1850
Translation by Benjamin R. Tucker
The object of the Revolution of February, politically and economically, is the realisation of absolute liberty for the man and the citizen.
The formula of this Revolution, in the political sphere, is the organisation of Universal Suffrage, or the absorption of the State in Society; in the economic sphere it is the organisation of circulation and credit, or the absorption of the function of the Capitalist in that of the Worker.
Undoubtedly this formula alone does not convey a complete idea of the movement: it is only its starting-point, its aphorism. But it serves to show us the Revolution as it really is to-day; it authorises us, consequently, to say that the Revolution is and can be nothing else.
[...]
“The extreme eagerness,” says M. Bastiat,[1] “with which the French populace have engaged in the investigation of economic problems and the incredible indifference of the privileged classes with respect to these questions constitutes one of the most characteristic features of our epoch. While the older journals, the organs and mirrors of the upper classes, confine themselves to the discussion of the turbulent and fruitless questions of partisan politics, the papers devoted to the interests of the working classes are incessantly agitating the more fundamental questions of Socialism.”
Well, we say to M. Bastiat:
You yourself, unconsciously, are an example of this incredible indifference with which the members of the privileged classes study social problems; and, economist of the first rank though you consider yourself, you know nothing whatever about the present state of this question of Capital and Interest, which you have undertaken to defend. Behind the times, in ideas as well as facts, you talk exactly like a Capitalism of the ante-Revolutionary era. The socialism which for ten years has protested against Capital and Interest is wholly unknown to you; you have not read its literature; for, if you have, how happens it that, in trying to refute it, you pass by all its arguments in silence?
Truly, to hear you reason against the Socialism of to-day, one would take you for an Epimenides suddenly awaking from an eighty years’ sleep. Is it really to us that you address your patriarchal dissertations? Is it the proletarian of 1849 that you are seeking to convince? Begin, then, by studying his ideas; familiarise yourself with his present doctrines; reply to the arguments, be they sound or otherwise, which govern him, and refrain from bringing forward your own, which he has known from time immemorial. Doubtless it will surprise you to hear it said that you, a member of the Academy of Moral and Political Sciences, when you speak of Capital and Interest, do not touch the question! Nevertheless, that is what we undertake to-day to prove. Afterwards we will discuss the question itself, if you desire it.
We deny, in the first place - and this you already know - we deny, with Christianity and the Bible, the legitimacy, per se, of Lending at Interest. We deny it, with Judaism and Paganism, with all the philosophers and law-givers of antiquity. For you will observe this primary fact, which is important as well as primary: Usury no sooner appeared in the world than it was denied. Law-givers and moralists have not ceased to oppose it, and if they have not achieved its extinction, they have, at least, succeeded to a certain extent in clipping its claws, in fixing a limit, a legal rate of Interest.
This, then, is our first proposition, the only one, as it seems, which you have heard stated: Everything which, in returning a loan, is given in excess of the loan is Usury, Spoliation. Quodcumque sorti accedit, Usura est.[2]
But that which you do not know, and which, perhaps, you will marvel at, is that this fundamental denial of Interest does not destroy, in our view, the principle - the right, if you will - which gives birth to Interest, and which has enabled it to continue to this day in spite of its condemnation by secular and ecclesiastical authority. So that the real problem before us is not to ascertain whether Usury, per se, is illegitimate (in this respect we are of the opinion of the Church), nor whether it has an excuse for its existence (on this point we agree with the economists). The problem is to devise a means of suppressing the abuse without violating the Right - a means, in a word, of reconciling this contradiction.
Let us, if possible, put this a little more clearly.
On the one hand, it is very true, as you have unquestionably established, that a Loan is a service. And as every service has a value, and, in consequence, is entitled by its nature to a reward, it follows that a Loan ought to have its price, or, to use the technical phrase, ought to bear Interest.
But it is also true, and this truth is consistent with the preceding one, that he who lends, under the ordinary conditions of the professional lender, does not deprive himself, as you phrase it, of the capital which he lends. He lends it, on the contrary, precisely because the loan is not a deprivation to him; he lends it because he has no use for it himself, being sufficiently provided with capital without it; he lends it, finally, because he neither intends nor is able to make it valuable to him personally, because, if he should keep it in his own hands, this capital, sterile by nature, would remain sterile, whereas, by its loan and the resulting interest, it yields a profit which enables the Capitalist to live without working. Now, to live without working is, in political as well as moral economy, a contradictory proposition, an impossible thing.
The proprietor who possesses two estates, one at Tours, and the other at Orleans, and who is obliged to fix his residence on the one which he uses, and consequently to abandon his residence on the other, can this proprietor claim that he deprives himself of anything, because he is not, like God, ubiquitous in action and presence? As well say that we who live in Paris are deprived of a residence in New York! Confess, then, that the privation of the capitalist is akin to that of the master who has lost his slave, to that of the prince expelled by his subjects, to that of the robber who, wishing to break into a house, finds the dogs on the watch and the inmates at the windows.
Now, in the presence of this affirmation and this negation diametrically opposed to each other, both supported by arguments of equal validity, but which, though not harmonising, cannot destroy each other, what course shall we take?
You persist in your affirmation, and say: “You do not wish to pay me Interest? Very well! I do not wish to lend you my Capital. Try working without Capital.” On the other hand, we persist in our negation, and say: “We will not pay you Interest, because Interest, in social economy, is a premium on idleness, the primary cause of misery and the inequality of wealth.” Neither of us is willing to yield, we come to a stand-still.
This, then, is the point at which Socialism takes up the question. On the one hand, the commutative justice of Interest; on the other, the organic impossibility, the immorality of Interest; and, to tell you the truth at once, Socialism aims to convert neither party - the Church, which denies Interest, nor the political economy, which supports it - especially as it is convinced that both are right. Let us see, now; how it analyses the problem, and what it proposes, in its turn, that is superior to the arguments of the old moneylenders, too vitally interested to be worthy of belief, and to the ineffectual denunciations uttered by the Fathers of the Church.
Since the theory of Usury has finally prevailed in Christian as well as in Pagan countries; since the hypothesis, or fiction, of the productivity of Capital has become a practical fact among nations - let us accept this economic fiction as we have accepted for thirty-three years the constitutional fiction, and let us see what it results in when carried to its ultimate. Instead of simply rejecting the idea, as the Church has done - a futile policy - let us make from it a historical and philosophical deduction; and, since the word is more in fashion than ever, let us trace the revolution.
Moreover, this idea must correspond to some reality; it must indicate some necessity of the mercantile spirit; else nations never would have sacrificed to it their dearest and most sacred beliefs.
See, then, how Socialism, entirely convinced of the inadequacy of the economic theory as well as of the ecclesiastical doctrine, treats in its turn the question of Usury.
First, it observes that the principle of the productivity of Capital is no respecter of persons, grants no privileges; it applies to every capitalist, regardless of rank or dignity. That which is legitimate for Peter is legitimate for Paul; both have the same right to Usury as well as to Labour. When, then, I go back to the example which you have used, when you lend me, at Interest, the plane which you have made for smoothing your planks, if, in my turn, I lend you the saw which I have made for cutting up my lumber, I also shall be entitled to Interest.
The right of Capital is alike for all; all, in the proportion that they lend and borrow, ought to receive and pay Interest. Such is the first consequence of your theory, which would not be a theory, were not the right which it establishes universal and reciprocal; this is self-evident.
Let us suppose, then, that of all the Capital that I use, whether in the form of machinery or of raw material, half is lent to me by you; suppose also that of all the capital used by you half is lent to you by me; it is clear that the interests which we must pay will offset each other; and, if equal amounts of capital are advanced, the interests cancelling each other, the balance will be zero.
In society, it is true, things do not go on precisely in this way: The mutual loans of producers are far from equal; consequently, the interests that they have to pay are no nearer so; hence, the inequality of conditions and fortunes.
But the question is to ascertain whether this equilibrium in the loaning of Capital, Labour, and Skill, and, consequently, equality of income for all citizens, perfectly admissible in theory, is capable of realisation in practice; whether this realisation is in accordance with the tendencies of society; whether, finally and unquestionably, it is not the inevitable result of the theory of Usury itself.
Now, this is what Socialism affirms, now that it has arrived at an understanding of itself, the Socialism which no longer distinguishes itself from Economic Science, studied at once in the light of its accumulated experience and in the power of its deductions. In fact, what does the history of Civilisation, the history of Political Economy, tell us concerning this great question of Interest?
It tells us that the mutual loaning of Capital, material, or immaterial, tends more and more towards equilibrium, owing to the various causes enumerated below, which the most conservative economists cannot dispute:
First - The division of Labour, or the separation of Industries, which, infinitely multiplying both tools and raw material, multiplies in the same proportion the loans of Capital.
Second - The accumulation of Capital, an accumulation which results from diversity of Industries, producing between capitalists a competition similar to that between merchants, and, consequently, effecting gradually a lowering of the rent of capital, a reduction of the rate of Interest.
Third - The continually increasing power of circulation which Capital acquires through the use of Specie and Bills of Exchange.
Fourth - Finally, public security.
Such are the general causes which, for centuries, have developed among producers a reciprocity of loans tending more and more to equilibrium and consequently to a more and more even balance of Interests, to a continual diminution of the price of Capital.
These facts cannot be denied; you yourself admit them; only you mistake their principle and purport, by giving Capital the credit for the progress made in the domain of Industry and Wealth, whereas this progress is caused not by Capital, but by the CIRCULATION of Capital.
The facts being thus analysed and classified, Socialism asks whether, in order to bring about this equilibrium of Credit and Income, it is not possible to act directly, not on Capital, remember, but on Circulation; whether it is not possible so to organise this Circulation as to inaugurate, at one blow, between Capitalists and Producers (two classes now hostile, but theoretically identical) equivalence of loans, or, in other words, equality of fortunes.
To this question Socialism again replies: Yes, it is possible, and in several ways.
Suppose, in the first place, to confine ourselves to the present conditions of Credit, the operations of which are carried on mainly through the intervention of Specie - suppose that all the Producers in the Republic, numbering more than ten millions, tax themselves, each one, to the amount of only one per cent of their Capital. This Tax of one per cent upon the total amount of the Capital of the country, both real and personal, would amount to more than a THOUSAND MILLIONS of francs.
Suppose that by means of this tax a bank be founded, in competition with the Bank (mis-called) of France, discounting and giving credit on mortgages at the rate of one-half of one per cent.
It is evident, in the first place, that the rate of discount on commercial paper, the rate of loans on mortgages, the dividend of invested capital, etc., being one-half of one per cent, the cash capital in the hand of all usurers and money-lenders would be immediately struck with absolute sterility; Interest would be zero, and Credit gratuitous.
If Commercial Credit and that based on mortgages - in other words, if Money Capital, the capital whose exclusive function is to circulate - was gratuitous, House Capital would soon become so; in reality, houses no longer would be Capital; they would be merchandise, quoted in the market like brandy and cheese, and rented or sold - terms which would then be synonymous - at cost.
If houses, like money, were gratuitous - that is to say, if use was paid for as an exchange, and not as a loan - land would not be slow in becoming gratuitous also; that is, farm-rent, instead of being rent paid to a non-cultivating proprietor, would be the compensation for the difference between the products of superior and inferior soils; or, better, there no longer would exist, in reality, either tenants or proprietors; there would be only husbandmen and wine-growers, just as there are joiners and machinists.
Do you wish another proof of the possibility of making all Capital gratuitous by the development of economic institutions?
Suppose that instead of our system of taxes, so complex, so burdensome, so annoying, which we have inherited from the feudal nobility, a single tax should be established, not on production, circulation, consumption, habitation, etc., but, in accordance with the demands of Justice and the dictates of Economic Science, on the net capital falling to each individual. The Capitalist, losing by taxation as much as or more than he gains by Rent and Interest, would be obliged either to use his property himself or to sell it; economic equilibrium again would be established by this simple and moreover inevitable intervention of the treasury department.
Such is, substantially, Socialism’s theory of Capital and Interest.
Not only do we affirm, in accordance with this theory (which, by the way, we hold in common with the economists) and on the strength of our belief in Industrial development, that such is the tendency and the import of lending at Interest; we even prove, by the destructive results of economy as it is, and by a demonstration of the causes of poverty, that this tendency is necessary, and the annihilation of Usury inevitable.
In fact, Rent, reward of Capital, Interest on Money, in one word, Usury, constituting, as has been said, an integral part of the price of products, and this Usury not being the same 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 to pay it with; so that, by the existence of Usury, Labour is condemned to idleness and capital to bankruptcy.
This argument, one of that class which mathematicians call the reductio ad absurdum, showing the organic impossibility of lending at Interest, has been repeated a hundred times by Socialism. Why do not the economists notice it?
Do you really wish to refute the ideas of Socialism on the question of Interest? Listen, then, to the questions which you must answer:
1. Is it true that, though the loaning of Capital, when viewed objectively, is a service which has its value, and which consequently should be paid for, this loaning, when viewed subjectively, does not involve an actual sacrifice on the part of the Capitalist; and consequently that it does not establish the right to set a price on it?
2. Is it true that Usury, to be unobjectionable, must be equal; that the tendency of Society is towards this equalisation; so that Usury will be entirely legitimate only when it has become equal for all, - that is, non-existent?
3. Is it true that a National Bank, giving Credit and Discount gratis, is a possible institution?
4. Is it true that the effects of the gratuity of Credit and Discount, as well as that of Taxation when simplified and restored to its true form, would be the abolition of Rent of Real Estate, as well as of Interest on Money?
5. Is it true that the old system is a contradiction and a mathematical impossibility?
6. Is it true that Political Economy, after having, for several thousand years, opposed the view of Usury held by theology, philosophy, and legislation, comes, by the application of its own principles, to the same conclusion?
7. Is it true, finally, that Usury has been, as a providential institution, simply an instrument of equality and progress, just as, in the Political sphere, absolute monarchy was an instrument of liberty and progress, and as, in the Judicial sphere, the boiling-water test, the duel, and the rack were, in their turn, instruments of conviction and progress?
These are the points that our opponents are bound to examine before charging us with scientific and intellectual weakness; these, Monsieur Bastiat, are the points on which your future arguments must turn, if you wish them to produce a definite result. The question is stated clearly and categorically: permit us to believe that, after having examined it, you will perceive that there is something in the Socialism of the nineteenth century that is beyond the reach of your antiquated Political Economy.
P-J PROUDHON
[...]
What! you undertake to refute and convince me, and then, instead of grappling with my system hand to hand, you offer me yours! In replying to me, you begin by demanding that I shall agree with you concerning that which I positively deny! Really, would I not be justified in saying to you from this moment: Keep your theory of Lending at Interest, since it suits you, and leave me my theory of Gratuitous Lending, which I find more advantageous, more moral, more useful, and much more practical? Instead of discussing, as we had hoped, we must resort to mutual slander and recrimination. A l’avantage!
That, sir, is how the discussion would end, if your theory, unfortunately for itself, was not compelled, in order to maintain itself, to overthrow mine. That is what I shall have the honour of proving to you, in following your letter point by point.
[...]
You ask: Is Interest on Capital legitimate, yes or no? Reply to that, without antinomy and without antithesis.
I reply: Let us DISTINGUISH, if you please. Yes, Interest on Capital might once have been considered legitimate; no, it can no longer be considered so. Does this also seem to you ambiguous and equivocal? I will try to disperse all the clouds.
Absolute monarchy was legitimate once; it was one of the conditions of political development. Later it ceased to be legitimate, because it had become an obstacle to progress. It was the same with constitutional monarchy, which, in 1789 and even in 1830, was the only political form suited to our country; to-day it would occasion disturbance and decline.
Polygamy was legitimate once; it was the first step away from Communistic promiscuity. It is condemned to-day as contrary to the dignity of woman; we punish it with the galleys.
The judicial combat, the boiling-water test, the rack itself, - read M. Rossi - had also their kind of legitimacy. They were the earliest forms of administering justice. We repudiate them now, and any magistrate who should employ them would be guilty of a crime.
Under St. Louis the arts and trades were feudalised, organised into corporations, and armed with privileges. This regulation was useful and legitimate; it aimed to establish, in opposition to the feudality of the Landlords and the Nobility, the feudality of Labour. It has since been abandoned, and rightly; since ’89 industry has been free.
I repeat then, - and, on my honour, I think I speak clearly, - yes, Lending at Interest was once legitimate, when the democratic centralisation of credit and circulation was impossible; it is so no longer, now that this centralisation has become a necessity of the age, consequently a duty of society and a right of the citizen. That is why I raise my voice against Usury; I say that society owes me Credit and Discount without Interest: Interest I call THEFT.
[...]
Now, asks the philosopher, why is a thing, true to-day, false to-morrow? Can Truth thus change? Is not Truth Truth? Must we believe that it is only a whim, an appearance, a prejudice? Is there, finally, or is there not, a cause for this change? Above the Truth which changes, may there exist, perchance, a Truth which does not change, an absolute, immutable Truth?
In a word, Philosophy does not stop with the fact as experience and history reveal it; it seeks its explanation.
Well, Philosophy has found, or, if you prefer, it thinks it has found, that this change in social institutions, this transformation which they undergo after a certain number of centuries, arises from the fact that the ideas of which they are the expression are possessed in and of themselves of a sort of evolutionary power, a principle of perpetual mobility, resulting from their contradictory nature.
Thus it is with Interest on Capital, legitimate when a loan was a service rendered by citizen to citizen, but which ceases to be so when society has acquired the power to organise credit gratuitously for everybody. This Interest, I say, is contradictory in its nature, in that, on the one hand, the service rendered by the lender is entitled to remuneration, and that, on the other, all Wages suppose either a production or a sacrifice, which is not the case with a Loan. The revolution which is effected in the legitimacy of Lending originates there. That is how Socialism states the question; that, therefore, is the ground on which the defenders of the old regime must take their stand.
To confine oneself to tradition, to limit oneself to saying a loan is a service rendered which ought, therefore, to be compensated, without entering into the considerations which tend to annihilate Interest, is not to reply. Socialism, with redoubled energy, protests, and says: I have nothing to do with your service, - service for you, but robbery for me, - as long as it is possible for society to furnish me with the same advantages which you offer me, and that without reward. To impose on me such a service in spite of myself, by refusing to organise the circulation of Capital, is to make me submit to an unjust discount, is to rob me.
Thus your whole argument in favour of Interest consists in confounding epochs, - I mean to say, in confounding that which is legitimate in lending with that which is not, - whereas I, on the contrary, carefully distinguish between them. I will proceed to make this intelligible to you by an analysis of your letter.
I take up your arguments one by one. In my first reply I made the observation that he who lends does not deprive himself of his Capital. You reply: What matters it, if he has created his Capital for the express purpose of lending it?
In saying that you betray your own cause. You acquiesce, by those words, in my antithesis, which consists in saying: The hidden reason why lending at interest, legitimate yesterday, is no longer so today, is because lending, in itself, does not involve privation. I note this confession.
But you cling to the intention: What matters it, you says if the lender has created his Capital for the express purpose of lending it?
To which I reply: And what do I care, indeed, for your intention, if I have really no need of your service, if the pretended service which you wish to do me becomes necessary only through the ill-will and incapacity of society?
Your Credit resembles that which the pirate gives to his captive, when he gives him his liberty in return for a ransom. I protest against your credit at five per cent, because society is able and ought to give it to me at zero per cent; and, if it refuses to do so, I accuse it, as well as you, of robbery; I say that it is an accomplice, an abettor, an organiser of robbery.
Comparing a loan to a sale, you say: Your argument is as valid against the latter as against the former, for the hatter who sells hats does not deprive himself.
No, for he receives for his hats - at least he is reputed to receive for them - their exact value immediately, neither more nor less. But the Capitalist lender not only is not deprived, since he recovers his Capital intact, but he receives more than his Capital, more than he contributes to the exchange; he receives in addition to his Capital an Interest which represents no positive product on his part. Now, a service which costs no Labour to him who renders it is a service which may become gratuitous: this you have already told us yourself.
After having recognised the non-privation attendant upon a loan, you admit further “that it is not theoretically impossible that Interest, which today constitutes an integral part of the price of commodities, may become the same for all, and thereby be abolished.” “But,” you add, “for this other things are needed than a new bank. Let Socialism endow all men with equal activity, skill, honesty, economy, foresight, needs, desires, virtues, vices, and chances even, and then it will have succeeded.”
So that you enter upon the question only to immediately avoid it. Socialism, at the point which it has now reached, justly claims that it is by means of a reform in banking and taxation that we can arrive at this balance of interests. Instead of passing over, as you do, this claim of Socialism, stop here and refute it: you will thereby demolish all the utopias of the world.
For Socialism affirms - and without this affirmation Socialism could not exist, it would be a nonentity - that it is not by endowing all men with equal “activity, skill, honesty, economy, foresight, needs, desires, virtues, vices, and chances even” that we shall succeed in balancing interest and equalising incomes; it maintains that we must, on the contrary, begin by centralising Credit and abolishing Interest, in order to equalise faculties, needs, and chances. Let there be no more robbers among us, and we shall be all virtuous, all happy! That is Socialism’s creed. I feel the keenest regret in telling you of it, but really your acquaintance with Socialism is so slight that you run against it without seeing it.
You persist in attributing to Capital all social progress in the domain of wealth, while I, for my part, attribute it to Circulation; and you say that here I mistake the cause for the effect.
[...]
I repeat: The problem of Socialism is to make [...] Interest on Capital [...] equal for all producers, and consequent nugatory. We maintain that this is possible; that, if this is possible, it is society’s duty to procure Gratuitous Credit for all; that, failing to do this, it will not be a society, but a conspiracy of capitalists against workers, a pact of plunder and murder.
[...]
We say: The Economic system based on the fiction of the productivity of Capital, justifiable once, is henceforth illegitimate. Its inefficacy and malfeasance have been exposed; it is the cause of all existing misery, the present mainstay of that old fiction of representative government which is the last form of tyranny among men.
I will not detain myself with the purely religious considerations with which your letter closes. Religion, allow me to say, has nothing to do with Political Economy. A real science is sufficient unto itself; otherwise, it cannot exist. If Political Economy needs the sanction of Religion to make up for the inadequacy of its theories, and if, in its turn, Religion, as an excuse for the barrenness of its dogmas, pleads the exigencies of Political Economy, the result will be that Political Economy and Religion, instead of mutually sustaining each other, will accuse each other, and both will perish.
Begin, then, by doing justice, and liberty, fraternity, and wealth will increase; even the happiness of another life will be only the surer. Is the inequality of Capitalist Income, yes or no, the primary cause of the physical, moral, and intellectual misery which to-day afflicts society? Is it necessary to equalise the income of all men, to make the circulation of Capital gratuitous by assimilating it to the exchange of Products, and to destroy Interest? That is what Socialism asks, and it must have an answer.
Socialism, in its most positive conclusions, furnishes the solution in the democratic centralisation and gratuity of Credit, combined with a single tax, to replace all other taxes, and to be levied on Capital.
Let this solution be verified; let its application be tried. That is the only way to refute Socialism; except that is done, we shall shout louder than ever our war-cry: Property is Theft!
P-J PROUDHON
Sir, we do not advance in our discussion, and the fault lies entirely with you. By your persistent refusal to place yourself upon the ground to which I summon you, and your determination to draw me upon yours, you deny me that right to an examination which belongs to every innovator; you fail in the duty which the appearance of new ideas imposes on all economists, the natural defenders of tradition and established customs; in fact, you violate ordinary charity by compelling me to attack what I recognised, in a certain sense, as irreproachable and legitimate.
[...]
Is it possible, yes or no, to abolish Interest on Money, Rent of Land and Houses, the Product of Capital, by simplifying Taxation, on the one hand, and, on the other, by organising a Bank of Circulation and Credit in the name and on the account of the people? This, in my opinion, is the way in which the question before us should be stated. Love of Humanity, Truth, and Harmony is a law to us both. What has the nation been doing since February, what has the Constituent Assembly been doing, what is the Legislature doing to-day, if not seeking means to improve the condition of the worker without alarming legitimate interests and invalidating the right of the proprietors? Let us see, then, if the Gratuity of Credit might, perchance, be one of these means.
Such were my words; I ventured to believe that they would be understood. Instead of replying to them, as I hoped, you retrench yourself behind your old evasion. To this question: To prove that the Gratuity of Credit is a possible, easy, and practical thing - is that not to prove that that Interest on Credit is henceforth an illegitimate thing? you reply, reversing the phrase: “To prove that Interest has been, legitimate, just, useful, beneficent, indestructible - is that not to prove that Gratuity of Credit is an illusion?” You reason precisely as the stage-lines did in regard to rail-ways.
See them, indeed, parading their grievances before the public, which is forsaking them for their competitors: Are not the wagon and the malbrouck[3] useful, legitimate, beneficent, and indestructible institutions? Do we not, in transporting your persons and products, render you a service? Has not this service a value? Ought not every value to be paid for? In transporting products at twenty-five centimes per ton and kilometre, though the locomotive does the same work, it is true, for ten centimes, are we robbers? Is not Commerce perpetually and universally extended by wagons, beasts of burden, and navigation by sail or oar? Of what importance, then, to us are steam, and atmospheric pressure, and electricity? To prove the reality and legitimacy of the four-wheeled vehicle, - is that not to prove that the invention of railways is a chimera?
This, sir, is where your argument leads to. Your last letter, like the preceding ones, from beginning to end means nothing else. To preserve for Capital the interest, which I refuse it, you reply by the previous question; you oppose to my novel idea your old routine; you protest against railroads and steam-engines. I should be sorry to say anything to wound you; but truly, sir, it seems to me that I should be justified, at this moment, in stopping here and turning my back upon you.
But I will not do it: I wish to give you satisfaction to the last, by showing you how, to use your own words, the remuneration of Capital passes from legitimacy to illegitimacy, and how Gratuity of Credit is the final result of the practice of Usury. This discussion, in itself, is not an unimportant one; I will try to make it a peaceful one.
The reason why Interest of Capital, excusable and even just in the infancy of social economy, becomes, as industrial institutions develop, real spoliation and robbery, is because it has no other principle, no other raison d’être, than those of necessity and force. Necessity explains the unreasonableness of the lender; force causes the resignation of the borrower. But, in proportion as in human relationships, necessity gives way to liberty, and force is succeeded by right, the Capitalist loses his excuse, and the worker’s claim against the proprietor becomes good.
In the beginning the land is undivided; each family lives by hunting, fishing, gathering or grazing; industry is entirely domestic, and agriculture, so to speak, nomadic. There is no commerce, neither is there property.
Later, tribes consolidating, the formation of nations commences; caste appears, the child of war and patriarchism. Property establishes itself little by little; but, by heroic law, the master, though he does not cultivate his land himself, makes use of his slaves for that purpose, as at a later period the nobleman does his serfs. Farm-rent does not yet exist; revenue, which indicates this relation, is unknown.
At this period Commerce consists mainly in barter. If Gold and Silver appear in transactions, it is rather as Merchandise than as a Circulating Medium and Unit of Value: they are weighed, not counted. Exchange, the consequent Profit, lending at Interest, sleeping-partnership, all the operations of a well-developed Commerce which are performed by means of Money, are unknown. These primitive customs are retained for a long time in agricultural districts. My mother, a simple peasant, told me that, previous to ’89, she was employed in the winter at spinning hemp, receiving, as wages for six weeks’ work, besides her board, a pair of wooden shoes and a loaf of rye bread.
We must look to Foreign Commerce to find the origin of lending at Interest. The contrat a la grosse, a variety, or rather a separate part, of the contrat de pacotille, was its original form, just as the farm-lease or cattle-lease was the counterpart of sleeping-partnership.
What is the contrat de pacotille? A contract by which a manufacturer and ship-master agree to put into a common fund, for purposes of Foreign Commerce, the former a certain quantity of merchandise which he undertakes to procure, the latter his labour as a navigator, the Profit resulting from the sale to be divided equally between them, or according to a proportion to be agreed upon, and the risks and damages to be charged to the firm.
Is the profit thus anticipated, however large it may be, legitimate?
We cannot call it in question.
Profit, at this early period of commercial relations, represents only the uncertainty which prevails among exchanging parties concerning the value of their respective products; it is an advantage which exists more in the imagination than in reality, and which is not uncommonly claimed with equal reason by both parties to a transaction. How many pounds of tin is an ounce of gold worth? What is the relation between the price of Tyrian purple and that of sable fur? No one knows; no one can tell. The Phoenician who, for a pack of furs, gives ten palms of his cloth, congratulates himself upon his bargain; so also, on his side, does the Northern hunter, proud of his red cloak. And such is still the practice of Europeans in dealing with Australian savages, who are happy to give a pig for an axe, a hen for a nail or a piece of glass.
The incommensurability of values, such is the original source of commercial profits. Gold and Silver then enter into traffic, first as merchandise, and then, soon after, by virtue of the facility with which they can be exchanged, as terms of comparison, as money. In both cases the Gold and Silver bear profit in exchange, in the first place by the very fact of exchange, next for the risk incurred. Insurance appears here as the twin brother of the contrat a la grosse; the premium stipulated for the first being the correlative of and identical with the share of the profit agreed upon in the second.
This share of the profit, which expresses the participation of the Capitalist or manufacturer who invests his products or his Capital (the same thing) in commerce, has received the Latin name of inter-esse, that is, participation, Interest.
At this time, then, and under the conditions which I have just stated, who could brand Interest as fraudulent? Interest is the alea, the gain obtained in operations of chance; it is the speculative profit of commerce, a profit which is irreproachable until the comparison of values furnishes the correlative ideas of dearness, cheapness, proportion, PRICE. the same analogy, the same identity, which Political Economy has always and rightly pointed out between Interest on money and Rent of Land, exists at the beginning of commercial relations between this same Interest and commercial profit: at bottom, exchange is the common form, the starting-point of all these transactions.
You see, sir, that the energy with which I oppose Capital does not prevent me from doing justice to the original good faith of its operations. I never trifle with the truth. I told you that there was a true, honest, legitimate side to Lending at Interest; I have just shown it in a way which seems to me a better one than yours, in that it sacrifices nothing to selfishness and detracts nothing from charity. It was the impossibility of appraising commodities with any degree of exactness that made Interest legitimate in the beginning, just as, later, it is the passion for the precious metals which sustains it. Lending at Interest must have had a positive and necessary basis in order to develop and spread as it has; if not, we must condemn, with the theologians, all humanity, which, for my part, I profess to consider infallible and holy.
But who does not see already that the merchant’s profit ought to decrease as fast as the risks incurred and the arbitrary method of estimating values disappear, so that finally it may be only the just price of the service rendered by him, the wages of his labour? Who does not see with equal clearness that Interest ought to disappear with the risks which Capital runs and the privation which Capital endures: so that if repayment is guaranteed by the debtor, and the labour of the creditor is zero, Interest must become zero?
[...]
I said before that in ancient times the Landed Proprietor, when neither he nor his family farmed his land, as was the case among the Romans in the early days of the Republic, cultivated it through his slaves: such was the general practice of Patrician families. Then slavery and the soil were chained together; the farmer was called adscrpitus glebæ, joined to the land; property in men and things was undivided. The price of a farm depended (1) upon its area and quality of its soil, (2) upon the quantity of stock, and (3) upon the number of slaves.
When the Emancipation of the Slave was proclaimed, the proprietor lost the man and kept the land; just as to-day, in freeing the blacks, we leave the master his property in land and stock. Nevertheless, from the standpoint of ancient law as well as of natural and Christian right, man, born to labour, cannot dispense with the implements of Labour; the principle of Emancipation involved an agrarian law which guarantees them to him and protects him in their use: otherwise, this pretended Emancipation was only an act of hateful cruelty, an infamous deception, and if, as Moses said, interest, or the yearly income from Capital, reimburses Capital, might it not be said that Servitude reimburses Property? The theologians and the law-givers of the time did not understand this, and by an irreconcilable contradiction, which still exists, they continued to rail at Usury, but gave absolution to Rent.
The result was that the emancipated slave, and, a few centuries later, the enfranchised serf, without means of existence, was obliged to become a tenant and pay tribute. The master grew still richer. I will furnish you, he says, with land; you shall furnish the labour; and we will divide the products. It was a reproduction on the farm of the ways and customs of business. I will lend you ten talents, said the moneyed man to the worker; you shall use them; and then either we will divide the profits, or else, as long as you keep my money, you shall pay me a twentieth; or, if you prefer, at the expiration of the loan, you shall return double the amount originally received. From this sprang Ground-Rent, unknown to the Russians and the Arabs. The exploitation of man by man, thanks to this transformation, passed into the form of law: Usury, condemned in the form of lending at interest, tolerated in the contrat a la grosse, was extolled in the form of Farm-Rent. From that moment commercial and industrial progress served to make it only more and more customary. This was necessary in order to exhibit all the varieties of Slavery and Robbery, and to establish the true law of Human Liberty.
Once engaged in this practice of inter-esse, so strangely understood, so improperly applied, Society began to revolve in the circle of its miseries. Then it was that inequality of conditions seemed a law of civilisation, and evil a necessity of our nature.
[...]
Again: The productivity of Capital being the immediate and sole cause of the inequality of wealth, and the continual accumulation of Capital in a few hands, it must be admitted, in spite of the progress of knowledge, in spite of Christian revelation and the extension of public liberty, that society is naturally and necessarily divided into two classes - a class of exploiting capitalists and a class of exploited workers.
Again: the aforesaid class of Capitalists, having all tools and products at its absolute disposal through lending capital at Interest, has the right, when, it sees fit, to bring Labour and Circulation to a stand-still, as was done two years ago, at the risk of people’s lives; to change the natural course of things, as is the case in the Papal States, where the arable land has been used, from time immemorial, for the convenience of proprietors, as common pasture land, and where the people live upon the charity and curiosity of foreigners; to say to a body of citizens: There are too many of you on the earth; at the banquet of life there is no place for you, as did the Countess of Strafford, when she expelled from her estate seventeen thousand peasants at once, and as the French Government did last year, when it transported to Algeria four thousand families of useless mouths.
I now ask you the following question: If the partiality for gold and the fatality of the institution of money excuses and justifies the Capitalist, does it not also establish for the worker this system of brute force, only distinguishable from ancient slavery by its subtler and more villainous hypocrisy?
FORCE, sir - that is the first and last word of a Society organised upon the principle of Interest, and which, for three thousand years, struggled against Interest. You establish this yourself, without reserve or scruple, when you admit, with me, that the Capitalist does not deprive himself, and with J.-B. Say, that his function is to do nothing; and when you put into his mouth this insolent language, which every human conscience condemns:
“I impose nothing on you in spite of yourself. If you do not admit that a loan is a service, abstain from borrowing, as I do from lending. But if Society offers you these advantages without reward, deal directly with it, for its terms are much easier; and as for organising the circulation of capital, as you call upon me to do, if you mean thereby that you should have the use of my capital gratis through the mediation of Society, I have just the same objection to this indirect method of procedure that induced me to refuse you a direct and gratuitous loan.”
Have a care, sir; the people are only too ready to believe that it is solely for love of its privileges that the Capitalist class, now dominant, opposes the organisation of Credit which they clamour for; and the day when the ill-will of that class shall be positively proven, its last excuse will vanish in the people’s eyes, and their vengeance will know no bounds.
[...]
P-J PROUDHON
You have deceived me.
I expected from you a serious discussion. Your letters are but a series of insipid mystifications. If you had made a compact with me to obscure the question and to prevent our debate from coming to a definitive conclusion, by embarrassing it with incidents, digressions, trifles, and quibbles, you could have taken no other course.
Now what are we after, if you please? To ascertain whether Interest of Money ought, or ought not, to be abolished. I have told you myself that there is the pivot of Socialism, the mainspring of the Revolution.
[...]
Did you ever, in your life, hear of the Bank of France? Do me the favour to visit it some day; it is not far from the Institute. There you will find M. d’Argout, who knows more about Capital and Interest than you and all the economists of Guillaumin.[4] The Bank of France is an association of capitalists, formed fifty years ago, at the solicitation of the State and by a privilege granted by the State, for the purpose of levying usury upon the whole of France.
From its beginning it has not ceased to grow: the Revolution of February, by joining with it the Departmental Banks, made it the first power in the Republic. The principle on which this association was formed is yours precisely. They said: We have obtained our Capital by our labour or by that of our fathers. Why then, in return for making it an aid to general circulation and for devoting it to the service of our country, should we not draw a legitimate salary, since the landlord derives an income from his land; since the builder derives an income from his houses; since the merchant gets a profit on his goods over and above his running expenses; since the worker who lays our floors includes in the price of his day’s work a charge for the use of his tools which certainly more than covers the amount which they cost him?
There could be, as you see, no more plausible argument. It is the argument which has always, and with reason, been opposed to the Church when she has condemned Interest as distinct from Rent; it is the argument which you fall back on in every one of your letters.
Now, do you know where the stockholders of the Bank of France, all of whom, including M. d’Argout, I regard as very honest people, have been led by this seductive reasoning? - To robbery; yes, sir, to the most unmistakable, shameless, detestable robbery; for it is this robbery alone which, since February, has suspended Labour, hindered business, caused the people to die of cholera, hunger and cold, and which, with the secret intention of restoring the monarchy, is breathing despair among the working classes.
It is right here that I propose to how you how Interest passes from legitimacy to illegitimacy, and, what will surprise you still more, how paid Credit, the moment that it ceases to rob, the moment that it claims only the price which legitimately belongs to it, becomes gratuitous Credit.
What is the Capital of the Bank of France? According to the last inventory, ninety millions.
What is the legal rate of discount, agreed upon between the Bank and the State? - Four per cent a year.
Then the legal and legitimate annual income of the Bank of France, the just price of its services, is, for a capital of ninety millions, at four per cent a year, three million six hundred thousand francs.
Three million six hundred thousand francs, - that is the amount, according to the fiction of the productivity of Capital, which the commerce of France owes annually to the Bank of France as reward for its Capital, which is ninety millions.
Under these conditions, the shares of the Bank of France are like so many pieces of real estate yielding a regular income of forty francs each: issued at one thousand francs, they are worth one thousand francs.
Now, do you know what follows?
Consult the same inventory: you will find that these same shares are quoted at two thousand four hundred francs, instead of one thousand. Last week they were two thousand four hundred and forty-five; and if the amount of commercial effects in the portfolio should increase a little, they would go up to two thousand five hundred or three thousand francs; which means that the capital of the bank, instead of yielding four per cent, the legal and conventional rate, yields eight, ten, and twelve per cent.
Has the capital of the bank, then, been doubled or tripled? This, indeed, is what should have happened, according to the theory announced in your third and fourth propositions, - namely, that Interest decreases in proportion as Capital increases, but in such a way that the total income of the Capitalist is enlarged.
But such is not the case at all. The capital of the bank has remained the same, ninety millions. Only the company, by means of its privilege and with the aid of its financial machinery, has discovered a method of doing as much business with its capital of ninety millions as if it had four hundred and fifty millions, or five times as much.
Do you ask how that can be? This is the method; it is very simple, and I can explain it; it is precisely one of those which the Bank of the People proposes to use in the annihilation of Interest.
To avoid the transfer of specie and the troublesome handling or coin, the Bank of France issues bills of credit, called bank notes, which represent the specie lying in its vaults. These are the notes which it ordinarily issues to its customers in return for the drafts and bills of exchange which they bring to it, and the redemption of which, secured by drawers and drawees alike, it undertakes the task of procuring,
The bank paper has thus a double security: the coin in the vault and the commercial paper in the portfolio. This double deposit is such good security that business men prefer bank notes to specie, and every one is as anxious to know the condition of the bank as that of his own money-drawer.
It is even thought, in theory, that in this way the Bank of France might dispense with Capital altogether and discount paper without specie: indeed, the commercial paper which it discounts, and against which it issues its notes, being certain of redemption at the appointed time either in Silver or in Bank-Notes, the holders of Bank-Notes would only have to dismiss the desire to covert them into coin to enable all transactions to be effected by paper alone. Then the circulating medium would be based, not on the credit of the Bank whose Capital would thus be set free, but on the Public Credit, through the general acceptance of the notes.
In practice the facts do not harmonise exactly with the theory. Never have we seen bank-paper wholly substituted for specie; there is only a tendency in this direction. Now, see what results from this tendency.
The Bank, relying with perfect security upon the Public Credit, sure moreover of its debts, does not limit its discounts to the amount of its metallic reserve, but always issues more notes than it has Specie; which shows that sometimes, instead of getting real value and making an actual exchange, it only transfers debts, without using any Capital. That which here takes the place of the Capital of the Bank is, I repeat, established custom, commercial confidence, in a word, the Public Credit.
It seems, therefore, that the rate of discount ought to decrease in proportion to the amount of notes issued in excess of the Capital; that if, for example, the Capital of the Bank is ninety millions, and its circulation one hundred and twelve millions, the fictitious capital being one-fourth of the real Capital, the rate of discount should decrease from four to three per cent. What could be fairer than that, pray? Is not the Public Credit Public Property? Is not the surplus issue of the Bank secured by the mutual obligations of citizens? Does not the acceptance of this paper, which has no metallic basis, rest entirely upon their confidence in each other? Is it not this very confidence which makes the paper pass? What has the Capital of the Bank done? What does it secure?
You can already see from this simple outline how false your third proposition is, which makes a decrease of Interest involve a corresponding increase of Capital. Nothing is falser than this proposition: the theory and practice of all Banks proves, on the contrary, that a Bank may easily get four per cent on its Capital while its rate of discount is only three per cent: we shall see presently that the rate may go much lower.
Why, then, does not the Bank, which, with ninety millions of Capital, issues, as we suppose, one hundred and twelve millions of notes, and which consequently operates, by the aid of the Public Credit, just as if its Capital had increased from ninety millions to one hundred and twelve, - why, I ask, does it not reduce its rate of Discount in a like proportion? Why this four per cent Interest received by the Bank as a reward for Capital not its own? Can you give me a reason which will justify this extra one per cent on one hundred and twelve millions? For my part, sir, “I call a cat a cat, and Rolet a rascal,”[5] and I say quite plainly that the bank ROBS.
[...]
It is a point admitted in theory that exchange of products can be carried on very well without Specie; you admit it yourself, and all the economists know it. Now, the proof of this theory lies precisely in the fact that it is carried out under our very eyes. The Circulation of Bills of credit replacing gradually the metallic currency; paper being preferred to coin; the public choosing to pay their debts in Specie rather than in Bank Notes; and the Bank being constantly persuaded, either by the needs of the State which borrows from it, or by those of commerce which comes en masse to get its paper discounted, or by any other cause, to make new issues frequently, - the result is that Gold and Silver go out of circulation, and are absorbed by the Bank, thus continually increasing its reserve and making its power to multiply its Notes literally unlimited.
[...]
A decree of the National Assembly, having for its object the redemption of the stock of the Bank of France, and the conversion of this Bank into a central Bank, in which all French citizens should be silent partners, would be only an announcement of the already accomplished fact of the absorption of this association by the nation.
[...]
You must see, sir, how far short of the accuracy of Euclid’s your propositions fall. It is not true - and the facts just cited prove beyond a doubt that it is not - that the decrease of Interest is proportional to the increase of Capital. Between the Price of Merchandise and Interest of capital there is not the least analogy; the laws governing their fluctuations are not the same; and all your dinning of the last six weeks in relation to Capital and Interest has been utterly devoid of sense. The universal custom of banks and the common sense of the people give you the lie on all these points in a most humiliating manner.
[...]
If, then, Interest, after having fallen, in the case of Money, to three-fourths of one per cent, - that is, to zero, inasmuch as three-fourths of one per cent represents only the service of the bank, - should fall to zero in the case of merchandise also, by analogy of principles and facts it would soon fall to zero in the case of real estate: rent would disappear in becoming one with liquidation. Do you think, sir, that that would prevent people from living in houses and cultivating land?
If, thanks to this radical reform in the machinery of circulation, Labour was compelled to pay to Capital only as much Interest as would be a just reward for the service rendered by the Capitalist, Specie and Real Estate being deprived of their reproductive properties and valued only as products, - as things that can be consumed and replaced, - the favour with which Specie and Capital are now looked upon would be wholly transferred to products; each individual, instead of restricting his consumption, would strive only to increase it. Whereas, at present, thanks to the restriction laid upon consumable products by Interest, the means of consumption are always very much limited, then, on the contrary, Production would be insufficient: Labour would then be secure in fact as well as in right.
The Labouring class, gaining at one stroke the five thousand millions, or thereabouts, now taken in the form of Interest from the ten thousand which it produces, plus five thousand millions which this same Interest deprives it of by destroying the demand for Labour, plus five thousand millions which the parasites, cut off from a living, would then be compelled to produce, the national production would be doubled and the welfare of the worker increased four-fold. And you, sir, whom the worship of Interest does not prevent from lifting your thoughts to another world, - what say you to this improvement of affairs here below? Do you see now that it is not the multiplication of Capital which decreases Interest, but on the contrary, that the decrease of Interest multiplies Capital?
[...]
P-J PROUDHON
[...]
From the standpoint of private interests, Capital indicates a relation of exchange, preceded by a reciprocal valuation. It is Product judicially appraised, so to speak, by two responsible judges, the seller and the buyer, and pronounced, in consequence of this appraisal, an instrument of reproduction. From the standpoint of Society Capital and Product are indistinguishable. Products exchange for Products and Capital exchanges for Capital are two perfectly synonymous propositions. What could be simpler, clearer, more positive, more scientific, indeed, than that?
I therefore call Capital, every settled value, whether in Land, machinery, merchandise, provisions, or Money, serving, or capable of serving, in production.
Common language confirms this definition. Capital is said to be free when the product, whatever it may be, having been simply appraised by the parties, can be regarded as realised, or immediately realisable, that is, converted into such other product as may be desired: in this case the form that Capital most readily assumes is that of money. Capital is said to be engaged, on the contrary, when the value that constitutes it is employed definitively in production: in this case it assumes all possible forms.
Custom also sustains me. In every enterprise which is started, the entrepreneur, who, instead of money, employs in his business machinery or raw material, begins by estimating it relatively to himself, his risks, and his dangers; and this estimation, one-sided so to speak, constitutes his Capital, or his investment in business: it is the first thing which he makes account of.
We know what Capital is; we must now draw the consequences of our conception so far as Interest is concerned. The explanation will be a little long perhaps, but the reasoning employed will be very simple.
Products exchange for products, says J.-B. Say; or, in other words, Capital exchanges for Capital; or yet again, Capital exchanges for products, and vice versa: that is the bare fact.
The requisite condition, the sine qua non, of this exchange, that which is in fact its essence and its law, is the antagonistic and reciprocal valuation of products. Deprive exchange of the idea of price, and exchange disappears. There is transposition; there is no transaction, no exchange. Product, without price, is a nonentity: as long as it has not received, by the process of buying and selling, its authenticated value, it is regarded as of no effect, it is null. That is the intelligible fact.
Every one gives and receives, according to J.-B. Say’s formula announcing the material fact; but according to the idea of Capital which we have just obtained by our analysis, every one ought to give and receive an equal value. An unequal exchange is a contradiction; universal consent has pronounced it a fraud and a robbery.
Now, from this primary fact that producers continually stand to each other in the relation of exchanging parties, that they are to each other, by turns and all at once, producers and consumers, workers and capitalists; and from the precisely equal valuation which constitutes exchange, it follows that the accounts of all producers and consumers ought to balance each other; that society, viewed from the standpoint of economic science, is nothing else than this general equilibrium of products, services, wages, consumptions, and fortunes; that, in the absence of this equilibrium, political economy is but a meaningless word, and public order, the well-being of workers, and the security of capitalists and proprietors, a utopia.
Now, this equilibrium, from which must spring a unity of interests and social harmony, today does not exist; it is disturbed by diverse causes, which in my opinion may be easily destroyed, and in the front rank of which I place Usury, Interest, Rent. There are, as I have so often said, errors and mismanagement in the book-keeping, false entries upon the ledgers, of society. Thence arises the wrongfully-acquired luxury of some, the increasing misery of others; for this reason we have in modern society an inequality of fortunes and all sorts of revolutionary agitation. I shall furnish you, sir, by commercial accounts, with the proof and the counter-proof.
Let us first establish the facts. products exchange for products, or to speak more accurately, values exchange for values: such is the law.
But this exchange is not always made, as we say, on the spot; both parties do not always transfer the objects exchanged at the same time; often, and indeed usually, there is an interval between the two deliveries. Now, strange things happen during this interval, things which disturb the equilibrium and falsify the balance. You shall see to what I refer.
It so happens that one party to the exchange has no product which the other needs, or, which amounts to the same thing, the latter, who is quite willing to sell, wishes to refrain from buying. He intends to receive the price of his goods; but he wishes, for the present at least, to accept nothing in exchange. In both cases, the exchanging parties avail themselves of an intermediate commodity, which in commerce plays the part of a go-between, always acceptable and always accepted, and which is known as Money. And as money, sought for by everybody, is scarce with everybody, the purchaser obtains it from a banker by giving him his note and paying a premium larger or smaller, which is called discount. Discount is made up of two things: a Commission, which is the reward for the service rendered by the banker, and Interest. We will now tell what Interest is.
It so happens that the buyer has neither product nor money to give in exchange for the product or capital of which he is in need; but he offers to pay at the end of a certain time in one or more instalments. The two cases mentioned above were cash sales; in this case credit is given. Here, then, the buyer having the advantage of the seller, the inequality is compensated for by causing the product sold to bear Interest until the time of payment. It was this compensatory Interest, the primal origin of Usury, that I referred to in one of my former letters as the agent which compels repayment. It lasts as long as credit; it is the reward of credit; but its especial object, remember, is the abridgement of the duration of credit. Such is the meaning, the legitimate significance, of Interest.
It often occurs - and this is the extremity in which Workers are usually placed - that Capital is absolutely indispensable to the producer, and that yet there is no probability that the latter, for a long time to come, will be able by his labour or his economy, still less by the money at his disposal, to gather together an equivalent, in a word, to repay. He needs twenty, thirty, fifty years, and sometimes a century; and the Capitalist or proprietor is unwilling to allow him so long a time. How is this difficulty avoided?
Here begins usurious speculation. A moment ago we saw Interest imposed upon the debtor as an indemnity for credit and a means of hastening repayment: now we shall see Interest taken for itself, Usury for Usury, like war for war or art for art. By a formal, legal, and authentic contract, sanctioned by all jurisprudence, all legislation, and all religions, the borrower binds himself to the lender to pay him, to the end of time, Interest on his Capital, land, furniture, or money; he gives himself, body and soul, himself and his heirs, to the Capitalist, and becomes his tributary advitam æternam. That is what is termed the settlement of an annuity, and, in certain cases, emphyteusis. By this sort of contract the object passes into the possession of the borrower, who can never be disposed of it; who uses it as if he were its purchaser and proprietor; but who is bound forever to pay a revenue - an endless liquidation, as it were. Such was the economic origin of the feudal system.
But now the thing is managed better.
Emphyteusis and the settlement of annuities are to-day, almost everywhere, obsolete. It was found that placing Product or Capital at perpetual interest was altogether too favourable to the Capitalist: the need of an improvement in the system was felt. In our day
Capital and Real Estate are no longer placed at permanent rental, except with the State: they are LEASED - that is, lent - always at Interest, but for a limited period. This new kind of Usury is called rent or farm-rent.
Do you understand, sir, what lending at Interest (rent or farm-rent) for a limited period is? In emphyteusis and the settlement of annuities, of which I have just spoken, though the rent was perpetual, the Capital was surrendered for all time: between the payment and the enjoyment there was still a kind of equality. Here, however, Capital never ceases to belong to him who lends it and who may demand the restoration whenever he chooses. So that the Capitalist does not exchange Capital for Capital, Product for Product: he gives up nothing, keeps all, does no work, and lives upon his rents, his Interest, and his Usury in greater luxury than one thousand, ten thousand, or even a hundred thousand workers combined can enjoy by their production.
In this system of lending at Interest - farm-rent or rent - with the power to demand at pleasure the restitution of the sum lent, and to expel the farmer or the tenant, the Capitalist has invented something vaster than space, more lasting than time. There is no infinity equal to that of the Usury paid by tenants, that Usury which is as much worse than the perpetuity of rent as the latter is worse than the cash and Credit systems of payment. He who borrows at Interest for a limited period pays, pays again, pays continually, and he does not enjoy that for which he pays; he has only a glimpse of it, possesses only its shadow. Must it not have been this kind of Usurer which the theologian took for his model when fashioning his god, that atrocious god who exacts eternal payment from the sinner, and never releases him from his debt? Always, forever!
Well, I say that all exchanges of products and Capital can be effected by Cash payment;
That consequently the banker’s discount should be just enough to defray the expenses of the bank and pay for the metal unproductively employed of which the money is made;
And therefore that all interest, rent, or farm-rent is simply a refusal to redeem, a robbery of the borrower or the tenant, and the original cause of all the miseries and upheavals of society.
In my last letter I proved to you, taking the Bank of France as an illustration, that it was an easy and a practical thing to organise equality in exchange, or the gratuitous circulation of Capital and products. You were able to see, in this conclusive and decisive fact, only a special instance of monopoly, having nothing to do with the theory of Interest. What have I to do, you ask with an air of nonchalance, with the Bank of France and its privileges? I am discussing Interest of Capital. - As if, after landed and commercial credit had been universally organised on a basis of one-half of one per cent, Interest could exist anywhere!
I will show you now, by the bookkeeper’s method, that this special payment which always comes in between the two deliveries in an exchange; this tax imposed on circulation; this duty levied on the conversion of products into values and of values into Capital; this Interest, in short; or, to call it by its own name, this commercial go-between (interesse), which you so obstinately defend - is the identical grand forger which, in order to appropriate, fraudulently and without labour, products that it does not create and services that it never renders, falsifies accounts, enters surcharges and suppositions upon the books, destroys the equilibrium of trade, carries disorder into business, and inevitably brings all nations to despair and misery.
[...]
In this system the production, circulation, and consumption of wealth is effected by the co-operation of two distinct and separate classes of citizens, - the Proprietors, Capitalists, and Entrepreneurs on the one hand, and the Wage-Workers on the other. These two classes, although bitterly hostile to each other, together constitute a close organisation which acts in itself, on itself, and by itself.
[...]
The Money converted into Merchandise, the Proprietor-Capitalist-Entrepreneur A now has to perform the inverse operation, and convert his Merchandise into Money. This conversion implies a Profit (Premium, Interest, etc.), since, by the hypothesis and according to the theory of Interest, Land and Houses, Capital, and the guaranty and judgement of the Entrepreneur are not to be obtained gratis. Admit, then, the Profit to be ten per cent, according to ordinary Commercial Custom.
B, a worker, without property, without capital, without work, is hired by A, who gives him employment and takes his product. [...]
But B lives on his wages, - that is, with the money given him by A, proprietor-capitalist-entrepreneur, he procures from said A all the articles needed for his (B’s) consumption, articles which are invoiced to him [...] at an advance of ten per cent on the cost price. [...]
All the other workers being in the same circumstances as B, their accounts show, each, the same result. The reproduction of each of these accounts is not necessary to a clear comprehension of the fact which I desire to bring out, - namely, the absence of equilibrium in general circulation in consequence of the exactions of Capital [...] we may be convinced that misery and the proletariat are not the effects of accidental causes only, such as floods, wars, and epidemics, but that they spring also from an organic cause, inherent in the constitution of society.
[...]
We are compelled, then, to admit that Credit, under the system of Interest, inevitably results in the spoliation of the worker, and, as a corrective no less inevitable, in the bankruptcy of the entrepreneur, the ruin of the Capitalist-proprietor. Interest is like a two-edged sword: whichever way it strikes, it kills.
I have just shown you what the condition of things is under the regime of Interest. Let us now see what it would be under the regime of gratuity.
[...]
Under the regime of gratuitous credit, A no longer lends his raw material, his tools, his capital, in a word; neither does he give them away; he sells them. When he has received the price he is stripped of his rights over his Capital; he can no longer compel the payment of Interest upon it through all eternity and beyond.
[...]
In a Capitalist Society the worker, never being able to repurchase his product at the price at which he sells it, is constantly running behind, which compels him to continually decrease its production: whereby life is forbidden and the supply of capital and even of the means of subsistence is cut off.
In a Mutualist Society, on the contrary, the worker, exchanging without reserve product for product and value for value, paying only a trifling discount which is amply recompensed by the surplus which his labour leaves him at the end of the year, alone profits by his products: whereby he is enabled to produce a limitless amount, and society to increase to an indefinite extent its life and wealth.
Do you say that such a revolution in economic relations would be, after all, only a transfer of misery; that, instead of the poverty of the wage-worker, who cannot repurchase his own product, and who grows the poorer the more he works, we shall have the misery of the proprietor-capitalist-entrepreneur, who will be compelled to encroach upon his capital and thus to gradually destroy, not only the material of products, but machinery itself?
But who does not see that if, as is inevitable under the Gratuitous System, the two functions of Wage-Worker on the one hand, and of Proprietor-Capitalist-Entrepreneur on the other, become equal and inseparable in the person of every worker, A’s deficit as a Capitalist is immediately covered by his profit as a worker; so that, while on the one hand by the annihilation of Interest the sum of the products of Labour is increased indefinitely, on the other, by the facility of circulation, these products are incessantly converted into VALUES and the values into CAPITAL?
Let every one, then, instead of charging spoliation upon Socialism, make out his own account; let every one make an inventory of his wealth and his industry, of the amount which he gains as a Capitalist-Proprietor, and that which he can obtain as a worker, - and either I am greatly mistaken, or else out of the ten million citizens enrolled upon the electoral lists there will not be found two hundred thousand - one in fifty - for whose interest it is to sustain the Usurious system and oppose Gratuitous Credit. Once again, whoever gains more by his labour, his skill, his industry, and his knowledge than by his Capital is directly and especially interested in the most immediate and complete abolition of Usury; he, I say, whether he knows it or not, is pre-eminently a partisan of the democratic and social republic; he is, in the broadest and most conservative acceptation of the term, a REVOLUTIONIST. What then? Must it be true, because Malthus, with a handful of pedants at his heels, has said so and has wished it to be so, that ten millions of workers, with their wives and children, ought forever to support two hundred thousand parasites, and that it is in order to protect this exploitation of man by man that the State exists, that it makes use of an armed force of five hundred thousand soldiers and one million officeholders, and that we pay to it two thousand millions of taxes?
But why do I need, after all that has been said in the course of this discussion, to keep up longer this purely artificial distinction between Wage-Workers and Capitalist-Proprietors? The time has come to put an end to all class antagonism, and to interest everybody, even the Proprietors and Capitalists themselves, in the abolition of Rent and Interest. The Revolution, having assured its triumph through Justice, may, without losing its dignity, address itself to personal interests.
[...]
In what you have just read is involved, as you will not deny, a complete revolution, not only political and economic, but also, as must be much more obvious to you as well as to myself, scientific. It is for you to decide whether you accept, on your own behalf and on behalf of your co-religionists, the conclusion which clearly results from this whole discussion, - namely, that neither you, Monsieur Bastiat, nor anyone of your school, understands Political Economy. I am, etc.,
P-J PROUDHON
Monsieur Bastiat, your last letter justifies all my anticipations. I knew so well what it would contain that, even before I had received La Voix du Peuple of February 4th, I had written three-fourths of the reply which you are now to read, and to which I have only to add the finishing touches.
You are sincere, Monsieur Bastiat; on that you leave no room for doubt; I have acknowledged it before, and have no desire to retract my words. But it is very necessary for me to tell you that your intellect slumbers, or rather that it has never seen the light: I shall have the honour to demonstrate this fact to you by summing up our controversy. I hope that the sort of psychological consultation at which you are to be present, and of which your own mind is to be the subject, may be to you the beginning of that intellectual education without which a man, whatever dignity of character may distinguish him and whatever talents he may display, is not, and never will be, anything but a speaking animal, to use Aristotle’s words.
[...]
But I was dealing with a man whose intellect is hermetically sealed, and to whom logic is as nought. It is in vain that I exclaim to you: Interest is legitimate under certain conditions independent of the will of the Capitalist; not under certain others, the establishment of which depends to-day upon society: and is for this reason that Interest, excusable in the Lender, is, from the standpoint of Society, a spoliation. You hear nothing, you comprehend nothing, you do not even listen to my reply. You lack the first faculty of intelligence - perception.
[...]
The Bank of France, I said, is the living proof of my assertion oft-repeated during the last six weeks, - namely, that interest was once necessary and legitimate, but that to-day society is able, and ought, to abolish it.
It is proved, indeed, by comparing the capital of the Bank with its metallic reserve, that while paying to its stockholders interest on the said capital at four per cent., it can give credit and discount at one per cent., and still realise fine profits. It can, it ought; until it does, it robs. By refusing to do so, it keeps the interest, rent, and farm-rent, which ought to come down everywhere to one per cent at most, up to three, four, five, six, seven, eight, ten, twelve, and fifteen per cent. It causes the people to pay annually to the unproductive classes more than six thousand millions in gratuities and extras, and, where they might produce annually a value of twenty thousand millions, it prevents them from producing more than ten thousand. Then, either you must justify the Bank of France, or, if you cannot, if you dare not, you must admit that the institution of interest is only a transitional institution, which must disappear in a higher state of society.
That, sir, is what I said to you, and in terms sufficiently sharp, one would think, to provoke on your part, in the absence of perception, comparison, and memory concerning the wholly historical question which up to that time I had submitted to you, that simple and purely intuitive act of the mind which it performs when it find itself in the presence of a fact, and required to answer yes or no, - I mean a judgement. You had only to reply in a word, it is, or it is not, and the operation was finished.
It is: that is to say, yes, the Bank of France can without wronging its stockholders or injuring itself, reduce its rate of discount to one per cent; it can then, through the competition which this decrease would create, lower the rent of all Capital, including its own, to less than one per cent. And since this movement of reduction, once commenced, would never stop, it can, if it will, make Interest disappear entirely. Then paid Credit, if it takes only what belongs to it, leads directly to Gratuitous Credit; then Interest is only a relic of ignorance and barbarism; then Usury and Rent, in an organised democracy, are illegitimate.
It is not: that is to say, no, it is not true that the Bank of France, its weekly balance-sheet to the contrary notwithstanding, has a capital of ninety millions and a metallic reserve of four hundred and sixty millions; it is not true that this enormous reserve is the result of the substitution of bank paper for specie in commercial circulation, etc., etc. In that case I should have referred you to M. d’Argout, who is suited for such a discussion.
Should we ever have believed it, if you had not caused us to see it? To this categorical, palpable fact of the Bank of France, you replied neither yes nor no. You did not even question the identity which exists between the fact submitted to your judgement and your theory of interest. You did not perceive the synonymy of these two propositions: Yes, the Bank of France can give Credit at one per cent., then my theory is false; - no, the Bank of France cannot give Credit at one per cent., then my theory is true.
Your reply, indubitable monument of an intellect which the Holy Word never illuminated, was this: that you were not dealing with the Bank of France, but with capital; that you did not defend the privilege of the Bank, but only the legitimacy of Interest; that you were in favour of the liberty of banks, as well as the liberty of lending; that if it were possible for the Bank of France to give Credit and Discount for nothing, you would not try to prevent it; that you confined yourself to the one assertion that the idea of Capital supposes and necessarily implies that of Interest; that the first never exists without the second, though the second sometimes exists without the first, etc.
So, you are as powerless to judge as to perceive, compare, and remember. You are lacking in that judicial conscience which, in the presence of two facts, either identical or incompatible, decides: Yes, they are identical; no, they are not identical. Undoubtedly, since you are a thinking being, you have intuitions, illuminations, revelations; I do not undertake to say, for my part, what does go on within your brain. But surely you do not reason, you do not reflect. What sort of a man are you, Monsieur Bastiat? Are you a man at all?
[...]
However, without examining it closely, you accept my definition of Capital as a good one; you say that it is all that the discussion requires. You thereby tacitly admit that Capital and Product are, in Society, synonymous terms; that, consequently, every transaction involving credit resolves itself, in the absence of fraud, into an exchange: two things which you at first denied, and which I would congratulate you on having understood at last, could I by any possibility believe that you attach the same meaning to my words that I do. What, indeed, could be more productive of good results than this analysis: Since value is only a proportion, and since all products are necessarily proportional to each other, it follows that from the social standpoint products are always values and settled values: as far as society is concerned, there is no difference between Capital and Product. The difference is wholly confined to individuals: it arises from their inability to express in exact numbers the relative value of products, and their efforts to arrive at an approximation. For - do not forget it - the mysterious law of exchange, the absolute rule which governs transactions, - a law not written but intuitively recognised, a rule not conventional but natural, - is to make our private acts conform as far as possible to social laws.
Now, - and this is what causes my doubts, - this definition of Capital, so profound and so clear, which you see fit to accept; this identity of Capital and Product, of Credit and Exchange, - totally destroys, sir, your theory of Interest, though you do not suspect it in the least! Indeed, from the moment you admit that the formula of J.-B. Say, products exchange for products, is synonymous with this one, Capital exchanges for Capital; that the definition of Capital accepted by you is only an expression of this synonymy; that everything tends, in society, to bring commercial transactions more and more into conformity with this law, - from that moment it is evident, a priori, that the day must come when transactions involving loans, rent, farm-rent, Interest, and the like, will be abolished and converted into exchanges; and that thus the lending of Capital becoming simply an exchange of Capital, and all business being conducted on a cash basis, Interest will disappear. Defining Capital thus, the idea of Usury involves a contradiction.
[...]
M. BASTIAT. - “Time is precious. Time is money, say the English. Time is the stuff of which life is made, says le Bonhomme Richard.
“To give credit is to grant time.
“To sacrifice one’s time to another is to sacrifice a precious thing: such a sacrifice cannot be gratuitous.”
MYSELF. - There would never be such a sacrifice. I have already told you, and I repeat it, that, in the matter of credit, the case of the need of time is the difficulty of procuring money; that this difficulty is chiefly due to the Interest demanded by the hikers of money; so that if Interest were zero, the duration of credit would also be zero. Now, the Bank of France, under the conditions laid upon it by the public since the Revolution of February, can reduce its Interest nearly to zero: is it you or I that reasons in a circle?
M. BASTIAT. - “Ah! yes .... it seems to me .... I think I understand at last what you mean. The public has renounced, in the bank’s favour, its claim to the Interest on the three hundred and eighty-two millions of notes which circulate on its sole guaranty. You ask whether there is no way of enabling the public to reap the benefit of this Interest, or, which amounts to the same thing, of organising a National Bank which shall receive no Interest. If I am not mistaken, it was the observation of this phenomenon that suggested to you your scheme. Ricardo devised a plan less radical, but similar, and I find in Say these remarkable lines:
“‘This ingenious idea leaves only one question unanswered. Who shall get the interest on this large sum placed in circulation? Shall the Government? In its hands it would be only a means of increasing abuses, such as sinecures, Parliamentary corruption, police spies, and standing armies. Shall a financial company, like the Bank of England or the Bank of France? But why make a present to a financial company already rich of the Interest paid by the public individually? ...... Such are the questions which this subject involves. Perhaps they can be answered. Perhaps there is some way to render highly profitable to the public the economy which would result; but I am not called upon here to develop this new order of ideas.’”
MYSELF. - Sir, your J.-B. Say, with all his genius, is a fool. The question is already answered: the people, who own the funds; the people, who are here the sole Capitalists, the sole furnishers of security, the true proprietors; the people, who alone should profit by the Interest, - the people, I say, ought not to pay Interest. Is there anything in the world simpler and fairer than that?
So you admit, on the authority of Ricardo and J.-B. Say, that there is a way of enabling the public - I quote your own words - to reap the benefit of the interest which it pays to the Bank, and this way is to organise a National Bank, which shall give credit at zero per cent?
M. BASTIAT. - No, not that; God forbid! I admit, it is true, that the Bank ought not to profit by the interest paid by the public on capital belonging to the public; I confess further that there is a way of enabling the public to profit by said interest. But I deny that this way is the one which you recommend, - namely, the organisation of a National Bank; I say and affirm that this way is the liberty of banks!
“Liberty of banks! Liberty of credit! Oh! why, Monsieur Proudhon, have not your brilliant powers of persuasion been devoted to these objects?”
I spare the reader your peroration, in which you deplore my obduracy and adjure me, with a comical gravity, to substitute for my formula, Gratuity of Credit, yours, Liberty of Credit, as if Credit could be freer than when it costs nothing! Not a drop of blood in my body - mark it well! - rebels against the liberty of Credit: in the matter of banking, as in the matter of education, Liberty is my supreme law. But I say that, until the liberty of banks and the competition of bankers allows the public to reap the benefit of the Interest which it pays them, it would be well, useful, constitutional, and quite in accordance with republican economy, to establish, in the midst of the other banks and in competition with them, a National Bank giving credit temporarily at one or one-half of one per cent, at the risk of what might happen. Do you object to changing the Bank of France, by reimbursing its stockholders, into this National Bank that I propose? Then, let the bank of France make restitution of the three hundred and eighty-two millions of specie which belong to the public, and of which it is the only holder. With three hundred and eighty-two millions we might very easily organise a bank (what think you?), and the largest in the world. In what respect, then, would this bank, formed by the association of the whole people, not be free? Do that alone, and when you have belled this revolutionary act, when you have thus decreed the first act of the Democratic and Social Republic, I will undertake to deduce for you the consequences of this grand innovation. You shall then know what my system is.
As for you, Monsieur Bastiat, who, an economist, mock at metaphysics, of which Political Economy is but the concrete expression; who, a member of the Institute, are unacquainted even with the philosophy of your century; who, the author of a work entitled Economic Harmonies probably in opposition to my Economic Contradictions, have no conception of the harmonies of history, and see in progress only a desolating fatalism; who, an advocate of Capital and Interest, are utterly ignorant of the principles of commercial bookkeeping; who, conceiving finally, through the circumlocutions of a bewildered imagination and on the authority of your authors more than from your own profound conviction, that it is possible to organise, with the pubic funds, a bank giving Credit without Interest, continue nevertheless to protest, in the name of Liberty of Credit, against GRATUITY OF CREDIT - you are undoubtedly a good and worthy citizen, an honest economist, a conscientious writer, a loyal representative, a faithful Republican, a true friend of the people: but your last words entitle me to tell you, Monsieur Bastiat, that, scientifically, YOU ARE A DEAD MAN.[6]
P-J PROUDHON
[1] This exchange originally appeared in Proudhon’s La Voix du Peuple before being published as a book. (Editor)
[2] From St. Ambrose’s De Tobia: “that which exceeds the principal in a loan is usury.” (Editor)
[3] A “malbrouck” was a kind of crude cart used by seventeenth-century Belgian farmers. (Editor)
[4] Antoine Maurice Apollinaire d’Argout (1782-1858), centre-right politician and manager of the Banque de France; Gilbert-Urbain Guillaumin (1801-1864), liberal economist, later publisher of Bastiat’s uvres complètes (1862). (Editor)
[5] A well-known line from Boileau’s Satires, roughly equivalent to “telling it like it is.” (Editor)
[6] It should be noted that Bastiat died of tuberculosis by the end of the year. (Editor)