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 today, 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.
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 percent, 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 percent, according to ordinary Commercial Custom.
B, a worker, without property, without capital, without work, is hire
d 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 percent 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 million 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 million in 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
SIXTH LETTER
11TH FEBRUARY 1850
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 today 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 today 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 percent., it can give credit and discount at one percent., 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 percent at most, up to three, four, five, six, seven, eight, ten, twelve, and fifteen percent. It causes the people to pay annually to the unproductive classes more than six thousand million in gratuities and extras, and, where they might produce annually a value of twenty thousand million, 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 institut
ion 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 percent; it can then, through the competition which this decrease would create, lower the rent of all Capital, including its own, to less than one percent. 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 million and a metallic reserve of four hundred and sixty million; 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 percent., then my theory is false;—no, the Bank of France cannot give Credit at one percent., then my theory is true.
Property Is Theft! Page 71
