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 money-lenders, 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 conclusion. 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 million, tax themselves, each one, to the amount of only one percent of their Capital. This Tax of one percent upon the total amount of the Capital of the country, both real and personal, would amount to more than a THOUSAND MILLION 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 percent.
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 percent, 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 gr
atuitous 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
SECOND LETTER
3RD DECEMBER 1849
[…]
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; today it would occasion disturbance and decline.
Polygamy was legitimate once; it was the first step away from Communistic promiscuity. It is condemned today 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 today, false tomorrow? 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 Soci
alism 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 does it matter, 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 does it matter, you say, 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?
Property Is Theft! Page 68
