Capital and Interest

CHAPTER I

HISTORICAL SURVEY

WE come now to that remarkable theory the enunciation of which, if not the most agreeable among the scientific events of our century, certainly promises to be one of the most serious in its consequences. It stood at the cradle of modern Socialism and has grown up along with it; and to-day it forms the theoretical centre around which move the forces of attack and defence in the struggle of organising human society.

This theory has as yet no short distinctive name. If I were to give it one from a characteristic of its chief professors, I should call it the Socialist theory of interest. If I were to try to indicate by the name the theoretic purport of the doctrine itself,—which to my mind would be more appropriate,—no name seems more suitable than that of the Exploitation theory. This accordingly is the name I shall use in the sequel. Condensed into a few sentences, the essence of the theory may be provisionally put thus.

All goods that have value are the product of human labour, and indeed, economically considered, are exclusively the product of human labour. The labourers, however, do not retain the whole product which they alone have produced; for the capitalists take advantage of their command over the indispensable means of production, as secured to them by the institution of private property, to secure to themselves a part of the labourers’ product. The means of doing so are supplied by the wage contract, in which the labourers are compelled by hunger to sell their labour-power to the capitalists for a part of what they, the labourers, produce, while the remainder of the product falls as profit into the hands of the capitalists, without any exertion on their part. Interest is thus a portion of the product of other people’s labour, obtained by exploiting the necessitous condition of the labourer.

The way had been prepared for this doctrine long beforehand; indeed it had become all but inevitable, owing to the peculiar turn taken by the economic doctrine of value since the time of Adam Smith, and particularly since the time of Ricardo. It was taught and believed that the value of all, or at least of by far the greater part of economical goods, is measured by the quantity of labour incorporated in them, and that this labour is the cause and source of the value. This being the case, it was inevitable that, sooner or later, people would begin to ask why the worker should not receive the whole value of which his labour was the cause. And whenever that question was put it was impossible that any other answer could be given, on this reading of the theory of value, than that one class of society, the drone-like capitalists, appropriates to itself a part of the value of the product which the other class, the workers, alone produce.

As we have seen, this answer is not given by the founders of the Labour-value theory, Adam Smith and Ricardo. It was even evaded by some of their first followers, such as Soden and Lötz, who laid great emphasis on the value-creating power of labour, but, in their total conception of economic life, kept close to the footsteps of their master. But this answer was none the less involved in their theory, and it only needed a suitable occasion and a logical disciple to bring it sooner or later to the surface. Thus Adam Smith and Ricardo may be regarded as the involuntary godfathers of the Exploitation theory. They are indeed treated as such by its followers. They, and almost they alone, are mentioned by even the most pronounced socialists with that respect which is paid to the discoverers of the “true”law of value, and the only reproach made them is that they did not logically follow out their own principles, and so allowed themselves to be prevented from developing the Exploitation theory out of their theory of value.

Any one who cares to hunt up ancient pedigrees of theories might discover in the writers of past centuries many an expression that fits in with the line of thought taken by the Exploitation theory. Not to speak of the canonists, who arrived at the same results more by accident than anything else, I may mention Locke, who on one occasion points very distinctly to labour as the source of all wealth,1 and at another time speaks of interest as the fruit of the labour of others;2 James Steuart, who expresses himself less distinctly, but takes the same line;3 Sonnenfels, who occasionally describes capitalists as a class who do no labour, and thrive by the sweat of the labouring classes;4 or Büsch, who also,—treating indeed only of contract interest,—regards it as “a return to property obtained by the industry of others.” 5

These are instances which could very likely be multiplied by careful examination of the older literature. The birth of the Exploitation theory, however, as a conscious and coherent doctrine, must be assigned to a later period.

Two developments preceded and prepared the way for it. First, as mentioned above, it was the development and popularising of the Ricardian theory of value which supplied the scientific soil out of which the Exploitation theory could naturally spring and grow. And, secondly, there was the triumphant spread of capitalist production on a large scale; for this large production, while creating and revealing a wide gulf of opposition between capital and labour, placed in the foremost rank of great social questions the problem of interest as an income obtained without personal labour.

Under those influences the time seems to have become ready for the systematic development of the Exploitation theory about the twentieth year of this century. Among the first to give it explicit statement—in a history of theory I leave out of account the “practical” communists, whose efforts, of course, were based on similar ideas—were Hodgskin in England and Sismondi in France.

Hodgskin’s writings—a little known Popular Political Economy and an anonymous publication under the significant title “Labour defended against the Claims of Capital” 6—do not seem to have had any extensive influence. Thus Sismondi becomes all the more important in the development of the theory.

In naming Sismondi as representative of the Exploitation theory, I must do so with a certain reservation. It is that, although his theory contains all the other essential features of that system, he expresses no condemnatory opinion on interest. He is the writer of a transition period. Though really acquiescing in the new theory, he has not yet broken with the old so completely as to accept all the very extreme conclusions of the new position.

For our purpose the book which we have chiefly to consider is his great and influential Nouveaux Principes d’Economie Politique.7 In it Sismondi connects with Adam Smith. He accepts with warm approval (p. 51) Adam Smith’s proposition that labour is the sole source of all wealth;8 complains that the three kinds of income,—rent, profit, and wages,—are frequently ascribed to three different sources, land, capital, and labour, while in reality all income springs from labour alone, these three branches being only so many different ways of sharing in the fruits of human labour (p. 85). The labourer, by whose activity all goods are produced, has not been able “in our stage of civilisation “to obtain possession of the means necessary to production. On the one hand, land is generally in the possession of some other person who requires from the labourer a part of the fruit of his labour as compensation for the co-operation of this “productive power.” This part forms the land-rent. On the other hand, the productive labourer does not as a rule possess a sufficient stock of the means of subsistence upon which to live during the course of his labour. Nor does he possess the raw materials necessary to production or the often expensive tools and machines. The rich man who has all these things thus obtains a certain command over the labour of the poor man, and, without himself taking part in that labour, he takes away, as compensation for the advantages which he places at the disposal of the poor man, the better part of the fruits of his labour (la part la plus importante des fruits de son travail). This share is the profit on capital (pp. 86, 87). Thus, by the arrangements of society, wealth acquires the capacity of reproducing itself by means of the labour of others (p. 82).

But although the labourer produces by his day’s labour very much more than the day’s needs, yet, after the division with the landowner and the capitalist, there seldom remains to him much more than his absolutely necessary maintenance, and this he receives in the form of wages. The reason for this lies in the dependent position in which the labourer is placed in relation to the undertaker who owns the capital. The labourer’s need for maintenance is much more urgent than the undertaker’s need for labour. The labourer requires his maintenance in order to live, while the undertaker requires his labour only to make a profit. Thus the transaction turns out almost invariably to the disadvantage of the labourer. He is in nearly all cases obliged to be satisfied with the barest maintenance, while the lion’s share in the results of a productivity which is increased by the division of labour falls to the undertaker (p. 91, etc.)

Any one who has followed Sismondi thus far, and has noticed among others the proposition that “the rich spend what the labour of others has produced” (p. 81), must expect that Sismondi would end by condemning interest, and declaring it to be an unjust and extortionate profit. This conclusion, however, Sismondi does not draw, but with a sudden swerve wanders into some obscure and vague observations in favour of interest, and finishes by entirely justifying it. First of all he says of the landowner that, by the original labour of cultivating, or even by occupation of an unowned piece of land, he has earned a right to its rent (p. 110). By analogy he ascribes to the owner of capital a right to its interest, as founded on the “original labour” to which the capital owes its existence (p. 111). Both branches of income, which, as income due to ownership, form a contrast to the income due to labour, he finally manages to commend as having precisely the same origin as the income of labour, except that their origin goes back to another point of time. The labourer earns yearly a new right to income by new labour, while the owner has acquired at an earlier period of time a perpetual right in virtue of an original labour which the yearly labour renders more profitable (p. 112).9 “Every one,” he concludes, “receives his share in the national income only according to the measure of what he himself or his representative has contributed, or contributes, towards its origin.” How this statement can be said to agree with the former one, where interest appears as something taken from the fruits of the labour of other people, must remain a mystery.

The conclusions that Sismondi did not venture to draw from his own theory were soon very decidedly drawn by others. Sismondi forms the bridge between Adam Smith and Ricardo on the one side, and the Socialism and Communism that succeeded on the other. The two former had, by their theory of value, given occasion for the appearance of the Exploitation theory, but had in no way themselves developed it. Sismondi has, substantially, all but arrived at this theory, but has not given it any social or political application. After him comes the great mass of Socialism and Communism following the old theory of value into all its theoretical and practical consequences, and coming to the conclusion that interest is plunder, and ought therefore to cease.

It would not be interesting from the point of theory were I to excerpt, from the mass of socialist literature produced in this century, all expressions in which the Exploitation theory is suggested or implied. I should only weary the reader with innumerable parallel passages, scarcely varying in words, and exhibiting in substance a dull monotony; passages, moreover, which for the most part only repeat the cardinal propositions of the Exploitation theory, without adding to its proof more than a few commonplaces and appeals to the authority of Ricardo. In fact the majority of socialists have exercised their intellectual powers, not so much in laying the foundations of their own theory, as in bitterly criticising the theories of their opponents.

Out of the mass of writers with socialist tendencies I content myself therefore with naming a few who have become specially important in the development and spread of this theory.

Among those the author of the Contradictions Economiques, P. J. Proudhon, is pre-eminent for honesty of intention and brilliant dialectic; qualities which rendered him the most efficient apostle of the theory in France. As we are more concerned with substance than with form, I shall not give any detailed example of his style, but content myself with condensing his doctrine into a few sentences. It will be seen at once that, with the exception of a few peculiarities of expression, it differs very little from the general scheme of the theory as given at the beginning of this chapter.

At the outset Proudhon takes it for granted that all value is produced by labour. Thus the labourer has a natural claim to the possession of his whole product. In the wage contract, however, he waives this claim in favour of the owner of capital, and gets in return a wage which is less than the product he gives up. Thereby he is defrauded, for he does not know his natural rights, nor the extent of what he gives up, nor yet the meaning of the contract which the owner concludes with him. And thus the capitalist avails himself of error and surprise, if not cunning and fraud (erreur et surprise si même on ne doit dire dot et fraud).

So it comes that at the present day the labourer cannot buy his own product. In the market his product costs more than he has received in wage; it costs more by the amount of many profits, which are made possible by the existence of the right of property; and these profits under the most various names, such as profit, interest, rent, hire, tithe, and so on, form just so many tolls (aubaines) laid upon labour. For example, what twenty million labourers have produced for a year’s wage of twenty milliards of francs is sold for the price (including these profits, and on account of them) of twenty-five milliards. But this is equivalent to saying that the labourers who are compelled to purchase back these same products are forced to pay five for that which they have produced for four; or that in every five days they must go without food for one. Thus interest is an additional tax on labour, a something kept back (rétenue) from the wages of labour.10

Equal to Proudhon in the purity of his intentions, and far surpassing him in depth of thought and judgment, though certainly behind the impetuous Frenchman in power of statement, is the German Rodbertus.

As regards the history of theory Rodbertus is the weightiest personage we have to mention in this chapter. His scientific importance was long misunderstood, and that, strangely enough, precisely on account of the scientific character of his writings. Not addressing himself, like others, to the people, but restricting himself for the most part to the theoretical investigation of the social problem; moderate and reserved in those practical proposals which, with the great majority, are the chief objects of concern; his reputation for a while lagged behind that of less important writers who accepted his intellectual wares at second hand, and made them acceptable by appealing to popular interests. It is only in recent times that full justice has been done to this most amiable socialist, and that he has been recognised as what he is—the spiritual father of modern scientific Socialism. Instead of fiery attacks and rhetorical antitheses, by which most socialists are fond of drawing a crowd, Rodbertus has left behind him a profound, honestly thought-out theory of the distribution of goods, which, erroneous as it may be in many points, contains enough that is really valuable to ensure its author an abiding rank among the theorists of political economy.

Reserving meanwhile his formulation of the Exploitation theory to return to it later on in detail, I turn to two of his successors, who differ from each other as widely as they differ from their predecessor Rodbertus. One of these is Ferdinand Lassalle, the most eloquent, but, as regards substance, the least original among the leaders of Socialism. I only mention him here because his brilliant eloquence exerted a great influence on the spread of the Exploitation theory; to its theoretical development he contributed almost nothing. His doctrine is substantially that of his predecessors, and I may therefore pass on without reproducing it in quotations or extracts, and merely refer to some of the most characteristic passages in a note.11

While Lassalle is an agitator and nothing else, Karl Marx is a theorist, and indeed, after Rodbertus, the most important theorist of Socialism. His doctrine is certainly founded in many respects on the pioneering work of Rodbertus, but it is built up with some originality and a considerable degree of acute logical power into an organic whole. This theory also we shall consider in detail later on.

If the perfecting of the Exploitation theory has been, par excellence, the work of socialist theorists, the ideas peculiar to it have nevertheless found admittance into other circles, though in different ways and in different degrees. Many adopted the Exploitation theory in its entirety, and, at the most, only refused to acknowledge its last practical consequences. Guth, for example, takes this position.12 He accepts all the essential propositions of the socialists, and accepts them in their entire extent. Labour is to him the sole source of value. Interest arises from the fact that, in virtue of the unfavourable circumstances of competition, the wages of labour are always less than the product of labour. Indeed Guth does not scruple to introduce the harsh expression Ausbeutung for this fact as terminus technicus. Finally, however, he draws back from the practical consequences of the doctrine by introducing some saving clauses. “ Far be it from us to declare that the Ausbeutung of the labourer, which is the source of profit, is unjustifiable from a legal point of view. It rests rather on a free alliance between the employer and the labourer, which takes place under circumstances of the market that are, as a rule, unfavourable to the latter.” The sacrifice which the exploited labourer suffers is rather an “ advance against replacement.” For the increase of capital is always increasing the productivity of labour; consequently the products of labour grow cheaper, the labourer is able to buy more of these products with Iiis wages, and thus his real wages rise. At the same time the labourer’s sphere of employment is enlarged “ on account of greater demand, and his money wage also rises.” Thus the Ausbeutung is equivalent to an investment of capital, which, in its indirect consequences, yields the labourer a rising percentage of interest.13

Dühring also in his theory of interest takes an entirely socialistic position. “ The nature of profit is that of an appropriation of the principal part of the return to labour. The increase of the return and the saving of labour are results of the improved and enlarged means of production. But the circumstance that the hindrances and difficulties of production are lessened, and that bare labour, in furnishing itself with tools, renders itself more productive, does not give the inanimate tool any claim to absorb a fraction more than what is required to reproduce it. The idea of profit therefore is not one that could be evolved from the productivity of labour, or in any system where the economical subject was looked on as an economically self-contained individual. It is a form of appropriation, and is a creation of the peculiar circumstances of distribution.” 14

A second group of eclectic writers add the ideas of the Exploitation theory to their other views on the interest problem; as, for example, John Stuart Mill and Schäffle.15

Finally, there are others who have allowed themselves to be swayed by the impression made on them by socialist writers, and while not acknowledging the entire system of these writers, have still accepted individual points of importance. The most noteworthy feature in this direction seems to me the acceptance, by a considerable number of the German Katheder Socialists, of the old proposition that labour is the sole source of all value, the sole value-producing power.

This proposition, the acceptance or rejection of which has such an enormous weight in determining our judgment of the most important economic phenomena, has had a peculiar fate. It was originally started by the political economy of England, and in the first twenty years or so after the appearance of the Wealth of Nations it had gained a wide circulation along with Adam Smith’s system. Later on, under the influence of Say, who developed the theory of the three productive factors, nature, labour, and capital, and then under the influence of Hermann and Senior, it came into disrepute with the majority of political economists, even of the English school. For a time the tradition was maintained only by a few socialist writers. Then the Katheder Socialists accepted it from the writings of such men as Proudhon, Rodbertus, and Marx, and it once more gained a firm position in scientific political economy. At the present time it almost looks as if the authority enjoyed by the distinguished leaders of that school was on the eve of starting it for the second time on a triumphant march round the literature of all nations.

Whether this is to be desired or not will be shown by the critical examination of the Exploitation theory to which I now address myself.

In criticising this theory several courses were open to me. I might have criticised all its representatives individually. This would certainly have been the most accurate way, but the strong resemblance between individual statements would have led to superfluous and extremely wearisome repetitions. Or, without going into individual statements, I might have directed my criticism against the general scheme that these individual statements really have in common. In doing so, however, there would have been a double difficulty. On the one hand, I should have encountered the danger of making too little account of certain individual variations in the doctrine, and on the other hand, if this had been avoided, I should certainly not have escaped the reproach of making too light of the subject, and of directing my criticism against a wilful caricature, instead of against the real doctrine. I decided, therefore, to take a third course; to select those individual statements that appear to me the best and most complete, and to submit them to a separate criticism.

For this purpose I have chosen the statements of the Exploitation theory given by Rodbertus and Marx. They are the only ones that offer anything like a firm and coherent foundation. While that of Rodbertus is to my mind the best, that of Marx is the one which has won most general acceptance, and the one which may to a certain extent be regarded as the official system of the Socialism of to-day. In subjecting these two to a close examination I think I am taking the Exploitation theory on its strongest side, remembering that fine saying of Knies, “ He that would be victorious on the field of scientific research must let his adversary advance fully armed and in all his strength.” 16

To avoid misunderstandings, one more remark before beginning. The purpose of the following pages is to criticise the Exploitation theory exclusively as a theory; that is to say, to investigate whether the causes of the economic phenomenon of interest really consist in those circumstances which the Exploitation theory asserts to be its originating causes. It is not my intention to offer an opinion in this place on the practical and social side of the interest problem, whether it is objectionable or unobjectionable, whether it should be retained or abolished. Of course no one would think of writing a book on interest and remaining silent on the most important question connected with it. But I can only speak to any purpose of the practical side of the matter when the theoretical side has first been made perfectly clear, and I must therefore reserve the examination of these questions for my second volume. I repeat, then, that in the present instance I shall merely examine whether interest, be it good or be it bad, comes into existence from the causes asserted by the Exploitation theory.

17 Civil Government, book ii. chap. v. § 40: “Nor is it so strange, as perhaps before consideration it may appear, that the property of labour should be able to overbalance the community of land; for it is labour indeed that put the difference of value on everything; and let any one consider what the difference is between an acre of land planted with tobacco or sugar, sown with wheat or barley, and an acre of the same land lying in common without any husbandry upon it, and he will find that the improvement of labour makes the far greater part of the value. I think it will be but a very modest computation to say that of the products of the earth useful to the life of man nine-tenths are the effect of labour, nay, if we will rightly estimate things as they come to our use, and cast up the several expenses about them, what in them is purely owing to nature, and what to labour, we shall find that in most of them ninety-nine hundredths are wholly to be put on the account of labour.”

18 Considerations of the Consequences of the Lowering of Interest, 1691, p. 24. See above, p. 45.

19 See above, p. 46.

20 Handlungswissenschaft, second edition, p. 430.

21 Geldumlauf, book iii. p. 26.

22 I may give a few characteristic passages: “All the benefits attributed to capital arise from coexisting and skilled labour.” After stating that, by the help of tools and machines, more products and better products can be created than without them, he adds the following consideration: “But the question then occurs, What produces instruments and machines, and in what degree do they aid production independent of the labourer, so that the owners of them are entitled to by far the greater part of the whole produce of the country? Are they or are they not the product of labour? Do they or do they not constitute an efficient means of production separate from labour? Are they or are they not so much inert, decaying, or dead matter of no utility whatever, possessing no productive power whatever, but as they are guided, directed, and applied by skilful hands?” (p. 14)

The numerous writers with socialistic tendencies mentioned by Held in the second book of his Zur sozialen Geschichte Englands (Leipzig, 1881) have little direct concern with the theory of interest.

23 First edition, 1819. Second edition, Paris, 1827. I quote from the latter.

24 A proposition, however, which Adam Smith himself did not always very consistently adhere to. Besides labour he not seldom mentions land and capital as sources of goods.

25 In these words one may find a very condensed statement of James Mill’s labour theory (see above, p. 298).

26 See Proudlion’s numerous writings passim, particularly Qu’est ce que la propriété? (1840: in the Paris edition of 1849, p. 162), Philosophie de la Misére (pp. 62, 287 of the German translation), Defence before the Assizes at Besançon on 3d February 1842 (collected edition, Paris, 1868, ii.)

27 Among his numerous writings, the one in which he expresses his opinions on the interest problem most fully, and which most brilliantly displays his agitator genius, is Herr Bastiat-Schulze von Delitzsch, der ökonomische Julian, oder Kapital und Arbeit (Berlin, 1864). The principal passages are these: Labour is “source and factor of all values” (pp. 83, 122, 147). The labourer does not receive the whole value, but only the market price of labour considered as a commodity, this price being equal to its costs of production, that is, to bare subsistence (p. 186, etc.) All surplus falls to capital (p. 194). Interest is therefore a deduction from the return of the labourer (p. 125, and very scathingly p. 97). Against the doctrine of the Productivity of capital (p. 21, etc.) Against the Abstinence theory (p. 82, etc., and particularly p. 110, etc.) See also Lassalle’s other writings.

28 Die Lehre vom Einkommen in dessen Gesammtzweigen, 1869. I quote from the second edition of 1878.

29 Ibid. pp. 109, etc., 122, etc. See also p. 271, etc.

30 Kursus der National-und Sozialökonomie, Berlin, 1873, p. 183. A little further on (p. 185), evidently borrowing from Proudhon’s Droit d’Aubaine, he explains interest as a “toll” imposed in return for the giving over of economic power, the rate of interest representing the rate at which the toll is levied.

31 See below, book vii.

32 Der Kredit, part ii. Berlin, 1879, p. 7.

• 1Grundlagen der National-Oekonomie, tenth edition, Stuttgart, 189. I
• 2Paris, 1828-29.
• 3Goldschmidt, Handbuch des Handelsrechtes, second edition, Stuttgart, 1883, vol. ii. part. i. p. 26 in the note.
• 4Handlungswissenschaft, second edition, p. 430.
• 5Geldumlauf, book iii. p. 26.
• 6This consideration of itself suggests the indefmiteness of what is usually called Undertaker’s Profit. In the Limited Liability Company this “ wage of intellect “ is measured and paid, but the varying dividend shows that it by no means exhausts this “profit.” The solution probably is that the attempt to assess undertaker’s wage on any principle is hopeless in present circumstances. It is a “ glorious risk,” depending, among other things, on adroitness, foresight, opportunity, and exploitation of labour—four factors scarcely reducible to figures. But with this line of thought, interesting and important as it is, we have nothing to do here.
• 7See Endemann, Grundsätze, pp. 9, 21.
• 8On his attitude towards loan interest see above, p. 53. As regards natural interest, he approves of interest as regards capital invested in agriculture (Philosophie Rurale, p. 83, and then p. 295) without going any deeper in explanation; but he speaks of what is gained in commerce and industry in hesitating terms, looking on it rather as a fruit of activity, de la profession, than of capital (p. 278).
• 9See the striking passage on pp. 134, 135.
• 10Quarterly Journal of Economics, April 1889.
• 11Kapitalzins. The word “Interest” in English does not require any addition.—W. S.
• 12“Es heisst Mietlioder Pachtzins, wenn das überlassene Kapital aus dauerbaren Gütern bestand. Es heisst Zinsen oder Interessen, wenn das Kapital aus verbrauchlichen oder vertretbaren Gütern bestand.” I have translated the passage to suit our English usage of the words. The adjective “vertretbar” (for which the legal “fungible” is the only equivalent) indicates that the thing lent is not itself given back, but another of the same kind. Grain and money are the typical fungibles.—W. S.
• 13I think it advisable to translate Unternehmer and Unternehmung throughout by Undertaker and Undertaking. Rowland Hill, when he adapted Greensleaves to a psalm, said he did not see why the devil should have all the good tunes. Neither, in my opinion, should our science any longer deny itself these useful words, introduced by Adam Smith himself, simply because they are usually confined with us to one special branch of industry.—W. S.
• 14On the whole question see Pierstorff, Die Lehre vom Unternehmergewinn Berlin, 1875.
• 15To give the reader some idea of the tone which the fathers of the Clmrcli adopted in dealing with the subject I append some of their most quoted passages. Lactantius, book vi. Divin. Inst. chap, xviii. says of a just man: “Pecuniae, si quam crediderit, non accipiet usuram: ut et benefichila sit incolume quod succurat necessitati, et abstineat se prorsus alieno in hoe enim genere officii debet suo esse contentus, quam oporteat alias ne proprio quidem parcere, ut bonum faciat. Plus autem accipere, quam dedevit, injustam est. Quod qui facit, insidiatur quodam modo, ut ex alterius necessitate praedetur. “Ambrosius, De Bono Mortis, chap. xii.: “Si quis usuram acciperit, rapinam facit, vita non vivit.” The same De Tobia, chap. iii.: “Taliasunt vostra, divites ! beneficia. Minus datis, et plus exigitis. Talis humanitas, ut spolietis etiam dum subvenitis. Foecundus vobis etiam pauper est ad quaestum. Usurarius est egenus, cogentibus nobis, habet quod reddat: quod impendat non habet. “So also chap. xiv.: “Ideo audiant quid lex dicat: Neque usuram, inquit, escarum accipies, neque omnium rerum.” Chrysostom on Matthew xvii. Homily 56: “Noli mihi dicere, quaeso, quid gaudet et gratiam habet, quod sibi foenore pecuniam oolloces: id enim crudelitate tua coactus fecit. “Augustine on Psalm cxxviii.: “Audent etiam foeneratores dicere, non liabeo aliud unde vivam. Hoc mihi et latro diceret, deprehensus in fauce: hoc et effractor diceret ... et leno ... et maleficus.” The same (quoted in the Decret. Grat. chap. i. Causa xiv. quaest. 3): “Si plus quam dedisti expectas accipere foeneratores, et in hoc improbandus, non laudandus.”
• 16Of course only so far as it is net interest.
• 17Physical productivity manifests itself in an increased quantity of products, or, it may be, in an improved quality of products. We may illustrate it by the well-known example given by Koscher: “Suppose a nation of fisher-folk, with no private ownership in land and no capital, dwelling naked in caves, and living on fish caught by the hand in pools left by the ebbing tide. All the workers here may be supposed equal, and each man catches and eats three fish per day. But now one prudent man limits his consumption to two fish per day for 100 days, lays up in this way a stock of 100 fish, and makes use of this stock to enable him to apply his whole labour-power to the making of a boat and net. By the aid of this capital he catches from the first perhaps thirty fish a day.”
• 18Of Say’s two chief works, the Traité d’ Economie Politique and the Cours Gomplet d’Economie Politique Pratique, it is on the former that we must rely almost exclusively for a statement of his views. The Gours Gomplet avoids suggestive expressions almost entirely.
• 19So far as I know, the old Roman sources of law do not put this fiction formally. They say quite correctly of it that, in the loan, tantundem or idem genus, not simply idem is given back. But at any rate the fiction is there. If, e.g. the so-called depositum irregulare, where the depositary was allowed to employ on his own account the sum of money given over to his safe keeping, and to replace the deposit in other pieces of money, was treated as a depositum, this construction can only be explained by supposing that the lawyers invoked the assistance of the fiction whereby the pieces of money replaced were considered identical with those given in for safe keeping. Modern jurisprudence has occasionally gone farther, and spoken explicitly of a “legal identity “between fungible goods.
• 20Any one who cares to hunt up ancient pedigrees of theories might discover in the writers of past centuries many an expression that fits in with the line of thought taken by the Exploitation theory. Not to speak of the canonists, who arrived at the same results more by accident than anything else, I may mention Locke, who on one occasion points very distinctly to labour as the source of all wealth, and at another time speaks of interest as the fruit of the labour of others; James Steuart, who expresses himself less distinctly, but takes the same line; Sonnenfels, who occasionally describes capitalists as a class who do no labour, and thrive by the sweat of the labouring classes; or Büsch, who also,—treating indeed only of contract interest,—regards it as “a return to property obtained by the industry of others.”
• 21Any one who cares to hunt up ancient pedigrees of theories might discover in the writers of past centuries many an expression that fits in with the line of thought taken by the Exploitation theory. Not to speak of the canonists, who arrived at the same results more by accident than anything else, I may mention Locke, who on one occasion points very distinctly to labour as the source of all wealth, and at another time speaks of interest as the fruit of the labour of others; James Steuart, who expresses himself less distinctly, but takes the same line; Sonnenfels, who occasionally describes capitalists as a class who do no labour, and thrive by the sweat of the labouring classes; or Büsch, who also,—treating indeed only of contract interest,—regards it as “a return to property obtained by the industry of others.”
• 22The question now is, Is such a dividend pure interest? Here we have to reckon with the familiar fact that limited companies, under similar conditions, pay the most various rates of dividend. If then we accept “dividend” as the equivalent of “interest” we shall have to conclude that varying rates of interest are obtainable on equal amounts of capital. On looking closer, however, we find the dividing line again reasserting itself. If a sound industrial company is known to be paying a dividend higher than a certain definite percentage on its capital, the value of the stock, or parent capital, will rise to the point where dividend corresponds to an interest no greater than this definite percentage—e.g. the £100 stock of a great railway paying 5 per cent will rise to something like £125, at which price the 5 per cent dividend on the original capital shows a return of 4 per cent on the new value of the capital.
• 23THE canon doctrine of interest had to all appearance reached its zenith sometime during the thirteenth century. Its principles held almost undisputed sway in legislation, temporal as well as spiritual. Pope Clement V, at the Council of Vienna in 1311, could go so far as to threaten with excommunication those secular magistrates who passed laws favourable to interest, or who did not repeal such laws, where already passed, within three months. Nor were the laws inspired by the canon doctrine content with opposing interest in its naked and undisguised form; by the aid of much ingenious casuistry they had even taken measures to prosecute it under many of the disguises by which the prohibition had been evaded. Finally, literature no less than legislation fell under the sway of the canon doctrine, and for centuries not a trace of opposition to the principle of the prohibition dared show itself.
• 24Mercier de la Rivière, more correctly, recognises that capital produces a net profit; but he only points out that there must be this profit on the capital that is employed in agriculture, if agriculture is not to be abandoned for other pursuits. He does not go on to ask why capital in general should yield interest. As little does Mirabeau, who, as we saw, has written a great deal on the subject of interest, and has written very badly.
• 25But the fact is that, in all this, we have an entire misconception of the origin of value. Value cannot come from production. Neither capital nor labour can produce it. What labour does is to produce a quantity of commodities, and what capital co-operating with labour usually does is to increase that quantity. These commodities, under certain known conditions, will usually possess value, though their value is little proportioned to their amount; indeed, is often in inverse ratio. But the value does not arise in the production, nor is it proportional to the efforts and sacrifices of that production. The causal relation runs exactly the opposite way. To put it in terms of Menger’s law, the means of production do not account for nor measure the value of products; on the contrary, the value of products determines and measures the value of means of production. Value only arises in the relation between human wants and human satisfactions, and, if men do not “value” commodities when made, all the labour and capital expended in the making cannot confer on them the value of the smallest coin. But if neither capital nor labour can create value, how can it be maintained that capital employed in production not only reproduces its own value, but produces a value greater than itself?
• 26In concluding, I should like to say with Dr. James Bonar—that, while it would be bold to affirm that Professor Bòhm-Bawerk has said the last word on the theory of Interest, his book must be regarded as one with which all subsequent writers will have to reckon.
• 27The income that flows from capital, sometimes called in German Bent of Capital, we shall simply call Interest.
• 28The owner of capital, however, frequently prefers to give up the chance of obtaining this natural interest, and to hand over the temporary use of the capital to another man against a fixed compensation. This compensation bears different names in common speech. It is called Hire, and sometimes Rent (in German Miecthzins and Pachtzins) when the capital handed over consists of durable or lasting goods. It is generally called Interest when the capital consists of perishable or fungible goods. All these kinds of compensation, however, may be appropriately grouped under the name of Contract interest or Loan interest.
• 29It may with reason appear questionable if the entire profit realised by an undertaker from a process of production should be put to the account of his capital. Undoubtedly it should not be so where the undertaker has at the same time occupied the position of a worker in his own undertaking. Here there is no doubt that one part of the “profit” is simply the undertaker’s wage for the work he has done. But even where he does not personally take part in the carrying out of the production, he yet contributes a certain amount of personal trouble in the shape of intellectual superintendence—say, in planning the business, or, at the least, in the act of will by which he devotes his means of production to a definite undertaking. The question now is whether, in view of this, we should not distinguish two quotas in the total sum of profit realised by the undertaking; one quota to be considered as result of the capital contributed, a second quota to be considered as result of the undertaker’s exertion.
• 30On the other hand, there are many, especially among the younger economists, who hold that such a division is inadmissible, and that the so-called undertaker’s profit is homogeneous with the profit on capital.
• 31Of the two phases of the canonist writings on this subject, the first is almost without value for the history of theory. Its theologising and moralising do little more than simply express abhorrence of the taking of interest and appeal to authorities.
• 32This discussion forms the subject of an independent problem of no little difficulty—the problem of Undertaker’s Profit. The difficulties, however, which surround our special subject, the problem of interest, are so considerable that I do not feel it my duty to add to them by taking up another. I purposely refrain then from entering on any investigation, or giving any decision as to the problem of undertaker’s profit. I shall only treat that as interest which everybody recognises to be interest—that is to say, the whole of contract interest, and, of the “natural” profit of undertaking only so much as represents the rate of interest usually obtainable for capital employed in undertaking. The question whether the so-called undertaker’s profit is a profit on capital or not I purposely leave open. Happily the circumstances are such that I can do so without prejudice to our investigation; for at the worst it is just those phenomena which we all recognise as interest that constitute the great majority, and contain the characteristic substance of the general interest problem. Thus we can investigate with certainty into the nature and origin of the phenomenon of interest without requiring to decide beforehand on the exact boundary-line between the two profits.