The Positive Theory of Capital

CHAPTER X

INTEREST UNDER SOCIALISM

LET us imagine the Socialist state perfectly realised; all private property in land and capital abolished; all instruments of production vested in the hands of the community; all citizens working as labourers in the service of the commonweal; and the national product distributed to all according to work done. How is it now with the action of those causes which produced interest under the individualist economy?

First of all, it must be made clear that the causes are still there. There is always a natural difference of value between present and future goods; and since under Socialism time does not stand still, future goods gradually become present ones, and bring a surplus value with them. The difference of value between present goods and future, I say, is always there. For its peculiar causes continue to exist;—the difference between the circumstances of provision in present and future, the partial underestimate of the future which is characteristic of man the uncertainty and shortness of life. In the Socialist state no one will be allowed to be an undertaker on his own account, and, of course, the consideration of the greater technical productiveness of present goods employed as productive instruments ceases to be a motive for individuals: all the more strongly does this motive obtain as regards the great economic common-wealth which now conducts and guides the total national production.

Thus, even for the Socialist state, it is absolutely inconceivable that economic subjects, whether as individuals or as the powerful economic commonweal, should, in their economic judgment and their economic practice, treat present and future goods as on the same footing. How, for instance, could it he all the same to the Socialist worker whether he received his hard-earned wage by instalments of £1 a week, or in £5 2 at the end of a year, or in the shape, perhaps, of £52 five or ten or fifty years later? Or how is it conceivable that, under Socialism, a young oak sapling which will be an oak tree, with the value of an oak tree, in two hundred years, can be made equal in value to an oak full-grown now? The central authority directing the national production must base its entire arrangements and dispositions on a calculation of present and future goods having different values, if its dispositions are not to be quite inept and monstrous. If it do not put a less value on future goods it must find that a process which promises a greater number of products in the far future is more remunerative than a process which yields a small number in the present or near future, and it must, accordingly, always turn its productive powers to remote productive ends, however remote they are, as being, technically, the most fruitful. The natural consequence would be very much as we have already pictured it1—misery and want in the present: and those in charge of the national economy would have no more pressing duty than to overturn this inept disposition, give the less amount of present goods the preference over the greater amount of future ones, and so prove that the difference in value between present goods and future is an elementary economic phenomenon independent of any human arrangements.

If it is now clear that, even in the Socialist state, present goods will, universally, be valued more highly, it goes without saying that, if there is an exchange between the two, it cannot be effected at par. Exactly as under the present economic organisation, present goods, as more valuable, will claim and will receive an agio. The emergence of this agio—and with it the emergence of interest in its most legitimate form—could only be repressed if every opportunity for it were repressed; in other words, if the exchange or barter of present goods for future were removed out of the world altogether.

Now, of course, this would be attempted to a considerable extent in the Socialist state. All private ownership in the means of production being banished, all production on private account would be banished also, and all opportunity of buying the future commodities, Labour, Uses of Land, and Capital, would be taken away from private individuals. Since, then, in any case the loan at interest would also be forbidden, the two chief springs, from which interest flows to private persons in the present day, would be happily stopped up. But certain opportunities would still remain open if exchange transactions between individuals were not entirely forbidden. Suppose, for instance, that free exchange were allowed in durable goods, agio and interest would immediately slip in, as it were, by a back door. Say that a good lasts one hundred years, and that its (present) year’s service is worth £100, £10,000 must be the price of the good if the hundredth year’s service—rendered perhaps to some grandchild or great-grandchild—is to be paid full £100. No man would be willing to pay this price. But the moment that the purchase price is calculated at less than £10,000, the owner receives, in course of time, an income greater than the purchase price, and harvests the excess as true interest.

But much more important than any such sporadic obtaining of interest by private individuals is the fact that, in the Socialist state, the commonwealth itself, as against the citizens, would make use of the principle of interest which to-day it reviles as “exploitation “and deduction from the product of labour. The Socialist state, as possessing all means of production, gets all the citizens to work in its factories, and pays them a wage. It conducts, therefore, on the largest scale the buying—forbidden to private individuals—of the future good Labour. Now, on technical grounds, various portions of the labour it buys it necessarily sets to work simultaneously towards various productive ends widely removed in point of time. One group of labourers, for instance, it sets to baking; another it sets to sink mining shafts, which, perhaps, assist in turning out consumption goods only twenty years later; another it sets to replant a forest. The labour directed to distant ends, for reasons with which we are now familiar, obtains a greater technical product, and that product when ripe will possess also a greater value. While, for instance, the product that a baker turns out in a day is worth, perhaps, 4s., a labourer engaged in of labour and the receiving of the mature product, and, with it, the difference in value between labour and future product, is at its maximum: in the most unambiguous way, because here no additional labour of any sort is necessary, and, consequently, the calculation of the final product produced by a definite expenditure of labour is quite simple. But it surely needs no further demonstration that exactly the same relations occur, in more or less weakened degree, in the case of all labour which is directed to more remote goals of production. They are all technically more productive than those which yield their results on the moment. Their abundant future product, too, must always have a greater future value, because it could not, economically, have been produced at all if already its present value, reduced by perspective, were not equal to the otherwise normal value of a similar amount of labour.2 Since, finally, the wage for similar and similarly valuable labour cannot be assessed at different levels according as the Socialist state directs its labour to a near or a remote goal of production, the wage of those labourers who are put to more remote tasks must, necessarily, be measured under the full value of their future product,3 and this secures that, to a greater or less extent, there appears a surplus gain for the community which is the owner of the present goods.4

Nor does it require any demonstration that the phenomenon of interest must emerge to a still greater degree if the Socialist society be organised, not as one united community, but as a system of independent economic groups.5 For in this case, at every exchange between mature and immature commodities, each group would appropriate surplus value, not only as against its own workers employed to remote productive ends, but, in a much greater degree, as against the other groups, and would divide out this surplus value to the shareholders of the wealth belonging to the group, as dividend.

Thus we come to a very remarkable and noteworthy result. Interest, which to-day the Socialists abuse as a gain got by exploitation, a robbery from the products of labour, would not disappear even in the Socialist state, but would remain, in promise and potency, as between the community organised under Socialism and its labourers, and must so remain. The new organisation of society may make some change in the persons who receive it, and in the shares into which it is divided, by altering the relations of ownership; but the fact that the owners of present commodities, in exchanging them for future commodities, obtain an agio, it neither will nor can alter. And here, again, it is shown that interest is not an accidental “historico-legal” category, which makes its appearance only in our individualist and capitalist society, and will vanish with it; but an economic category, which Springs from elementary economic causes, and therefore, without distinction of social organisation and legislation, makes its appearance wherever there is an exchange between present and future goods. Indeed, even the lonely economy of a Crusoe would not be without the basis of the interest phenomenon, the increasing value of goods and services preparing for the service of the future; only, of course, that, in the absence of exchange transactions, there would be wanting the chief occasion to put exact figures on the value of goods, and therewith almost the only opportunity of calling attention and giving fixity to the phenomenon.

6 See above, p. 335.

7 See above, p. 310.

8 The levelling up of wages—that is, up to the value of the future product of the most remuneratively employed labour—is, of course, impossible, because the national product would not suffice for that.

9 I may remark in passing that the same position holds in the case of land rent. It is obvious that, even in the Socialist state, a labourer working on a peculiarly fruitful piece of land, e.g. in a Rüdesheim vineyard, will produce a greater or more valuable product than one who puts forth the same exertion and skill on a common piece of land or vineyard. But it is as evident that it would be insufferable “protection” to allow the former labourers their entire greater product as wage. To avoid injustice the wage here must be levelled down; that is to say, of the product of the more fruitful lands, the “land rent “must be first of all retained for the common purse, to be divided afterwards to all the citizens in their capacity as joint owners of the national land. Land rent, therefore, even in the Socialist state, would exist, would come into operation as against the labourers cultivating superior land, and would only be divided according to another plan than now, on account of the equal share of all in the nationalised land.

10 On these forms of organisation see Anton Menger, Das Hecht auf den willen Arbeitsertrag, Stuttgart, 1888, pp. 104, 112.

• 1See Monger’s Grundsätze der Volkswirthschaftslehre, p. 93.
• 2See my Capital and Interest, 1890, p. 111.
• 3The English word “Cattle,” as Knies (p. 7) has rightly remarked, has nothing in common derivatively with our conception.
• 4Capital and Interest, book i. chaps, ii. and iii.
• 5P. 219 (German edition, p. 266). See also my Hechte und Verhältnisse, p. 51. Innsbruck, 1881.
• 6If we try to represent the classification of our wants by a typical scheme we must, on the principles just laid down, give it something like the following shape:—
• 7When we are told that capital assists in the production of wealth, and then again that it assists in the obtaining of wealth for its owner, we are apt to jump to the conclusion that the two phenomena are intimately and essentially connected, and that the one is the immediate result of the other—that capital can bring wealth to its owner because capital assists in the production of wealth. As a fact, Political Economy has taken up this idea only too readily and too completely. Captivated by the deceptive symmetry that exists between the three great factors of production—Nature, Labour, Capital—and the three great branches of income—Rent, Wage, and Interest—the science, from Say’s day till the present, has taught that these three branches of income are nothing else than the payment for the three factors of production, and that Interest in particular is nothing else than the compensation which capital receives for its productive services when the product is divided out among society. Propounded by various interest theories in various forms this idea has found its most concise and, at the same time, its most naive expression, in the well-known “Productivity theories”—those theories which explain interest directly as the natural fruit of a productive power peculiar to and resident in capital.
• 8Originally the word Capital (Capitale from Caput) was used to signify the Principal of a money loan (Capitalis pars debiti) in opposition to the Interest. This usage; already foreshadowed in the Greek formation κεϕάλαιον, became firmly established in mediæval Latin, and appears to have remained the prevailing one for a very long time, even pretty far down in the new era. Here, therefore, Capital meant the same thing as “an interest-bearing sum of money.”
• 9In the meantime the disputes which had arisen over the legitimacy or illegitimacy of loan interest brought about an essential deepening and widening of the conception. It had become apparent that the interest-bearing power of “barren” money was at bottom a borrowed one—borrowed from the productive power of things that the money could buy. Money only gave the exchange form—to a certain extent the out-ward garb—in which the interest-bearing things passed from hand to hand. The true “stock” or parent stem which bore interest was not money but the goods that were got for it. In these circumstances the obvious course was so to change the conception that, besides embracing the representative thing, money, it would embrace the represented thing, goods. And, indeed, popular language seems to have made this change before science did. At least, as early as the year 1678, in a glossary of that year, besides the meaning of a sum of money there appears this further interpretation of the word capital, “Capitale dicitur bonum omne quod possidetur.” But science was not long behind in sanctioning the adoption of the conception. We find it substantially in Hume in his essay on Interest, when he shows that the rate of interest altogether depends, not on the amount of money, but on the amount of riches or stocks available; the only thing wanting is that he should have formally called these riches or stocks “real capitals.” This formal change was finally made by Turgot: “Whoever,” he says in his Réflexions sur la Formation et la Distribution des Richesses, “gets possession of more goods in a year than he requires to use, can lay past the surplus and accumulate it. These accumulated goods are what people call Capital…. It is absolutely the same whether this sum of goods, or this Capital, consists of a mass of metal, or of other things, since money represents every kind of goods, just as, on the other side, all other kinds of goods represent money.” Thus Turgot gave the second reading in historical succession to the conception of capital.
• 10The theory of the use of goods I have already gone into at length in Capital and Interest. I there showed that material goods are nothing else than such distinct forms of matter as admit of the natural powers residing in them being directed to human advantage. I showed how the “use” they afford is realised through concrete activities of these natural powers, and, therefore, by real forth putting of power. I showed how a use (Gebrauch or Nutzung) cannot be made of them otherwise than by taking the peculiar forms of the energy of the good at the proper moment, supplying the conditions necessary to render them available where they previously existed in an unavailable form, and then bringing these forms of energy into proper connection with that object in which the useful effect is to take place. On these considerations I based the conception of the “Material Services” (Nutzleistungen) which I believe to be the only one that corresponds with facts, and rejected certain shadowy ideas which connected the old theory of interest with the word “Uses” of goods. What remains for us here is, on the same lines, to lay down certain fundamental ideas as to the origin of material goods.