implies the following dialogue:

BORROWER: Sir, I wish to set up a shop and need ten thousand francs. Please would you lend them to me?

LENDER: Yes, indeed, let us discuss the conditions.

BORROWER: Sir, I will not accept conditions. I will keep your money for one year, two years, twenty years, after which I will purely and simply return it to you, bearing in mind that with regard to the repayment of a loan, everything that is paid over and above the loan is usury and plunder .

LENDER: But since you have come to request a service from me, it is only natural that I should ask you for one in return.

BORROWER: Sir, I have no use for your service .

LENDER: In that case, I will keep my capital even if I have to eat it.

BORROWER: Sir, I am a socialist and socialism, redoubling its efforts, protests and tells you, through me that: I have no use for your service, which is a service for you but plunder for me, given that society has made it possible for me to enjoy the same benefits you are offering me, free of charge. Imposing a service like this on me whether I like it or not by refusing to (socially) organise the circulation of capital, is making me bear an unfair levy and robbing me.

LENDER: I am imposing nothing on you against your will. Since you do not consider a loan to be a service, refrain from borrowing money, as I will from lending it. If society offers you benefits for no payment , go and talk to it, because that is much more convenient; and as for socially organising the circulation of capital , which you demand that I do, if what you mean by that is that you will have access to my capital free of charge through the agency of society, I have exactly the same objections to this indirect process which have led me to refuse to give you a direct loan free of charge.

Society! I must admit I was surprised to see this new character, a compliant capitalist, appearing in an article from your pen.

What is this! Sir, you who, in the very paper in which you address your letter to me, have rebutted with such unbridled energy the systems produced by Louis Blanc 1743 and Pierre Leroux, 1744 have you not dissipated the fiction of the State 1745 only to put in its place the fiction of Society ?

What is society then, as distinct from anyone who lends or borrows, and receives or pays the interest inherent in the cost of all things? What is this Deus ex machina that you introduce so unexpectedly to pronounce the last word on the problem? Is there on the one hand the whole mass of workers, merchants, artisans, and capitalists and on the other Society, a quite separate entity with such plentiful capital that it is able to lend to everyone without care or limit and totally free of any payment ?

This is not what you mean; and the only proof I need is your article on the State. 1746 You know very well that society has no capital other than that in the hands of capitalists, both great and small. Should Society be forced to seize this capital and circulate it free of charge on the pretext of organising it (along socialist lines)? In truth I am all at sea here, and I think that, under the influence of your pen, the dividing line between property and theft as perceived in the public mind is constantly being erased.

In seeking to get to the root of the error I am combating here, I think I have found it in the confusion you make between the costs of the circulation of capital and the interest on capital . You believe that the circulation of capital free of charge can be achieved, and you conclude from this that loans will be free. It is as though we were saying that when transport costs from Bordeaux and Paris are abolished, Bordeaux wine will be obtainable for nothing in Paris. You are not the first person to suffer from this illusion. Law said: "The law of circulation is the only one that can save empires." 1747 He acted on this principle, and instead of saving France he lost her.

I say: The circulation of capital and the costs it incurs is one thing; interest on capital is another. A nation's capital consists of material of all sorts, provisions, tools, goods, and cash, and these things are not lent free of charge. Depending on the level of development of society, it is more or less easy to transfer a given amount of capital, or what it costs, from one place to another or from one hand to another, but this has nothing to do with the abolition of interest. Take a man in Paris who wishes to lend and a man from Bayonne who wishes to borrow. However, the Parisian does not have what the Bayonnais wants. What is more, neither is aware of the other's intentions, so they cannot get in touch with one another, reach an agreement, and finalize (the deal). These are the obstacles to circulation . These obstacles are steadily decreasing, first of all through the intervention of cash and then through bills of exchange, successively from the private bankers, the National Bank, and the free banks. 1748

It is fortunate for the consumers of capital, as it is for the consumers of wine, that the means of transport are constantly improving. However, on the one hand circulation costs can never decrease as far as zero, since there is always an intermediary who provides a service , and on the other hand even if these costs were totally obliterated there would still be Interest, which would not be noticeably affected by this. There are free banks; 1749 these are under the control of the workers themselves, who are their shareholders. What is more, because of their number, they are always within reach; each day, some deposit their savings while others obtain from them the advances they require. Circulation is as easy and rapid as possible. Does this mean that credit there is free of charge, that capital does not produce interest for those who lend it and costs nothing to those that borrow it? No, it means only that lenders and borrowers are able to come together more easily there than elsewhere.

Thus, circulation that is totally free of charge is an illusion.

Free credit is an illusion.

To imagine that the first of these free services, if it were possible, involves the second being free is the third illusion.

You see that I have allowed myself to be drawn on to your ground and, since I have taken three steps on to it, I will take a further two.

You want to (socially) organize circulation in such a way that each person receives as much interest as he pays, and this, you say, is what will achieve the equality of wealth.

Well, I say:

The universal cancelling out of interest payments is an illusion.

The total equality of wealth resulting from this illusion is another illusion.

Anything of value is made up of two elements, payment for the work involved and payment for the capital. In order for these two elements to be in identical proportion in all things of equal value, every item of human work would have to require the same use of machines, the same consumption of raw materials, and the same amount of present and accumulated (past) labor.

Would your bank ever make available to the local street messenger, whose sole job is to hire out his time and legs, as much capital for his services as a printer or a manufacturer of stockings? Note that, in order for a pair of cotton stockings to reach this errand boy, intermediary contributors have been required: the use of land, which is capital, of a ship, which is capital, and of a spinning mill, which is also capital. Will you say that when the street messenger trades his service, valued at 3 francs, for a book, valued at 3 francs, he is misled in that the element of present labour is dominant in the service and the element of accumulated labour (is) dominant in the book? What does that matter if the two objects traded are worth the same , and their equal value is determined by free negotiation? Provided that what is worth one hundred is traded for something else worth one hundred, what does it matter what the proportion is of the two elements that make up each of these equal prices? Would you deny the legitimacy of the payment relating to capital? This would be calling into question a point that is already accepted in the debate. Besides, on what basis would past labour rather than present labour be excluded from any payment?

Work is divided into two quite distinct categories:

Either it is exclusively devoted to the production of an object, as when a farmer sows, hoes, harvests, and threshes his wheat, or when a tailor cuts out and sews a suit, etc.

Or it is used to produce an undetermined series of similar objects, as when a farmer fences, improves, and drains his field, or when a tailor furnishes his workshop.

In the first case, all the costs of production have to be paid for by the person who buys the harvest or the suit; in the second, production has to be financed by an undetermined number of harvests or suits. And it would quite clearly be absurd to say that the work of the second category should not be paid for at all because it is now called capital.

Well, how does our second producer manage to spread the payment due to him over an undefined number of successive purchasers? Through combinations of the amortization of debt and interest that the human race has invented from the outset, ingenious combinations that socialists would find it extremely difficult to replace. For this reason, all their ingenuity has limited itself to abolishing them, and they do not notice that this is quite simply eliminating the human race.

But when everything that has just been shown to be illusionary is regarded as realizable, that is to say, costless circulation, costless loans, and the cancelling out of interest payments, I say that we would still not achieve the absolute equality of wealth. And the reason for this is simple. Does the People's Bank intend to the change the human heart? Will it take steps to make all men are equally strong, active, intelligent, well organized, thrifty, or farsighted? Will it make sure that tastes, preferences, aptitudes, and ideas do not vary infinitely? Will it ensure that some do not prefer to sleep in the sun while others exhaust themselves working? That there are no spendthrifts and misers, people keen to pursue the assets of this world while others are more preoccupied with the life hereafter? It is clear that absolute equality of wealth can be the result only of all these impossible equalities, and many others.

But if the absolute equality of wealth is illusionary, what is not is the constant, ever growing closeness of all men to the same physical, intellectual, and moral level under a regime of freedom. Among all the forms of energy that contribute to this great leveling out, one of the most powerful is capital. And since you have offered me the use of your magazine, allow me to draw the attention of your readers for a moment to this subject. It is not enough to demonstrate that interest is legitimate; it also has to be proved that it is useful, even to those that bear its costs. You have said that interest in past times was "an instrument of equality and progress." 1750 What it was, it still is, and always will be. Its development does not change its nature.

Workers will perhaps be surprised to hear me state the following:

Of all the elements that enter into the price of things, the one they ought to pay most joyfully is precisely interest or the remuneration of capital, since this payment always saves them one that is even greater.

Pierre is an artisan in Paris. He needs to have a load transported to Lille: a present he wishes to give to his mother. If no capital existed in the world (and there would be none if all payment for it were denied), this transportation would cost Pierre at least two months of hard labor, either by himself or by someone else he got to do it for him, since he could carry out the task himself only if he carried the load up hill and down dale and no one could do it for him except in the same way.

Why does Pierre meet with entrepreneurs who ask him for just one day's work in order to save him sixty? Because capital has intervened in the form of carts, horses, rails, railcars, and locomotives. Doubtless Pierre has to pay something for this capital, but it is precisely for this reason that he does or has done for him in one day what would have taken him two months to do.

Jean is a blacksmith, a very upright man but one often heard to speak out against property. He earns 3 francs a day; 1751 this is not much, it is too little, but in the end, since wheat costs about 18 francs a hectoliter, Jean is able to say that he causes a hectoliter of wheat or its value to flow from his anvil each week, or 52 hectoliters a year. I am supposing now that capital did not exist and that our blacksmith is faced with 1,000 hectares of land and told: "Make use of this land which is very fertile; all the wheat you grow is yours." Jean would doubtless reply: "Without horses, a plough, an axe, or tools of any sort, how do you expect me to strip the land of the trees, roots, grass, stones, and stagnant pools of water that obstruct it? I will not be able to grow one stem of wheat in ten years." Jean should therefore say to himself: "What I would not be able to do in ten years, others are doing on my behalf, and they are asking me for just one week of work. It is clear that it is beneficial to me to pay capital, for if I did not pay for it there would be none, and others would be in as much difficulty faced with this land as I am myself."

Every morning, Jacques buys La Voix du Peuple for one sou. As he earns 100 sous a day, or 50 centimes an hour, he is exchanging six minutes of work for the price of one issue, a price that includes two elements of payment, one for labour and one for capital. Why doesn't Jacques say to himself on occasion: "If no capital was used in the printing of La Voix du Peuple, I would not be able to have it either for one sou or a hundred francs."

I could list all the objects that meet workers' needs, and the same consideration would crop up constantly. Capital is therefore not the tyrant it is made out to be. It provides services, considerable services, and it is only fair that it should be paid for. This payment decreases constantly as capital increases in volume. In order for its volume to increase people have to have an interest in its formation, and in order for people to be interested, it has to be sustained by the hope of payment. What artisan or worker would take his savings to the Savings Bank or even make savings at all if he were told at the outset that interest is theft and has to be abolished?

No, no, this is insane propaganda; it runs counter to reason, morality, economic science, the interest of the poor, and the unanimous beliefs of the human race as revealed through universal practice. It is true that you do not preach the tyranny of capital but you preach free credit , which is the same thing. To say that any payment given to capital is theft is to say that capital ought to disappear from the face of the globe, and that Pierre, Jean, and Jacques ought to carry out their own transport or produce their own wheat or books with as much work as they would need to produce these things directly and with no other resources than their hands.

March on, Capital, march on! Pursue your career doing good for the human race! It is you that have freed slaves and overturned the fortified castles of feudal times! Grow even greater; make nature subject to you; make gravity, heat, light, and electricity contribute to human satisfaction! Take upon yourself what is repulsive and mind-numbing in mechanical work; make democracy rise up and transform human machines into men, men endowed with leisure, ideas, feelings, and hopes!

Allow me, Sir, in closing to make one criticism of you. At the beginning of your letter, you promised me to abandon antinomies for today; however, you end with the antinomy that you call your war cry : Property is theft .

Yes, you have characterized it well; it is in fact a mournful tocsin, a sinister war cry. However I have the hope that, viewed from this angle, it will have lost some of its power. There is in the minds of the masses a fund of common sense that has not lost its rights and will in the end revolt against these strange paradoxes advanced like so many magnificent discoveries. Oh, why did you not base propaganda on this other axiom, certainly more enduring than yours: Theft is the opposite of property ! Then, with your indomitable energy, popular style, and invincible dialectic, I would find it impossible to measure the good you would have been able to do in our beloved country and for the human race.


Letter No. 7: P. J. Proudhon to F. Bastiat (17 December 1849)

Some Criticism. Commission agents for road transport and railways. A retrospective excursion to the lands of the Hebrews, Greeks, and Romans. Nescheck, Tokos, Foenus, and Interesse. 1752 Interest arising from the contracts for small private cargo. 1753 The intervention of cash and its consequences. Moses, Solon, and Lycurgus. Force alone maintains interest. Two fables.

17 December 1849

Our discussions are getting nowhere, and the fault is entirely yours. Because of your systematic refusal to take a stand on the ground on to which I summon you and your obstinate determination to attract me onto yours, you are failing to recognize the right owed to any innovator like myself to be examined; you are failing in the duty imposed by the appearance of new ideas on all economists who are the natural defenders of established tradition and usage; in sum you are compromising public charity by forcing me to attack what I have acknowledged to be, to a certain extent, irreproachable and legitimate.

You wanted this: may your wishes be fulfilled!

First of all, allow me to summarize our dispute.

In your first letter you endeavored to show, by means of theory and a number of examples, that a loan is a service and that, since all services have a value , it is entitled to be paid for , from which you deduced immediately, contrary to my position, the conclusion that free credit was an illusion and, based on this, that socialism is a movement lacking both principles and reason.

This being so, it is irrelevant whether it was you who asked La Voix du Peuple for space or whether it was I who offered you the publicity of its columns; in fact, as each of your letters shows, you had no other aim than to overturn the theory of free credit by a blunt refusal to consider it.

I therefore answered you and I had to give you the answer that, without entering into an examination of your theory on interest, if you wished to combat socialism usefully and seriously, you had to attack it in itself and on the basis of its own doctrines and that socialism, without absolutely denying the legitimacy of interest, considered from a certain point of view and at a certain period of history, affirms that it is possible, with the help of the workers and in the current state of social economy, to organize a system of free loans, and consequently to give guaranteed credit and work to all. Finally, I said that this was what you had to examine if you wanted the discussion to lead somewhere.

In your second letter, you peremptorily and imperiously refused to follow this path, claiming that in your view and following my admission, since there was no crime nor misdemeanor in the principle of interest, it was impossible to accept that loans could be made without interest, and that it was inconceivable that something could be true and false simultaneously; in short that, as long as the criminality of interest was not proved to you, you would consider the theory of free credit as null and void. All this spiced with many jokes about the law of contradiction, of which you have no understanding and flanked with examples which, I must admit, are very good at making people understand the mechanism of interest but which prove nothing at all against free credit.

In my reply, I believe that I proved to you, using your own method, that nothing is more common in society than to see an institution or a custom that is initially liberal and legitimate become with time a hindrance to liberty and an infringement of justice, that this was true for loans bearing interest on the day it was demonstrated that credit could be given to all without payment and that, from now onward, to refuse to examine the possibility of free credit constituted a denial of justice, an offence against public faith, and a challenge to the proletariat. I therefore reiterated my earnest statements and said to you: Either you examine the various propositions put forward by socialism, or I declare that interest on money, rent from land, and income from houses and capital are forms of plunder, and that property thus constituted is theft.

On the way, I briefly indicated the causes that, in my opinion, change the moral status of interest and the means of abolishing it.

It certainly appeared that, in order to justify your theory, which henceforward is accused of theft and larceny, you could no longer exonerate yourself from finally having to deal with the new doctrine, which claims to exclude interest. I am bold enough to say that this is what all our readers expected. By avoiding any criticism of interest, I showed myself to be conciliatory and a lover of peace. I was loathe to incriminate the good faith of capitalists and throw suspicion on landowners. Above all, I wanted to cut short a wearying dispute and hasten the final conclusion. Whether it is true or false, legitimate or illegitimate, moral or immoral, I said to you, I accept usury, I approve of it, I will even praise it; I will renounce all the illusions of socialism and make myself a Christian once more if you prove to me that the benefit provided by capital, as well as the circulation of financial assets, cannot under any circumstances be free of charge. As we say, this was to tackle the problem head-on and cut short a great deal of quite pointless discussion in a journal, discussion if you will allow me to say so, which is very dangerous at this time. 1754

Is it possible, yes or no, to abolish interest on money and consequently rent for land, rent for houses, or the income from capital, on the one hand, by simplifying and cutting taxes and on the other by organizing a circulation and credit bank in the name of and on behalf of the People? This is how, in my opinion, the question between us should be set. Both of us made a law out of a love of the human race, a love of truth, and a love of peace. What have the People been doing since February? What has the Constitutive Assembly been doing? What is the Legislative Assembly 1755 doing at the present time, if not seeking for the means of improving the lot of the workers without alarming legitimate interests or infringing the rights of landowners? Let us seek to ascertain, therefore, whether free credit might not by chance be one of these means.

These were my words. I dared to believe that they would be heard. Instead of replying to them, as I hoped, you take shelter behind your refusal. To my question: " Isn't proving that free credit is possible, easy, and practical also proving that interest on credit is henceforward something that is harmful and illegitimate?" you reply by rephrasing my question: "Is proving that interest is (or has been) legitimate, just, useful, beneficial, and irreplaceable not also proof that free credit is an illusion?" You reason exactly like road transport entrepreneurs 1756 with regard to the railways.

See them, in fact, putting forward their complaints to the public, which is abandoning them and rushing to the competition. Are carts and wagons not institutions that are useful, legitimate, beneficial, and irreplaceable? Is not the transport of your persons and products a service provided by us? Has this service no value? Should not all things of value be paid for? Are we thieves because we charge 25 centimes per ton and kilometer for transport, while it is true that locomotives do this for 10 centimes? Hasn't commerce always and everywhere grown by using wagons, beasts of burden, or vessels powered by sail or oars? What does steam, atmospheric pressure, and electricity matter to us? Is proving the reality and legitimacy of four-wheeled vehicles not proving that the invention of railways is an illusion?

Here, Sir is where your line of argument is leading you. Like its predecessors, your last letter, from beginning to end, has no other meaning. To retain for capital the interest I refuse to accept, you answer me with a preliminary question and oppose my innovative idea with your routine assertions. You are protesting against rail and the steam engine. I would be sorry to say something wounding to you, but truly, Sir, I consider that I would have the right from now on to break off here and turn my back on you.

This I will not do. I want to give you satisfaction to the bitter end by showing you how, to quote your own words: the remuneration of capital moves from being legitimate to being illegitimate and how free credit is the final conclusion of the practice of charging interest. This discussion in itself does not lack importance; I will endeavor above all to keep it peaceful.

What makes interest on capital, which is excusable and even just at the beginning of the economic life of society, becomes true plunder and theft with the development of industrial institutions, is that this interest has no other principle or raison d'être than necessity or force. Necessity is what explains the requirement of the lender; force is what explains the resignation of the borrower. However, as necessity gives way to liberty in human relations and right succeeds force, capitalists lose their justification, and the way is opened for workers to express their claims against landowners.

At the beginning, land was undivided; each family lived from hunting, fishing, gathering, or grazing. Industry is totally domestic; farming, if we call it this, is nomadic. There is neither commerce nor property.

Later, as tribes gathered together, nations began to be formed. Castes appeared, arising from war and the patriarchal system. Property was gradually established but, according to the laws established during the heroic period, when masters did not cultivate with their own hands, they operated using their slaves, as lords later did with their serfs. Tenant farming did not yet exist and rent, a manifestation of this relationship, was unknown.

At that time, commerce was conducted mainly through the exchange of goods. If gold and silver appeared in transactions, it was more as merchandise than as a means of payment or units of value. They were weighed and not counted. Trade and the money-changing it leads to, interest-bearing loans and limited partnerships, all these operations in advanced commerce that give rise to cash, were unknown. These primitive customs have lasted for a long time in farming populations. My mother, a simple countrywoman, told us that before '89 she hired herself out during the winter to spin flax and, in return for six weeks of work and her board, received as pay one pair of clogs and a loaf of rye bread.

It is in maritime trade that the origin of lending at interest should be sought. The practice of "bottomry" or whole ship cargo contracts, which was a type of contract used for private cargo, was its original form, in the same way as farm or cattle leases were analogous to limited partnerships. 1757

What is a contract for private cargo? A binding arrangement in which an manufacturer and a shipowner agree to pool, for purposes of foreign trade, the former, a certain quantity of goods that he is responsible for procuring, the latter his navigation skills. The resulting profit from the sale has to be shared in equal portions or according to agreed proportions, with the risks and damage being the responsibility of the company.

Is the profit thus provided for, however large it may be, legitimate? This cannot be called into question. Profit at this early era of commercial relationships is none other than the uncertainty that reigns between the people trading with regard to the value of their respective goods; it is an advantage that exists more in the mind than in fact and that both parties often attribute to themselves, not without reason. How many pounds of tin is one ounce of gold worth? What relationship in price terms is there between purple cloth from Tyre 1758 and the pelt of a sable? Nobody knows and nobody can know. A Phoenician who, for a roll of furs, hands over ten lengths of his fabric, applauds his trade; the northern hunter, for his part, proud of his brown furs, thinks the same. And this is still the practice of Europeans with Australian natives who are happy to give a pig for an axe, a chicken for a nail, or a glass bead.

The incommensurability of values is, at the outset, 1759 the source of the profit from trade. Gold and silver therefore are traded, initially as goods and shortly afterward, because of their considerable ease of exchange, as terms of comparison, as money. In both cases, gold and silver bring profit to the trade, in the first place through the very fact of the trade and then for the risk incurred. Insurance contracts appear at this point as twin brothers of whole ship contracts; the premium stipulated in insurance contracts depends upon, and is even identical to, the share of profit agreed in the whole ship contracts.

This share of the profit, which expresses the participation of the capitalist or the producer who commits his products or his funds which are one and the same in commerce, has been given the Latin name of interesse , 1760 that is to say, "taking part in" or interest .

At this time, therefore, in the circumstances I have just defined, who could have accused the practice of interest of being harmful? Interest is the throw of the dice, 1761 the winnings obtained in the face of chance; it is the unpredictable profit of trade, a profit that cannot be criticised as long as no comparison of values has supplied the related notions of what is expensive and what cheap , of proportion, and PRICE. The same analogy, the same identity that political economy has constantly pointed out, and rightly so, between interest on money and the rent on land, existed at the start of commercial relationships between this same interest and the profit from trade. In essence, exchange is the common form, the starting point of all these transactions.

You see, Sir, that the fierce opposition I make to capital does not stop me in the slightest from acknowledging the justice of the initial good faith of its operations. It is not I who will ever play games with the truth. I have said that there was a good, honest, and legitimate aspect to interest-bearing loans and I have just established this in a way that I consider to be more valid than yours in that it sacrifices nothing to selfishness and takes nothing away from charity. It is the impossibility of evaluating objects accurately which, at the outset, formed the basis of the legitimacy of interest just as, later, it is the search for precious metals that sustains it. There had to have been a positive and essential reason for interest-bearing loans for them to have developed and become as generalized as we have seen; this was necessary, I say, on pain of condemning, along with the theologians, the entire human race, which for my part I profess to consider infallible and sacred.

But who does not already see that the trader's profit ought to decrease progressively with the risk incurred and with the arbitrary nature of prices until finally it is merely the fair price of the service provided by him, the price paid for his work? Who does not also see that interest ought to decrease with the risks incurred by capital and the deprivation experienced by capitalists, so that, if payment by the debtor is guaranteed and the creditor's inconvenience is zero, interest ought to become zero?

Another cause, which should not be overlooked here since it marks the point of transition or separation between the share of profit, interesse , due to capitalists in whole ship contracts and usury as such, another quite accidental cause, I repeat, made a significant contribution to generalizing the fiction of the productivity of capital and consequently, the practice of interest. This was the requirements of accounting in commercial businesses and the need to make payments received or reimbursements faster. What more potent stimulus, I ask you, could you imagine with respect to lazy and late-paying debtors, than this aggravation, foenus , 1762 this constant rebirth, tokos, 1763 of the principal? What bailiff is more inflexible than this serpent of usury as the Hebrew designates it? Usury, said the ancient rabbis, is called a serpent, neschek, 1764 because the creditor BITES the debtor when he claims more from him than he has given him. And it is this instrument of policy, this sort of commercial guard dog set by the creditor at the throat of his debtor that people have wanted to make a principle of commutative justice and a law of social economy! You have to have never set foot inside a trading establishment to fail to recognize the extent to which the spirit and aim of this truly diabolical invention of the mercantile genius now exists.

Let us now follow the progress of the institution, for we are reaching the time at which the neschek, tokos, foenus , in a word usury , now distinguished from the random profit, or interesse , of the trader is on the point of becoming an institution, and let us see first of all how the practice became generalized. We will subsequently endeavor to determine the reasons that ought to lead to its abolition.

We have just seen that it was among maritime nations which carried out brokerage and warehousing for others and who dealt above all with valuable goods and metals that mercantile speculation first developed, and with it the speculation of interesse or whole ship contracts. It is from this that usury, like the plague, spread in all its forms to farming nations.

The operation of interesse , which is irreproachable in itself, had created a precedent; the method used was foenus , which might be regarded as an appeal against coercion and the lack of security; the progressive deterioration of capital, provided the means. The preponderance acquired by gold and silver over other forms of merchandise, the privilege they received by universal consent to represent wealth and serve as a common means of determining value for all products, provided the opportunity. When gold became the king of exchange, the symbol of power, and the key to all happiness, everyone wanted to have gold, and since it was impossible to have enough for everyone, it could be obtained only at a premium and its use had a price. It was lent out by the day, by the week, and by the year, like so many flute players or prostitutes. One consequence of the invention of cash was the valuing of all other goods very cheaply compared to gold and the establishment of all genuine wealth, like savings, in écus. Capitalist exploitation, condemned by all antiquity, an era certainly better informed about it than ours, since it had its origins there, was thus established: to our century was reserved the privilege of furnishing it with learned men and legal advocacy.

As long as usury, having become confused with the insurance premium or the share of profit in maritime contracts, was confined to maritime speculation and had an effect only internationally; it appeared innocuous to legislators. It was only when it began to be practiced among fellow citizens and fellow countrymen that the divine and human laws fulminated against it. You shall not invest your money for interest with your brother, said the law of Moses, but yes indeed with foreigners: Non foenerabis proximo tuo, sed alieno (Lend not to your neighbour, but to the stranger) . 1765 It is as though the legislator had said: Between nations, the profit from trade and the increase in capital express a relationship only between opinions about values, valuations which balance each other as a result. Between citizens, with products having to be exchanged for other products, work for other work, and with the lending of money just an anticipation of this exchange, interest constitutes a difference which breaks commercial equality, enriches one to the detriment of the other, and in the long run leads to the subversion of society.

It was therefore in line with this principle that the same Moses wanted all debts to be cancelled and cease to be due every fifty years, which meant that fifty years of interest or fifty annual payments, assuming that the loan as made in the first year of the fifty year period, would reimburse the capital.

It was for this reason that Solon, 1766 called upon to be President of the republic by his fellow citizens and made responsible for calming the troubles agitating the city, began by canceling debts, that is to say, liquidating all usury. Free credit was in his view the sole solution to the revolutionary problem faced in his time, the condition sine qua non of a democratic and social republic. 1767

Finally it was for this that Lycurgus, 1768 a mind little versed in questions of credit and finance, pushing his apprehensions to the extreme, banished trade and money from Sparta, unable as he was to find any other remedy than this Icarian solution 1769 to the demotion of citizens to a subaltern status, and the exploitation of one man by another.

However, all these efforts of moralists and legislators in antiquity, which were badly coordinated and even more badly supported, had to remain powerless. The growth of usury, constantly stimulated by luxury and war and very soon by the analogy drawn from property itself, overwhelmed them. On the one hand, the state of antagonism between nations that maintained the dangers to the movement of goods constantly provided new pretexts for usury; on the other, the selfishness of the ruling classes was bound to stifle the principles of egalitarian organization. In Tyre, Carthage, Athens, and Rome, everywhere in the ancient world as in the world of today, it was free men, patricians, and bourgeois who took usury under their protection and exploited the common people and freedmen by means of capital.

Eventually Christianity made its appearance, and after four centuries of struggle initiated the abolition of slavery. It is at this time that we have to situate the general establishment of interest-bearing loans in the form of farm and house rental leases.

I said above that, in ancient times, when the landowner did not himself or with his family's help improve the value of the land, as was the case in Roman times in the early days of the Republic, he did it using his slaves. This was the general practice in patrician houses. At that time the land and the slaves were bound to one another; those who worked the land were described as adscriptus glebae , bound to the soil: the ownership of man and thing were indivisible. The price of a sharecropping farm reflected at once the area and quality of the land, the number of cattle, and the number of slaves.

When the emancipation of slaves was proclaimed, the owner lost the men but kept the land; as today, when the blacks are emancipated, we reserve the ownership of the land and equipment for their master. However, from the point of view of ancient jurisprudence, as in natural and Christian law, man, who is born to work, cannot do without tools of work. The principle of emancipation implied an agrarian law, which would have guaranteed and sanctioned this. Without this, the alleged emancipation was nothing other than an act of odious cruelty, an infamous piece of hypocrisy. And if, according to Moses, interest or the annual payment on capital reimbursed capital, might it not be said that slavery reimburses property? Theologians and lawmakers of the time did not understand this. Through an inexplicable contradiction, which persists today, they continued to thunder against usury but they gave absolution to farm rent and rent from housing.

The result of this was that emancipated slaves and, a few centuries later, emancipated serfs, with no means of existence had to become farmers and pay tribute. Masters simply found themselves all the richer because of this. They said: I will provide you with land; you will provide the work, and we will share the proceeds. This was a rural imitation of the customs and usages of trade: "I will lend you ten talents," said the man with the écus to the worker, "you will increase their value and then we will share the profit." Or else: "for as long as you keep my money, you will pay me one twentieth." Or last of all: "If you prefer, at the due date you will pay me back twice as much." From this arose rent for land, unknown to Russians and Arabs. The exploitation of one man by another through this metamorphosis gained the force of law: usury, condemned in interest-bearing loans, tolerated in maritime contracts, was canonized in farm rent. From that time, the progress of commerce and industry served merely to introduce it further into custom. This had to be so if light were to be shed on all the varied forms of servitude and theft and the real answers to the problems of human freedom formulated.

Once committed to the practice of interesse , so strangely understood and applied with so much abuse, society began to revolve in the circle of its misery. It was then that the inequality of conditions appeared to be a law of civilization and evil an inevitable part of our nature.

Two avenues, however, seemed to be open to workers to free themselves from capitalist exploitation; one was, as we have said previously, the gradual balancing out of values and consequently a decrease in the cost of capital, and the other, the reciprocity of interest.

However, it is obvious that the revenue from capital, represented in particular by money, cannot totally be cancelled by the decrease, for as you have said so clearly, Sir, if my capital is to bring me nothing in the future, instead of lending it, I will keep it and, for having positively refused to pay the tithe, the worker will be unemployed. As for the reciprocity of usury, we can readily imagine that it might exist between one entrepreneur and another, one capitalist and another, or one landowner and another, but between a landowner, capitalist, or entrepreneur and someone who is merely a worker, this reciprocity is impossible. It is impossible, I say, for a worker to be able to buy something he has himself produced, if the price of the product is made up of the interest on capital and his wages. To live by working is a principle that, in a system based on the charging of interest, implies a contradiction.

Once society has become mired in this impasse, the absurdity of this capitalist theory is demonstrated by the absurdity of its consequences. The intrinsic iniquity of interest results from its homicidal effects, and as long as property has rent and usury as an assumption and as a consequence, its affinity with theft will be established. Can it exist under different conditions? For my part I deny this, but this question is not pertinent to the question in hand right now, and I will not go down this path.

Now consider the situation in which both capitalist and worker find themselves simultaneously, following the invention of money, the preponderance of cash, and the blurring of the distinction between the lending of money and rent for land and buildings.

The former, for I am determined to justify him even in your view, being in thrall to this prejudice of money, cannot separate himself from his capital in favor of the worker free of charge. Not that this separation would cause him any hardship, since in his hands the capital is sterile. Not that he runs the risk of losing it, since he is assured of its repayment through the safeguard of mortgages. Not that this benefit costs him the slightest pain, unless you consider as a pain the counting of écus and the verification of the collateral; but, in separating himself for a period of time from his money which, because of its prerogative has been so accurately called (a form of) power, the capitalist will decrease his power and with it his security.

It would be quite another thing if gold and silver were just ordinary products, if no more consideration were paid to the possession of écus than to the possession of wheat, wine, oil, or leather and if the simple ability to work gave men the same security as the possession of money. Under this monopoly of circulation and exchange, usury becomes a necessity for the capitalist. His intention, from the point of view of justice, is not incriminating: as soon as his money leaves his coffers, it is no longer safe.

Well, this necessity that, as a result of an involuntary and universally accepted prejudice, binds the capitalist, is the most shameful plunder of the worker, akin to the most odious of tyrannies, the tyranny of force.

What in effect are the theoretical and practical consequences of interest-bearing loans and their equivalent, farm rent, on the working class, this lively, productive and moral sector of society? For the moment, I will limit myself to listing a few of these to which I draw your attention and which may, if you are willing, become the subsequent focus for our debate.

One is that, by virtue of the principle of interest or the net product, an individual may genuinely and legitimately live without working; this is the conclusion of your letter before last 1770 and in fact, this is the status to which everyone now aspires.

A second is that if the principle of the net product is true for individuals, it must be so for nations as well; in this way, since the movable and fixed assets of France, for example, are valued at 132 billion, 1771 at 5 percent per year of interest, this gives 6 billion six hundred million on which at least half of the French nation could, if it wished, live without working. In England, where accumulated capital is much greater than in France, and the population much smaller, the entire nation, from Queen Victoria to the most junior joiner of yarn in Liverpool, might, if it wished, live on unearned income, walking around with elegant walking sticks or complaining in meetings. Which leads to the obviously absurd proposition that, because of its capital, a nation has more income than its work provides.

A third is that since the annual sum of wages in France is about 6 billion and the sum of income from capital is also 6 billion, making a total annual sales value for production of 12 billion, the people who produce, who are at the same time the people who consume, can and ought to buy with the 6 billion of wages allocated to them the 12 billion that commerce asks of them as the price of their goods, without which capitalists would find themselves with no income.

A fourth is that, since interest is by nature perpetual and under no circumstances, in accordance with Moses' wishes, can it be used to reimburse capital, and what is more, as each year of interest can be reinvested at usurious rates and form a new loan consequently giving rise to new interest, the smallest amount of capital can, in time, produce prodigious sums that would not even be represented by a mass of gold as large as the globe which we inhabit. Price has demonstrated this in his theory of amortization. 1772

A fifth is that, since the productivity of capital is the immediate and single cause of the inequality of wealth and the incessant accumulation of capital in a small number of hands, it has to be admitted that in spite of the progress in enlightenment, Christian revelation, and the expansion of public freedoms, society is naturally and necessarily divided into two castes, a caste of exploiting capitalists and a caste of exploited workers. 1773

A sixth is that, since this caste of capitalists controls like a sovereign (lord) the tools of production and its products by means of the benefits from the interest provided by its capital, it has the right, whenever it suits it, to stop work and circulation as we have seen it do for the last two years, 1774 at the risk of causing the people to die. It can change the natural direction of things, as is seen in the Papal States where farmland has been devoted from time immemorial to idle pasture because it suits the owners and where the people live only on alms and the curiosity of foreigners. It can say to a large group of citizens: " You are superfluous on this earth, at the banquet of life; there is no room for you " 1775 as the Countess of Strafford 1776 did when she expelled 17,000 country folk at a stroke from her domains, and as the French government did last year when it transported 4,000 families with hungry mouths to Algeria. 1777

I ask you now, if the prejudice in favor of gold or the inevitability of monetary institutions excuse and justify capitalists, is it not true that these institutions create a regime of brutal force for workers which is distinguishable from slavery in ancient times only by its deeper and more criminal hypocrisy.

FORCE, Sir, that is the first and last word of a society organized on the principle of interest and which, for the last 3,000 years has struggled against interest. You note this yourself, without restraint or scruple, when you acknowledge with me that capitalists do not deprive themselves in the slightest and with J. B. Say, that their function is to do nothing , 1778 when you put the following brazen words that any humane conscience would condemn into their mouths:

"I impose nothing on you against your will. Since you do not consider a loan to be a service, refrain from borrowing money, as I will from lending it. If society offers you benefits for no payment , accept them as that is much more convenient, and as for organizing the circulation of capital , which you demand that I do, if what you mean by that is that you will obtain mine free of charge through the agency of society, I have exactly the same objections to this indirect process which have led me to refuse you a direct loan free of charge."

Take care, Sir, the people are only too ready to believe that it is solely through a love of its privileges that the capitalist caste, at this crucial time, is rejecting the organization of credit that they are demanding, and the day on which the ill-will of this caste is revealed to them, all excuses will be void in their eyes and their vengeance will know no bounds.

Do you want to know what dreadful demoralization you are creating in workers with your theory of capital, which is none other, as I have just told you, than the theory of the right of FORCE? It is enough for me to quote your own arguments. You like fables: to put my thoughts into concrete form, I will offer you a few.

A millionaire falls into the river. A member of the proletariat happens to pass by and the capitalist gestures to him. The following conversation takes place:

THE MILLIONAIRE: Save me or I will die.

THE PROLETARIAN: I am at your service, but I want a million for my trouble.

THE MILLIONAIRE: A million for extending a hand to your brother who is drowning! What will that cost you? An hour's delay! I will pay you a quarter day's work for I am generous.

THE PROLETARIAN: Tell me, am I not providing you with a service by pulling you out?


THE PROLETARIAN: Has not every service the right to a reward?




THE PROLETARIAN: Then I want a million: that is my last word. I am not forcing you and am imposing nothing on you against your will. I am not preventing you in the slightest from shouting " Man the boats !" and calling someone. If the fisherman I see over there, a league from here, wants to give you this benefit for no return, call on him, it is more convenient."

THE MILLIONAIRE: Miserable man! You are taking advantage of my position. What about religion, morality, or humanity?

THE PROLETARIAN: That is a matter for my conscience. Besides, time is calling, let us put an end to this. Life as a proletarian or death as a millionaire, which do you prefer?

Doubtless, Sir, you will tell me that religion, morality, or humanity that command us to help our fellow-men in trouble has nothing to do with (self) interest. I agree with you in this, but what do you have to say in reply to the following example?

An English missionary, off to convert the infidel, is shipwrecked on the way and reaches the island of … 1779 in a lifeboat with his wife and four children. Robinson, 1780 the owner of this island by right of first occupation, by right of conquest, and by right of working (the land), aims his shotgun at the castaway and forbids him to infringe his property. However, since Robinson is humane and has a Christian soul, he is willing to show this unfortunate family a neighboring rock that is isolated in the middle of the sea, a place where they may dry themselves and rest without fear of the ocean.

Since the rock does not grow anything, the castaway begs Robinson to lend him his spade and a small bag of seed.

"I will agree", said Robinson, "on one condition and that is that you will give me back 99 bushels of wheat out of every 100 that you reap."

THE CASTAWAY: That is an insult! I will give you back what you have lent me but on condition that you let me do the same for you some other time.

ROBINSON: Have you found one grain of wheat on your rock?


ROBINSON: Am I doing you a service by giving you the means of cultivating your island and living by working?


ROBINSON CRUSOE: Doesn't all service require payment?


ROBINSON: Well then! The payment I ask for is 99 percent. That is my price.

THE CASTAWAY: Let us meet half way. I will give you back the sack of wheat and the spade with 5 percent interest. That is the legal rate.

ROBINSON: Yes, it is the legal rate where there is competition and when there is an abundance of goods, just as the legal price of bread is 30 centimes per kilogram when there is no shortage.

THE CASTAWAY: 99 percent of my harvest! That is theft and daylight robbery!

ROBINSON: Am I being violent towards you? Am I forcing you to take my spade and wheat? Are we not both free to act?

THE CASTAWAY: We have to be. I will die of work, but I have my wife and children! … I agree to everything and will sign for this. Lend me in addition your saw and axe so that I may build myself a hut.

ROBINSON: Just a minute! I need my axe and saw. It took me a week of work to make them. Nevertheless, I will lend them to you but on condition that you will give me 99 planks out of every 100 that you make.

THE CASTAWAY: Good heavens! I will give you back your axe and saw and present you with five of my planks in recognition of your trouble.

ROBINSON: In that case, I will keep my saw and my axe. I do not wish to force you. I am a free man.

THE CASTAWAY: But don't you believe at all in God? You are an exploiter of the human race, a Malthusian, a Jew! 1781

ROBINSON: Religion, Father, teaches us that 1782 "man has a noble destiny which is not limited to the narrow domain of industrial production. What is this purpose? This is not now the place to raise this question. But, whatever it is, what I can tell you is that we will not be able to achieve it if, bent under the yoke of inexorable and incessant work, we have no leisure to develop our bodies, affections, minds, our sense of beauty, what there is in our nature that is most pure and elevated. What then is the power that will give us this beneficial leisure, an image and foretaste of eternal happiness? It is capital." I worked once upon a time; I saved precisely in order to make you a loan: One day you will do the same as me.

THE CASTAWAY: Hypocrite!

ROBINSON: You are insulting me, farewell! You can just cut down the trees with your teeth and saw your planks with your nails.

THE CASTAWAY: I will yield to force. But at least, give me as charity a few herbs for my daughter who is ill. That will not cause you any trouble; I will go to pick them myself on your property.

ROBINSON CRUSOE: Just a minute! My property is sacred. I forbid you to set foot on it or you will have my gun to deal with. However, I am a good man; I will allow you to pick my herbs, but you will bring me your other daughter whom I think is very pretty …

THE CASTAWAY: Rogue! You dare to say such things to a father!

ROBINSON: Am I providi ng you all, you, and your daughters, a service by saving your life through my remedies? Yes or no?

THE CASTAWAY: Certainly, but look at the price you are asking.

ROBINSON CRUSOE: Am I taking your daughter by force? Is she not free? Are you yourself not free? And besides, would she not be happy to share my leisure with me? Would she not have her share of the income you are paying me? By making her my companion, am I not becoming your benefactor? Go away, you are just an ungrateful wretch!

THE CASTAWAY: Stop, landowner! I would prefer to see my daughter dead than dishonored. However, I will sacrifice her to save her sister. I only ask one thing of you, which is to lend me your fishing tackle, for it is impossible for us to live on the wheat you are leaving us. One of my sons will obtain extra food for us by fishing.

ROBINSON CRUSOE: So be it. I will provide you this additional service. I will do even more; I will take your other son off your hands and will take charge of his food and education. I will have to teach him to shoot, handle a sword, and live like me, without working. For, because I mistrust you all and you may well not pay me anything, I will be glad to have some assistance, should the need arise. Rascally paupers who demand loans with no interest! Impious people who do not want one man to exploit another!

One day, Robinson over exerts himself while hunting, catches a chill, and falls ill. His mistress, who is disgusted with him and is having an affair with his young companion, says to him: I will take care of you and cure you, but on one condition: You must give me all your property. Otherwise, I will leave you.

ROBINSON: Oh you whom I have loved so dearly and for whom I have sacrificed honor, conscience, and humanity, are you willing to leave me on my sick bed?

THE SERVANT: I never loved you and so I owe you nothing. If you kept me, I also gave you my body; we are quits. Am I not free? And, after having been your mistress, am I obliged now to be your nurse?

ROBINSON: My child, my dear child, I beg you to calm yourself! Be kind, be gentle, and be nice. I will make my will in your favor.

THE SERVANT: I want to be paid or I am leaving.

ROBINSON: You are killing me! Both God and Men are abandoning me. A curse on the universe! Let me be struck by a thunderbolt and may hell engulf me!

He dies in despair. 1783


Letter No. 8 : F. Bastiat to P. J. Proudhon (24 December 1849)

Proof of impossibility makes it unnecessary to examine possibility. - A protest against fatalism. - Immutable truths. - A judgment on travels through the fields of history. - Fables turned against their author. The laws of capital summarized in five propositions.

24 December 1849

Is free credit possible?

Is free credit impossible?

It is clear that to answer one of these questions is to answer the other.

You criticise me for a lack of charity because I am upholding the case for the second.

This is my reason for this:

Seeking to ascertain whether free credit is possible would have been to allow myself to be drawn into a discussion on the People's Bank, the tax on capital, the national workshops, and the organization of work , in a word, the thousands of ways in which each school of opinion claims to have achieved free credit. 1784 Whereas, in order for one to be sure that it is impossible , it was enough to analyze the essential nature of capital, which achieves my purpose and, in my view, yours.

Galileo was faced with fifty arguments against the earth's rotation. Did he have to refute them all? No, he proved that it turned and that said it all: E pur si muove (But nevertheless it moves).

You say that, as an innovator, you have the right to an examination. Doubtless, but above all society, as the defendant, has the right to have the charge against it proved. You bring capital and interest before the court of public opinion, accusing them of injustice and plunder. It is up to you to prove their guilt, and up to capital and interest to prove their innocence. You say that you have several ways of bringing them back to lawfulness. We must first of all find out whether they have strayed from this. The examination of your findings can come only later, assuming as it does that the accusation is well founded, which capital and interest deny.

This procedure is so logical that you agree to it in these words:

"Whether it is true or false, legitimate or illegitimate, moral or immoral, I said to you, I accept usury, I approve of it, I will even praise it; I will renounce all the illusions of socialism and make myself a Christian once more if you prove to me that the benefit provided by capital, as well as the circulation of financial assets, cannot under any circumstances be free of charge." 1785

Well, am I doing anything else? This is indeed my ground, to prove that capital bears within itself the unchallengeable right to be remunerated.

First of all, you combated this doctrine by using the theory of contradictions and then that of distinctions . Interest, you said, had a raison d'être in previous ages, but no longer has any today. It was an instrument of equality and progress, but is now only theft and oppression. And, on this theme, you quoted several institutions and customs that were initially legitimate and liberal and later became unjust and disastrous, such as torture, the ordeal by boiling water, slavery etc.

For my part I reject this cruel fatalism that consists in justifying all excesses as having served the cause of civilization. Slavery, torture, and judicial ordeals have not advanced, but have delayed the progress of the human race. This would have been true of interest if it had been, as you say, merely an abuse of force.

What is more, while some things change, others do not. Since the Creation, it has been true that the three angles of a triangle are equal to two right angles, and this will continue to be true until the Day of Judgment and beyond. In the same way, it has always been true and will always be so that accumulated labour , or capital, is worthy of reward.

You compare my logic with that of an entrepreneur who says: "What does steam, atmospheric pressure, and electricity matter to us? Is proving the reality and legitimacy of four-wheeled vehicles not proving that the invention of railways is an illusion?"

I accept the analogy but with the following proviso:

I acknowledge that the railway is an advance. I am happy that it lowers transport costs, but if anyone wished to conclude from this that transport should be free , if it were said that any transport cost was legitimate in former times but that the time had come for transport to be carried out free of charge, I would say that the conclusion was wrong. As progress continues, this cost should decrease constantly, but it cannot reach zero because there will always be some human work involved, a human service , which carries within itself the right to be remunerated..

S imilarly, I acknowledge that the cost of capital will decrease in accordance with its abundance. I acknowledge this and am happy about it, since capital will thus increasingly reach all classes and lighten the burden of work for them whatever utility is yielded. However, I cannot conclude that this constant decrease in interest will lead to its total disappearance, because capital will never generate spontaneously and always be a service that is more or less great, thus carrying within itself, just like transport, the right to be remunerated.

Thus, Sir, I do not see any reason to rule this debate out of court just when it is being concluded and it seems to me that there is not one of our readers who would not consider my task fulfilled if I proved the following propositions:

All capital (whether this is in the form of harvests, tools, machines, houses, etc.) is the result of previous work, and generates work subsequently.

Because capital is the result of previous work, the person providing it receives payment for it.

Because it generates work that comes later, the person borrowing it owes payment for it.

And you yourself say: "If the effort required of the creditor is zero, interest ought to become zero."

So, what have we to find out? This:

Is it possible for capital to be formed without any effort involved?

If it is possible, I am wrong, and credit ought to be free.

If it is not possible, it is you who are wrong, and capital has to be paid for. Whatever you do, the question can be summed up in these words: Has the time come, will it ever come, when capital develops spontaneously without the input of any human effort?

However, in an historical survey full of vigor that carries you off to Palestine, Athens, Sparta, Tyre, Rome, and Carthage, you go off on a tangent which I cannot permit. Well then! Before returning to the matter at hand, I will endeavor, if not to follow you, at least to take a few steps in your direction.

You begin thus:

"What makes interest on capital, which is excusable and even just at the beginning of the economic life of society, becomes true plunder and theft with the development of industrial institutions, is that this interest has no other principle or raison d'être than necessity or force. Necessity is what explains the requirement of the lender; force is what explains the resignation of the borrower. However, as necessity gives way to liberty in human relations and right succeeds force, capitalists lose their justification."

They lose more than that; they lose the only status you accord them. If, under the reign of liberty and law, interest continues to exist, it is probably because it possesses, whatever you say, another raison d'être than force .

In truth, I no longer understand your distinction . You said: "Interest was just in former times, it is no longer so." And what reason do you give for this? This one: "In former times, force held sway, now right does so." Far from concluding from this that interest has moved from legitimacy to illegitimacy, is it not the contrary that is to be deduced from your premises?

Certainly the factual record would confirm this deduction, for usury may very well have been odious when people became capitalists through pillage, while interest is justified once they became capitalists through work.

"It is in maritime trade that the origin of lending at interest should be sought. The practice of "bottomry" or whole ship cargo contracts, which was a type of contract used for private cargo, was its original form."

I believe that capital has a nature that is proper to it and that is perfectly independent of the method by which men transport their goods. Whether they travel and have their goods carried overland, by sea, or by air, in wagons, ships, or balloons, this neither grants nor takes away any rights to capital.

What is more, it is permissible to think that the practice of charging interest preceded the use of maritime trade. It is very probable that the patriarch Abraham did not lend flocks without keeping for himself a share in their increase and those who, after the flood, built the first houses in Babylon doubtless did not hand over the use of them without payment.

What then, Sir! Are these transactions which existed and were carried out voluntarily since the dawn of time under the names of rentals, interest, farm rent, leases, or rent for housing, not the products of the very essence of the human race! They are deemed by you to arise from contracts on private cargo!

Next, with regard to maritime contracts, you develop a theory of profit that I truly believe to be inadmissible. However, to discuss it here would be to stray from our subject.

Finally, you reach the root of all economic errors, that is to say, confusion between capital and cash; confusion that makes it easy to muddle the question. But you yourself do not believe this, and the only proof I need is what you once said to Mr. Louis Blanc: "Money is not wealth for society: it is quite simply a means of circulation which might be replaced to great advantage by paper, by a substance with no value ." 1786

Please believe therefore that when I talk about the productivity of capital (tools, implements, etc.) produced by work, I do not mean to attribute a miraculous power of reproduction to money. 1787

Shall I follow you, Sir, to Palestine, Athens, and Sparta? That is really not necessary. Just a word, however, on Moses' Non foenerabis . 1788

I admire the devotion that has gripped certain socialists (with whom I do not confuse you) since they have discovered a few texts in the Old and New Testaments, the Councils of the Church, and the Fathers of the Church to support their thesis. 1789 I will take the liberty of asking them this question: Do they mean to quote these authorities as being infallible with regard to science and social economy? 1790

They will certainly not go so far as to reply to me: We take to be infallible the texts that suit us and fallible those that do not. When sacred books are referred to in this connection and as being the depositories of the indisputable will of God, we have to accept it all or risk being accused of childish play-acting. Well then! Apart from a host of phrases in the Old Testament, which cannot safely be taken literally, there are in the Gospels other texts than the well-known Mutuum date (lend hoping for nothing thereby), 1791 from which they want to deduce free credit, including the following:

Blessed are those that weep.

Blessed are those that suffer.

The poor will always be with you.

Render to Caesar the things that are Caesar's.

Obey those in power.

Do not concern yourself with tomorrow.

Do as the lilies that neither spin nor weave.

Do as the birds, which neither plough nor sow.

If someone strikes you on the left cheek, turn the other one.

If someone steals your coat, offer him your robe as well. 1792

What would these Socialist gentlemen say if we based policy and social economy on one of these texts?

We are allowed to believe that when the Founder of Christianity said to his disciples: Mutuum date (lend hoping for nothing thereby), he meant to give them a piece of advice on charity, and not a lecture on political economy. Jesus was a carpenter and worked for a living. This being so, he could not make giving an absolute rule. I believe that I may add without being irreverent, that he was paid quite legitimately, not only for his work devoted to making planks but also for his work devoted to making saws and planes, that is to say, for his capital.

Finally, I cannot pass over the two fables with which you end your letter without commenting that, far from invalidating my doctrine, they condemn yours, for we can conclude that there should be free credit only if we can also conclude that work should also be unpaid. Your second tale struck me like a great sword thrust, but your first charitably equipped me with a breastplate capable of withstanding anything.

In fact, by what trick will you try to get me to admit that there are circumstances in which people are conscience bound to lend free of charge? You conjure up one of those extraordinary situations that silence all personal instincts and call into play principles resting on sympathy, such as pity, commiseration, devotion, or sacrifice. You conceive of an island dweller, well provided with everything. He encounters castaways cast up by the sea naked on the shore. You ask me if this island dweller may legitimately in his own interest take all possible advantage from his position, pushing his demands to the absolute limit, insisting on a thousand percent return on his capital, and even hiring it out to the ruination of their honor!

I can see the trap. If I reply: Oh, in this case, you have to fly to the assistance of your fellow man unconditionally and share everything up to the last crumb of bread with him. You would say triumphantly: At last my opponent has admitted that there are conditions in which credit ought to be free.

Fortunately, you have yourself supplied me with the reply to the first fable, which I would have invented if you had not done so first.

A man was walking along the banks of a river. He saw one of his brothers drowning and had only to extend his hand to save him. Could he in all conscience take advantage of the situation to demand the most extreme conditions and say to the unfortunate man struggling in the torrent: I am a free being and I am absolute master of my work. Die or give me your entire fortune!

I consider, Sir, that if an upright worker were to be in these circumstances, he would jump into the water without hesitation, without any calculation, and without speculating on payment or even thinking about it.

But here, please note, there is no question of capital; it is just a matter of work. It is work that, in all conscience, has to be sacrificed. Can you deduce from that that work should be free , as the normal rule governing human transactions and as a law of political economy? 1793 And because in an extreme case, the service ought to be free, will you abandon at the theoretical level your axiom of the mutuality of services ?

And yet, if from your second fable you conclude that people are always bound to make loans at no charge, from the first you ought to conclude that people are always obliged to work for no pay.

The truth is that, in order to elucidate one question of political economy, you have thought up two examples in which all the laws of political economy are suspended. Who has ever thought of denying that, in certain circumstances, we are obliged to sacrifice capital, interest, work, life, reputation, affections, health, etc.? But is this the law that governs ordinary transactions? And is not resorting to examples like this in order to establish the necessity for free credit or free work, also an acknowledgement of the impossibility of making such unpaid activities part of the ordinary course of things?

You, Sir, are trying to find what the consequences of interest-bearing loans are on the working class and you list a few, inviting me to make them a future topic for this debate.

I do not deny that, among your objections, some are quite plausible and even very serious. It is even impossible to tackle them one by one in a letter; I will endeavor to refute all of them at once simply by setting out the law governing, in my view, the division of the products of the co-operation between capital and labor, and it is by this route that I will return to my modest world of economics.

Allow me to establish five propositions, which I consider to be mathematically provable;

1. Capital makes work more productive .

It is very clear that greater results are obtained with a plough than without one, with a saw than without one; with a road than without one; with basic supplies than without them, etc., from which we can conclude that the intervention of capital increases the the total quantity of products to be shared.

2. Capital is work

Ploughs, saws, roads, and supplies do not make themselves unaided, and the work to which we owe them has the right to be paid for.

I am obliged to remind you here of what I said in my last letter on the difference in the method of payment when applied to capital or work. 1794

The effort made by a water carrier every day has to be paid for by those who benefit from this daily undertaking. However, the trouble he has gone to in order to manufacture his wheelbarrow and barrel has to be paid for by an indeterminate number of consumers.

In the same way, sowing, ploughing, hoeing, and harvesting concern only the current harvest. However, the fences, land clearing work, drainage, and buildings form part of the cost price of an undefined series of successive harvests.

A different example is the current work by a shoemaker who makes shoes, a tailor who makes suits, a carpenter who makes beams, or a lawyer who drafts legal documents; a further example is the accumulated work required by lasts, 1795 workbenches, saws, and the study of law.

For this reason, the work done by the first category is paid for by a wage and that done by the second category by a combination of interest and amortization which is nothing other than wages ingeniously spread over a host of consumers.

3. As capital increases, interest decreases, but in such a way that the total income of the capitalist increases .

This happens with no injustice and without prejudicing labor because, as we shall see, this extra income of the capitalist is taken from the additional product that results from capital.

What I am stating here is that, although interest decreases, the total income of capitalists is bound to increase, and this is how:

Take a capital amount of 100 and an interest rate of 5 percent. I say that the interest rate cannot fall to 4 percent without capital increasing to at least 120. The fact is that no one would be motivated to increase capital if the result were bound to be a decrease or even a stagnation of income. It is absurd to say that if capital was 100 and income 5 percent, capital could be raised to 200 with the rate decreasing to 2, for in the first case people would have 5 francs of rent 1796 and in the second only 4. The appropriate course of action would be too easy and too convenient: people would consume half of their capital to achieve the same income.

Thus, when interest is decreased from 5 percent to 4, from 4 to 3 and from 3 to 2, this means that capital has increased from 100 to 200, from 200 to 400 and from 400 to 800, and that capitalists receive respectively as income 5, 8 and 12. And labor loses nothing thereby, far from it, for it had available to it a productive force equal only to 100, then one equal to 200 and finally equal to 800, within a context in which it pays less and less for a given quantity of this productive force.

It follows from this that the calculators who say that "Interest is decreasing, therefore it is bound to end" are quite inept. Goodness! It is decreasing with regard to each 100 francs, but it is precisely because the number of 100 franc amounts is increasing that interest is decreasing. Yes, the multiplier is decreasing, but this is the result of the very reason that increases the multiplicand, and I defy the God of Arithmetic himself to conclude from this that the product will thus reach zero. 1797

4. As capital increases (and with it, output), the ABSOLUTE SHARE due to capital increases and its PROPORTIONAL SHARE decreases .

This needs no further demonstration. Capital draws respectively 5, 4, and 3 percent for each 100 francs it contributes to the business association; 1798 thus its relative share decreases. But as it contributes successively 100 francs, 200 francs, and 400 francs to the business, it is seen to draw as its total share initially 5 francs, then 8, 12 and so on; thus its absolute share increases.

5. As capital increases (and with it, output), the proportional share and the absolute share received by labor both increase.

How can it be otherwise? Since capital sees its absolute share increasing while it receives respectively just 1/2, 1/3, 1/4 ,and 1/5 of the total output, labor, which gains 1/2, 2/3, 3/4, and 4/5 obviously gains a gradually increasing share, both proportionally and absolutely.

The law governing this distribution may be illustrated to readers through the following figures, which do not pretend to be accurate, but which I am producing to clarify my thought:

Total product Share due to capital Share due to labor
1 st period 1000 1/2, or 500 1/2, or 500
2 nd period 1,800 1/3, or 600 2/3, or 1200
3 rd period 2,800 1/4, or 700 3/4, or 2100
4 th period 4,000 1/5, or 800 4/5, or 3200

From these figures we can see how the progressive increase in output that corresponds to the progressive increase in capital explains this twin phenomenon, that is to say, that the absolute share due to capital increases whereas its proportional share decreases, while the share due to labour increases simultaneously in both aspects.

The result of all the preceding is as follows:

In order for the lot of the masses to improve, the return to capital has to decrease.

In order for interest to decrease, capital has to increase.

In order for capital to increase, five things are needed: activity, savings , freedom, peace ,and security .

And these benefits, which are important for everyone, are even more important for the working class.

It is not that I deny the sufferings of workers, but I say that they are on the wrong track when they attribute this suffering to infamous capital. 1799

This is my theory. I am setting it out with confidence in the readers' good faith. It has been said that I had set myself up as the advocate of capitalist privilege . It is not up to me, but up to my theory to reply.

I am bold enough to say that this theory is consoling and consistent. It encourages unity between the classes; it shows that there is agreement between our principles, it destroys the antagonism between people and ideas, and satisfies both the mind and the heart.

Is this also true of the theory that acts as the new fulcrum for socialism? The theory that denies capital any right to a reward? which sees only contradiction, antagonism, and plunder everywhere? which sets one class against the other and depicts injustice as a universal plague of which all men are to some extent both guilty and a victim?

If, in spite of this, free credit is true, it has to be accepted: Fiat justicia, ruat coelum (Let justice be done though the heavens fall). But what if it is false?

For my part I hold it to be false and in ending this letter, I thank you for having honestly given me the opportunity of combating it.


Long footnote from Letter 8

This law of decrease or divisibility, 1800 that an infinite number of divisions will never reaches zero, is well known to mathematicians and governs a host of economic phenomena and has not been sufficiently observed.

Let us quote a familiar example:

Everyone knows that in a wealthy and highly populated district in a large town, you can increase revenue while reducing sales prices. This is what is familiarly spoken of as: " Making up for it on quantity ".

Let us take four knife sellers, one in a village, another in Bayonne, a third in Bordeaux, and the fourth in Paris.

We might have the following table:

Number of knives sold Profit per knife Total profit
Village 100 1 fr. 100 fr.
Bayonne 200 75 150
Bordeaux 400 50 200
Paris 1,000 25 250

Here we can see the multiplier (the second column) decreasing constantly because the multiplicand (the first column) increases constantly; the constant increase in the total product (the third column) rules out the idea that the multiplier will ever reach zero even if you moved from Paris to London and to towns that are increasingly large and wealthy.

What has to be observed here is that buyers cannot complain about the gradual increase in the total profit achieved by the merchant, for what interests them as buyers is the profit levied proportionally on them as payment for the service provided and this profit decreases constantly. Thus, from different points of view, the seller and buyer both progress simultaneously.

This is the law of capital. It is well known and also reveals the harmony of interest between capitalists and the proletariat and their simultaneous advance.

Letter No. 9: P. J. Proudhon to F. Bastiat (31 December 1849)

A serious accusation. - The refutation of five propositions. -Arguments drawn from operations carried out by the Bank of France. - The misdeeds of this Bank.

31 December 1849

You have misled me.

I expected a serious dispute with you, but your letters are just repeated and boring hoaxes. If you had made a pact with usury to obfuscate the question and prevent our debate from reaching a conclusion by loading it with extraneous incidentals, trivialities, and mere quibbles, you could not have done better!

Please tell me, what is the question we are discussing? It is to establish whether interest on money should be abolished or not. I myself have told you that this is the fulcrum of socialism and the mainspring of the Revolution.

A vital preliminary question therefore arises, that of knowing whether it is in reality possible to abolish this interest. You say no, I say yes; which of us should be believed? Obviously, neither. The matter has to be examined, as common sense dictates and the most elementary notion of equity prescribes. You, on the contrary, reject such an examination. For the two months during which we have opened these solemn proceedings in which capital was to be judged and usury condemned or acquitted in La Voix du Peuple , you have not ceased to reiterate to me in a variety of tones the same old story:

"Capital, as I understand it and as its essential nature appears to me, is productive. This conviction is enough for me; I do not wish to know any more. Besides, you acknowledge that by making interest-bearing loans I am providing a service and not acting as a thief; why then do I need to listen to you? When I have proved that free credit is impossible according to my system and you have agreed that an honest man may, with a perfectly clear conscience, draw an income from his funds, you ought to also accept the fact that free credit is impossible. What is demonstrated to be true in one system cannot become false in another. Otherwise we would have to say that a thing can be true and false simultaneously, which is something my mind absolutely refuses to understand. I will not abandon this position." 1801

Where, Sir, did you learn, I do not say to reason, since it appears from the outset of this polemic that reasoning in your case is reduced to stating and confirming your proposition constantly without invalidating that of your opponent, but to engage in debate? The most junior lawyer's clerk will tell you that in any debate the propositions of each party have to be examined successively and with full discussion on both sides and, since we have taken the general public to be our judge, it is obvious that, once your argument has been set out and debated, mine has to be dealt with.

With you, things do not happen in this way. Satisfied as you are with the concession I made to you, that is to say, that in the current state of affairs interest-bearing loans cannot be considered as illicit acts, you take it as demonstrated that interest is necessary and thereupon, on the pretext that you do not know the least thing about antimonies, you contrive to rule the debate out of court, forcing me to shut up. Is this a discussion, I ask you?

Obliged to do this by such strange conduct, I made one step toward you. My method of demonstration seemed to cause you some trouble: I therefore abandoned this method and showed you, using the standard form of reasoning, that everything changes in society, that what at one time signified progress at another became a fetter, such that if we disregard the given time, the same idea or fact changes its character completely depending on the aspect under which it is considered. Nothing contradicts the belief that interest is exactly in this situation. Consequently your plea of inadmissibility cannot be accepted and you most decidedly do have to examine with me the hypothesis of free credit and the abolition of interest.

What is your answer to this? I scarcely dare to remind you of it. Because out of regard for you I thought it my duty to change my method, you first of all accuse me of prevarication and then of fatalism ! I have done with you, if I may be allowed the comparison, what mathematics teachers do with their pupils when a proof causes difficulty; they substitute another, more within their grasp. For, and you Sir should note this well, Hegelian dialectic, while it is not the whole of logic, is to syllogism and inference what differential calculus is to standard geometry. You may laugh at this, since human minds have the right to laugh at anything once they have understood and worked it out, but it does have to be understood, otherwise laughter is just a grimace by the foolish. And you, as a prize for my readiness to cooperate, reward me with sarcasm: to listen to you, I am just a sophist. Is this serious argument?

I will go even further. You said, and I quote your own words, " Show me how interest becomes illegitimate after being legitimate and I will agree to discuss the theory of free credit ." 1802

To satisfy this desire, which incidentally is very reasonable, I gave the history of interest and wrote a biography of usury. I showed that the cause of this practice lay in a concourse of political and economic circumstances beyond the control of the contracting parties and inevitable at the dawn of society, that is to say: 1. The incommensurability of values resulting from the fact that industries are not independent entities and from the absence of any terms of comparison; 2. The risks attending trade; 3. The custom, introduced at an early time among traders and which gradually became regular and generalized, of imposing a proportional extra sum as a fine or indemnity ( damages and interest ) on any debtors in arrears; 4. The preponderance of precious metals and coinage over other forms of goods; 5. The combined use of private cargo contracts, insurance, and whole ship contracts , and finally 6. The establishment of land rent based upon the idea of interest on cash, and which once accepted without demur by the sophists, was later employed to justify this very same interest.

To complete the demonstration, I then proved, through a simple arithmetic calculation, that interest, excusable as an accident in the conditions in which it first arose and where it subsequently developed, becomes absurd and an act of plunder as soon as attempts are made to generalize it and make it a RULE of public economic life; that it is in clear contradiction with economic principles, that in society, net product is equal to gross product so that any levy taken by capital from production constitutes an accounting error and an impossibility in terms of social equilibrium. Finally, I showed that although in another age interest was a stimulus to the circulation of capital, it is now, like the tax on salt, wine, sugar, meat, and even the Customs Service itself, just a hindrance to this circulation. It must now be linked with the stagnation of business, with unemployment in industry, distress in agriculture, and the increasing imminence of universal bankruptcy.

All this was a matter of history, theory, and practice, as much as a matter of calculation. You yourself noted that at no time did I call upon fraternity, philanthropy, the authority of the Gospels, and the Fathers of the Church against interest. I have very little faith in philanthropy; as for the Church, it has never understood anything about this subject and its casuistry, from Christ to Pius IX, 1803 is quite simply absurd. I repeat, absurd, both when it condemns interest with no consideration for the circumstances that excuse and require it and when it limits its anathema to usury on money and accepts, so to speak, usury on land.

What is your reply to this exposition, whose interest you yourself appreciated? What is your reply in your fourth letter? Nothing.

Do you deny history? You do not.

Do you question my calculations? No.

What, therefore, are you saying? You utter your constant refrain: He who lends is providing a service: this proves that capital carries within itself the unchallengeable right to be remunerated . After which, you give me, as an expression of the wisdom of centuries, five or six aphorisms that are excellent for anaesthetizing uneasy consciences but which, as I will prove to you in a moment, are everything that the most brutish habit has ever caused to be uttered as flagrant absurdities. Then, making your sign of the cross, you declare the discussion closed. Amen !

Mr. Bastiat, you are an economist and a member of the Academy of Moral and Political Sciences, 1804 a member of the Chamber's Finance Committee, 1805 a member of the Peace Congress, 1806 a member of the Anglo-French League for Free Trade, 1807 and what is better than all these, an upright man and a man of intelligence. Well then! To safeguard your intellect and honesty, I am obliged to prove to you, by A plus B, that you do not know the first thing about the things you have undertaken to speak of, neither about capital, nor interest, prices, value, circulation, finance, or political economy as a whole, any more than you do about German metaphysics.

Have you ever in your life heard of the Bank of France? Do me the honor, some time, of entering it; it is not far from the Institute. 1808 You will find Mr. d'Argout 1809 there who, with regard to capital and interest, knows more than you and all the economists at Guillaumin. 1810 The Bank of France is a company made up of capitalists, formed about fifty years ago following the solicitation of the state, and by a privilege awarded by the State, in order to practice usury across the entire territory of France. 1811 Since its foundation, it has never ceased to grow constantly: by adding the departmental banks to it, the February Revolution has made it the leading power in the Republic. The principle on which this company was formed is exactly yours. They said: "We have acquired our capital through our work or by the work of our fathers. Why then, by making one of its tasks to ensure the circulation of credit and putting it at the service of our country, should we not draw from it a legitimate revenue when landowners draw income from their land, when house builders draw rent from their houses, when businessmen gain from their goods profit that is larger than their management expenses, or when workers who assemble our parquet floors include in the price of their day's work a quantum (an amount) for the wear and tear of their tools, a quantum which will surely exceed what is necessary to amortize the sum they have cost them?

As you see, this line of argument is extremely plausible. This is the counter argument that was used in all ages, and quite rightly so, against the Church, when it wanted to confine its condemnation exclusively to interest and not to rent; this is the theme that runs through each of your letters.

Well, do you know where this fine line of reasoning has led the shareholders of the Bank of France, all of whom I hold, along with Mr. d'Argout to be highly upright men? To theft, yes Sir, the most incontrovertible, shameless, and detestable theft. For it is this theft, alone, that has since February brought production to a stop, prevented business from functioning, caused people to die of cholera, 1812 hunger and cold, and, with the secret aim of restoring the monarchy, instilled despair in the working classes.

Above all, it is here that I propose to show you how interest turns from being legitimate to being illegitimate and, what will surprise you even more, how credit that is paid for, from the instant it ceases to engage in theft and claims only the amount legitimately due to it, becomes free credit.

What is the capital of the Bank of France?

90 million, according to the latest inventory. 1813

What is the legal interest rate agreed upon between the Bank and the State? 4 percent per year.

Therefore the annual legal and legitimate product of the Bank of France, the fair price for its services is 4 percent per year on a capital of 90 million, or 3 million 600 thousand francs of revenue.

3,600,000 francs, this is what, in line with the fiction of the productivity of capital, commerce in France owes the Bank of France each year in payment for its capital of 90 million.

In these circumstances, the shares of the Bank of France are like buildings that regularly yield 40 francs of income; they were issued at 1,000 francs and are worth 1,000 francs.

Well, do you know what happens?

Consult the same inventory: you will see that the said shares, instead of being quoted at 1,000 francs are quoted at 2,400. Last week, they were 2,445 and if the portfolio expands, they will increase to 2,500 and 3,000 francs. This means that the capital of the Bank, instead of earning it 4 percent, the legal, agreed rate, produces 8, 10, and 12 percent.

Has the capital of the Bank doubled or tripled then? This is, in fact, what should happen in accordance with the theory set out in your third and fourth propositions, that is to say that interest decreases as capital increases, but in such a way that the total revenue of capitalists increases .

Well, this is not so. The capital of the Bank has remained the same, 90 million. The only thing is that the Company, because of its privilege, and using its financial machinery, has found the means of operating with regard to commerce as though its capital was no longer only 90 million but 450, that is to say, five times greater.

Is this possible, you will say? This is the procedure; it is very simple and I am equipped to talk about it: this is precisely one of the procedures that the People's Bank proposed to use to achieve the elimination of interest.

To avoid the carrying about of cash and the awkward business of the handling of écus, the Bank of France uses credit vouchers called Bank Notes that represent the money it has in its vaults. It is these Notes that are normally issued to its customers against letters of credit and bills of exchange that they bring to it, the redemption of which it undertakes to manage with guarantees, however, for both drawers and drawees.

The Bank's paper thus has a double guarantee: the guarantee of the écus in the treasury and the guarantee of the commercial paper in the portfolio. The security provided by this double guarantee is so great that it is common in commerce to prefer the paper to the specie that everyone is as happy to have in the Bank as in his own chest of drawers.

It might even be conceived in the extreme case that, using this procedure, the Bank of France could do without capital resources at all and allow discounts without cash. In effect since the commercial paper that it discounts and against which it hands out notes have to be reimbursed to the Bank at their due date by an equal sum, either in money or in notes, it would be enough for the holders of notes never to entertain the idea of converting them into écus, for the operation to be conducted entirely in paper. In this case, circulation would no longer be based on the credit of the Bank, whose capital would thus be withdrawn from service, but on public credit, through the general acceptance of the notes.

In practice, things do not happen exactly as the theory indicates. We have never seen Bank paper substituted entirely for cash; there is merely a trend toward this substitution. Well, let us note what results from this trend.

Speculating in total security on public credit and, incidentally, sure of recovering its outlay, the Bank does not limit its discounts to the growth of its balances; it keeps issuing more notes than it has money, which means that, for part of its holdings, instead of depositing assets subject to a genuine valuation and operating genuine exchanges, it merely carries out a set of transfers of accounts or entries with no capital involved. What takes the place of capital in the Bank here is, I repeat, established custom, the confidence of trade, in a word, public credit.

It thus appears that the discount rate should decrease in proportion to the over-issue of notes, that if, for example the Bank's capital is 90 million and the total of notes issued 112 million, then since the fictitious capital 1814 is one quarter of the genuine capital, the discount rate of 4 percent should fall to 3 per cent. What could be fairer, in fact? Is public credit not public property? Is not the sole guarantee for the notes over-issued by the Bank the reciprocal obligations of citizens? Is acceptance of this paper with no guarantee in metal not exclusively based on their mutual trust? Is it not this trust that alone creates the likelihood of such an acceptance? In what way has the Bank's capital intervened in this? How does the guarantee seem to operate?

This simple glimpse may enable you to judge how false your proposition number 3 is, according to which a fall in interest follows from an increase in capital. Nothing is more wrong than this proposition; on the contrary, both theory and the practice of all the banks proves that a bank may well draw interest of 4 percent from its capital by setting its discount rate at 3 percent; we will shortly see that it can go very much lower.

Why therefore does the Bank that, with a capital of 90 million, issues in our hypothetical case 112 million in notes; which consequently operates, by means of public credit, as though its capital has increased from 90 million to 112, why, I say, does it not reduce its discount rate in the same proportion? Why is interest at 4 percent received by the Bank as income from loaning capital that is not its property? Can you give me one reason to justify this excess receipt of 1 percent on 112 million? As for me, Sir,

"I call a spade a spade and Rollet a rascal," 1815

And say quite plainly that the Bank is STEALING. 1816

But this is nothing.

While the Bank of France is issuing notes instead of écus, part of its receipts continues to be in cash, so that, the initial capital always remains the same, 90 million, the amount received, that is the accumulation of cash paid into the Bank is gradually raised to 100, 200, or 300 million: today it is 431 million! 1817

This accumulation of money, in which some people have a mania for indulging, is the decisive fact that nullifies the theory of interest and which demonstrates most palpably the necessity for free credit. It is easy to ascertain the truth of this.

It is admitted in theory that an exchange of products can be carried out perfectly well without the use of money; you yourself acknowledge this and all economists know this. Well, what the theory shows is exactly what practice is carrying out before our very eyes. As the circulation of fiduciary media gradually replaces the circulation of metallic currency, as paper is preferred to écus, with the public preferring to settle their accounts with cash rather than notes, and the Bank being constantly encouraged to issue new bank notes, either by the borrowing needs of the State or by those of the commercial interests who turn en masse to get their commercial paper discounted, or for any other reason, the result is that gold and silver are removed from circulation and are swallowed up by the Bank. Here we can see, when they are added to the existing holdings, the bank's ability to multiply the number of notes becomes literally infinite.

It is through this conversion that the Bank's holdings have reached the huge sum of 431 million. The result of this fact is that the Company of the Bank, in spite of the renewal of its privilege, is no longer the sole titleholder: because of the increase in its holdings, it has acquired an associate more powerful than itself. This associate is the country, one that figures each week in the balance sheet of the Bank of France to the tune of a sum that varies from 340 to 350 million. And since the interest is joint and indivisible, it can truly be said that it is no longer the company that gained its charter in 1803 that is the banker; it is no longer the State that gave it its warrant either: it is commerce, industry, all the producers, and the entire nation which, by accepting the Bank's paper and preferring it to écus, are its true guarantors, guarantors who are also founders, as a replacement for the former Bank of France with a capital of 90 million, of a National Bank with one of 431 million.

A decree from the National Assembly, whose object would be to reimburse the shares in the Bank of France and convert it into a Central Bank in which every French citizen would be a silent partner, would just be a declaration of this now accomplished fact of the absorption of the company into the nation.

This having been set out, I will return to the reasoning I put forward a short time ago.

The interest agreed upon between the Company and the State is 4 percent per year on its capital.

This capital amounts to 90 million.

Bank holdings today, on 31 December 1849, are 435 million.

The value of notes issued is 436 million.

The capital, real or notional, on which the Bank operates, having been multiplied almost five-fold, the discount rate ought to be reduced to one fifth of the interest stipulated in the founding articles of the Bank to something approaching ¾ percent.

You should note, Sir, that your propositions are very far from being as solid as Euclid's. It is not true, and the facts I have just quoted to you prove it irrefutably, that interest falls only as capital increases progressively. Between the price of goods and the interest on capital, there is not the slightest analogy; the law governing their fluctuation is not the same, and all you have been harking on about in the last six weeks with regard to capital and interest is entirely devoid of reason. The universal practice of banks and the spontaneous reasoning of the people show you to be most humiliatingly wrong on all of these points.

Would you now believe, Sir, for truly you do not appear to me to be up to date on anything, that the Bank of France, a company of upright men, philanthropists, and God-fearing men who are incapable of compromising their consciences, continues to take 4 percent on all its discounts without allowing the public to benefit from the slightest relief? Would you believe that it is on this basis of 4 percent on a capital of 431 million which is not its property, that it manages the dividends of its shareholders and has its shares quoted on the Stock Exchange? Is this sort of thing theft, yes or no?

We have not reached the end of this. I have told you only the smallest part of the misdeeds of this company of speculators, set up deliberately by Napoleon with the aim encouraging state and landowner parasitism 1818 to prosper by sucking the blood of the people. It is not that a few million more or less that can affect a nation of 36 million people in any dangerous way. What I have revealed to you of the larceny of the Bank of France is just a trifle; it is its consequences that we must consider above all.

The Bank of France now holds in its hands the fortune and destiny of the nation.

If it gave a reduction in the interest rate to industry and commerce in proportion to the increase in its holdings, if in other words, the cost of its credit was reduced to ¾ percent, which it ought to do to distance itself from any hint of theft, this reduction would instantly produce incalculable results all over the Republic and around Europe. A book would not be enough to list them: I will limit myself to pointing just a few of them out to you.

If, the rate of interest at the Bank of France, renamed the National Bank, was ¾ percent instead of 4, ordinary bankers, notaries, capitalists, and even the shareholders of the Bank itself would shortly be obliged through competition to reduce their rates of interest, discounts, and dividends to a maximum of 1 percent, including transaction costs and commission. What harm do you think would this reduction do to unsecured debtors or commerce and industry, whose annual charge under this heading alone is at least two billion?

If the circulation of money was carried out at a discount rate that represented merely the administrative and drafting costs, registration, etc., the interest on future sales and purchases made with term loans (on credit) would fall in its turn from 6 percent to zero, which would mean that business would then be carried out at cost and there would be no more debts. How far do you also think the shameful figure for suspended payments, insolvencies, and bankruptcies would fall?

However, in the same way as in society net product is indistinguishable from gross product, so in the overall make-up of economic reality capital is indistinguishable from output. These two terms in fact do not designate two distinct things; they distinguish only relationships. Output is capital, capital is output; the only difference between them lies in domestic economics; it is nil in political economy. If therefore interest, once it has fallen to ¾ percent for cash, that is to say zero since ¾ percent no longer represents any more than the Bank's service, fell again to zero for goods, through the analogy of principles and facts, it would fall again to zero for buildings. Farm rents and house rents would end up being merged in amortization. Do you believe, Sir, that that would prevent people living in houses and tilling the earth?

If, thanks to this essential reform of the system of circulation, labor no longer had to pay capital any more than a rate of interest that represented a fair price for the service provide d by capitalists, since money and buildings no longer had any reproductive value and would be regarded merely as products , as things that were consumable and fungible, the favor which now attaches to money and capital would be directed entirely toward products; each person, instead of limiting his consumption would think only of extending it. Whereas today, thanks to the ban laid on consumer products by interest, markets for consumption remain permanently and gravely inadequate, production in its turn would no longer suffice, and labor would be guaranteed employment both de facto and de jure.

As the labouring class would gain at one fell swoop about 3 billion in interest that is taken from it out of the 10 it produces, plus 5 billion that this same system of interest payments causes it to lose through unemployment, plus 5 billion that the parasitic class, 1819 cut off from its customary revenue, would then be forced to produce, national production would be doubled, and the well-being of workers quadrupled. And you, Sir, whom the cult of interest does not prevent in the slightest from raising your thoughts to another world, what have you to say of this change in the world here below? Is it clear now that it is not the multiplication of capital that decreases interest but on the contrary the decrease in interest that multiplies capital?

But all this does not please our Capitalists friends, and it is not at all to the taste of the Bank. The Bank holds the horn of plenty entrusted to it by the nation in its hand: this is the 341 million in cash accumulated in its vaults, which is such a great testimony of the power of public credit. To revive production and spread wealth everywhere, the Bank would have to do just one thing: reduce its discount rate to the figure required for the production of interest at 4 percent on 90 million. It does not want to do this. For a few million more to distribute to its shareholders, money which it steals, it prefers to have the country lose 10 billion on what is produced each year. In order to pay for this parasitism, to put vice in its pay, to satisfy the profligacy of two million functionaries, speculators, usurers, prostitutes, and informers and keep this leprosy of a government going, it will cause thirty-four million souls 1820 to rot in poverty if necessary. Once again, is this not theft? Is it not pillage, armed robbery, premeditated murder, and ambush?

Have I said everything? No, for I would need ten volumes, but I must put an end to this. I will end with a reference, which I for my part consider to be the very masterpiece of its kind, to which I draw your undivided attention. Advocate of capital that you are, you do not know all its machinations.

The sum total of cash, I will not say that exists but that circulates in France, including the receipts of the Bank, does not exceed 1 billion, according to the most common estimate. 1821

At 4 percent interest (I always calculate on the hypothesis of credit paid), the people who work owe a total of 40 million each year to service this capital.

Could you, Sir, tell me why, instead of 40 million, we pay 1,600 million, I repeat, sixteen hundred million , as payment for this said capital?

1,600 million, 160 percent, you say! Impossible!

Did I not tell you, Sir, that you know nothing about political economy. Here is the factual case that is still an enigma to you, I am sure.

The total of mortgaged debt, according to the best informed writers, is 12 billion, and some put it at as much as 16 billion, so: 12 billion.
Capital invested by unsecured creditors, at least: 6 billion
Partnerships, about: 6 billion
To which should be added the public debt: 8 billion
Total: 28 billion

[fn 12 billion in table] 1822

A debt that farming, industry, commerce, in a word, the whole work-force, which produces everything, and the State that produces nothing and for which the work-force pays, owe to capital.

All these debts, and note this point, arise from money lent or supposed to have been lent, sometimes at 4 percent, sometimes at 5, 6, 8, 12, and up to 15 percent.

I will take an average of 6 percent interest for the first three categories, that is to say, 1,200 million on 20 billion. Add the interest on the public debt, approximately 400 million: 1823 a total of 1,600 million in annual interest on a capital of 1 billion.

Well, tell me, is it also the scarcity of money that is the cause of the exorbitant multiplication of this usury? No, since all these sums have been lent, as we have just said, at an average rate of 6 percent. How then does interest stipulated to be 6 percent become interest at 160 percent? I am about to tell you.

You will know, Sir, you who believe that all capital is naturally and of necessity productive, that this productivity does not happen equally for all, that it is habitually exercised under two kinds only, the kind known as fixed (land and houses) when this investment is to be found, which is neither always easy nor always safe, and the kind known as money. Money, above all, money! This is capital par excellence, capital that is lent, that is to say that is hired out, is to be paid for, and produces all these financial marvels that we see developed in detail at the Bank, in the Stock Exchange, and in all the workshops 1824 of usury and interest.

However, money is not at all something that can be exploited like land, nor that can be consumed by use like a house or a suit. It is nothing other than a token for exchange which is accepted by all traders and producers and with which you who manufacture clogs may obtain a cap. Through the agency of the Bank, paper is being substituted gradually for cash with the consent of all. All this is in vain, however. Preconceived ideas are holding their own, and if bank paper is accepted with the equal status of money, it is because people flatter themselves that they can exchange it for money at will. People want only money.

When I borrow money, it is therefore basically to have the ability to exchange present or future but as yet unsold products. Money in itself is useless to me. I take it only in order to spend it; I neither consume it nor cultivate it. Once the exchange has been concluded, money becomes available again and consequently capable of giving rise to a new loan. This is consequently what takes place, and since, through the accumulation of interest, the money-as-capital 1825 always returns to its source through a succession of exchanges, it follows that its re-lending, always by the same person, always benefits that same person.

Will you say that, since money facilitates the exchange of capital and products, the interest paid is not so much for the money than for the capital which is exchanged and that in this way 1,600 million in interest paid for 1 billion of cash represents in reality the returns for 25 to 30 billion of capital? This has been said or written somewhere by an economist of your school. 1826

An allegation like this cannot be supported for a minute. How is it, pray, that houses are rented, land is rented, and that goods sold on installment bear interest? This happens precisely because of the use of money, money that intervenes, like a tax agent, in all transactions, money that prevents houses and land from being exchanged instead of being rented and goods being sold for cash. Hence with money intervening everywhere like some supplementary capital, an agent for circulation, or an instrument of guarantee, it is really money that has to be paid and really the service it provide s that has to be remunerated.

And since on the other hand we have seen from our account of the workings of the Bank of France and the consequences of the accumulation of its receipts, that a capital of 90 million in cash that ought to produce interest at 4 percent, allows, depending on the volume of the Bank's business transactions, discounts of only 3, 2, 1, and ¾ percent, it is very clear that the sole aim of the 1,600 million in interest that the people pay their usurers, bankers, property owners, notaries ,and silent partners is to pay the return on a billion in gold and money, unless you prefer to acknowledge as I do that this 1,600 million is the product of theft. …

I told you, Sir, right from the outset of this dispute and I repeat it now, that it has never entered my head to accuse the men involved. What I am incriminating are the ideas and institutions. From this point of view, throughout this discussion, I have been more just than the Church and more charitable than the Gospel itself. You have seen with what care I have separated men from institutions and knowledge of the facts from theories in dealing with the question of interest-bearing loans. Never will I accuse society: despite all the crimes of my fellow men and the vices in my own heart, I believe in the sanctity of the human race.

However, when I reflect that it is against follies like this that the Revolution is now in the throes of discussion, when I see millions of men sacrificed to such appalling utopias, I am ready to give way to my misanthropy and I no longer have the heart to continue with the refutation. This being so, I try to elevate and ennoble the poverty of my subject through the sublimation of dialectic: your merciless routine constantly brings me back to hideous reality.

Production to be doubled,

Workers' well-being to be quadrupled:

This is what, in twenty-four hours we could achieve if we wished, through a simple reform of the bank and with no dictatorship, no communism, no phalanstery, no Icarianism, and no Triad. 1827 A decree in twelve articles from the National Assembly; a simple declaration of the fact that the Bank of France, through an increase of its cash, has become the National Bank and that, as a result it will have to operate in the name of and on behalf of the nation with the discount rate reduced to ¾ percent, would achieve three-quarters of the Revolution.

But this is what we do not want and what we refuse to understand, so profoundly has our political chatter and our parliamentary exaggeration stifled both moral and common sense in us,

This is what the Bank of France, a bastion of parasitism, does not want,

This is what the government, created precisely to support, protect, and encourage parasitism, does not want,

This is what the majority of the National Assembly, made up of parasites and the abettors of parasites, does not want,

This is what the minority, their heads turned by the thought of government, who ask themselves what society would become if there were no more parasites, do not want,

This is what the socialists themselves, the so-called revolutionaries for whom freedom, equality, wealth, or work are nothing if they have to abandon or merely postpone their illusions and give up the hope of being in government, do not want,

This is what the proletariat, bewildered by social theories, toasts to love, and fraternal homilies, do not know how to ask for.

Go on then, capital; continue to exploit this destitute people! Devour the bourgeoisie in a daze, inflict pressure on the workers, hold the peasantry to ransom, swallow up childhood, prostitute womankind, and keep your favors for the cowards who denounce others, the judges who condemn, the soldiers who shoot people dead, and for the slaves who applaud. The moral code of pig traders has become that of upright people. A curse on my contemporaries!


Letter No. 10: F. Bastiat to P. J. Proudhon (6 January 1850)

Who has the right to complain of being misled? - Dialogue. - Inferences drawn from a privileged establishment, the Bank of France, prove nothing in the debate. - Conciliatory overtures. - Taking freedom of credit as the judge of last resort on the question of free credit. - A reminder of antinomy.

6 January 1850

I have misled you, you say; no, it was I who was misled

Having been admitted to your home and hearth in order to have a discussion among your personal friends, on a serious question, I would have thought at least that my person would have been respected, even if you had found something to criticize in my arguments. In fact you disregard my arguments and call into doubt my person. I am the one who was misled.

Writing in your journal and specifically to your readers, I had a duty to keep strictly to the subject under discussion. I believed that, understanding the awkwardness of my position, you would have considered yourself bound to impose the same awkwardness on yourself, since you were at home and under your own roof. Again I was mistaken.

I said to myself: Mr. Proudhon has an independent mind. Nothing in the world would induce him to fail in the duty of hospitality. But Mr. Louis Blanc having shamed you for your courtesy to an economist, 1828 you were indeed ashamed. I had judged you wrongly.

I also said to myself: the discussion will be fair. Is the right to remuneration inherent in capital as it is in labor itself? This was the question to be resolved, in order that a conclusion either for or against free credit might be drawn. Without hoping to reach agreement with you on the solution, I believed at least that we would agree on the question. But here we are, and this is strange, in a situation in which what you are criticising me for, with bitterness and almost with anger, is that I am going deeper into the question and burying myself in it. We had above all a PRINCIPLE to verify, one on which, according to you, depends the worth or otherwise of socialism and you are fearful of the light I am seeking to shine on this principle. You are uneasy with the direction the debate has taken and fly from it constantly. So it was I who was misled.

What a strange sight this debate must be for our readers, and without any of the fault being mine! It may be summed up as follows:

It is daytime.

It is nighttime.

Look, the sun is shining above the horizon. All the men all over the country are coming, going, walking, and acting in a way that indicates that there is light.

That proves that it is daytime . However, I state that at the same time it is nighttime .

How can this be so?

Because of the splendid law of Contradictions . 1829 Have you not read Kant and do you not know that the only truth in this world lies in propositions that contradict one another?

Then let us stop debating, for with this form of logic we will never agree.

Well then, since you do not understand the sublime clarity of contradictions , I will condescend to your ignorance and prove my thesis to you using the method of distinctions . Some daylight illuminates and some does not.

I am still no less in the dark.

I still have the resources of the system of digressions . Follow me and I will lead you along the way.

I do not need to follow you. I have proved that it is daytime . You agree, so everything has been said.

You are always regurgitating the same statement and the same proofs. You have proved that it is daytime , so be it. Now, prove to me that it is not nighttime .

Are you being serious?

When a man gets up and, addressing the people, says to them: the moment has come when society owes you capital free of charge, when you ought to have houses, tools, implements, materials, provisions for nothing ; I say, when a man says things like this, he should expect to meet an opponent who asks him what the essential nature of capital is. You can invoke contradictions, distinctions, or digressions till the cows come home; I will bring you back to the most important and essential subject. That is my role, and perhaps it is yours to say that I am an ignorant, pig-headed man and that I do not know how to reason.

In the end, for there to be such a profound divergence between us, it must be that we do not agree on the meaning of this word Capital.

In your letter dated 17 December, you said, "If the effort expended by creditor is zero, the interest due to the creditor must necessarily be zero." 1830

So be it. But this means that:

If the effort expended by a creditor is positive, then interest must be owed.

Prove, therefore, that the time has come in which houses, tools, and provisions are generated spontaneously. If not, you have no basis on which to say that the effort expended by a capitalist is zero, and that for this reason his remuneration ought to be zero.

Truly, I do not know what you mean by the word, Capital, for in your letter you give two quite different definitions of it.

On the one hand, you see the capital of a nation as the cash it possesses. Based on this fact, you set off to prove that the rate of interest in France is 160 percent. You calculate this as follows: the total sum of cash is one billion. The interest paid on all debt, whether mortgages, unsecured debt, limited partnerships, and public debt is 1,600 million. This means that capital is paid for at the rate of 160 percent.

The result of this is that, in your eyes, capital and cash are one and the same thing.

Working from this fact, I find your estimate of interest quite moderate. You ought to have said that capital also adds something to the price of all products and you would thus have reached an estimate of interest at 4 or 500 percent.

However, now that you have reasoned in this way on this strange definition of capital, you yourself turn it upside down in the following terms:

"Capital cannot be distinguished from production. These two words do not designate in reality two distinct things; they designate only relationships. Production is capital; capital is production." 1831

This is a foundation that is much wider that that of cash. If Capital is production or the sum of all the products (land, houses, goods, money, etc.), national capital is certainly more than one billion and your estimate of the rate of interest is nonsense.

Since I am convinced that this entire debate rests on the notion of capital, allow me, at the risk of boring you, to tell you what I think of this, not by means of a definition but by means of a description.

A joiner works for three hundred days and earns and spends 5 francs a day.

This means that he provides services to society and that society gives him back equivalent services, both estimated to be worth 1,500 francs, with one hundred sou pieces merely serving here as a means of facilitating exchanges.

Let us suppose that this artisan saves 1 franc a day. What does that mean? It means that he is providing society with services worth 1,500 francs and that he currently receives just 1,200 worth of services. He acquires the right to draw from society around him at a place and time and in a form that suits him, services that have been fairly and squarely earned up to a value of 300 francs. The sixty hundred-sou pieces he has saved are simultaneously the title and the means by which he can exercise his right. 1832 .

At the end of a year, our joiner can, then, if he sees fit, claim the right he has acquired from society. He can demand various forms of satisfaction. He can choose between going to a cabaret, a show, or a shop. He can also increase the number of his tools further, acquire better implements, and make it possible for him to work more productively in the future. It is this acquired right that I call capital .

This is the situation when his neighbor, a blacksmith, comes and says to the joiner: "Through your work, you have acquired savings, things on account , and the right to draw from the society around you services up to a value of 300 francs. Let me take over your right for one year, because I will use it to get more hammers, more iron, more coal, in a word, to improve my situation and my business."

"I am in the same situation," replies the joiner, "however, I am very happy to let you have my rights and to deprive myself of them for a year if you agree to give me a share of the additional profits you will be earning."

If this exchange, which benefits both parties, is freely concluded, who will dare to call it illegitimate?

Here, therefore, is a definition of interest, and as you have said, it must have arisen in the beginning in the form of a sharing of profit, with a share going to capital out of the additional profit it had helped to generate.

It is this part that relates to capital that I say is greater or lesser depending on whether the capital itself is scarcer or more abundant.

Later, to make things more convenient and to avoid having to watch each other, argue about accounts, etc., the contracting parties negotiate a fixed rate on this part. Just as sharecropping has been transformed into tenant farming, uncertain insurance premiums into fixed premiums, interest, instead of being a variable share of profits, has become a fixed rate of return. It has a rate, and this rate, thank Heaven, tends to decrease in proportion to the order, activity, economy, and security that prevail in society!

And certainly, if you want credit to be free of charge, you have to prove that capital is not generated by the work of the person lending it and that it does not make the work of the person borrowing it more fruitful.

Who then can say who is the loser in this arrangement! Is it the joiner, who makes a profit as a result? Is it the blacksmith, who finds it a way of increasing his production and hands over only part of his additional income? Is it some third party in society? Is it society itself, which obtains more and cheaper products from the forge?

It is true that the transactions relating to capital may give rise to cheating, abuses by force or fraud, deceit, and extortion. Have I ever denied this, and is this the subject of our debate? Are there not many transactions relating to labor in which capital plays no part and at which the same accusations can be leveled? And of these abuses, would it be more logical to conclude in favor of free credit in the first case than in favor of free labor 1833 in the second?

This leads me to say a few words about the new series of arguments that you make concerning the activities of the Bank of France. Even if I decide to go back on the resolution I had made to end this discussion, I am quite willing to seize this opportunity of protesting vigorously at an accusation that has been very improperly made against me.

It has been said that I have set myself up as a defender of capitalist privilege .

No, I defend no privilege; I defend nothing other than the rights of capital considered on its own. You will be fair enough, Sir, to acknowledge that there is no question between us of any particular facts, but rather one of science.

What I am defending is the freedom of (economic) transactions. 1834

Following your theory of contradiction , you are led into making contradictions out of things that are identical; do you also wish, through a theory of conciliation that is no less strange, to make things that are contrary, for example freedom and privilege, identical?

What therefore has the privilege of the Bank of France to do with our debate? When and where have I justified this privilege and the harm it engenders? Has this harm been contested by any of my friends? You should read the book by Mr. Charles Coquelin. 1835

But when, in order to attack the legitimate remuneration of capital, you castigate the illegitimate extortions of privilege, does not this subterfuge contain an admission that you are powerless to combat the rights of Capital exercised under the reign of freedom?

The public all want bank notes, that is notes which are redeemable upon demand. The issue of such notes is forbidden to all Frenchmen save one. This privilege enables the person in whom the monopoly is invested to make huge profits. What has that to do with the question of knowing whether capital is entitled to receive a payment freely agreed to?

Note this: capital which, as you say, is indistinguishable from production, represents labor, so much so that, since the start of this discussion, you have never struck a blow on one that does not bounce back onto the other. This is what I showed you in my last letter with regard to two fables: In order to prove that there are cases in which in all conscience people are bound to lend at no charge, you paint a picture of a rich capitalist faced with a poor shipwrecked victim. And a minute before this, you yourself confront a worker who is close to being engulfed by the waves with a capitalist. What follows from this? That there are circumstances in which capital, like labor, ought to be a gift. But we can no more infer that the one should normally be free than we can the other.

Now you are telling me about the misdeeds of capital and quoting me an example of privileged capital . I will answer you by quoting you an example of privileged labor .

I am supposing that a reformer more radical than you stands up in the midst of the people and tells them: "Labor must be free; earnings are theft. Mutuum date, nil inde sperantes (lend, hoping for nothing thereby). And in order to prove to you that the earnings of labor are illegitimate, I point the finger at the foreign exchange agent who exploits the exclusive privilege of handling commissions, the butcher with the exclusive right to feed the town, and the manufacturer who has closed down all places of production except his own. Thus you can see clearly that labor does not intrinsically contain the right of payment, that it steals everything it is paid, and that wages should be abolished."

Certainly, when you hear reformers lump together forced payments with payments that are freely given , you would be within your rights to ask them this question: Where did you learn to reason?

Well then, Sir, if you conclude from the privileges of the Bank that we should have free credit, I believe that I am entitled to turn against you the question you ask me in your last letter: Where did you learn to reason?

"In Hegel", you will say, "He provided me with infallible logic." Malebranche 1836 also had imagined a method of reasoning with which he could never make a mistake … and he was mistaken right through his life, to the point where it might be said of this philosopher:

He who sees everything in God, does not see that it is he who is crazy.

Let us therefore leave the Bank of France out of this. Whether you assess its wrong doings positively or negatively, whether you exaggerate its harmful action or not, it has a privileged status and that is enough for it not to be able to shed any light on this debate.

Nevertheless, perhaps we might find some grounds for conciliation in all this. Is there not one point on which we agree? This point is that we claim and vigorously pursue the freedom of transactions, those that relate to capital, money, and bank notes as well as all the others. I would like it to be possible quite freely to open money shops and offices for loans and borrowing 1837 just as you open shoe shops or grocery shops.

You believe in free credit; I do not. But in the end, what is the use of quarrelling if we agree on the fact that credit transactions ought to be freely entered into?

Certainly, if it is in the nature of capital to be lent free of charge, this would be under the regime of freedom, and you doubtless are not asking for this revolution to be one of coercion.

Let us therefore attack the special privileges of the Bank of France, along with all other such privileges. Let us achieve freedom and leave it to act. If you are right, if it is in the nature of credit to be free, freedom will develop this nature, and you may be sure that I, if I am still alive, 1838 would be the first to be glad of it. I would borrow at no charge and for the rest of my days, a fine house on the boulevard with furniture to go with it, and a million (in cash) to boot. My example would doubtless be contagious and there would be many borrowers around the world. Provided that there were no lack of lenders, we would all lead a happy life.

And since the subject is enthusing me, would you allow me, layman that I am, to say a word by way of conclusion on the metaphysics of antinomy? I have not studied Hegel, but I have read your work, and this is the idea I have formed about it all.

Yes, there are hundreds of things of which it can truly be said that they are good or bad , depending on whether they are considered in relation to human weakness or from the point of view of absolute perfection.

Our legs are a good thing, for they enable us to move ourselves from one place to another. They are also a bad thing, for they are evidence that we do not have the gift of being everywhere at once.

This is true for all painful and effective remedies; they are both good and bad, good because they are effective and bad because they are painful.

It is therefore true that contradictions can be seen in each of the following concepts: Capital, interest, property, competition, machines, the State, labor, etc .

Yes, if man were absolutely perfect, he would not have to make interest payments, for capital would generate spontaneously and without limit for him, or rather he would have no need for capital.

Yes, if man were absolutely perfect, he would not have to work; a simple fiat would be enough to satisfy his desires.

Yes, if man were absolutely perfect, we would need neither a government nor a State. Since there would be no court proceedings, there would be no need for judges. Since there would be no crimes or misdemeanors, there would be no need for police. Since there would be no wars, there would be no need for armies.

Yes, if man were absolutely perfect, there would be no property, for everyone, like God, would enjoy a bounty of things to enjoy, and no one could imagine the distinction between yours and mine .

Given these reflections, we could imagine a subtle form of metaphysics, going somewhat beyond the incontestable dogma of human perfectibility, which might come along and say: We are moving toward a time at which credit will be free of charge and the State eliminated. It is actually only then that society will be perfect, for the notions of interest and State exclude the concept of Perfection .

This metaphysic might have said as much about the notions of work, arms and legs, eyes, stomach, knowledge, virtue, etc .

And it would certainly fall into the most blatant sophism if it added: Since society will have reached perfection only when it no longer recongnizes the need for interest and the State, let us eliminate the State and interest and we will have a perfect form of society.

It is as though the thesis in question were saying: Since man will no longer need his legs when he has the gift of being everywhere at once, to make him able to be everywhere at once, let us cut off his legs. 1839

The sophism lies in the pretence that what in this world is regarded as bad can be a remedy; it misses the truth that it is not the cure provided by the remedy that causes perfection but on the contrary perfection that makes the remedy superfluous.

But it can be imagined how the form of metaphysics of which I am speaking can upset and mislead people's minds if it is skillfully handled by a vigorous political writer.

It would in fact be easy for him to show in turn as being good and bad such things as property, freedom, labor, machines, capital, interest, the the court system, and the State.

He might entitle his book: Economic contradictions . 1840 Everything would be alternatively attacked and defended in it. Falsehoods would always take on the colors of the truth. If the author were a great writer, he would cover the principles with an extremely solid shield at the same time as he turns against them the most dangerous of weapons.

His book would be a inexhaustible arsenal for and against all causes. Readers would reach the end without knowing where truth lies or where error is to be found. Terrified by feeling themselves pervaded by skepticism, they would implore the master, saying to him what was said to Kant: Please, reveal the unknown . 1841 But the unknown will not be revealed.

If as a bold jouster, you enter the ring, you would not know how to grasp this terrible opponent, for he has used his system of argument to arrange a whole host of escapes for himself.

Will you say to him: "I have come to defend property."? He will tell you: "I have defended it better than you." And that is true. Will you say to him: "I have come to attack property"? He will tell you: "I have attacked it before you." And that is also true. Whether you are for or against credit, the State, labor, or religion, you will always find him, book in hand, ready to approve or contradict.

And all this is the payment for having mistakenly come to the conclusion that one can achieve absolute perfection from some undefined perfection, which is certainly never achievable when you are dealing with mankind.

But what you may say, Mr. Proudhon, and what my weak voice 1842 will repeat in chorus with you is this: Let us approach perfection in order to make interest payments, the State, labor, and all burdensome and painful remedies increasingly superfluous.

Let us create order, security, and the habits of saving and temperance around us so that capital will increase and INTEREST decrease.

Let us create around us a spirit of justice, peace, and concord in order to make armies, navies, the police, magistrates, or repression, in a word, the STATE, increasingly superfluous.

And above all, let us bring about FREEDOM, through which all the civilizing powers will arise.

On this very day, 6 January 1850, La Voix du Peuple addressed La Patrie 1843 in these terms:

"Is La Patrie willing to request with us the abolition of the special privileges of banks, of the monopolies of notaries, foreign exchange agents, advocates, bailiffs, printers, and bakers; the free transport of letters, the free manufacture of salt, gun powder, and tobacco; the abolition of the law banning unions, the abolition of the Customs Service, city tolls, the tax on wine and spirits, and the tax on sugar? Is La Patrie willing to support the tax on capital, the only one that is proportional, the dismissal of the army and its replacement by the National Guard, the substitution of juries for magistrates, and the freedom of education at all levels?"

This is my program; I have never had any other. 1844 What will result from this? It is that capital should be lent not free of charge but freely .


Letter No. 11: P. J. Proudhon to F. Bastiat (21 January 1850)

Maintaining the charge of ignorance. - Definition of CAPITAL substituted for the inaccurate definitions of economists. - An appeal to the authority of double entry bookkeeping. - Accounting for social classes. - The proof that comes from this. - A conciliatory concession on capital risk. - Political, economic, and scientific revolution.

21 January 1850

You have not misled me: The tone of good faith and extreme sincerity that shines out of every line of your last letter is proof of this to me. Therefore with joy that is very frank, I withdraw my words. 1845

I have not misled you either; I have not failed, as you say, in my duty of hospitality. All of your letters have been, as I promised religiously included in La Voix du Peuple without reservation, reflection, and comment. On my side, I have made the greatest effort to give the discussion a regular momentum, and to do this I have in turn entered the metaphysical, historical, and finally the practical and even routine realms. You alone, and our readers are the witnesses of this, have resisted any kind of (consistent) methodology. Finally, with regard to the general tone of our polemics, you have to admit that the way I have dealt with you as a defender of capital has been the envy of those of my co-religionists 1846 who are now joined against me in an cause even more unfortunate than that of interest, and who, sad to say, have something to defend in this matter other than their views; they have to avenge their pride. If in my last reply, my style was tinged with a certain bitterness, you should attribute it merely to the obviously very natural impatience I felt to see my efforts constantly dashed into pieces against this obstinacy, this force of intellectual inertia that, taking no account of either philosophy, progress, or finance, limits itself to reproducing eternally this puerile question: When I have saved one hundred écus and, while being able to use them in my own business, I lend them for interest or a share of the profits, am I committing theft?

I therefore pay homage to your fairness; I dare to say that my courtesy to you has not for one minute failed. However, today more than ever, I am obliged to insist on my most recent assessment. No, Mr. Bastiat, you do not understand political economy.

Let us set aside, please, the law of contradiction which your mind clearly rejects; let us set aside history, or rather progress, whose trend you fail to recognize and whose authority you reject; let us set aside the Bank, through which I have proved to you that, without changing anything it is possible to reduce the interest on capital to ½ percent at a stroke. Since this is your wish, I will limit myself purely to the notion of capital. I will analyze this notion; from the point of view of interest, I will deduce it theoretically and mathematically, and having established my thesis through metaphysics, history, and the Bank, I will establish it a fourth time. I will justify each of my statements through accounting procedures, that all too despised and modest science which is to society in its economic aspects what algebra is to geometry. Perhaps this time my mind will succeed in meeting yours, but what guarantee do I have that you will not criticise me for changing my method again for the fourth time?

What is capital ?

Authors do not agree on its definition; indeed they scarcely agree on what it is.

J. B. Say defined capital as the simple accumulation of products . 1847

Rossi: A product saved and intended for purposes of reproduction . 1848

J. Garnier who quoted them: Accumulated labor , which chimes with J. B. Say's definition, an accumulation of products. 1849

However, this latter gentleman is more explicit in his explanation elsewhere; "What is understood by capital," he said, "is a sum of financial resources devoted to providing advance payments for production ." 1850

Finally, according to you, capital is a surplus or the remainder of product that is not consumed and is intended for use in reproduction . 1851 This is what results from your fable on the worker who earns 1,500 francs a year, consumes 1,200, and saves the remaining 300 francs, either in order to invest them in his business or, and according to you this is the same thing, to lend them at interest.

From this uncertainty as to the definition, it is clear that the notion of capital is still somewhat suspect, and the vast majority of our readers will not be very surprised to learn that political economy, a science that is positive, genuine, and accurate, according to those whose profession it is to teach it, and that includes you, has still to sort out its definitions.

J. Garnier, despairing of finding words to express the concept of the thing, tries like you to describe it: "It is products such as goods, tools, buildings, cattle, sums of money, etc. that are the fruit of previous industry and which are used in the process of reproduction." 1852

Further on, his mind being so afflicted with hesitation, he brings to our attention that the notion of an advance enters into that of capital . "Well, what is an advance ? An advance is a resource deployed in such a way that it will prove to be retrievable subsequently." 1853 This is what Mr. Garnier says, and I think that with this explanation, readers will not be much further enlightened.

Let us try to come to the economists' assistance.

What results so far from the definitions of these writers is that all of them have the feeling that there is something called CAPITAL, but they are incapable of determining this something; they do not know what it is. Through the jumble of confusion constituting their explanations, we glimpse the idea common to all of them, but they are incapable of clarifying this idea for lack of philosophy; they cannot find the right word or formula. Well then, Sir, you are about to learn that dialectic, even Hegelian dialectic, can be good for something.

First of all, you will note that the idea of a product is implicit or explicit in all of the definitions of capital that have been attempted. This is already a first step. But under what conditions, how and when can a product be called CAPITAL? This is what needs to be determined. Let us go back to our authors, and by correcting their definitions by comparing one against the other we will perhaps succeed in having them express what they all feel implicitly but none of their intellects perceives.

What constitutes capital, according to J. B. Say, is the simple ACCUMULATION of products .

The idea of accumulation, like that of a product, thus enters into the notion of capital. This is a second step. Well, all types of product can be accumulated, therefore all types of product can become capital and therefore the list made by Mr. Joseph Garnier of the various forms taken by capital is incomplete, and thus inaccurate, in that it excludes from the notion the products that form the food supplies of the workers, such as wheat, wine, oil, grocery provisions, etc. These products can be held to be capital just as much as buildings, tools, cattle, money, and everything that is considered to be a productive instrument or raw material.

Rossi: Capital is a product saved and intended to be used in REPRODUCTION.

Reproduction , that is to say, the intended use of the product, this is a third idea contained in the notion of capital. Product, accumulation, reproduction : three ideas that already enter into the notion of capital.

Well, in the same way that all products may be accumulated they may also be used, and effectively used, when workers are the ones that consume them, for reproduction. The bread that sustains workers, the fodder that feeds cattle, the coal that produces steam, just like the land, carts, and machines, all of these are used for reproduction, all of these, when they are consumed, are capital. Everything that is consumed, in fact, is consumed or at least deemed to be consumed reproductively. What is used to maintain and to operate an tool, as well as the tool itself, that which feeds workers, as well as the actual material of work. All products therefore become capital, at one time or another; the theory that distinguishes between productive and unproductive consumption 1854 and which understands by the latter the daily consumption of wheat, wine, meat, clothing, etc. is wrong. We will see later that the only unproductive consumption is that of capitalists themselves.

Thus, capital is not something that is specific and determined with its own existence and reality, like land , which is a thing, labor which is another, and a product 1855 which is the shape given by labor to the objects of nature that become through this process a third thing. Capital does not form a fourth category with land, labor, and products, as economists teach, it simply indicates a state or relationship, as I have said. It is, as all authors admit, accumulated output intended for purposes of reproduction.

One step more and we will have our definition.

How does output become capital? For it is not enough, far from it, for product to have been accumulated and stored to be considered capital. It is not even enough for it to be intended to be part of the reproductive process; all products are intended for this. Do you not hear every day that the economy is overflowing with products while lacking capital? Well, this would not happen if the simple accumulation of products, as Say says, or the intention to use these products for the reproductive process, as Rossi would have it, were sufficient to have them considered to be capital. Each producer would then just have to take his own product and finance himself with what this product has cost him, to be in a position to produce more, endlessly and without any limit. I therefore repeat my question: What is it that makes the notion of product suddenly become transformed into the notion of capital? This is what the economists do not say, what they do not know, and I might even say, what none of them asks himself.

At this point, an intermediary point intervenes whose specific virtue is to convert product into capital, just as with the gusts of the west wind, the snow that has fallen in Paris in the last few days turns to liquid. This idea is the concept of VALUE.

This is what Garnier glimpsed when he defined capital as a sum of financial resources devoted to providing advance payments for production ; 1856 what you yourself felt when you sought the notion of capital, not simply with J. B. Say in an accumulation of products nor with Rossi in savings intended to be reproduced , but in the part of a worker's pay that is not consumed, that is to say obviously, of the value of his labor or product.

This means that in order to become capital, products have to have been subjected to a proper evaluation, to have been purchased, sold, and appraised, their price negotiated and set through a sort of legal convention. Thus the notion of capital indicates a relationship that is essentially social, a kind of contract without which the product remains a product.

Thus, leather, when it leaves the butcher's shop, is the butcher's product. When you fill a warehouse with it, it will never be anything other than leather; it will have no value, by which I mean value from its being worked on, it is not capital, but still only product. If this leather is purchased by a tanner, he immediately carries it, or to be more accurate, carries its value to his premises in the advance he pays on it, thereby deeming it capital. Through the tanner's work, this capital becomes product once again, which product, in turn acquired at an agreed price by the shoemaker, changes once more into capital, to become product yet again, through the shoemaker's work. Since this latest product is not capable of undergoing any further transformation, its consumption is held by economists to be unproductive, which is an aberration of the theory. The shoes made by the shoemaker and acquired by a worker become, through this acquisition, like the leather when it passes from the butcher to the tanner and the tanner to the shoemaker just a simple product with value 1857 ; this value is part of the advance payment made by the purchaser and is used by him, just like the other objects he consumes, the accommodation he lives in and the tools he uses, but in a different manner, to make new products. Consumption is thus always production; for this it is sufficient for the consumer to work. Once this movement has started it continues indefinitely.

This is what capital is. It is not simply an accumulation of products, as Say says, it is not even an accumulation of products made with a view to subsequent reproduction, as Rossi would have; all this does not conform to the notion of capital. In order for capital to exist, the product has to have been authenticated by exchange, if I dare to put it this way. This is what all the accountants know very well when, for example, they enter in their books the green leather purchased by the tanner as a debit to him, which means as his capital and the tanned or finished leather as a credit or asset , which means as his product. Traders and industrialists know this even better when, at the slightest upheaval in politics, they see themselves perish alongside the goods accumulated in their warehouses, without being able to use them for any form of further production; a sorry situation expressed in the saying that committed capital never breaks free.

Everything that is capital is of necessity a product, but everything that is a product, even when accumulated and even intended for reproduction, like the tools and implements of work in manufacturers' workshops, is not capital because of that. Capital, once again, supposes a prior evaluation, an act of exchange, or having been put into circulation, without which there is no capital. If in the world there was just one man, a single worker, who produced everything for himself alone, the products leaving his hands would remain products and would not become capital. 1858 His mind would not make any distinction between the following words: product, value, capital, advance, reproduction, consumption fund, working capital, etc. Such notions would never enter the mind of a solitary person.

However, in society, once the activity of exchange has been established and the value of things jointly determined by the parties involved, the product of one rapidly becomes the capital of the other and then in turn, this capital is transformed once more into product, either as raw material, a tool of production, or food supplies. In short, the notion of capital as opposed to that of product, reveals the relation of the parties to the exchange with respect to each other. As for society, that collective man, who is precisely the solitary worker I spoke about just now, there is no longer any distinction between them. Capital and product are identical, just as net and gross product are.

I was therefore right to say, and am astonished that, following the exegesis that you yourself gave on capital, you did not understand my words:

"Capital is indistinguishable from output. These two terms in fact do not designate two distinct things; they distinguish only relationships. Output is capital; capital is output."

And my friend, Duchêne, 1859 in support of the same thesis against Louis Blanc was even more correct to say:

The distinctions between capital and product , and note this well once and for all, indicate only the relationship between one individual and another: in society, there is simply production, consumption, and exchange . It can be said of all industries that they create capital or products, without distinction. A mechanic manufactures capital goods for the railways, factories, and manufacturing establishments, a draper manufactures them for tailors, an edge-tool maker for joiners, carpenters, and masons. A plough is a product for the ploughwright who sells it and capital for the farmer who buys it. All these activities need products in order to produce or what is one and the same thing, capital in order to make further capital .

Does this sound unintelligible to you, then? There is no antinomy here, however.

From the point of view of private interests, capital indicates a relationship of exchange preceded by a mutually agreed upon contractual evaluation. It is a product which is evaluated, that is to say legally evaluated, by two responsible arbitrators, the seller and the buyer, and which is declared to be the tool or the material to be reproduced following this evaluation. From the point of view of society, capital and product can no longer be distinguished. Products are exchanged for other products , or capital is exchanged for other capital are two propositions that are perfectly synonymous. What can be simpler, clearer, more positive, or in a word, more scientific than all this?

I therefore call capital anything of created value 1860 in the form of land, tools, or implements of production, goods, food products, or cash, which is used or can be used for production .

Everyday language confirms this definition. Capital is said to be free or unattached when the product, whatever it might be, has merely been evaluated by the parties. It may be considered realised , or immediately realisable, capital when it has been converted into such other products as one may desire, or is immediately amenable to such conversion. In this case, the form most readily taken by capital is cash. The capital is said to be engaged or committed , on the other hand, when the value that makes it up has finally entered into the production process: in this case, it can take any form possible.

Practice also agrees with me. In any business that is set up, the business man who, instead of money, puts tools or raw materials into production, begins by evaluating them for his own purposes, in respect of the risks and dangers, and this so to speak unilateral valuation constitutes his capital or his capital outlay: this is the first entry of which written account may be made in his account books.

We know what capital is; what has to be done now is to draw conclusions from this notion with regard to interest. This may take a little time for the graphic exposition but the reasoning is very simple.

Products are exchanged for other products, as J. B. Say has said, or capital for other capital, or again, capital for products, and vice versa; these are the unvarnished facts.

The absolute condition, the sine qua non for this exchange, what constitutes the essence of the essence and the rule of the matter, is the reciprocal and jointly determined evaluation of the products. Remove from the exchange the idea of price, and the exchange disappears. There is a rearrangement, but no transaction or exchange. Without a price, it is as though the product did not exist; as long as it has not received its authentic value by means of contracts of sale and purchase, it is considered never to have existed, a nothing. That is how the facts are understood.

Each person gives and receives, according to J. B. Say's formula 1861 that sets out the material facts, but according to the notion of capital as supplied to us by analysis, each party should receive an equal value. An unequal exchange is a contradictory notion, which by universal agreement is called fraud and theft.

Well, from this basic fact that producers are involved in a permanent relationship of exchange with each other, that they are in turn and simultaneously producers and consumers, workers and capitalists, and from the numerically equal evaluation that constitutes exchange, it follows: that the accounts of all producers and consumers should be in balance with each other; that society, considered from the point of view of economic science, is none other than this general equilibrium governing products, services, wages, consumption, and wealth; and that without this equilibrium, political economy is just an empty term and public order, the well-being of the workers, and the security of capitalists and landowners are no more than a Utopia.

Now in fact this equilibrium, from which should arise agreement between different interests and harmony in society, is lacking today. It is broken by a variety of causes, which according to me are easy to remove, and in the first rank of whose number I list usury, interest, and rent. As I have said so many times, there are errors and embezzlement in accounts and falsification in company records, from which arise the ill-gotten luxury of some and the increasing poverty of others. As a result of all this we have in modern society the inequality of wealth and all the forms of revolutionary agitation. I will, Sir, show you the proof of this and the counterarguments, in the records of commerce.

Let us first of all establish the facts.

Products are exchanged for other products or, to be more accurate, things having value are exchanged for other things of value: such is the law of exchanges.

However this exchange is not always carried out tit for tat , as we say. The handing over of the objects being exchanged does not always take place simultaneously on either side; often, and this is the more usual case, there is an interval between the two deliveries. Curious things happen during this interval, things that upset the equilibrium and falsify the equivalence. You will see how this happens.

Sometimes the people making the exchange do not have the product that suits the other person, or which amounts to the same thing, the one who is perfectly willing to sell wants to defer his right to buy. He wants to receive the price for his product, but for the time being at least, not to receive anything in exchange. In either case, the parties to the exchange have recourse to an intermediate category of goods, one that, acting as a go-between, is always acceptable and always accepted: money. And, since money is always sought by everyone and everyone is short of it, to cover his obligation, the buyer obtains some from a banker, paying a variable premium called a discount . A discount is made up of two parts: commission , which is the payment for the service provided by the banker, and interest . We will state shortly what interest is.

Sometimes the buyer has neither product nor money to give in exchange for the product or the capital he needs, but he offers to pay within a certain period and in one or more installments. In the two cases mentioned above, the sale was made for cash ; in the second it was done on credit . Here therefore the situation of the seller was less advantageous than that of the buyer and the imbalance is compensated for by making the product sold bear interest until payment is made in full. It is this compensatory interest, the very beginning of usury that I pointed out in one of my previous letters as the coercive agent of reimbursement. It lasts as long as the credit and is the payment for the credit, but its main object is, and you should note this point, to shorten the duration of this credit . This is the meaning and legitimate significance of interest.

It often happens, and this is the difficulty in which workers generally find themselves, that capital is absolutely indispensable to the producer and yet he cannot hope to put together the sum owed, in a word to pay it back, for a long time, either through work or saving and still less through the sums of money at his disposal. He would need 20, 30, 50 years or even a century sometimes and the capitalist or landowner refuses to give him such a long period. How does he solve this difficulty?

This is where usurious speculation comes in. A short time ago, we saw interest being imposed on debtors as a compensation for credit and as a means of hastening repayment; now we are going to see interest being sought for its own sake, usury for the sake of usury, just like war for war, or art for art. Through a deliberate , legal, and authentic agreement, and endorsed by all forms of jurisprudence, legislation, and religion, the buyer (of credit) undertakes to pay the lender the interest on his capital, land, items of furniture, or money in perpetuity . He and his family become vassals, in body and soul, his and all he owns, of the capitalist and his tributary for life everlasting . This is what is known as contractual rent and in certain cases, called a perpetual lease . Through this type of contract the object passes into the possession of the borrower who may no longer be dispossessed of it, who gains the use of it as its purchaser and owner but who, for evermore, is obliged to make the payments on it like some endless amortization. This is the economic origin of the feudal system.

But there is better to come.

Contract rent and perpetual leases are now almost everywhere obsolete. It was found that a product or capital exchanged for perpetual interest was too biased in favor of the capitalist and the need for improvement to the system was felt. Nowadays, capital and fixed assets are no longer invested in perpetual rent if it is not to the State; they are RENTED, that is to say, they are lent, still in return for interest but for short periods. This new type of usury is known as rent or farm rent .

Do you understand, Sir, what a short-term loan in return for interest (rent or farm rent) is? In perpetual leases and the contractual rent which I discussed above, if the rent was perpetual, the handing over of capital was perpetual too: between the payment and its use there was still a sort of parity. Here, capital never ceases to belong to the person lending it and who may require restitution at will. This means that the capitalist does not exchange capital for capital or product for product; he gives nothing, keeps everything, does not work and lives off his rent, interest, and usury in a way that 1,000, 10,000, or 100,000 workers combined do not live off the things they produce.

In lending at interest, farm rent, or rent, with the right of requiring repayment of the sum loaned at will, and expelling the farmer or tenant, capitalists have dreamt up something wider than space and more durable than time. There is no infinity that equals the infinity of usurious rent; the usury that exceeds rent in perpetuity by as much as the latter itself exceeds fixed-term repayments in cash. Short-term borrowers at interest, pay and pay again and keep on paying and do not enjoy the thing for which they are paying; they have only the sight of it, and possess only its shadow. Is it not with this image of a usurer in mind that theologians have imagined their God, this atrocious God who makes sinners pay eternally and who never pardons them their sin? Always! Never! That is the God of Catholicism, that is the usurer!

Well then, I say that any exchange of products and capital may be carried out for cash;

Consequently, bankers' profits from their discounts should be reduced to administrative costs and a compensation for the metal unproductively used in making coinage;

It follows further that all interest, rent, farm rent, or leasing is only a refusal to allow repayment, a theft from the borrower or tenant, and the prime cause of all the poverty and upheavals in society.

Finally, I proved to you, through the example of the Bank of France, that it was an easy and practical thing to organize equality in the exchange or the circulation of capital and products free of charge. You wished to see in this categorical and decisive fact just a specific case of monopoly that had nothing to do with the theory of interest. "What have I to do", you replied nonchalantly, "with the Bank of France and its privilege? I am talking to you about interest and capital." As though with credit in respect of land and commerce organized everywhere at ½ percent, the charging of interest could still exist somewhere! I will now show you, as bookkeepers do, that this particular financial exaction, that constantly comes between the two parties to the exchange, this toll imposed on circulation, this duty imposed on the conversion of products into things of value and these things of value into capital, in a word, this interest, or to call it by its proper name, this go-between of commerce, this interesse , whose defense you obstinately continue to uphold, is none other than the great forger who, in order to appropriate products he has not created or services he has never provided, fraudulently and for no work, falsifies accounts, adds surcharges and inventions to the entries, destroys the equilibrium between transactions, brings disorder into business, and inevitably creates despair and misery among nations.

In what follows, you will find the graphic representation of operations carried out in society set out in turn in the two systems, the system of interest that is currently practiced and the system of free credit that I propose. Any reasoning, dialectic, or controversy will be demolished by this readily intelligible image of economic progress.

I. The System of Interest Payments

In this system, the production, circulation, and consumption of wealth operates by the intervention of two quite distinct and separate classes of citizens: landowners, capitalists, and businessmen on the one hand and wage workers on the other. Although these two classes are in an open state of antagonism, they constitute a closed organism that acts in itself, on itself, and by itself.

It thus follows that all operations arising from farming, commerce, or industry that can be carried out in a country, all the accounts for each type of manufacture, construction, banking, etc. can be summarized and represented by a single account whose parts I will give you.

I classify as A the entire class of landowners, capitalists, and businessmen whom I consider to be a single person and by B, C, D, E, F, G, H, I, K and L the class of workers earning wages.


Between A, a landowner-capitalist-businessman and B, C, D, E, F, G, H, I, K and L, workers earning wages.


Account and summary of the personal operations of A, a landowner-capitalist-businessman

On opening the account, A begins his investment operations with a capital that I take to be 10,000 francs. This sum forms his investment; it is with this that he is going to work and start up commercial operations. This initial investment by A is expressed as follows:

1. Sum deposited by A .

1 January, capital account ….. 10,000 francs

Once he has established his capital, what is A going to do? He will hire workers, whose products and services he will pay for from his capital of 10,000 francs, that is to say, he will convert these 10,000 francs into goods, and accountants would express this thus:

2. General Cash Expenditures

Purchase for cash, or in anticipation, of products for the present year from the workers hereinafter listed:

From B, x (working days or products), total 1,000 fr.
From C, 1,000
From D, 1,000
From E, 1,000
From F, 1,000
From G, 1,000
From H, 1,000
From I, 1,000
From K, 1,000
From L, 1,000
Total… 10,000 fr.

Once the money has been converted into goods, what the landowner-capitalist-businessman, A has to do is to carry out the contrary operation and to convert his goods into money. This conversion implies a profit (speculation, interest, etc.) since, ex hypothesis and according to the theory of interest, land and houses are not lent for nothing, nor is capital, nor is the guarantee and consideration of businessmen acquired for nothing. Let us assume, in accordance with the standard rules of commerce, that the profit will be 10 percent.

To whom will A's products be sold? Of necessity to B, C, D, etc., the workers, since society as a whole is made up of people like A, landowner-capitalist-businessmen 1862 and those like B, C, D, etc, wage workers, other than which there is no one. This is how the account is made up:

3. The Following, in General Goods :

B, my sales to him, made during the year 1, 1,100 fr.
C, 1,100
D, 1,100
E, 1,100
F, 1,100
G, 1,100
H, 1,100
I, 1,100
K, 1,100
L, 1,100
Total… 11,000 fr

Once the sale has been made, the sums due by the buyers remain to be paid in. A new operation, which the accountant enters into his ledger as follows:

4. Cash Deposits by the Following :

to B, his payment in cash to close his account on 31 December 1,100 fr.
to C, 1,100
to D, 1,100
to E, 1,100
to F, 1,100
to G, 1,100
to H, 1,100
to I, 1,100
to K, 1,100
to L, 1,100
Sum equals… 11,000 fr.

In this way, the capital advanced by A, following conversion of this capital into products, then the sale of these products to the workers-consumers B, C, D, etc., and finally payment for the sale, is returned to him increased by one tenth, which is expressed in the inventory by the balance below:

5. Summary of the operations of A, landowner-capitalist-businessman, for his inventory on 31 December :

Owed. General Goods Due.
10,000 fr. Debit to this account on 31 December Credit to this account on 31 December 11,000 fr.
1,000 Profit to this account to be credited to A's capital account
11,000 fr. Balance… 11,000 fr.

It can be said in passing that you can see here how and in what situations products become capital. It is not goods in shops that, at the inventory, are entered to the credit of the capital account, it is the profit . The profit, that is to say, the product sold and delivered, whose price has been received or is due to be so shortly: in short, it is the product transformed into value . 1863

Let us move to the other half of the account, the workers' account.


Account of the dealings of B, a worker with A, a landowner-capitalist-businessman

B, an unemployed worker without property or capital is taken on by A, who gives him a job and acquires his output. The first operation that appears on B's account is:

1. Cash Debit, 1 January to B - Capital Account

Sale for cash or by anticipation of his entire production for the year to A, a landowner-capitalist-businessman - 1,000fr

[no screen snapshot needed]

In exchange for his production, the worker therefore receives 1,000 francs, a sum equal to that we have seen shown in article 2 of the preceding chapter, Cash Expenditures .

However, B lives from his earnings, that is to say, that from the money given to him by A, a landowner-capitalist-businessman, he receives from the said A all the objects that he, B, needs to consume, objects that are invoiced to him as we have seen above in article 3 of chapter 1 at 10 percent profit above the cost price. For B, therefore, the operation has the following result:

2. Owed by B, Capital Account, to A, a landowner-capitalist-businessman:

Total of the supplies of all types from A during the year - 1,100fr

3. Summary of the operations of A, for his inventory:

1,100 fr. Debit from this account on 31 December
Credit to this account on 31 December 1,000 fr.
Loss on this account, that B can pay only by means of a loan 100
1,100 fr. 1,100 fr.

As all the other workers are in the same situation as B, their individual accounts present the same result. To understand the fact that I wished to highlight, that is to say, the lack of equilibrium in the general circulation of capital, following the exactions, it is superfluous to reproduce all these accounts in order to understand.

The preceding table, which is much more instructive and a better demonstration than the one produced by Quesnay, 1864 is a faithful image in an algebraic presentation of society's economy at present. This is what persuades us that the proletariat and poverty are the effect, not only of accidental causes, such as floods, war, and epidemics but also of an organic cause inherent in the make-up of society.

Through the fiction of the productivity of capital and through the innumerable prerogatives taken by monopolists for themselves, one of the two following things always and ineluctably results:

Either the monopolist takes away from his employee a part of his social capital; B, C; D, E, F, G, H, I, K and L have produced 10 men's worth during the year and have consumed 9 men's worth only. In other words, the capitalist has consumed one worker. 1865 What is more, through the capitalization of interest, the position of the workers is steadily worsening each year, to the extent that if the analysis is followed through, around the seventh year we find that the entire initial contribution of the workers has passed as interest and profit into the hands of landowner-capitalist-businessmen, which means that wage workers who wish to pay off their debt have to work every seventh year for nothing.

Or else, it is the workers who, incapable of paying any more for his product than he has himself received for it, forces monopolists to reduce prices, consequently making him overdrawn for the entire amount of the interest, rent, and profit whose use and property were both a right and necessity for him.

We are thus brought back to acknowledging that the inevitable result of credit, in the system of interest, is the plunder of the workers and the no less inevitable bankruptcy of businessmen and the ruin of capitalist landowners. Interest is like a double-edged sword: it kills, whichever side it hits you with.

I have just shown you how things happen in the regime of interest. Let us now see what would happen in the regime of free credit.

II. The System of Free Credit

According to the theory of free credit, the statuses of wage workers and landowner-capitalist-businessmen are identical and equivalent to one another; they are combined under the heading of producer-consumers . 1866 The effect of this change is to bring all the current operations of credit, loans, sales at a fixed period, speculation, rent, farm rent, etc. back to a simple form of exchange, and all bank operations to a simple transfer between the parties.

Let us therefore assume that the Bank of France, the principal organ of this system, has been reorganized in accordance with the ideas of free credit and a discount rate reduced to 1 percent, a rate that we provisionally consider to be a fair payment for the specific service provided by the Bank, and consequently one that represents an interest rate of zero. And let us see the changes that will result for general accounting. From now on, all transactions will be effected through the intervention of the Bank and its subsidiaries, replacing all the varieties of usurious credit, and thus it will be with the Bank that B, C, D, etc. the workers, associates, whether in groups or individually will deal, in the first instance and directly.


1. Account of the operations carried out by B, a worker, with x, a National Bank.

Cash Debit, 1 January to x , National Bank,

Advance by the Bank on all the products on my work for the year, to be paid back to it in accordance with my sales, 1,000 francs; discount rate 1 percent deducted, 990 francs

As we have seen above, B lives exclusively from his work, that is to say that, on the guarantee of what he produces, he obtains from x , a National Bank, either notes or cash with which he buys all the objects he needs for his industry and consumption from A, a worker like himself but who, in sales or exchange operations, which we will discuss shortly, fulfills the role of a landowner-capitalist-businessman. In actual fact, B purchases all these objects for cash and is able, therefore, to negotiate their price all the more rigorously.

This purchase, carried out using the notes or cash from the Bank, gives rise to the following account in B's books:

2. Debts for General Goods in Cash

Purchase for cash from A of everything I consume during the year: 990 francs

As his manufacture progresses, B sells his products. However, production depends upon consumption and, since this production is no longer hobbled as it was by usury under the regime of interest, that is to say, by sales by installments, by rent for the tools of production and the resulting charges, especially by the preconceived ideas about money, which has become non-productive and even superfluous, it follows that B, like all the other workers, is able not only to buy back his own products to the nearest minimal fraction, but also to give full rein to his energy and productive power, without fear of creating non-values (things of no value ) 1867 and bringing prices down but on the contrary, with the legitimately founded hope of being compensated for the low payments he makes to the Bank for negotiating his assets (things of value), by this surplus production and exchange. This is what will appear in the following article in B's account.

All work should leave a surplus; this aphorism is one of the fundamental ones of political economy. It is based on the principle that, in an economic order, whatever the capital invested, all value is created from nothing by labor , in the same way as, according to Christian theology, everything in nature has been created, equally from nothing, by God. In fact, since the product is defined as: the usefulness added by labor to objects supplied by nature (J. B. Say and all economists), it is clear that products in their entirety are the creation of workers 1868 and if the object to which the new usefulness is added is itself already a product, the value reproduced is of necessity greater than the value consumed. Let us accept that, through his work, B increases the value he consumes by 10 percent and let us note the result recorded in his accounts:

3. Cash due from sale of General Goods

My sales for cash to various customers during the year, 1,089fr.

From this account, it appears that usury is one of the causes of poverty in that it prevents consumption and reproduction, first of all by raising the sales price of products far above that of the surplus obtained by reproductive work. The total of usurious charges in France, for a total product of 10 billion is 6 billion or 60 percent. This is then compounded by the hindering of circulation using all the formalities of discount, interest, rent, farm rents, etc.; all these difficulties disappear under the regime of free credit.

Here we have reached the moment when B has sold all the product of his year's work. He has to settle up with x , a National Bank, which gives rise to the following operation

4. Owed in cash to x, the National Bank,

My payment for the balance1,000fr

Now B has to produce his own account and does so as follows:

5. Summary of B's operations for his inventory

990 fr. Debit to this account at 31 December Credit to this account at 31 December 1,089 fr.
99 Profit on this account
1,089 fr. Sum equals 1,089 fr.

The following year, instead of operating with a product of 1,000 francs, B will operate with a product of 1,089, which will give him a new surplus of profit and then the same scenario will be re-enacted in years 3, 4, 5, etc. His wealth will increase as his industry increases and will grow infinitely.

As the other workers, C, D, E, F, etc. are in the same situation as B, their individual accounts will show the same result; it is therefore unnecessary to reproduce them here.

I will now move to the counterpart of the accounts opened with respect to B and first of all to that of the Bank.


We have seen above that x , a National Bank, has made B an advance on his work or production, that it has acted in a similar fashion with all the other workers and that subsequently it has covered itself and recouped its money through the money repayments that they had remitted to it and through the deduction made to its advantage of 1 percent discount. This is how these various operations are shown in the Bank's books:

Owed by the following in Cash:

B, my advances on the output of his labor for the year against his commitment of 1,000 francs, discount deducted 990 fr.
C, 990
D, 990
E, 990
F, 990
C, 990
G, 990
H, 990
I, 990
K, 990
L, 990
9,900 fr.

When the debtors repay it, a new operation takes place, which the accountant will enter in his books as follows:

Owed in Cash to the following:

to B, his payment of the balance 990 fr.
to C, 990
to D, 990
to E, 990
to F, 990
to G, 990
to H, 990
to I, 990
to K, 990
to L, 990
To Profit and Loss, receipt of the said amounts for discount at 1 percent 100
Total… 10,000 fr.

The credit given by x , a National Bank, after conversion of the sum advanced into products and then the sale of these products to all the members of society, who are producer-consumers, from A to L and finally payment for the sale by means of the same sum supplied by the Bank, this credit, we say, is returned to it in the form of notes or cash, increased by the discount of 1 percent, with which the Bank pays its employees and covers its costs. And if, after covering its expenses, there remained a significant net profit to the Bank, it would reduce its discount rate proportionally so that the interest on capital would always remain at zero.

Summary of the operations of x, a National Bank, for its inventory on 31 December

100 francs Profit on this account Product of the discount rate for the year 100 francs

When you refer to the Cash account of x , a National Bank, you can see first of all that the surplus of the debit on this account over the credit is 100 francs, a sum that is equal to the profit on the discount rate recorded in the Profit and Loss Account.


Let us come finally to the account of A, a landowner-capitalist-entrepreneur, who is no different, as we have said, from those of B, C, D, etc., wage workers, and assumes this title only fictitiously following his dealings with them.

Under the regime of free credit, A no longer lends raw materials or tools of work, in a word, capital; nor does he provide it for nothing; he sells it. As soon as he has received payment for it, he is deprived of his rights to his capital; he can no longer have himself paid interest for it eternally and even beyond eternity.

This, therefore, is how A's account behaves under this new system:

First of all, since money is just an instrument of circulation that has become common property, whose use is disdained everywhere, through its accumulation at the Bank and the almost general substitution of paper for cash, it is now free; producer-consumers such as B, C, D, etc. now have no use for A's écus. What they need is raw materials, working tools, and food products which A holds.

A begins his operations with his capital, goods , which as a hypothesis we will set at 10,000 francs. This opening of A's operations will be shown in his books as follows:

1. General Goods owed to A, Capital Account:

Goods in the shop at 1 January last according to inventory - 10,000 fr

What will A do with these goods? He will sell them to the workers, B, C, D, etc. that is to say to the consumer and producer firm 1869 they represent here, just as A represents for the moment the capitalist and landowning firm. This is what A's accountant will record as follows:

2. Sale for cash to B 990fr

Sale for cash to B… 990
to C… 990
to D… 990
to E… 990
to F… 990
to G… 990
to H… 990
to I… 990
to K… 990
to L… 990
Total… 9,990 fr.

However, if the workers B, C, D, etc. consume A's articles, the landowner-capitalist-entrepreneur A in his turn consumes the products of the workers, B, C, D, etc. from whom he has to purchase them, just as they themselves purchase his. Well, as we have seen in article 3 of Chapter I that the surplus given to the values consumed by B, C, D, etc. are hypothetically in a regime free from any unemployment, stagnation, decrease in prices, and 10 percent, the capital of 990 francs that B has obtained as a credit from the Bank and consumed productively has increased to a capital of 1,089 francs and therefore it is at this price that A makes his purchases from B and pays his invoices. This is shown in the entries in his accounts as follows:

3. Debit for General Goods paid in Cash:

Purchased for cash from the following workers:

to B, for his deliveries of various articles for my consumption 1,089 fr
C, 1,089
D, 1,089
E, 1,089
F, 1,089
G, 1,089
H, 1,089
I, 1,089
K, 1,089
L, 1,089
Total… 10,890 fr.

To complete the demonstration, all we have to do is to draw up A's inventory.

Summary of the operations of A, a landowner-capitalist-entrepreneur, for his inventory on 31 December:

10,890 fr. Debit to this account at 31 December Credit to this account at 31 December 9,900 fr.
Remaining in the shop from goods on inventory on 1 January last 100
Loss on this account 890 fr.
10,890 fr. Balanced Sum 10,890 fr.

Now that we have established our double entry bookkeeping, let us reconcile the accounts and note the differences:

1. Under the regime of usury , the account of each worker results in a loss of 100 francs, or for the ten as a whole, 1,000 francs

At the same time, the account of A, a landowner-capitalist-entrepreneur, results in a profit of 1,000 francs, which proves that in a capitalist society (or firm), a deficit or poverty, results from the speculation.

2. Under the regime of free credit , on the other hand, each worker's account results in a profit of 99 francs, or 990 francs for all ten and the account of A, a landowner-capitalist, results in a loss of 890 francs which, with the 100 francs of goods that remain in the shop and cover the loss for the year, make up the 990 francs that have increased the wealth of the ten workers. This proves that, in a mutualist society, 1870 that is to say a society of equal exchange, the worker's wealth increases directly according to his work while the wealth of the capitalist decreases in direct proportion to his unproductive consumption a point which also destroys the criticism of me by Pierre Leroux, 1871 who for the last two months has not ceased to repeat his controversial statement that free credit, the People's Bank, and mutuality are in the end just as much examples of property-ism , bourgeois-ism , 1872 and exploitation, the very things the regime of the People's Bank intended to abolish.

In a mutualist regime , the wealth of the worker increases directly in accordance with his work, whereas the wealth of the landowner-capitalist decreases directly in accordance with his unproductive consumption : this proposition, demonstrated mathematically, answers all the outpourings of Pierre Leroux and Louis Blanc on community, fraternity, and solidarity.

Let us now turn the formula upside down:

Under the regime of usury, the wealth of the worker decreases directly in accordance with his work, whereas the wealth of the landowner-capitalist increases directly in accordance with his unproductive consumption: this proposition, demonstrated mathematically like the preceding one, answers all the outpourings of Jesuits, Malthusians, and philanthropists on the inequality of talent, compensation in the next life, etc. etc.

As a corollary to the foregoing, and continuing to use the logic of numbers as our basis, we also say:

In a capitalist society, since a worker can never buy back his production at the price he sold it for, he remains constantly in deficit. This makes it necessary for him to reduce his consumption indefinitely, and consequently makes it necessary for society as a whole to reduce its production indefinitely; this leads to the living of a normal lifestyle being forbidden and obstacles being erected to the formation of both capital and the production of food.

In a mutualist society, on the other hand, as the worker constantly exchanges one product for another or one item of value for another without restriction with just a small discount charge that is more than compensated for by the surplus left to him, at the end of a year's work he benefits exclusively from what he has produced. This leads to his ability to produce indefinitely and to an endless increase of both life and wealth for society.

Would you say that a revolution like this in economic relationships would in the end do nothing more than shift poverty, that instead of the poverty of the paid worker who is unable to buy back what he himself produces and who becomes poorer the harder he works, we would have the poverty of landowner-capitalist-entrepreneur who would be obliged to eat into his capital and because of this to destroy constantly, along with the materials used for products, the very tool of labour itself?

But who cannot see that if, as is inevitable in a regime of free credit, the two qualities of wage worker on the one hand and landowner-capitalist-entrepreneur on the other become equal and inseparable in the person of each worker, the deficit experienced by A in the operations he carries out as a capitalist would be recovered immediately by him in the profit he in turn receives as a worker, so that, while on the one hand through the elimination of interest the sum of the products of labour increases indefinitely, on the other, through the ease of circulation, these products are constantly converted into THINGS OF VALUE and these things of value into CAPITAL.

Let each person, instead of crying out "plunder" in opposition to socialism, do his own accounts. Let each person record an inventory of his wealth and industry, what he earns as a capitalist-landowner and what he can obtain as a worker and, if I am not much mistaken, out of the 10 million citizens on the electoral roll, 1873 there will not be 200,000, or 1 in 50 who have an interest in retaining the usurious regime and rejecting free credit. Anyone, once more, who earns more through his work, talent, industry, or science than through his capital, is directly and extremely interested in the instant and total abolition of usury; such a person, I say, whether he realizes it or not, is first and foremost a supporter of the Democratic and Social Republic . 1874 He is, in the widest and most conservative sense, 1875 a REVOLUTIONARY. What! Is it true, because Malthus said so, and following him, a handful of pedants want this, that 10 million workers with their wives and children have to be fodder for 200,000 parasites and that it is in order to protect this exploitation of man by man that the State exists, that it disposes of an armed force of 500,000 soldiers and one million civil servants and that we pay it two billion in taxes? 1876

But why do I need, after all that has been said during this controversy, to continue to maintain the purely artificial opposition between wage workers and capitalist-landowners ? The time has come to call a halt to all antagonism between the classes and to involve everyone up to landowners and capitalists themselves in abolishing rent and interest. Once the Revolution has assured its triumph through justice, it may, without losing any of its dignity, take on the subject of interest.

Have we not seen that interest arose from the risks of industry and commerce, that it was first seen in the more or less random contracts on private cargo and whole ship contracts ? Well, what was in the beginning the inevitable effect of the state of war, one bound to arise in a society driven by antagonisms, will also repeat itself over and over again in a harmonious and peaceful society. Progress in industry, as in science, is endless; work knows no bounds to its adventurous enterprises. However, who speaks of enterprise speaks too, always, of a thing more or less hazardous and consequently of a risk more or less great for the capital committed and thus of the need for interest to be compensated accordingly.

The accumulation of capital by means of the renting of houses and farms and other mortgage-based loans, by mercantile, and Stock Exchange dealings, and by the plunder practiced by the bankocrats 1877 will be replaced as circumstances become increasingly better, by silent partnerships. Capital, divided into shares and supplied by the mass of workers will then act productively on behalf of labor instead of plundering it. Dividends would merely be one way of enabling society as a whole to share in the profits from private speculation and would be the legitimate benefit of talent over wealth. Let existing capitalists, instead of crowding into the Stock Exchange, opposing the revolution, and putting an embargo on working hands, dare to become our foremen; let them, as in '92, 1878 become our generals in this new war waged by labor against poverty, in this great crusade of industry against nature. Is there then nothing left to discover, nothing left to dare, nothing to do to promote the development of our nation, to increase our wealth and our glory? …

I must stop; it is time to do so. In spite of myself, Sir, you have pushed me into this abstract reasoning, which is fatiguing for the general public and not very easy for the columns of a popular journal to accommodate. Was it necessary to entice me into this thorny dissertation when it would have been so easy and simple to limit ourselves to this question that is as decisive as it is positive: Can credit be free or can it not ? At the risk of turning off the readers of La Voix du Peuple, I wanted to satisfy your wish; you will tell me if you consider it adequate, what you find that requires criticism, first of all in the analysis I have made of capital, then in the definition I drew from it, and finally in the theorems and corollaries that constitute its development.

In what you have just read, you will not deny that there is quite a revolution taking place that is not only political and economic but also, and this must be much closer to your heart as it is to mine, scientific. It is up to you to see whether you accept on your own account and on behalf of those of like persuasion, the conclusion that shines out from this entire discussion, that is to say that neither you, Mr. Bastiat, nor anyone of your school, understands anything of political economy.

I am, etc.


Letter No. 12: F. Bastiat to P. J. Proudhon (4 February 1850)

The system of free credit comes down to paper money. - What consequences should be drawn from the accounting established by Mr. Proudhon? - Bank notes. - The profits they provide. - J. B. Say's insights. - The real way to enable the general public to benefit from credit, for those who accept it, is freedom. - An analysis of credit and interest. - An appeal to Mr. Proudhon to change sides.

4 February 1850

You have just done society a very important service. Up to now free credit remained wrapped in philosophical, metaphysical, economic, paradoxical, and historic clouds. By subjecting it to the simple proof of accounting, you have brought it down from these lofty region; you have exposed it to the gaze of all. Everyone is able to recognize it: it is money made out of paper . 1879

Multiplying and equalizing wealth on this earth by pouring a flood of paper money on it; here is the solution in a nutshell. Here is the conclusum , the ultimatum, and the desideratum of socialism. 1880

Free credit is socialism's final word, its final slogan, and its final effort. You have said it a hundred times and rightly so. Others, it is true, have given this term a different meaning. La Démocratie Pacifique 1881 said recently that anyone who aspires to do some good is a socialist. Certainly, while the definition is vague, it is at least understandable and above all, prudent. Defined in this way, socialism is indestructible.

However, a desire does not constitute a science, any more than twenty mutually destructive dreams do. What has become of Icaria ? Where do the phalanstery , the national workshop and the triad stand? These slogans are dead letters and you have contributed not a little to killing them. If a few others have recently made their entry into the world under Sanskrit names 1882 (which I have forgotten), it can be concluded that they were not born viable. Only one has still survived: free credit . It seemed to me that it drew life from mystery. You have brought it out into broad daylight: will it survive for long?

The debasing of money, which can go as far as to make money completely false, 1883 is an invention neither new nor very democratic in origin. Up to now, however, people had tried to give or imagine a few guarantees to paper money , such as the future wealth of the Mississippi, 1884 national land, State forests, the property of émigrés, etc. 1885 It was well understood that paper has no intrinsic value, but has value only as a promise, and that this promise has to inspire some confidence in order for the paper which makes this promise to be voluntarily accepted in exchange for something real. From this we get the word credit (Latin credere , to believe, have faith in). You do not appear to have paid much attention to these necessities. An inexhaustible paper money factory: that is your solution. 1886

Allow me to turn upside down the order of the discussion you have set out for me and to examine first of all your social mechanism 1887 as expressed in the title: Free credit .

It is good to state what your definition of capital is Any created value, such as land, tools of production, goods, food supplies, or cash, which are used or can be used for production . 1888 I accept this definition. It is enough for the discussion in hand.

This having been established, A, B, C, D, E, F, G, H, I, K, L, etc. stand for both capitalists and workers.

You do the accounts for one of them, A, in his role as a capitalist, then those of B, representing all the workers, and finally you draw up the accounts for the Bank.

A is the holder of capital, created values in land, tools, food supplies , etc. B wants to appropriate them for himself, but he has nothing to give in exchange and can't borrow them without incurring the burden of paying interest.

He goes to the Bank and says: Give me one thousand francs in bank notes and I will repay you from the product of my future work as and when I sell it. The Bank does this and gives him notes for 990 francs. 1889 With these precious talismans in his hand, B goes to A and tells him: "Perhaps you hoped to lend me your capital, but here you are, reduced to selling it to me, since I am in a position to pay for it." A is quick to hand over his capital (land, goods, or food) to B for bank notes. B undertakes his work. By virtue of the aphorism: All work must produce a surplus , he adds 10 percent to the value he has just purchased, runs to the Bank to pay (doubtless in notes) the 990 francs he owes it, and finds that he has made 99 francs profit. This is true for C, D, E, F, etc., in short for all men.

Having invented these figures, you establish accounts for A, B and the Bank. This accounting, once you have accepted the figures, is beyond criticism.

But can we accept your figures? Are they in conformity with the nature of men and things? This is what we have to examine.

Will Bank notes offer any guarantees? In other words, do they inspire confidence or not? And, again putting it in alternative vocabulary, will the Bank or will it not have enough original capital and created values to meet all of its issues?

How will it gather together all its capital in created values? If it has shareholders, according to the way things are at present which is our starting point, they will want to receive interest, and how can the Bank lend for free what it has to pay to borrow?

The capital of the Bank of France will be taken over, you say, and the shareholders will be reimbursed in the form of State Bonds. This postpones the problem without solving it. It is the mass of the people, the nation, that will borrow the capital at 5 percent in order to lend it free of charge. Interest will not be eliminated, but put on the taxpayers' backs.

But let us simply assume that this capital of 10,000 francs, which you have imagined for the purposes of discussion, has indeed been gathered together, and let us set aside the vicious circle that consists in assuming free credit in order to realize it. Since you thought this capital was necessary, you will doubtless consider it essential for it to be maintained.

To this end, your reasoning follows the hypothesis that B, C, D, E, etc. will pay the Bank back annually for the notes they have taken from it. But just suppose that this hypothesis is wrong! That B is a libertine who spends his 1,000 francs in taverns! That C gives his to his mistress! That D throws them away in a ridiculous enterprise! That E has a jaunt to Belgium for a few days, etc. etc.! What would happen to the Bank? To whom would A apply to receive the compensation for the capital which has been taken from him?

Thus, the long and the short of it is that your Bank will not have the power to change our natures or reform our bad inclinations. It will prove just the opposite, and it has to be acknowledged that the extreme ease with which paper money is to be obtained on the simple promise of working to repay it at a later date, will be a powerful incentive to gambling, wild enterprises, risky ventures, rash speculation, or immoral or ill-considered expenditure. It is a very serious matter to put all men in the position of saying to themselves: "Let us tempt fate with other people's property; if I succeed, that's my good fortune, if I fail, that's their bad luck." 1890 For my part, I cannot imagine the regular pursuit of human affairs outside the law of (individual) responsibility. However, without going into the moral effects of your invention here, I suggest that it is still a fact that it removes from the National Bank any role in managing the conditions for (granting) credit and the setting of duration (of loans).

Perhaps you will tell me that before handing over its notes, the Bank will enquire carefully about the degree of trust that applicants merit. Property, morality, activity, intelligence, and foresight will all be scrutinized and weighed carefully. But be careful! If on the one hand you require the Bank to have some original capital as a guarantee and if on the other, it lends only in total security, what more will it be doing than the free Banks in the United States do? 1891 And will the poor devils of today be anything other than poor devils under your regime?

I do not think that you can escape these alternatives:

Either the Bank will have a capital on which it will pay interest, and in this case it cannot lend money interest-free without bankrupting itself;

Or it will have capital free of charge, and in this case please explain to us where it will obtain this, other than from A, B, C, D, who make up the nation?

In both situations, it will either lend with moderation and discernment, and you will then not have universal credit, or it will lend with no guarantee, and thus become bankrupt within two months.

But let us gloss over these initial difficulties.

A, whom you have put on stage, is a capitalist and therefore experienced, prudent, timorous, and even fearful. You will not deny this. After all, he is clearly allowed to be so. All that he has he has acquired through the sweat of his brow, and he does not want to risk losing it. From the point of view of society, this sentiment is eminently conservative. Before handing his capital over in return for bank notes, therefore, A will turn these notes over and over in his hands. He may perhaps end up refusing to accept them them and your system will go up in smoke. What will you do? Will you decree the notes to be legal tender ? 1892 What will then become of freedom, of which you are the champion? After turning the Bank into an inquisition, will you now make it a police station? It was not worth getting rid of the State for this.

However, I will allow your legal tender, just for the purposes of this discussion. You will not prevent A from calculating his level of risk. It is true that there are scarcely any risks that a seller will not accept, provided that he finds a satisfactory insurance premium in an increase in the price. A as a capitalist, that is to say a carpenter, shoemaker, blacksmith, tailor, etc., will therefore tell B, C and D, "Sirs, if you want my furniture, shoes, nails or clothes, things of created value , give me something of created value , that is to say, 20 francs in money." "Here are 20 francs in notes," replies B. "That is just a promise," retorts A, "and I have no confidence in it." "Legal tender has been decreed", replies B. "Very well", is A's answer, "but I want 100 francs for my goods."

How will you stop this rise in prices, which obviously destroys all the benefits you are expecting from the Bank? What will you do? Will you decree the Law of the Maximum (price controls) ? 1893

Universal high prices will also appear for another reason. You cannot have any doubt but that the Bank will attract hordes of clients once it has used all the methods of advertising to drum up business and as soon as it announces that it will lend money for nothing. All those who have debts on which they are paying interest would want to benefit from this fine opportunity of liberating themselves. And there go twenty billion francs. The State would also want to pay off the 5 billion it owes. 1894 The Bank would also be besieged by every trader who has drawn up a plan, every manufacturer who wants to establish or expand a factory, every crackpot (inventor) who has made a wonderful discovery, or every worker, journeyman, or apprentice who wants to become a master tradesman.

I do not think I am going too far when I say that if the issue of notes aspires to satisfy all forms of appetite, desires, and dreams, it will exceed 50 billion in the first six months. This will be the weight of the demand for capital which will bear down upon the market. But where will the supply come from? In six months, France will not have created sufficient created values (land; tools, and machinery, goods or food products) to satisfy this prodigious increase in demand, for created values, real things do not fall into the apron of "Lady Supply" as readily as do the imaginary values into "Lady Demand's." 1895 However, selling and buying are related terms that express two acts that are linked and, really, indeed, one and the same. What would the result be? An exorbitant rise in all prices or, to express it better, social disorganization, such as the world has never seen before. 1896 And you may be sure that if anyone escapes this, it will not be the least rascally fellow and above all, not the poor devil to whom the Bank has refused credit.

Thus, arbitrary measures to found the Bank, inquisitorial procedures if it wants to assess their confidence (in the borrower), legal tender laws, price controls, and, in the long run, bankruptcy and disorganization, of which the poorest and least cunning will be the first victims; these are the logical consequences of paper money. And that is not all.

You might say to me, "Your criticism is aimed at the means of its execution. We will attend to this later. It is a question of principle alone. Well, you cannot deny that my Bank, leaving aside the question of the means of execution, will destroy (the charging of) interest. Therefore, free credit is at least possible."

I might reply, "No, if the means of execution are not possible." But I will go right to the heart of the matter and say, "Even if your invention did not encompass all the dangers I have pointed out, it would not achieve your aim. It does not achieve free credit ."

You, Sir, know as well as I that the remuneration of capital that we call interest is not attached only to loans. It is also included in the cost price of products. And since you refer to accounting, I will refer to it in turn. Let us open the books of the first entrepreneur we find. We will see from them that he never does anything without ensuring not only a reward for his work but also a return, the amortization of and interest on his capital. This interest is included in the sale price. By reducing all the transactions to purchases and sales, the Bank thus does not resolve nor even touch the problem of the elimination of interest.

Well then, Sir, you claim to reach agreements according to which people who work using their own capital do not earn any more than those who work using the capital of others that has been borrowed for nothing! You are pursuing something that is impossible and unjust.

I will go further and say that even if you were right on everything else, you would still be mistaken in taking as your motto the words free credit . Be careful in fact; you are not aiming to make credit free but killing it (in the process). You want to reduce everything to buying and selling and (to) transfers (of debt) between parties. You think that, because of your paper money, there will be no more need to lend or borrow, that all credit will be without use, null and void, abolished and eliminated for lack of need. But can it be said of something that does not exist or has ceased to exist that it is free?

And this is not just a war of words. After all, in the end, words are the vehicles of ideas. When you announce free credit , you certainly allow it to be understood, whether or not you mean to do so, that every one will be able to enjoy the use of other people's property without paying for it for an indeterminate length of time. The unfortunate people who have no time to go to the bottom of things and ascertain the extent to which your statements are inaccurate will open their eyes wide. They will feel the most deplorable desires arising within them. Getting one's hands on other people's property without contravening justice, what an attractive prospect! For this reason, you have had and are bound to have a great many followers at the beginning.

But if your motto were to be the annihilation of credit , which expresses your genuine thought, people would have understood that, under your regime, they would get nothing for nothing. Greed, that great engine of debt, as Pascal called it, 1897 would have been neutral(ised). We would have limited ourselves to examining, quite coldly, first whether your system is an advance on the existing one and then whether it is practicable. The word free is always very attractive, but I am not afraid to say that, while it has been a lure for many of your followers, it has been a trap for your mind.

This explains the hesitations noticeable in your polemic. When I concentrated on limiting the debate to this question of free credit , you were uneasy. You were fully aware, deep down in your scientific understanding, that credit, as long as it exists , cannot be free, that the repayment of something of value (which has been) borrowed cannot be the same for something which is paid back immediately, compared to something the repayment of which is postponed indefinitely. You made honest concessions with regard to this for which some members of your own church criticised you. 1898 On the other hand, carried along by and committed to your motto, free credit , you made extraordinary efforts to extricate yourself from this unfortunate position. You referred to antimony , you went so far as to say that yes and no can be true of the same thing and at the same time. After the dialectic came the rhetoric. You denounced interest, describing it as theft, etc. etc.

And all this because you had clad your thought in an erroneous vocabulary. Our debate would have been much shorter if you had said to me, "As long as credit exists, it cannot be free, but I have found the means of ensuring that it does not exist, and from now on I will inscribe on my flag the words Annihilation of Credit instead of Free Credit ."

If the question had been set in this way, I would have had only to examine your means of execution. This is what, in your last letter, you have put me in a position to do. I have proved that these means of execution can be summarized in the expression, paper money .

In addition, I have proved:

That in order for a Bank's notes to be accepted, they have to inspire confidence;

That in order for them to inspire confidence, the Bank has to have capital;

That in order for a Bank to have capital, it has to borrow it precisely from A, B, C, D who are the people and it must pay interest for this capital at the going rate;

That if it pays interest for it, it cannot lend it interest-free;

That if it lends its capital to A, B, C and D free of charge after having taken it by force from them in the form of taxation, nothing has changed in the world, apart from there being one more form of oppression;

And finally, that in none of your hypotheses, even by reducing all transactions to sales, do you destroy the remuneration of capital which is always included in the sales price.

The implication of this is that, if your Bank is just a factory producing paper money, it will lead to social disorganization.

If, on the other hand the Bank is based on justice, prudence, and reason, it will do nothing that Free Banking 1899 cannot do better.

Is this to say, Sir, that in my view there is no truth in the ideas you support? In explaining myself on this matter I will take a step towards you. May it encourage you to make one towards me or rather towards the true solution: Free Banking.

However, in order to be understood, I need, at the risk of repeating myself, to establish a few fundamental notions on credit .

Time is precious. Time is money , as the English say. 1900 " Time is the stuff of which life is made ," 1901 as Poor Richard says. 1902

It is from this indisputable truth that the notion and practice of interest are deduced.

For to give credit is to give time.

Sacrificing time to someone else is to sacrifice to him something that is precious, and it is not possible to claim that in business a sacrifice like this should be free of charge.

A says to B: "Devote this week to making me a hat; I will employ it in making shoes for you." "Shoes and a hat are equal in value," replies B, "I agree."

A moment later B changes his mind and says to A: "I have reflected that time is precious to me; I want to devote this week and the following ones to myself. So make me the shoes immediately and I will make you the hat in a year's time." "I agree to this," replies A, "but in a year's time you must give me one week and two hours."

I ask any man of good faith, has A committed an act of piracy in adding a new condition to his profit to offset a new condition to his detriment?

This elemental fact contains the germ of the entire theory of credit.

I know that in society transactions are not as simple as the one I have just described, but they are identical in essence.

Thus, it is possible for A to sell the shoes to a third party for 10 francs and hand over this sum to B, telling him, "Give me the hat immediately or, if you want a year's delay, you can repay me one week's work plus two hours or else 10 francs plus an additional twentieth." We are in perfect agreement with the preceding hypothesis.

We agree, at least I hope so, on the legitimacy of credit, so let us now see to what arrangements it can give rise.

B may have made a verbal commitment only, and yet it is not out of the question that A will pass it on by discounting it. He may say to C: "I owe you 10 francs. B has given me his word that he will pay me 10 francs and 10 sous in a year's time. Will you accept my rights with respect to B in payment?" If C has confidence in this, if he believes it will happen, the bargain may be struck. But who will dare to say that, in order to increase the number of shoes and hats it is enough to increase the number of promises of this nature, with no reference to the confidence placed in them?

B may hand over a written title. In this documented form, the undertaking will avoid arguments and disclaimers; it will inspire more confidence and circulate more easily than a verbal promise. But neither the nature nor the effects of the credit will have changed.

Finally a third party, a Bank, may guarantee B, take over his obligation and issue its own note in its place. This will be a new opportunity for the circulation of credit. But why is this so? Precisely because the signature of the Bank inspires more confidence in the general public than B's signature. How could one believe that a Bank has a useful purpose if it were not based on confidence, and how would it gain this confidence if its notes offered less of a guarantee than those of B?

These various titles must not therefore delude us. We should not see in them something of intrinsic value, but the simple promise to hand over something of value, a promise guaranteed by someone in a position to keep it.

But what I would like to point out, for this is the reconciliation I offered you earlier between your opinion and mine, it is a straightforward transfer of the right to the interest which happens through the intervention of the Banks.

Who pays the interest in the case of a promissory note or a bill of exchange? Obviously it is the borrower, the person for whom others have sacrificed their time. And who profits from this interest? Those who have made this sacrifice. Thus, if B has borrowed 1,000 francs for a year from A and has signed a note for 1,040 francs, it is A who profits from the 40 francs. If he immediately trades this note at a discount of 4 percent, it is the bearer of the note who earns the interest, as is fair, since it is he who has made the advance or the sacrifice of time. If A trades his note at the end of six months to C, C will give him only 1,020 francs for it and the interest will be shared between A and C, since each has sacrificed six months.

However, when the Bank intervenes, things are done differently.

It is still B, the borrower who pays the interest. But it is no longer A and C who make the profit but the Bank.

Sure enough, A has just received his title. If he kept it, at whatever time he negotiated it, he would of course receive the interest for the entire time during which he has been deprived his capital. But he takes it to the Bank. He hands it an entitlement to 1,040 francs and the Bank gives him a note for 1,000 francs in exchange. It is therefore the Bank that earns the 40 francs.

What is the reason for this phenomenon? It is explained by people's preference to make sacrifices in favor of convenience. 1903 Bank notes are very convenient titles. People accept them do not plan to keep them (forever). They say to themselves, "I will not hold this for longer than eight or ten days and I am well able to forego, the interest on 1,000 francs for one week in view of the advantages the note provides me." Besides, notes have this in common with money; the money one has in a purse or safe does not earn interest, which shows, in passing, how absurd people are who constantly speak out against the productivity of money, since nothing in the world is less productive of interest than money.

Thus, if a bank note remains in circulation for a year and passes through forty hands, remaining nine days in each, forty people have renounced in the Bank's favor the rights they had to the 40 francs of interest due and paid by B. Each of them has sacrificed 1 franc.

This being so, it might have been asked whether this arrangement was just, if there was not a means of organizing a National Bank, a communal Bank, which would allow the general public to benefit from the sacrifice borne by the general public, in a word, one that did not levy interest.

If I am not mistaken, Sir, your invention is based on an observation of this phenomenon. It is not new. Ricardo conceived a plan that was less radical but similar, 1904 and I find these remarkable lines in Say's A Commentary on Storch : 1905

This ingenious idea leaves only one question unanswered. Who will benefit from the interest on this considerable sum put into circulation? Will it be the Government? This will be just one more way for it to increase abuses such as sinecures, parliamentary corruption, the number of police informers, and standing armies. Will it be a financial company, such as the Bank of England or the Bank of France? But what is the use of making a gift of the interest paid in individual transactions by the public to a financial company that is already rich? These are the questions that this subject generates. Perhaps they are not insoluble. Perhaps there are means of making the resulting savings highly profitable for the public , but I am not called upon to develop this new order of ideas here.

Since it is the public that pays all of this interest, it is for the public to benefit from it. Certainly, these premises are just one step away from the conclusion. As for the means, I believe that they are obvious; it is not a National Bank that is needed but free banking.

Let us note first of all that the Bank does not benefit from the total amount of the interest.

Apart from costs, it has capital. What is more, it needs to keep a sum of unproductive money constantly ready in its vault.

We cannot repeat too often that (the) notes from a bank are titles of trust. On the day it issues them, the Bank is proclaiming loudly that it is ready to reimburse them at its office and at any time. Strictly speaking therefore it has to keep constantly available enough created value equal to the face value represented by the notes put into circulation, in which case the interest paid by B would be lost for everyone. However, experience having taught the Bank that its notes circulate for a fixed length of time, it takes its precautionary measures with only this restriction in mind. Instead of keeping 1,000 francs, it keeps only 400 (let us say hypothetically) and puts 600 francs to work. It is the interest on these 600 francs that is borne by the public and by the successive holders of the note and which passes in revenue to the Bank.

Well, this should not happen. It should earn only its costs, the interest on any basic capital, and the just profits from all labour or financial dealings. That is what would happen if there were free banking, for competition, which tends to make rates of interest uniform, would not allow the shareholders of a bank to be treated better than the shareholders of any other similar business. In other words, rival banks would be obliged to reduce their discount rates to what is necessary to invest their capital under conditions which are common to all, and this strange phenomenon that I have pointed out, by which I mean the voluntary abandonment of interest to which the successive holders of these notes is subject, would benefit the general public in the form of a reduction in the discount rates. To be even more accurate, I will say that the interest on a 1,000 franc note put into circulation would be shared. Part would go to the Bank to cover the sum it is obliged to keep in reserve, its costs, and the rent (interest) on its original capital, while the other part would be converted by competition into a reduction in the discount rate.

And note this well, this does not mean that interest would tend to become free of charge or to be eliminated. It means only that it would tend to be received by the person who has a right to it.

But privilege has intervened to allocate it (interest) otherwise, and since the Bank of France has no competitors, instead of retaining just part, it is pocketing everything.

I would like, Sir, to show free banking in another light, but this letter is already too long. I will limit myself to outlining my thought.

What is commonly known as interest comprises three elements, which we are only too accustomed to confuse:

  1. Interest properly speaking, which is payment for the period (of the loan), the price of time; 1906
  1. The cost of circulation;
  1. The insurance premium.

Free banking would act on these three elements simultaneously in a favorable manner and in the form of a reduction in price. It would maintain interest properly speaking at the lowest level for the reasons I have given, without ever eliminating it. It would reduce circulation costs to a figure that, in practice, would be close to zero. Finally it would tend to reduce and above all to level out the insurance premium, which is by far the most burdensome element that makes up the total interest, especially for the working classes.

If it is the case that the men who enjoy an abundance of credit in France, such as the Mallets, 1907 the Hottingers, 1908 or the Rothschilds, 1909 have access to capital at 3 percent, it can be said that this is the interest component and that everything others pay above this represents the cost component, and in particular the insurance component. This is no longer a question of the price of time but of the price of risk, or the difficulty and uncertainty of recovering the loan.

How will free banking improve and equalise the condition of borrowers with respect to these issues? Let the reader solve the question for himself. I prefer to leave him this wearisome task rather than give it away to him.

On this question, as on all, the true solution is thus freedom. Freedom will cause banks to spring up everywhere there is a center of (economic) activity and will cause these banks to associate with each other. It will make those two great levers of progress, savings and credit, available to every merchant and every artisan. It will hold down interest to the lowest level to which it can go. It will spread habits that most favor the formation of capital. It will make all the dividing lines between the classes disappear and achieve the mutuality of services without eliminating the price of time , which is one of the legitimate and essential elements of human transactions.

Free banking! Freedom for credit! Oh, why, Mr. Proudhon, has your fiery propaganda not taken this direction? Do you not advocate freedom in all other respects as a right, an attribute (of mankind), or a lesson for all men? Do you not demand freedom to buy and sell? And what, after all, are loans if not the sale of a use (of something), the sale of time? Why should this transaction be the only one to be regulated by the State or trapped within the confines of your ideas? Do you have faith in the human race? Work towards releasing it from its chains and not towards forging new ones (for it). Accept that the motive that impels (the human race) towards unlimited progress is inherent in itself and not in the minds of legislators. Let us achieve freedom and the human race will be fully capable of bringing forth all the progress that its nature contains. If it is possible and good for credit ever to be free or eliminated, as you believe, a free human race will accomplish this work more surely than your bank. If this is neither good nor possible, as I am convinced is the case, a free human race will avoid the abyss into which your bank is propelling it.

In the name of right, in the name of justice, in the name of your faith in human destiny, in the name of the good feeling that it is always desirable to foster among all the parties involved in (debate and) propaganda, I thus entreat you to substitute for the words Free Credit on your banner those of the Freedom of issuing Credit. 1910 But I am forgetting that it is not my place to give advice. Besides, what good would it do? Have we ever seen the leader of a school retrace his steps and face up to this unjust and terrible word, Apostasy? There are those who in their lifetimes have committed rash acts; they will not commit this one, although it is more worthy than all (the) others of gratifying the pride of a noble heart.


Letter No. 13: P. J. Proudhon to F. Bastiat (11 February 1850)

Psychological consultation. Recapitulation. Accounting is an infallible method. Closure of the discussion.

11 February 1850


Your last letter fulfills all my predictions. I was so sure of how it would turn out for me, that even before I received the 4 February issue of La Voix du Peuple , I had already written three-quarters of the reply which you are about to read and all that is left for me to do is to bring it to an end.

You are sincere Mr. Bastiat; you do not leave anyone room to doubt it. I have moreover acknowledged this and I see no grounds for retracting my acknowledgement. What I really do have to tell you that is your intelligence is asleep, or rather it has never seen the light of day. This is what I will have the honor of showing you by summarizing our debate. I hope that the sort of psychological consultation in which you will take part and whose subject will be your own mind will set you on the road to that intellectual education without which a man, no matter what dignity of character distinguishes him or whatever talent he displays, is, and never will be anything other than, an animal that talks , as Aristotle puts it. 1911

What constitutes intelligence in man is the full, harmonious, and continuous exercise of the following four faculties: Attention, Comparison, Memory, and Judgment . At least this is what I was taught in secondary school and what you will find in all schools of philosophy.

Two or more propositions linked one to another and forming a systematic whole, constitute a process of understanding . Understanding takes various forms: syllogism, induction, dilemmas, paradox, etc. All of these come under the heading of reasoning .

The art of reasoning is called logic ; strictly speaking, it is intellectual mechanics. All the faculties taken together constitute REASON.

Plato's induction, Aristotle's syllogism, the contradiction which we associate with the sophists, Condillac's notion of identity 1912 and those antimonies we find in Kant and Hegel, are all merely so many forms of reasoning and particular applications of logic; in the same way as the use of steam as a driving force led to the invention of all sorts of machines, locomotives, steam boats, fixed machinery, high or low pressure machinery, etc., but all of which stem from the same principle: steam.

All the sciences without exception are based on logic, that is to say, on the exercise of the four prime faculties, attention, comparison, memory, and judgment. This is why science is essentially a matter of demonstration; spontaneity, intuition, and imagination have no scientific authority. It is for that reason also, that is to say because of their rational faculties, that men become capable of communicating their thoughts to one another and conversing with one another; if you take away their attention, comparison, memory, and judgment, they talk one after the other or all at once. They do not answer each other and no longer understand one another.

Let us apply these rules to human reason, our common criterion.

From the outset of this dispute, and in a categorical reply to the question you have set me, that is to say, whether interest on loans is legitimate , I told you that in current economic conditions, and given the fact that credit has not been democratically organized, I considered this to be indubitably the case and therefore the arguments you took the trouble to put before me were pointless. I also told you that I accepted them in advance, and that the entire question, in my view, was to establish whether the economic environment could be changed, and that Socialism, in whose name I was speaking, asserted this possibility. I added that changes in the conditions of credit were a necessity for the tradition itself, the final term of the procedure that you defend with so much obstinacy and so little philosophy.

Therefore, to the question you put to me, is interest on capital legitimate, I had no hesitation in replying: Yes, in the current state of affairs, interest is legitimate. I maintain, however, that this order can and must be modified, and that inevitably, whether it please us or not, it will be. Was this, then, an evasive reply? And did I not have the right to hope that, myself having replied so clearly to your question, you would in turn answer mine?

But I was dealing with a man whose mind is hermetically sealed and for whom logic does not exist. It is in vain that I shout to you: "Yes, interest is legitimate in certain conditions independent of the will of the capitalist; no, it is not legitimate in certain other conditions, as it is now up to society to create new conditions, on the grounds that interest, excusable in lenders is, from the point of view of society and history, a form of plunder!" You, however, will have none of It. You do not understand it and you do not even listen to my responses. You lack the first faculty of intelligence, namely attention.

What is more, this is what your second letter adds up to, which starts thus: "Sir, you have set me seven questions. Please remember at this point that there is only one question between us: Is interest on capital legitimate ?" All the rest of your epistle is just a reproduction of the arguments in the first, arguments to which I had not replied because I had no need to answer them. Change the environment, I told you, and you change the principle and the practice. You took no notice of my words. You thought it more useful to poke fun at contradiction and antinomy, at thesis, antithesis, and synthesis, aligning usurers and idiots on your side at very little cost, happy to laugh at what they tremble to perceive.

What did I do then?

To rouse this rebellious faculty of attention in you, I used a variety of terms of comparison. Using the examples of the monarchy, polygamy, legal combat, and industrial corporations, I showed you that the same thing could very well have been good, useful, legitimate, respectable, and then become harmful, illicit, and disastrous, depending entirely on the circumstances that surround it, that progress, the major law of humanity, is nothing other than this constant transformation of good into evil and evil into good and that, among other things, this is also true of interest. I said that the time had come for interest to disappear, as can easily be seen from the political, historical, and economic signs that I was pleased to indicate to you in summary form.

This was calling upon the most precious of your faculties. It was saying to you: "When I state that the conditions that make loans excusable and legitimate have disappeared, I am not saying something that is extraordinary, I am just stating a particular instance of social progress. Observe and compare, and once you have made the comparison and acknowledged the analogy, let us return to the question I asked in reply to yours. Can the forms of credit be modified so as to lead to the elimination of interest, and ought they to be so? This, without prejudice to the exoneration that science owes to all lenders, speculators, capitalists, and usurers, is what we have to examine.

But I'll be damned! Is Mr. Bastiat himself in the business of comparisons at all? Is he even capable of making comparisons, any more than he is of paying attention? Sir, you have no grasp of historical analogy and the movement of institutions, and the general law which springs from them you call fatalism ; " I wish to remain on my own ground !," you say in your third letter. Thereupon, like some chatterbox and hugging to your bosom all the words that might supply a few excuses, you quote as though they were new arguments a few facts whose legitimacy in the established discourse I do not deny but whose necessity I query, and consequently whose revision and reform I demand.

When a man who calls himself an economist, with pretensions to the ability not only to reason, but also to explain and sustain a scientific discussion, has come to this impasse, I am bold enough to say, Sir, that he is a desperate man. No powers of attention and comparison ; a total inability to listen and reply! What can I now learn from you? You are adrift alike from philosophy, science, and humanity.

However, let us not lose heart. Perhaps, I tell myself, attention and comparison will be aroused in Mr. Bastiat with the help of another faculty. Observing an idea attentively and then comparing this idea with another is too subtle and abstract a process. Let us resort to history: history is the series of observations and experiences made by the human race. Let us explain progress to Mr. Bastiat; in order to understand progress in its unity and consequently its laws, all that one needs is memory .

When I talk about memory as the faculty of human understanding, I am distinguishing it essentially from individual recollections. Animals recollect but have no memory. Memory is the faculty of making connections and classifying recollections, of considering several consecutive facts as one and the same fact and applying seriality and unity to them. It is attention applied to a series of things accomplished over time and generalized.

So I wrote a monograph on usury. 1913 I showed you the origin of usury, its causes, its pretexts, its analogues, its development, its effects, and its consequences. I showed that the derivations of the principle of usury are completely unfeasible and absurd, that it inevitably engenders immorality and poverty. Having done this, I said to you: "You see that the order and preservation of society are now incompatible with usury, that the conditions of credit can no longer go unchanged, that interest, legitimate at the outset and still excusable today in lenders, (but) upon whom it does not rely for it to be removed, has become legalised plunder in the eyes of social conscience, a monstrous institution that is calling unanswerably for reform."

Unless I am mistaken, this was an opportunity to study history after all, with the new conditions governing credit and the possibility, affirmed by me, of making it free of charge. And remember that most carefully putting aside personal questions, I constantly said to you: "I am not accusing capitalists; I am not complaining about landowners. I am far from condemning bankers and usurers as the Church has done. I acknowledge the good faith of all those who benefit from interest. I denounce an error that is entirely collective, an antisocial Utopia full of injustice." Well then, did you even understand me? For as for refuting me, you have not even dreamt of doing so.

I have your fourth letter before me; 1914 is there a shadow of that historic perception, which is, as I have told you, memory? No. Accomplished facts exist for you solely as memories, that is to say they are nothing. You do not deny them, but since it is impossible for you to follow the thread and generalize from them, you do not extract their content; their meaning escapes you. Your faculty of memory, like your faculties of attention and comparison, is non-existant. All you can do is repeat the same thing over and over again: He who lends for interest is not a thief and nobody can be forced to lend. After that, what is the use of knowing whether credit can be organized on different bases or examining the results of the practice on the working classes? Your theme is done; you do not depart from it in the slightest. And proceeding thus, after explaining practice of usury using several examples, you reproduce it using (theoretical) propositions and say: "This is science!"

I admit to you, Sir, that for an instant I doubted whether there existed on this earth a man who was as deformed by nature with regard to intellect and I impugned your character. For my part, I would a thousand times rather be condemned for my frankness than be seen as clearly lacking what is man's finest quality, the one that defines his power and his essence. My letter dated 31 December was written under the influence of these painful conclusions, and you can now easily grasp its meaning.

I said to myself: since Mr. Bastiat does not deign to honor my reply with his attention, nor to mention the facts that inspire it, nor to take note of the historical movement that quite invalidates his own approach; since, moreover, he is incapable of entering into a dialogue with me and of grasping the arguments of his adversary we have to conclude that he thinks too highly of himself. This is a man, as the saying goes, who delights in his own opinions and, by dint of listening only to himself, has cut himself off from any conversation with his fellow men. Let us therefore attack his judgment, that is to say, his awareness, his personality, his ego .

This is why, Sir, I was led to attack, henceforth, your intellectual honesty rather than your lines of reasoning which are fundamentally invalid with respect to this question. I questioned your good faith: it was an experiment that I allowed myself to carry out on you as an individual, and I beg your pardon for this. To give body and shape to my accusation, I concentrated our entire discussion on a contemporary reality, tangible, and decisive, with which I identified not only your theory but you yourself: the Bank of France.

The Bank of France, as I pointed out to you, is the living proof of what I have been repeating to you for the last six weeks, namely, that while interest was at one time necessary and legitimate, society now has the duty and opportunity of abolishing it.

It has been proved, in fact, by a comparison between the Bank's capital and its receipts that, while paying its shareholders interest on the said capital at 4 percent, it can provide credit and offer discounts at 1 percent and still make a splendid profit. It can do this and it ought to do this; by not doing this, it is committing theft. Its refusal is the reason rates of interest, house rents, and farm rentals, which ought to decrease everywhere to a maximum of 1 percent, remain at the high rates of 3, 4, 5, 6, 7, 8, 10, 12, and 15 percent. It is the reason the nation pays more than six billion each year in bonuses and bribes to the non-productive classes and why the nation produces an output of only ten billion each year although it could produce twenty. For this reason, either you justify the Bank of France or, if you cannot do so, if you dare not do so, you should acknowledge that the practice of interest is just a transitional one that must disappear in a higher form of society.

This, Sir, is what I said to you and in pithy enough terms to provoke on your part, a judgment, given your lack of attention, power of comparison, and memory, with regard to the wholly historical question that I had submitted to you previously, I mean a simple and completely intuitive act of thought, faced with a factual question to which the answer is yes or no . All you had to do was reply in a few words, that is true or that is not true , and the process would have been complete.

So either, yes , it is true that without cheating its shareholders and harming itself, the Bank of France could discount at 1 per cent. It could therefore, by virtue of the competition this reduction would create, effect a decrease in the cost of all forms of capital, its own included, to below 1 percent. And since, once begun, the process of reduction would never stop, the Bank could, if it wished, cause interest to vanish altogether. So when credit is paid simply what it is owed, it immediately becomes free credit. It follows, therefore, that interest exists only out of ignorance and barbarism, and therefore that in organised democracy, 1915 usury and rent would be illegal.

It is not correct, that is to say it is not true, whatever the balance sheet published each week by the Bank of France says, that it has a capital of 90 million and receipts of 460 million; it is not true that these huge receipts come from the substitution of bank paper for cash in commercial circulation, etc. etc. On this matter, I referred you back to Mr d'Argout, to whom the debate constantly returned.

Would anyone ever have believed this if you had not drawn our attention to it? To this categorical and stunning fact about the Bank of France you reply neither yes nor no . You do not even have an inkling that the fact we asked you to consider exemplifies perfectly your theory of interest. You do not notice the synonymous nature of these two propositions: Yes, the Bank of France is able to provide credit at 1 percent, therefore my theory is wrong; No, the Bank of France cannot provide credit at 1 percent, therefore my theory is correct.

Your reply, an unimpeachable monument to an intellect that the Divine Word has never illuminated, is that for you it is not a question of the Bank of France but of capital, that you are not defending the privilege of the Bank of France but only the legitimacy of interest, that you stand for the free banking as well as freedom to lend, that if it were possible for the Bank of France to offer credit and discount for nothing you would not stand in its way and that you limit yourself to making one statement which is that the notion of capital necessarily supposes and entails the notion of interest and that the former does not happen without the latter, although the latter occurs sometimes without the former, etc.

This being so, you are as powerless to judge as to observe, compare, and call things to mind. You lack the kind of legal mind which, when faced with two identical or contrary facts, states: Yes, they are identical or no, they are not identical. Doubtless, since you are a thinking person, you have intuitions, flashes of illumination and revelations; for my part, I do not presume to say what is going through your mind. But what is certain is that you do not reason, nor do you reflect. What type of man are you, Mr. Bastiat? Are you even a man?

What! Having been defeated by me in turn in questions of metaphysics, which you do not understand in the slightest, in questions of the philosophy of history, which you describe as fatalism, and in discussion of economic progress, whose most recent advances show that interest is a reductio ad absurdum , you are now surrendering to me on the subject of financial management, whose most splendid corollary is precisely the conversion of credit which is paid for into free credit, you nevertheless persist in upholding the absolute truth of your theory, the one that you have thus destroyed with your own hands! You give ground on all sides; metaphysics, history, social economy, and banking are lacking in your thesis, just as attention, comparison, memory, and judgment are absent from your mind! I ask you once more, what is your method of argument and how do you want people to take you?

Notwithstanding this, I was not discouraged. I wanted to go to the limit and make one more effort. I believed that this inertia in your intellectual faculties might stem from a lack of ideas and I nurtured the hope of being able to kindle the spark in your soul. You yourself appeared to be pointing this way forward to me when you said: "C onvinced that this entire debate rests on the NOTION of capital," and therefore you were trying to explain what you understood by capital; I then said to myself: Since he cannot be approached through logic, let us attack him by way of ideas. It would be a shame for a discussion like this to end without the two opponents being able to acknowledge that, while they have not been able to agree, at least they have understood one another!"

Therefore, especially for you, I analyzed the notion of capital. This analysis completed, I defined the term, deduced its corollaries, and then, in order to avoid any ambiguity in the terms used, I called upon the science of accounting. I recounted the theory of capital first according to your ideas and then according to mine in two comparative tables using commercial book-keeping entries. I devoted thirteen columns of La Voix du Peuple to this exposition, out of kindness, the point being that in my view an economic revolution should emerge from this, and even better, a new science.

All this was a final chance to say to you one last time:

Be careful! Times have changed. The practice of interest has exhausted all its possible consequences, which are now acknowledged to be immoral, destructive of public happiness, and mathematically wrong. Book-keeping gives the lie to interest and its consequences; indeed, book-keeping leaves you without intellectual resources, since it demolishes the very notion of capital. For God's sake, take note then of the facts I am pointing out to you; observe, compare, synthesize, judge, and go back to basic ideas: it is only then that you will have the right to express an opinion. Doubtless, you will persist in your error, but at least your error will be reasoned and you will be mistaken in full knowledge of the facts.

How have you fared in the face of this test? This is what I will be examining, when I reply to your last letter.

I leave aside your grandiloquent and pompous introduction in which you both tell society how lucky it should think itself for the service I have provide d in unveiling the latest word on Socialism and also celebrate your victory. I will not take up your jokes about my doubts and indecisions in my polemic; our readers are sufficiently educated in this respect. They know that what you call doubt in me is none other than the fundamental distinction I made from the outset between the past and present economic systems, a distinction that I supported in turn with all the proofs that metaphysics, history, progress, and even daily routine provided for me, and to which I have been endeavoring, unsuccessfully, to call your attention for the last two months. In a word, I am setting aside everything in your letter that is not directly related to the question and will deal only with the essential.

I had defined capital thus: ANY CREATED VALUE in land, tools of work, goods, provisions of food, or money, which is used or capable of being used for production .

What a surprise! You agree with this definition; you accept it and even seize onto it. Alas! It would have been a hundred times better for you to reject it, along with antinomy and the philosophy of history, rather than overload your understanding with a formula like this! The frightful havoc this horrendous definition has wreaked in your mind has to be witnessed to be believed!

First of all, you have not understood it at all. In spite of the trouble I took to explain it to you, you do not know what a created value is: if this were not so, could you have put the following words into the mouth of one of your characters: "Gentlemen, if you want things of created value from me, such as my furniture, shoes, nails or clothes, then give me in exchange some created value, shall we say, twenty francs in cash"?

In commerce, one calls created value , for example, bills of exchange of sound provenance, possessing full legal tender, issued by a reputable and solvent house, accepted and where necessary endorsed by people who are equally solvent and reputable, such that they offer guarantees of the order of triple or quadruple, etc. and can readily circulate like cash because of the number and solidity of the sureties. The more guarantees and acceptances they have, the more secure is their value. The ideal thing would be to have every citizen as their guarantor and acceptor. Money is like that, the best of all things of created value. Apart from the fact that it carries its own intrinsic guarantee, it also bears the signature of the State that launches it into circulation and like a bill of exchange, is assured of acceptance by the general public. By way of analogy, I would say that furniture, shoes and indeed all other products come to be acknowledged as having created value, not because their manufacture has been completed and they are displayed for sale - which is what you say - but because they have been evaluated by both sides to the transactions and delivery has taken place; and yet solely for the person purchasing them or the one who agrees to purchase them again at the same price. This is how, as I have told you, a product becomes capital, and it is capital only for its acquirer who makes it either a tool or an element of further production. For this person, I say, and for him alone, the product becomes created value, in a word, capital.

Here, Sir, I at least have the advantage that you will not disagree with me. I am the author of the definition and I know what I meant to say; your words make clear your lack of understanding. You do not understand me.

Be that as it may, and without paying it much attention, you take my definition of capital as valid and say that it will serve for the purposes of the discussion. You therefore acknowledge implicitly that society's capital and product are one and the same, and that as a result any credit operation, unless there is fraud, results in an exchange, two things that you initially denied and that I would now congratulate you for having finally understood if only I could believe that you are faithful to the meaning of my words. What is more fruitful, in fact, than this analysis: Since value is nothing more than a proportion, and that all products are necessarily proportional to each other, it follows that from the social point of view products are always values and created values. There is no difference between capital and product, as far as society is concerned. This difference is purely subjective for individuals. It comes from their inability to express the proportionality (between) products in an exact number and from their attempts to arrive at an approximation. 1916 For let us not forget that the secret laws of exchange, the absolute rule governing transactions, intuitive rather than written, natural rather than conventional, is to make actions in private life conform as closely as possible to the practices of social life.

Well, and this is what gives rise to my doubts, this definition of capital that is so profound and clear, that you find worthy of acceptance, this identity between capital and product, credit and exchange, all of this, Sir, is a negation of your theory of interest; indeed, have you no inkling that this is so? Given that J. B. Say's formula, 1917 products are exchanged for other products is identical to that other formula, capital is exchanged for capital; that the definition of capital accepted by you is part of that synonymous relationship; that everything in society converges to make the realities of commerce conform ever closer to this law, then it is obvious a priori that the day will come when relationships governing loans, rents for accommodation, farm rents, interest, and similar things will be abolished and converted into relationships of exchange. In this way the benefits provided by capital will become simply an exchange of capital and, since all transactions will be conducted in cash, interest will inevitably disappear. The concept of usury under this conception of capital would entail contradiction.

You would have been bound to understand this if, when adopting my definition of capital, you had reflected on it for a single minute. But to believe that you will reflect on your own notions, to think that once you have accepted a principle you would adopt its consequences, its movement and laws, is to be sadly strangely mistaken, as I have discovered to my cost. Reasoning, in your eyes, is to contradict without rhyme or reason, with no follow-up nor method. Ideas slide across your mind without penetrating it. You take their sense, which you then apply as you will in accordance with your intellectual preoccupations, but discard the ideas themselves, the germinal insights that alone render intelligence fertile and resolve our difficulties.

Nevertheless, I spared no effort to enlighten you on the meaning and portent of my definition and put you on your guard against it. Abandoning the hope of getting you to conceive it just through the metaphysics of language, I reduced it to equations that were, so to speak, algebraic. For what is the science of accounting that I used on this occasion, other than a form of algebra? But this is a totally new question. Your reasoning on bookkeeping is exactly the same as for created values; having accepted a definition without understanding its terms or glimpsing its consequences, it was still left to you to deny the proofs offered. But, Sir, to prove is to define; what stance do you have with respect to all this?

In your letter dated 3 February, 1918 I read:

"Having invented these figures, you establish accounts for A, B and the Bank. This accounting, once you have accepted the figures, is beyond criticism. However, can we accept your figures? Are they in conformity with the nature of men and of things?"

This, I venture to say to you, is the reversal of arithmetic and common sense. However, Sir, if you had had the slightest notion of accounting, you would not have written lines like these. You would have known that if, as you are obliged to admit, my accounting is beyond criticism , the economic facts on which I have based it are, in the first system, that is yours, of necessity wrong, while in the second system, that is mine, they are of necessity right. This is the essence of accounting, that it does not depend on the accuracy of its data; it does not suffer from inaccurate data . It is intrinsically, and in spite of the wishes of the accountant, a demonstration of the truth or falsehood of its own data. It is by virtue of this property that traders' books have legal standing, not only for them but also against them; error, fraud, lies, inaccurate data in short, are incompatible with bookkeeping. A bankrupt person is condemned on the testimony of his entries much more than on the denunciation of public authority. Such is the incorruptibility of this science, I tell you, that I have highlighted it in my System of Economic Contradictions 1919 as being the finest application of modern thought.

You speak of inaccurate data . But the data on which I have based my accounting is precisely yours, the fact of capital that produces interest . As this fact is deemed to be true in your eyes, I subjected it to the proof of accounting I did the same for the opposing data, which is the one I am defending. Once I had completed this operation, you proclaimed it to be beyond criticism, but, as its conclusion was against you, you protested that the data was wrong . I ask you, Mr. Bastiat, what did you mean to say?

I am certainly no longer surprised now that, as a result of not seeing in a definition what it contains, you ended up finding what is not there, and that from one mistake to the next you fell into the most extraordinary hallucination. Where in this irreproachable accounting, notwithstanding its inaccurate data in your view, did you find that the system that I am defending is paper money ? I challenge you to quote a single word of mine in this long controversy that authorizes you to say as you do, and I believe you do so to extricate yourself from an embarrassing situation, that the theory of free credit is the theory of "assignats." I have not said a word on the alternative theory and system that I would like to see substituted for the one that governs us and in which I continue to see the cause of all the misfortunes of society. You did not want this system to be discussed; you have remained on your home ground and all that I have been able to do is to show you, without however making myself understood, that the practice of interest leads straight to the practice of free credit and that the hour has come to complete this revolution. There has never been any question as to my own theory. I have constantly reasoned in accordance with your data; I have restricted myself, in company with you, to the ways and customs of capital. Read my letter dated 31 December again 1920 ; it does not mention the People's Bank at all, but strictly the BANK OF FRANCE, that privileged Bank directed by Mr. d'Argout, whom you presumably do not suspect of being a partisan of paper money, nor of money made of paper, nor of assignats. A Bank, in short, that since the merging of departmental Banks 1921 and the issue of 100 franc notes has seen its deposits constantly increase, such that it now possesses 460 million in ingots and currency and will end up by engulfing a billion in cash in its coffers if the authorities reduce still further the face value of notes, establish other branches, and business picks up. This is the Bank I was talking to you about; did you perhaps take it for a hypothetical speculation, and its 460 million in cash as a Utopia?

This is what I said to you:

The capital of the Bank of France is 90 million, its receipts are 460 million and its issued notes 472, or therefore a capital, whether realized or guaranteed, of 382 million, which belongs to the French people and on which the Bank ought not to receive any interest.

Well now, the interest owed by the Bank to its shareholders being 4 percent on a capital of 90 million with administrative costs, including risk, at ½ percent, the accumulation of specie is progressive and the total number of issued notes allowable without danger to rise to a figure a third greater than the number of receipts, I say that the Bank of France could and should reduce the rate of its discounts to 1 percent, on pain of charges of misappropriation and theft and, furthermore, organize credit on property at the same time as commercial credit. Why, therefore, do you talk to me of paper money, assignats, legal tender laws, price controls, bankrupt debtors, borrowers of bad faith, profligate workers, and other nonsense? Let the Bank do its job with prudence and strictness as it has done up to now; that is not my business. I say that it has the power and the duty to give credit and discount to those to whom it is accustomed to give such, but at 1 percent per year, including commission. Will Mr. Bastiat for once do me the honor of listening to me?

MR. BASTIAT: "For a Bank's notes to be accepted, they have to inspire confidence;

For them to inspire confidence, the Bank has to have capital;

For the Bank to have capital, it has to borrow it and consequently pay interest on it;

If it pays interest on it, it cannot lend it interest-free." 1922

ME: Well, Sir, the Bank of France has found capital without interest; right now it possesses 382 million that do not belong to it; it will have double this under the same conditions whenever it wants. Ought it to exact interest?

MR. BASTIAT: "Time is valuable. Time is money, as the English say. Time is the stuff of which life is made, as Poor Richard says.

To give credit is to allow time.

Sacrificing time to someone else is to sacrifice something precious to him; a sacrifice of this nature cannot be free of charge."

ME: You will therefore never get the point! I have told you, and I now say it again, that with regard to credit what makes a person need time is the difficulty in getting money for himself, and that this difficulty is above all linked to the interest demanded by the holders of money, so that if the interest was zero, the period of the credit would also be zero. Well, under the conditions that the general public has granted it since the February Revolution, the Bank of France is able to reduce its interest almost to zero; which of us is going round in circles?

MR. BASTIAT: "Oh, yes! … I think … I think I understand at last what you mean. The general public has renounced in the Bank's favor interest on 382 million in notes that are in circulation under its sole guarantee. You ask if there is no way of having the general public benefit from this interest or, what amounts to the same thing, organizing a National Bank that does not exact interest. If I am not mistaken, your invention is based on the observation of this phenomenon. Ricardo had devised a less radical but similar plan and I have found the following remarkable lines in Say:

This ingenious idea leaves only one question unanswered. Who will benefit from the interest on this considerable sum put into circulation? Will it be the Government? This will be just one more way for it to increase abuses such as sinecures, parliamentary corruption, the number of police informers, and standing armies. Will it be a financial company, such as the Bank of England or the Bank of France? But what is the use of making a gift of the interest paid in individual transactions by the public to a financial company that is already rich? These are the questions that this subject generates. Perhaps they are not insoluble. Perhaps there are means of making the resulting savings highly profitable for the public , but I am not called upon to develop this new order of ideas here. 1923

ME: Well, Sir, your J. B. Say, with all his genius, is a fool. The question has been fully answered; it is that the people who provide the funds, the people who here are the sole capitalists, the sole silent partners , and the true owners, the people who ought alone to benefit from the interest, the people, I say, ought not to pay interest. Is there anything in the world that is simpler and fairer?

Thus, as you will agree, on the word of Ricardo and J. B. Say, there is a way of making the general public benefit , and I quote your own words, from the interest it pays to the Bank, and this way is to organize a National Bank that gives credit at an interest rate of zero percent!

MR. BASTIAT: "No, not that, may God preserve us! It is true that I acknowledge that the Bank ought not to benefit from the interest paid by the general public on capital that belongs to the general public; I also agree that there is a way of having the general public benefit from this interest. However I deny that this way is the one you indicate, that is to say, the organization of a National Bank. I state and repeat that this way is via free banking.

Free Banking! Freedom for credit! Oh, why, Mr. Proudhon has your fiery propaganda not taken this direction?"

I will spare the reader your long speech, in which you deplore the hardening of my position and beg me with comic seriousness to substitute your slogan, Freedom of credit, for mine, Free credit, as though credit could be freer than when it costs nothing. If there is one thing you ought to know it is that there is not one bone in my body that resists freedom of credit; whether it refers to banks or to teaching, freedom is my supreme law. However, I say that until the free banking and competition between bankers enables the general public to benefit from the interest the public pays the banks, it would be a good, useful, constitutional thing and a saving that is wholly republican to create, in the midst of other banks and in competition with them, a National Bank provisionally offering credit at 1 or ½ percent at the risk of future events. Does it offend you to make the Bank of France into this National Bank I am proposing, for the reimbursement of its shareholders? While the Bank of France hands back the 382 million in currency that belongs to the general public and of which it is just the holder. With 382 million, a bank can be very easily organized, don't you think? And the overwhelming majority of people can be taken care of too. In what way, therefore, will this bank, formed by a limited partnership with all the people, not be free? Just do this and when you have belled the cat of revolution, when you have promulgated the first act of the democratic and social Republic in this way, I will be responsible for deducing the consequences of this major innovation for you. You will then know just what my system is worth.

As for you, Mr. Bastiat, who as an economist are making fun of the metaphysics of which political economy is just the concrete expression, you who as a member of the Institut, do not even know the philosophy of your own century, and who as the author of a book entitled Economic Harmonies , probably in opposition to my Economic Contradictions, 1924 do not understand anything about the harmonics of history, only see in historical progress a dreadful fatalism, you the champion though you may be, of capital and interest, are ignorant of the very principles of commercial accounting and who, through the meanderings of a bewildered imagination and on the word of authors you revere rather than in accordance with your intimate convictions, realize that it is possible to organize a bank that gives interest-free credit, using public funds, nevertheless continue to protest against FREE CREDIT in the name of freedom of credit; you are doubtless a good and worthy citizen, an honest economist, a conscientious writer, a loyal representative, a faithful republican, and a true friend of the people, but your final words 1925 give me the right to say to you scientifically: Mr. Bastiat, you are a dead man. 1926


Letter No. 14: F. Bastiat to P. J. Proudhon (7 March 1850) 1927

Legitimate right to defense. Origin and summary of a discussion of which the general public is the sole judge.

The cause has been understood and the debate is closed, says Mr. Proudhon, one of the parties to the debate electing himself its judge. Mr. Bastiat has been condemned … to death. I condemn him as regards his intellectual capacity; I condemn him for his inability to pay attention, in his powers of comparisons, in his memory, and his judgment. I condemn him as to his powers of reasoning, I condemn his logic, and I condemn him personally by way of induction, syllogism, contradiction, identity, and antinomy.

Oh, Mr. Proudhon, you must have been very angry when you cast this cruel anathema on me!

It reminds me of the formula of excommunication:

Maledictus sit vivendo, moriendo, manducando, bibendo.
Maledictus sit intus et exterius.
Maledictus sit in capillis et in cerebro.
Maledictus sit in vertice, in oculis, in auriculis, in brachiis, etc. etc.; maledictus sit in pectore et in corde, in renibus, in genubus, in cruribus, in pedibus et in unguibus . 1928

Alas! All the Churches are alike; when they are in the wrong they become angry.

I reject the decree, however, and protest against the closure of the debate.

I reject the decree because it is not up to my opponent to pronounce it. I acknowledge the general public alone as the judge.

I protest against the closure of the debate because, as the defendant, I have to have the last word. Mr. Chevé wrote to me and I answered him; Mr. Proudhon wrote to me and I answered him; he wrote to me again and I replied on the spot. It pleased him to write a fourth, fifth, and sixth letter; I was happy to send him the same number of replies, and he can make all the pronouncements he likes, because unless justice and accepted practice are themselves nothing but contradictions, I am within my right.

For the rest, I will limit myself to summarizing what I have said. Apart from the fact that I cannot continue to debate with Mr. Proudhon if he is not willing, and all the less so, since personalities are starting to replace argument, I would now be in a far too invidious position. Mr. Proudhon is being persecuted 1929 and this would mean that all bias and public sympathy would be with him. He had put the cause of free credit up for scrutiny, and here we have the authorities duly obliging by placing him on the pedestal of persecution. I had just one opponent; now I would have three, Mr. Proudhon, the government, and popular support.

Mr. Proudhon criticises me for two things, first of all for having always defended my statement that interest is legitimate and then for not discussing his theoretical system, that of free credit .

It is true that in each of my letters I have concentrated on examining the essential nature of capital from various points of view in order to establish the legitimacy of interest. For any logical mind, this way of proceeding was critical, for it is very clear that the illusion of free credit evaporates once it is demonstrated that interest is legitimate, useful, and indestructible and has the same essential character as any other kind of remuneration, whether it be profit or wages, constituting as it does the fair payment for a sacrifice of time and labour, voluntarily handed over to the person making the sacrifice by the person who benefits from it. In other words, a loan is one of the many forms of sale . Besides, ought not I to try my best to give this polemic some useful purpose? And when the misguided labouring classes attribute their sufferings to Capital, when the flatterers of the people continue to arouse them against the infamy and infernal nature of capital, encouraging their prejudices in the most despicable way, what more could I do than to set out before the gaze of all the origin and effects of this power that is so misunderstood, since in this way I achieved the precise objective of our argument at one fell swoop?

By proceeding thus, I showed some degree of patriotism and self-sacrifice. If I had heeded only my writer's pride, I would have limited myself to discussing and refuting Mr. Proudhon's quibbles. Criticism is an easy and glittering thing; setting out a doctrine without being obliged to do so is to abandon this fine role in order to hand it over to your opponent. Nevertheless, I did this, because I was more concerned with the polemic than the polemicist and with the readers rather than myself.

Does this mean that I neglected Mr. Proudhon's arguments? I will show that I answered them all and so categorically that he abandoned them all in succession. All the proof that I could ask for is the fact that Mr. Proudhon ended up like all those in the wrong; he became angry.

I will thus take up the same procedure again and having once more called the reader's attention to the nature of capital, I will review Mr. Proudhon's arguments.

May I please be allowed to go back quite far, but only to … the Flood. 1930

When the waters receded, Deucalion 1931 threw stones behind him and they turned into men.

And these men were greatly to be pitied, for they had no capital. They had no arms, nets, or tools, nor could they manufacture any because, to do this, they would have needed to have a few provisions. Well, they were scarcely able to catch enough game each day to satisfy their daily hunger. They felt themselves trapped in a circle which was hard to escape from, and they understood that they would not be extricated from this either by all the gold in California or by all the notes that the People's Bank could print in a year, and they said to each other, "Capital is not all it is cracked up to be."

However, one of these unfortunate people, named Hellen, 1932 who had more energy than the rest, said to himself, "I will get up earlier and go to bed later. I will not retreat before any fatigue; I will endure hunger and will do enough to establish a stock of three days' provisions. I will (then) devote these three days to making a bow and arrows."

And he succeeded. By dint of work and saving, he established a stock of game. This was the first capital in the world since the flood. This is the starting point of all progress.

And several people came forward to borrow it. "Lend us these provisions," they said to Hellen, "We will give it all back to you absolutely intact in a year's time." But Hellen replied, "If I lend you my things, I would ask to share the benefits you acquire with them. But I have a plan, I have taken enough trouble to put myself in a position to accomplish it and I will accomplish it."

And in effect, he lived for three days on his accumulated labour , and during these three days, he made a bow and arrows.

One of his companions came forward again and said to him, "Lend me your weapons and I will return them to you in a year's time." To which Hellen replied, "My capital is precious, there are a thousand of us; one person alone can benefit from them. It is natural that it should be me, since I created them."

But with the help of his bow and arrows, Hellen was able to accumulate additional provisions and make more weapons much more easily than the first time.

For this reason, he lent both provisions and weapons to his companions, stipulating each time that he would be given a share of the surplus game that he was making it possible for them to catch.

And in spite of this sharing, the borrowers saw that their work was made easier. They too accumulated provisions; they too manufactured arrows, nets, and other tools, so that, as capital became increasingly abundant, it was lent on terms that were less and less burdensome. The first impetus had been given to the wheel of progress and it turned with ever increasing speed.

However, and although the ability to borrow constantly increased, late arrivals started to complain, saying, "Why is it that those with provisions, arrows, nets, axes, or saws demand that they receive a share for themselves when they lend us these things? Do we not also have the right to live and live well? Has society not the duty to give us all that we need to develop our physical, intellectual, and moral faculties? Obviously, we would be happier if we borrowed for nothing. It is therefore this vile capital that is the cause of our poverty."

And Hellen assembled them and told them, "Take a careful look at my conduct and the conduct of all those who, like me, have succeeded in creating resources for themselves. You will be persuaded that not only has it done you no wrong, but also that it is useful to you, even if we were so hard-hearted to wish it were not so. When we hunt or fish, we hunt a class of game you cannot attain, so that we have spared you any rivalry with us. It is true that when you come to borrow our tools we take a share in the product of your work, but first of all this is fair, since our work too must be rewarded. Next, this has to be so, for if you should decide that from now on weapons and nets will be lent for nothing, who would make weapons and nets? Finally, and this is what is of most interest to you, in spite of the payment agreed upon, the loan you take out is always beneficial to you, otherwise you would not take it out. It can improve your situation and will never make it worse, for bear in mind that the share you hand over is just a portion of the surplus you obtain as a result of our capital. Thus, after paying this share, you are left with more , thanks to the loan, than if you had not taken it out, and this surplus makes it easier for you to make provisions and tools for yourselves, that is to say capital. From which it follows that the conditions of the loan become more advantageous to borrowers with the passage of time, and that your sons will receive a better share than you in this respect.

These primitive men began to reflect on this speech and they found that it made sense.

Since then social relations have become much more complicated. Capital has taken on a thousand varied forms. Transactions have been facilitated by the introduction of money, written agreements, etc. etc., but through all these complications, there are two facts that have remained and will remain eternally true, and these are:

1. Each time that past labour and present labour are associated in the work of production, the product is shared between them in certain proportions.

2. The greater the abundance of capital, the smaller is its proportional share in the cost of the product. And as capital, in increasing, increases (our) ability to create more capital, it follows that the situation of the borrower is constantly improving.

I can hear someone saying to me, "What do your arguments matter to us? Who is querying the usefulness of capital?"

For this reason, what I am calling the reader's attention to is not the absolute and uncontested usefulness of capital, nor even its usefulness with regard to the person who owns it, but precisely the utility it has to those who do not own it . It is there that the value of economic science lies, and there that the harmony of interests is shown.

Although science is impassive, wise men have a human heart in their breasts; all their sympathy lies with those disadvantaged by fortune, for those of their brethren who bow beneath the triple yoke of unsatisfied physical, intellectual, and moral necessities. It is not from the point of view of the excessively rich that the science of wealth is of interest. What we want is a constant convergence of all men to a level that is forever rising. The question is to know whether this humanitarian evolution can be accomplished through freedom or through coercion. If therefore I do not see clearly how capital benefits even those who do not have it, how, under a regime of liberty, it increases, becomes universal, and constantly levels out, if I were unfortunate enough to see in capital only an advantage for capitalists, and thus appreciate just one aspect of it, certainly the narrowest side, the one that is the least consoling in economic science, I would become a Socialist. For one way or another inequality has to be erased gradually, and if freedom does not include this solution, like the Socialists I would demand it from the law, the State, coercion, science, and Utopia. However, I am happy to acknowledge that artificial arrangements are unnecessary in situations where freedom is enough, that the designs of God are superior to those of legislators, and that true science lies in understanding the Divine work, not in devising another in its stead. For it is truly God who has created the marvels of the social world as well as those of the physical one, and doubtless He has not smiled less on either one of these labors: Et vidit Deus quod esset bonum (And God saw that it was good). 1933 It is therefore not a question of changing natural laws, but understanding them in order to conform to them.

Capital is like light.

There was once a hospice containing both the blind and the sighted. The blind were probably the more unhappy, but their unhappiness did not come from the fact that the others were able to see. On the contrary, in daily life, the sighted provided services to the blind that the blind could never have provided for themselves, and habit prevented them from sufficiently appreciating the services they provided.

Well, hatred, jealousy, and hostility broke out between the two groups. The sighted said, "Let us refrain from tearing down the veil that covers the eyes of our brethren. If sight were to be restored to them, they would undertake the same work as us. They would compete with us and pay us less for our services, and what would become of us?"

For their part, the blind cried, "The greatest of all good things is equality, and if our brethren are to be like us in not being able to see, then they ought to lose their sight like us."

But a man who had studied the nature and effects of the events that had taken place in this hospice said to them:

"Emotion is leading you astray. You who can see, you are suffering from the blindness of your brethren, and the community would achieve a much higher level of material and moral satisfaction at much less cost if the gift of sight had been given to all. You who lack sight, thank Heaven that others can see. They can carry out and help you to carry out a host of things which benefit you, and of which you would be eternally deprived."

Nevertheless, the comparison is in error in one important aspect. Solidarity between the blind and the sighted is far from being as close as that linking the proletariat and capitalists, since while those who see provide services to those who do not, these services do not go so far as to restore their sight, and equality is forever impossible. But apart from the fact that it is currently useful to those who lack it, the capital of those who possess it helps provide the means to acquire it to those without.

It would therefore be fairer to compare capital to language. What madness it would be for infants to be envious of the faculty of speech in adults and to see in this a principle of irreversible inequality, since it is precisely because adults speak today that infants will speak tomorrow!

Remove speech from adults and you would have equality in degradation. Allow speech to be free and you will provide the opportunity for equality in intellectual progress.

In the same way, abolish capital (and you would certainly abolish capital if you abolished its reward) and you would have equality in poverty. Leave capital free and you will have the greatest possible number of opportunities for equality in well-being.

This was the idea that I endeavored to elicit from this polemic. Mr. Proudhon criticises me for it. If I have one regret it is that I never gave this idea enough space. I was prevented from doing this by the necessity of replying to the arguments of my opponent, who now criticises me for not having replied to any of them. Let us look at them.

The first objection put to me (by Mr. Chevé) consists in saying that I confuse ownership with use . The person who lends, he said, hands over only the use of an item of property and cannot receive in return permanent ownership of an item of property .

I replied that exchange is legitimate when it is freely and voluntarily entered into and is between two things having equal value , even when one of these things valued does not relate to a material object. Well, the use of a useful item of property has a value. If I lend a field that I have fenced, cleared, and drained for one year, I have the right to a payment which can be evaluated . Provided that the valuation is done, and even if I am paid in material objects such as wheat or cash, what business is it of yours? Do you really want to prohibit three-quarters of the transactions that men voluntarily enter into between themselves because these transactions suit them? You constantly talk to us of emancipating ourselves and yet do nothing other than present us with new restrictions.

At this point, Mr. Proudhon intervened, and abandoning Mr. Chevé's theory used antinomy against me. Interest is simultaneously legitimate and illegitimate, he said. This implies a contradiction, as is also the case with property and freedom or anything, since contradiction is the very essence of phenomena . I replied that, on this basis, neither he nor I nor any other man would ever be able to be right or wrong on this subject; that to adopt this starting point would be to prevent one from ever reaching a solution, since it would be to proclaim in advance that any proposition must be simultaneously true and false. A theory like this not only discredits any form of reasoning, it rejects the very faculty of reason. In a discussion what is the sign by which you can recognize when one of the two opponents is wrong? It is his being obliged to admit that his own arguments contradict one another. Well, it is exactly when Mr. Proudhon was reduced to this point that he triumphs. I contradict myself, therefore I am on the side of truth, since contradiction is the essence of phenomena. Certainly I might have refused the conflict if Mr. Proudhon had insisted on imposing logic like this on me as a weapon.

Nevertheless, I went further and was at pains to discover how Mr. Proudhon had succumbed to the theory of contradictions. I attribute it to his deriving the idea of absolute perfection from the fact of perfectibility. The incontrovertible fact is that absolute perfection is contradictory and incomprehensible to us, which is why we believe in God but cannot explain Him. We cannot conceive of anything that has no limit and any limit is an imperfection. Yes, interest is an indication of social imperfection. This is also true of labour. Our limbs, organs, eyes, ears, brains, and sinews also witness to our human imperfection. A perfect being is not imprisoned in devices like these.

But there is no line of reasoning more vicious than the one that says: Since interest is an indication of social imperfection, we should abolish interest and thus achieve social perfection. This would be precisely to abolish the remedy for the illness. We might just as well say that since our sinews, organs, and brains bear witness to our limits and consequently to our human imperfection, we should abolish all these things and man will become perfect.

This was what I answered and, to the best of my knowledge, Mr. Proudhon did not reply.

He did not reply, but instead invoked the theory of compensation .

We are not asking, he said, for loans to be made for nothing, but for lending to be made no longer necessary. The goal to which we aspire is not exactly the abolition of interest, but the proper compensation of the parties involved. We want to reach the situation where, in every exchange, the investment of capital and labor is everywhere the same.

Illusion and despotism was my reply. You will never reach a situation in which Mr. Bidault's skilled artisans 1934 can include past labour and present labour in his services in the same proportions as a manufacturer of stockings. Provided the values of the things exchanged are equal, what does the rest matter to you? Do you want proper payment? You have it under the regime of free exchange. Evaluation is the comparison of present labour with present labour, past labour with past labour, or even present labour with past labour. By what right do you wish to abolish this latter type of evaluation, and how will men be happier when they are less free?

This was what I answered and, to the best of my knowledge, Mr. Proudhon did not reply.

He did not reply but, inveighing vehemently against capitalists, he lashed out at them in the old, familiar, and terrible way: capitalists have no right to payment because they are not depriving themselves of anything . They are not depriving themselves of the thing they are handing over because they cannot use it personally .

I replied that this was a terribly misleading argument, and one which incriminates selling as much as lending. If man were not a sociable being, he would be obliged to produce directly all that he needed to satisfy his needs. But he is sociable, and he trades. From this arises the division of labour and the specialization of tasks. This is why each person does just one thing and makes a great deal more than he can consume personally. He trades this surplus for other things that he does not make and which are essential to him. He works for others and others work for him. Doubtless, the man who builds two houses and lives only in one does not deprive himself personally by renting the other. He would not deprive himself any more if he sold it, and if for this reason the rental is theft, this is also true of the sale price. When a hat maker who has one hundred hats in his shop sells one, he does not deprive himself personally, to the extent that he is not reduced to going bareheaded. The editor of Mr. Proudhon's books, who has a thousand copies of them in his warehouses, does not deprive himself personally as his sales progress, since one copy would be enough for his instruction; lawyers and doctors who give advice do not deprive themselves . So your objection attacks not only interest but also the very basis of transactions and of society itself. It is certainly deplorable, in the nineteenth century, to be reduced to refuting seriously such misleading and puerile arguments. This was what I answered and, to the best of my knowledge, Mr. Proudhon did not reply.

He did not reply, but he began to invoke what might be called the doctrine of metamorphosis:

Interest was legitimate in the past at a time when violence tainted all transactions. It is illegitimate now under a regime of law. How many institutions have there not been that were good, just, and useful to the human race and that are now grossly offensive? Examples include slavery, torture, polygamy, trial by combat, etc. Progress, the great law of humanity, is nothing other that this transformation of good into evil and evil into good .

I replied that this was fatalism as damaging in moral terms as antinomy is disastrous in logic. Can it seriously be contended that, depending on the vagaries of circumstance, what was respectable becomes odious and what was unjust becomes just? I reject this indifference to good and evil with all the strength at my disposal. Acts are good or bad, moral or immoral, legitimate or illegitimate intrinsically, because of the motives that determine them or the consequences they generate, and not because of considerations of time and place. I will never agree that slavery was legitimate and good in a bygone age on the grounds that it was "useful" for men to reduce other men to servitude. I will never agree that to subject an accused man to inexpressible torment was a legitimate and proper means of making him tell the truth. That humanity could not have avoided horrors like this, may perhaps be true. As humanity's essence lies in its perfectibility, evil is bound to be found at its inception, but it is no less evil for all that, and instead of supporting civilization it retards it.

Is payment which has been voluntarily made for past labour, is recompense which has been freely awarded for a sacrifice of time, in a word, is interest an atrocity like slavery or an absurdity like torture? It is not enough to claim this, it has to be proved. From the fact that in antiquity there were abuses that have ceased, it does not follow that all the customs of the time were abuses and have to cease.

This was what I answered Mr. Proudhon and he did not pursue the matter.

He did not pursue the matter, but he made a further historical excursus no less strange.

Interest, he said, arose from contracts on private cargo . When one man provided a Ship and Goods for a maritime journey, and another Talent and Labor, they shared the profit in agreed proportions.

There is nothing more natural and fair than this share, I replied. The only thing is that it is not necessarily limited to maritime activities. It includes all human transactions. You are making an exception here out of what is a universal rule, and by doing this you are undermining interest, because exceptions are always deemed to be illegitimate, whereas nothing is better proof of the legitimacy of a rule than its universality. The day that a primitive man lent his weapons on condition that he received a share of the game or the day a shepherd lent his flock on condition that he received a share of the increase in stock was the day on which interest was born, and doubtless it goes back to the origin of life in society, since interest is nothing other than the accommodation made between past labour and present labour, whether (or not) it be a matter of making use of the land, the sea, or the air. Since then, and when experience enabled this progress to be made, the share of capital, having been unpredictable, now became predictable, and, just as sharecropping has been transformed into farm rent, interest has been regularized without changing its nature.

This was what I answered, and Mr. Proudhon did not reply.

He did not reply, but departing from his habitual behavior, he launched into a emotional argument. He must really have run out of resources to resort to an argument like this.

So he put forward some extreme cases in which a man could not demand payment for a loan without causing horror. For example, how could a rich landowner living on the coast welcome a shipwrecked man and lend him some clothing, then extend his demands to the extreme limit?

I replied to Mr. Proudhon … or rather Mr. Proudhon replied to himself using another example, which shows that in certain extreme cases payment for sales, or even of labor, would be as abominable as the repayment of loans. This would be so in the case of a man who, for extending a hand to a fellow man about to drown in the waves, exacted the highest price that could be obtained in such circumstances.

So this argument by Mr. Proudhon attacks not only interest but also all forms of payment, a certain way of establishing the principle of universal freedom from charges .

What is more, it opens the door to all the emotional theories (which Mr. Proudhon combats which such force and such reason) which seek, through the use of extreme force, to base the affairs of the world on the principle of self-sacrifice.

Finally, like Proteus in the Fable, 1935 of whom it was said: "To overcome him you have to exhaust him," Mr. Proudhon, hunted from contradiction to compensation , from compensation to deprivation , from deprivation to transformation and from transformation to self-sacrifice , suddenly abandoned the controversy and came to execution .

The means of execution he proposed to achieve free credit is paper money . I did not call it this, he said. That is true. But what then is a National Bank that lends to anyone who wants it, free of charge, so-called capital in the form of bank notes?

Obviously, we have come back here to that disastrous and inveterate error that confuses the medium of exchange with the objects being exchanged, an error the source of which Mr. Proudhon let us see in his previous letters, when he said: It is not things that make up wealth, but circulation. He did it again when he calculated that interest in France was at 160 percent because he compared all rent paid in cash to capital.

I set Mr. Proudhon this conundrum: either your National Bank will lend notes to anyone who comes to it without distinction, and in this case circulation will be so inflated 1936 that the notes would depreciate, or the Bank would hand the notes out with discernment, in which case your aim would not be achieved.

It is clear, in fact, that if anyone could go to obtain imaginary money free of charge from the Bank, and if this money is accepted at its face value, issues would be unlimited and would rise to more than fifty billion in the very first year. The effect of this would be the same as if gold and silver became as common as mud. The illusion that consists in thinking that wealth is multiplied or even that real circulation becomes more active as the medium of exchange increases, ought not to enter the head of a political writer who, these days, aspires to discuss economic matters. We all know through our own experience that since cash, like bank notes, does not carry interest, everyone keeps as little of it as possible in his safe or wallet, and consequently the quantity requested by the general public is limited. It cannot be increased without being depreciated, and the only result of this increase is that, for each exchange, two écus or two notes are needed instead of one.

What is happening in the Bank of France is surely an unforgettable lesson. In the last two years, it has issued a large number of notes. 1937 However, the number of transactions has not increased. This number depends on other causes, and these causes have led to a decrease in business. What then has happened? As the Bank issued notes, a flood of specie was paid into its vaults, so that one medium of exchange was substituted for another. That is all.

I will go further. It is possible for transactions to increase without the medium of exchange increasing. It so happens that more business is carried out in England than in France, and nevertheless the total amount of paper and specie is less. Why? Because the English bankers, acting as intermediaries, effect many payments and transfers between parties.

In Mr. Proudhon's scheme of things, the objective of his bank is to reduce payments to transfers between parties. This is precisely what écus do in a way that is in truth rather costly. Bank notes constitute a mechanism that achieves the same result at less cost, and the English Clearing House 1938 is even cheaper. But whatever method is used to clear payments, what do these various procedures, that are more or less perfected, have in common with the principle of interest? Is there a single one that ordains that previous work ought not to be paid for and that time does not have a price?

Swamping circulation with banknotes is thus not the way either to increase wealth or to abolish rent. What is more, handing out notes to all comers is to bankrupt the bank within six months.

So now Mr. Proudhon flies from the first thing which I, in my puzzlement, am worried about, to take refuge in the second.

"Let the Bank do its job with prudence and strictness," he said, "just as it has done up to now. That is not my business."

That is not your business! Can you be serious? HERE You have dreamt up a new bank that is to award free credit to everyone and then when I ask you if it will lend to everybody, in order to escape the conclusion with which I am threatening you, you reply: "It is none of my business!"

However, while saying that that is none of your business, you add, "that the new bank will carry out its job with prudence and strictness." This means nothing or it means that it will lend to those who can give their word on its repayment.

But in this case, what will happen to the Equality that is your idol? Do you not see that instead of making men equal before credit, you are constituting a state of inequality that is more shocking than the one you are claiming to destroy?

In effect, in your system, the wealthy will borrow free of charge and the poor will not be able to borrow at any price.

When a wealthy man comes to the bank, he will be told, "You are solvent, here is capital which we will lend you free of charge."

However, let a working man come forward. He will be told, "Where are your guarantees, your land, your houses, or your goods?" "I have only my hands and my integrity." "That does not reassure us; we have to act with prudence and strictness , and so we cannot lend you money free of charge." "Well then! Lend it to me and my companions at rates of 4, 5, and 6 percent. This will be an insurance premium whose risk will be covered by the product." "How can you imagine this? Our rule is to lend free of charge or not to lend at all. We are too good as philanthropists to make anyone at all pay anything, whether they be poor or rich. This is why the wealthy obtain free credit from us and why you will not obtain it, whether you pay something or nothing."

In order to make us understand the marvels of his invention, Mr. Proudhon subjects it to a decisive proof, that of commercial accounting .

He compares the two systems.

In one, workers borrow free of charge (we have just seen how), then by virtue of the axiom, all production yields a surplus , they make a profit of 10 percent.

In the other, workers borrow at 10 percent. The economic axiom does not reappear, and a loss results.

Applying accounting to these hypotheses, Mr. Proudhon proves to us using figures that workers are much more fortunate in one case than in the other.

I did not need double entry book-keeping to be convinced of this.

However, I point out to Mr. Proudhon that his accounts decide the question through begging the question. I have never cast doubt on the fact that it would be very pleasant to have the use of well-furnished houses, well-prepared land, and powerful tools and machines without paying anything. It would be even more pleasant for larks to fall ready-roasted into our mouths, and whenever Mr. Proudhon likes I will prove this to him using debits and credits . The more precise question is: are all these miracles possible?

I therefore took the liberty of pointing out to Mr. Proudhon that I disputed, not the accuracy of his accounting, but the reality of the data on which it is based.

His reply was curious:

"This is the essence of accounting, that it does not depend on the accuracy of the data. It does not suffer from inaccurate data. It is intrinsically, and in spite of the wishes of the accountant, a demonstration of the truth or falsehood of its own data. It is by virtue of this property that traders' books have legal standing." 1939

I beg Mr. Proudhon's pardon, but I am obliged to tell him that justice is not limited, like the Cour des comptes, 1940 to examining whether the books are kept correctly and whether the accounts balance. It also seeks to find whether inaccurate data has not been included.

But truly, Mr. Proudhon has an unparalleled imagination for inventing convenient means of becoming rich, and in his place I would quickly abandon free credit as being an outdated system, and complicated, and disputable to boot. It has been left far behind by accounting, which is of itself a demonstration of the truth of its own data.

All you need is to have two sous in your pocket. Buy a sheet of paper. Write a pretend account on it, the most extravagant that you can dream up. Just suppose, for example, that you have bought a ship cheaply and on credit and that you have loaded it with sand and pebbles gathered on the beach and that you are shipping the lot to England. Then that you have been given an equal weight of gold, silver, lace, precious stones, cochineal, vanilla, perfumes, etc. in exchange, and that on your return to France buyers are fighting over your opulent cargo. Put figures on all this. Do your accounting in double entry. Take care that it is accurate and here you are, in a position to tell Croesus what Mr. Rothschild said of Aguado, 1941 "He left thirty million; I thought he was better off." For if it conforms to Mr. Juvigny's laws, 1942 your accounting will entail the truth of your data .

No means more convenient than that for becoming wealthy has ever come to mind apart from the one produced by the son of Eolus. 1943 I recommend it to Mr. Proudhon.

He took it into his head to go to all the crossroads, where he shouted ceaselessly in a raucous voice, 'People of Baetica 1944 , do you want to become rich? Imagine that I am very rich and that you too are very rich. Convince yourselves every morning that your fortune has doubled during the night. Then get up, and if you have creditors go and pay them with what you have imagined, and tell them to use their imagination in their turn. 1945

However, I leave Mr. Proudhon at this point, and in bringing this polemic to a close I turn to the Socialists and implore them to examine the following questions with impartiality, not from the point of view of the capitalists but in the interest of the workers:

Should the legitimate remuneration of a person be identical whether he devotes his present day's work to production or whether in addition he devotes tools that are the fruit of past work to it?

Nobody would dare to support such a suggestion. Two elements of remuneration are involved, and who would complain of this? Would the buyer of the product complain? But who does not prefer to pay 3 francs a day to a carpenter equipped with a saw than 2 francs 50 to the same carpenter who makes planks with his bare hands?

Here the two elements of work and remuneration are in the same hands. But if they are separate and work together, is it not fair, useful, and inevitable for the value of the output to be shared between the two according to agreed proportions?

When it is the capitalist who establishes the business at his own risk, payment of the labor employed adjusts to the situation and is known as wages. When the worker takes on a project and runs a risk, the remuneration of capital adjusts itself and is known as interest .

One might believe in arrangements somewhat nearer perfection, in a closer association between risk and recompense. In former times, this was the avenue that Socialism explored. The rigidity of one of the two elements seemed to it to be a backward step. I could demonstrate that it is progress but non est hic locus (this is not the place).

There is one school, which goes by the name of "complete socialism," which goes much further. It claims that all recompense must be denied to one of the elements of production, namely capital. And this school has inscribed Free Credit on its banner in place of its former motto, Property is theft !

Socialists, I call upon your good faith, is this not the same thing expressed in different words?

It is not possible in principle to dispute the justice and usefulness of a share being made between capital and labor.

It remains to be seen what law governs this sharing.

And you will quickly find it in the following formula: the more that one of these elements is preponderant over the other, the smaller is its proportional share, and vice versa.

And if this is so, the propaganda of free credit is a calamity for the working class.

For, in the same way as capitalists would harm themselves if, after having proclaimed the illegitimacy of wages, they reduced workers to either dying or leaving the country, workers would be committing suicide if, after having proclaimed the illegitimacy of interest, they forced capital to disappear.

If this disastrous doctrine were to spread, if the voice of universal suffrage leads to the supposition that it will not hesitate to invoke the help of the law, that is to say, the help of organized force, is it not clear that terrified capital, threatened with the loss of its right to any compensation, would be forced to flee, hide, or disappear? There would be fewer businesses of all sorts, while the number of workers would remain the same. The result can be expressed briefly as an increase in interest and a decrease in wages .

There are pessimists who state that this is what Socialists want: for the workers to suffer, for it to be impossible for order to be restored, and for the country to be perpetually on the brink of an abyss. If there are people perverse enough to want this, let society stigmatize them and God judge them!

As for me, it is not for me to give an opinion on intentions in which, incidentally, I cannot believe.

However, I say: free credit is a scientific absurdity, involving antagonism to established interests, class hatred, and barbarity.

Freedom of credit is social harmony, it is right, it is respect for human independence and dignity, and it is faith in the progress and destiny of society.