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The Bastiat-Proudhon Debate
on Interest (1849-1850)

Capital and Rent


Capital et Rente, February 1849; anonymous translation (as “Capital and Interest”) from Essays on Political Economy by the Late M. Frederic Bastiat (New York: G. P. Putnam’s Sons, and London: Provost, 1874)


7. What Regulates Interest?


by Claude Frédéric Bastiat (1801-1850)



DOI-II-7.1 What is interest? It is the service rendered, after a free bargain, by the borrower to the lender, in remuneration for the service he has received by the loan. By what law is the rate of these remunerative services established? By the general law which regulates the equivalent of all services; that is, by the law of supply and demand.
DOI-II-7.2 The more easily a thing is procured, the smaller is the service rendered by yielding it or lending it. The man who gives me a glass of water in the Pyrenees, does not render me so great a service as he who allows me one in the desert of Sahara. If there are many planes, sacks of corn, or houses, in a country, the use of them is obtained, other things being equal, on more favourable conditions than if they were few; for the simple reason, that the lender renders in this case a smaller relative service.
DOI-II-7.3 It is not surprising, therefore, that the more abundant capitals are, the lower is the interest.
DOI-II-7.4 Is this saying that it will ever reach zero? No; because, I repeat it, the principle of a remuneration is in the loan. To say that interest will be annihilated, is to say that there will never be any motive for saving, for denying ourselves, in order to form new capitals, nor even to preserve the old ones. In this case, the waste would immediately bring a void, and interest would directly reappear. [For the distinction among the various elements of interest, see, in the pamphlet Gratuity of Credit, the last pages of the 12th letter. – OC.]
DOI-II-7.5 In that, the nature of the services of which we are speaking does not differ from any other. Thanks to industrial progress, a pair of stockings, which used to be worth six francs, has successively been worth only four, three, and two. No one can say to what point this value will descend; but we can affirm that it will never reach zero, unless the stockings finish by producing themselves spontaneously. Why? Because the principle of remuneration is in labour; because he who works for another renders a service, and ought to receive a service. If no one paid for stockings, they would cease to be made; and, with the scarcity, the price would not fail to reappear.
DOI-II-7.6 The sophism which I am now combating has its root in the infinite divisibility which belongs to value, as it does to matter.
DOI-II-7.7 It appears at first paradoxical, but it is well known to all mathematicians, that, through all eternity, fractions may be taken from a weight without the weight ever being annihilated. It is sufficient that each successive fraction be less than the preceding one, in a determined and regular proportion.
DOI-II-7.8 There are countries where people apply themselves to increasing the size of horses, or diminishing in sheep the size of the head. It is impossible to say precisely to what point they will arrive in this. No one can say that he has seen the largest horse or the smallest sheep’s head that will ever appear in the world. But he may safely say that the size of horses will never attain to infinity, nor the heads of sheep to nothing.
DOI-II-7.9 In the same way, no one can say to what point the price of stockings nor the interest of capitals will come down; but we may safely affirm, when we know the nature of things, that neither the one nor the other will ever arrive at zero, for labour and capital can no more live without recompense than a sheep without a head.
DOI-II-7.10 The arguments of M. Proudhon reduce themselves, then, to this: – Since the most skilful agriculturists are those who have reduced the heads of sheep to the smallest size, we shall have arrived at the highest agricultural perfection when sheep have no longer any heads. Therefore, in order to realise the perfection, let us behead them.
DOI-II-7.11 I have now done with this wearisome discussion. Why is it that the breath of false doctrine has made it needful to examine into the intimate nature of interest? I must not leave off without remarking upon a beautiful moral which may be drawn from this law: – “The depression of interest is proportioned to the abundance of capitals.” This law being granted, if there is a class of men to whom it is more important than to any other that capitals be formed, accumulate, multiply, abound, and superabound, it is certainly the class which borrows them directly or indirectly; it is those men who operate upon materials, who gain assistance by instruments, who live upon provisions, produced and economised by other men.
DOI-II-7.12 Imagine, in a vast and fertile country, a population of a thousand inhabitants, destitute of all capital thus defined. It will assuredly perish by the pangs of hunger. Let us suppose a case hardly less cruel. Let us suppose that ten of these savages are provided with instruments and provisions sufficient to work and to live themselves until harvest time, as well as to remunerate the services of eighty labourers. The inevitable result will be the death of nine hundred human beings. It is clear, then, that since 990 men, urged by want, will crowd upon the supports which would only maintain a hundred, the ten capitalists will be masters of the market. They will obtain labour on the hardest conditions, for they will put it up to auction, or the highest bidder. And observe this, – if these capitalists entertain such pious sentiments as would induce them to impose personal privations on themselves, in order to diminish the sufferings of some of their brethren, this generosity, which attaches to morality, will be as noble in its principle as useful in its effects. But if, duped by that false philosophy [The correct translation here would be “false philanthropy.” – RTL] which persons wish so inconsiderately to mingle with economic laws, they take to remunerating labour largely, far from doing good, they will do harm. They will give double wages, it may be. But then, forty-five men will be better provided for, whilst forty-five others will come to augment the number of those who are sinking into the grave. Upon this supposition, it is not the lowering of wages which is the mischief, it is the scarcity of capital. Low wages are not the cause, but the effect of the evil. I may add, that they are to a certain extent the remedy. It acts in this way: it distributes the burden of suffering as much as it can, and saves as many lives as a limited quantity of sustenance permits.
DOI-II-7.13 Suppose now, that instead of ten capitalists, there should be a hundred, two hundred, five hundred, – is it not evident that the condition of the whole population, and, above all, that of the “prolétaires,” [Common people. – EPE. This not very precise translation of “prolétaire” evidently predates the common use of “proletarian” in English. – RTL] will be more and more improved? Is it not evident that, apart from every consideration of generosity, they would obtain more work and better pay for it? – that they themselves will be in a better condition, to form capitals, without being able to fix the limits to this ever-increasing facility of realising equality and well-being? Would it not be madness in them to admit such doctrines, and to act in a way which would drain the source of wages, and paralyse the activity and stimulus of saving? Let them learn this lesson, then; doubtless, capitals are good for those who possess them: who denies it? But they are also useful to those who have not yet been able to form them; and it is important to those who have them not, that others should have them.
DOI-II-7.14 Yes, if the “prolétaires” knew their true interests, they would seek, with the greatest care, what circumstances are, and what are not favourable to saving, in order to favour the former and to discourage the latter. They would sympathise with every measure which tends to the rapid formation of capitals. They would be enthusiastic promoters of peace, liberty, order, security, the union of classes and peoples, economy, moderation in public expenses, simplicity in the machinery of government; for it is under the sway of all these circumstances that saving does its work, brings plenty within the reach of the masses, invites those persons to become the formers of capital who were formerly under the necessity of borrowing upon hard conditions. They would repel with energy the warlike spirit, which diverts from its true course so large a part of human labour; the monopolising spirit, which deranges the equitable distribution of riches, in the way by which liberty alone can realise it; the multitude of public services, which attack our purses only to check our liberty; and, in short, those subversive, hateful, thoughtless doctrines, which alarm capital, prevent its formation, oblige it to flee, and finally to raise its price, to the especial disadvantage of the workers, who bring it into operation.
DOI-II-7.15 Well, and in this respect is not the revolution of February [1848. – RTL] a hard lesson? Is it not evident that the insecurity it has thrown into the world of business on the one hand; and, on the other, the advancement of the fatal theories to which I have alluded, and which, from the clubs, have almost penetrated into the regions of the legislature, have everywhere raised the rate of interest? Is it not evident, that from that time the “prolétaires” have found greater difficulty in procuring those materials, instruments, and provisions, without which labour is impossible? Is it not that which has caused stoppages; and do not stoppages, in their turn, lower wages? Thus there is a deficiency of labour to the “prolétaires,” from the same cause which loads the objects they consume with an increase of price, in consequence of the rise of interest. High interest, low wages, means in other words that the same article preserves its price, but that the part of the capitalist has invaded, without profiting himself, that of the workmen.
DOI-II-7.16 A friend of mine, commissioned to make inquiry into Parisian industry, has assured me that the manufacturers have revealed to him a very striking fact, which proves, better than any reasoning can, how much insecurity and uncertainty injure the formation of capital. It was remarked, that during the most distressing period, the popular expenses of mere fancy had not diminished. The small theatres, the fighting lists, the public-houses, and tobacco depots, were as much frequented as in prosperous times. In the inquiry, the operatives themselves explained this phenomenon thus: – “What is the use of pinching? Who knows what will happen to us? Who knows that interest will not be abolished? Who knows but that the State will become a universal and gratuitous lender, and that it will wish to annihilate all the fruits which we might expect from our savings?” Well! I say, that if such ideas could prevail during two single years, it would be enough to turn our beautiful France into a Turkey – misery would become general and endemic, and, most assuredly, the poor would be the first upon whom it would fall.
DOI-II-7.17 Workmen! they talk to you a great deal upon the artificial organisation of labour; – do you know why they do so? Because they are ignorant of the laws of its natural organisation; that is, of the wonderful organisation which results from liberty. You are told, that liberty gives rise to what is called the radical antagonism of classes; that it creates, and makes to clash, two opposite interests – that of the capitalists and that of the “prolétaires.” But we ought to begin by proving that this antagonism exists by a law of nature; and afterwards it would remain to be shown how far the arrangements of restraint are superior to those of liberty, for between liberty and restraint I see no middle path. Again, it would remain to be proved that restraint would always operate to your advantage, and to the prejudice of the rich. But, no; this radical antagonism, this natural opposition of interests, does not exist. It is only an evil dream of perverted and intoxicated imaginations. No; a plan so defective has not proceeded from the Divine Mind. To affirm it, we must begin by denying the existence of God. And see how, by means of social laws, and because men exchange amongst themselves their labours and their productions, see what a harmonious tie attaches the classes one to the other! There are the landowners; what is their interest? That the soil be fertile, and the sun beneficent: and what is the result? That corn abounds, that it falls in price, and the advantage turns to the profit of those who have had no patrimony. There are the manufacturers – what is their constant thought? To perfect their labour, to increase the power of their machines, to procure for themselves, upon the best terms, the raw material. And to what does all this tend? To the abundance and the low price of produce; that is, that all the efforts of the manufacturers, and without their suspecting it, result in a profit to the public consumer, of which each of you is one. It is the same with every profession. Well, the capitalists are not exempt from this law. They are very busy making schemes, economising, and turning them to their advantage. This is all very well; but the more they succeed, the more do they promote the abundance of capital, and, as a necessary consequence, the reduction of interest. Now, who is it that profits by the reduction of interest? Is it not the borrower first, and finally, the consumers of the things which the capitals contribute to produce? [See Chapter 4 of the first series of Sophisms. – See also Chapter 8 of Economic Harmonies. – OC]
DOI-II-7.18 It is therefore certain that the final result of the efforts of each class is the common good of all.
DOI-II-7.19 You are told that capital tyrannises over labour. I do not deny that each one endeavours to draw the greatest possible advantage from his situation; but, in this sense, he realises only that which is possible. Now, it is never more possible for capitals to tyrannise over labour, than when they are scarce; for then it is they who make the law – it is they who regulate the rate of sale. Never is this tyranny more impossible to them, than when they are abundant; for, in that case, it is labour which has the command. [Where there is one to sell and two to buy, the seller fixes the price; where there are two to sell and one to buy, the buyer always has the advantage. – DAW]
DOI-II-7.20 Away, then, with the jealousies of classes, ill-will, unfounded hatreds, unjust suspicions. These depraved passions injure those who nourish them in their hearts. This is no declamatory morality; it is a chain of causes and effects, which is capable of being rigorously, mathematically demonstrated. It is not the less sublime, in that it satisfies the intellect as well as the feelings.
DOI-II-7.21 I shall sum up this whole dissertation with these words: – Workmen, labourers, “prolétaires,” destitute and suffering classes, will you improve your condition? You will not succeed by strife, insurrection, hatred, and error. But there are three things which cannot perfect the entire community, without extending these benefits to yourselves; these things are – peace, liberty, and security.

[The foregoing essay was written by M. Bastiat, in France, for the instruction of his countrymen, shortly after the revolution of 1848, when the opinions of Proudhon and other Socialist leaders seemed to be acquiring a strong hold among the laboring classes of his country. Proudhon, and most of his Socialist friends have passed away, but their ideas nevertheless continue to find favor with not a few people, even in the United States. It may, therefore, be of interest to the American reader, to supplement this essay of M. Bastiat, with the following results of some investigations relative to accumulation and distribution of wealth in the United States, which were presented to the American Social Science Association, at their annual meeting in Detroit, Michigan, in 1875:

“It would seem clear, that all ideas about the compulsory distribution of wealth or capital, and about diminishing the incentives for the accumulation of capital, are wholly antagonistic in the first place, to the idea of personal freedom, unless we mean to restrict the meaning of freedom simply to the possession and control of one’s own person irrespective of property, which would involve little more than the right to free locomotion; and, second, that they tend to impair the growth of, if not wholly to destroy, civilization itself. For if liberty is not afforded to all, rich and poor, high and low, to keep, and to use in whatever way they see fit, that which they lawfully acquire, subject only to the necessary social restraint of working no positive ill to one’s neighbor, – then the desire to acquire and accumulate property will be taken away; and capital, meaning thereby not merely money, which constitutes but a very small part of the capital of any community, but all these things which are the accumulated results of labor, foresight, and economy, – the machinery by which abundance is increased, toil lightened, and comfort gained, “ will, instead of increasing, rapidly diminish.

“And, in order to comprehend the full meaning of this statement, attention is asked to the following illustration of the extreme slowness with which that which we call capital accumulates, even under the most favorable circumstances.

“By the census of 1870, the aggregate wealth of the United States, making all due allowances for duplication in valuation, was probably not in excess of twenty-five thousand millions. But vast as the sum is, and difficult as it certainly is for the mind to form any adequate conception of it in the aggregate, it is nevertheless most interesting to inquire what it is, that measured by human effort, it represents. And the answer is, that it represents, first, a value, supposing the whole sum to be apportioned equally aming an assumed population of forty millions, of about six hundred and twenty dollars to each individual, – not a large amount, if one was to depend on its interest at six per cent. as a means of support; and, second, it represents the surplus result of all the labor, skill, and thought exerted, and all the capital earned and saved, or brought into the contry, for the last two hundred and fifty years, or ever since the country became practically the abode if civilized men.

“But, with capital, or the instrumentalities for creating abundance, increasing thus slowly, it certainly stands to reason that we needs be exceedingly careful, lest, by doing anything to impair its security, we impair also its rate of increase; and we accordingly find, as we should naturally expect from the comparatively high education of our people, that the idea of any direct interference with the rights of property meets with but little favor upon this side of the Atlantic. But at the same time we cannot deny that many of the most intelligent of the men and women interested in the various labor-reform movements in this country, taking as the basis o their reasoning the large nominal aggregate of the national wealth, and the large advance which has recently been made in the power of production, and considering them in the abstract, irrespective of time or distribution, have nevertheless adopted the idea, – vague and shadowy though it may be, – that the amount of the present annual product of labor and capital is sufficient for all; and that all it is necessary to do to insure comfort and abundance to the masses, is for the State somehow to intervene, – either by fixing the hours of labor, or the rates of compensation for service, or the sue of capital, – and compel its more equitable distribution.

“Now, that a more equitable distribution of the results of production is desirable, and that such a distribution does not at present take place to the extent that it might without impairing the exercise of individual freedom, must be admitted; but, before undertaking to make laws on the subject, is it not of importance to first find out how much we have really got to divide?

“Let us see.

“Stated in money, the maximum value of the annual product of the United States is not in excess of $5,000,000,000 (probably less); of which the value of the annual product of all our agriculture, – our cotton and our corn, our beef and our pork, our hay, our wheat, and all our other fruits, – is returned by the last census with undoubted approximative accuracy, at less than one-half that sum; or in round numbers at $2,400,000,000.

“But while this sum of estimated yearly income, like the figures which report the aggregate of our national wealth, is so vast as to be almost beyond the power of mental conception, there is yet one thing about it which is certain, and can be readily comprehended; and that is, that of this whole product, whether we measure it in money or in any other way, fully nine-tenths, and probably a larger proportion, must be immediately consumed, in order that we may simply live, and make good the loss and waste of capital previously accumulated; leaving not more than one-tenth to be applied in the form of accumulation for effecting a future increased production and development.

“Or to state the case differently, and at the same time illustrate how small, even under the most favorable circumstances, can be the annual surplus of production over consumption, it is only necessary to compare the largest estimate of the value of our annual product, with our largest estimate of the aggregate national wealth, to see, that practically, after tow hundred and fifty years of toiling and saving, we have only managed as a nation to get about three and a half years ahead, in the way of subsistence; and that now if, as a whole people, we should stop working and producing, and repairing waste and deterioration, and devote ourselves exclusively to amusement and idleness, living on the accumulation of our former labors or the labor of our fathers, four years would be more than sufficient to starve three-fourths of us out of existence, and reduce the other one-fourth to the condition of semi-barbarism; a result, on the whole, which it is well to think of in connection with the promulgation of certain new theories, that the best way of increasing abundance, and promoting comfort and happiness, is by decreasing the aggregate and opportunities of production.

“In fact, there are few things more transitory and perishable than that which we call wealth; and, as specifically embodied in the ordinary forms we see around us, its duration is not, on the average, in excess of the life of a generation.

“The railroad system of the country is estimated to have cost more than two thousand millions of dollars; but if left to itself, without renewals or repairs, its value as property in ten years would entirely vanish; and so also with our ships, our machinery, our tools and implements, and even our land when cultivated without renovation. For it is to be remembered, that those same forces of nature which we have mastered, and made subservient for the work of production, are also our greatest natural enemies, and if left to themselves will tear down and destroy much more rapidly than under guidance they will aggregate and build up. A single night was sufficient in Chicago to utterly destroy what was equivalent to one quarter of the whole surplus product which during the preceding year the nation had accumulated; and of all the material wealth of the great and rich nations of antiquity, – of Egyptian, Assyrian, Tyrian, and Roman civilization, – nothing whatever has come down to us, except, singularly enough, those things which, like their tombs and public monuments, never were possessed of a money valuation.

“But the inferences which we are warranted in drawing from these facts and figures are by no means exhausted. Supposing the value of our annual product – five thousand millions – to be equally divided among our present population of forty millions: then the average income of each individual would be one hundred and twenty-give dollars per annum; out of which food, clothing, fuel, shelter, education, traveling expenses, and means of enjoyment, are to be provided, all taxes paid, all waste, loss, and depreciation made good, and any surplus available as new capital added to former accumulations.

“Now, if at first thought this deduction of the average individual income of our people seems small, it should be remembered that it is based on an estimate of annual national product greater both in the aggregate, and in proportion to numbers, than is enjoyed by any other nation, our compeers in wealth and civilization; and further, that this one hundred and twenty-five dollars is not the sum which all actually receive as income, but the average sum which each would receive, were the whole annual product divided equally. But as a practical matter we know that the annual product is not divided equally; and, furthermore, that, as long as men are born with different natural capacities, it never will be so divided. Some will receive, and do receive, as their share of the annual product, the annual average we have stated, multiplied by hundred or even thousands; which of course necessitates that very many others shall receive proportionally less. And how much less, is indicated by recent investigations which show, that for the whole country the average earnings of laborers and unskilled workmen is not in excess of four hundred dollars per annum, – the maximum amount being received in New England, and the minimum in the Southern, or former slaveholding States; which sum, assuming that the families of all these men consist of four (the census of 1875 says five), two adults and two children, would give one hundred dollars as the average amount to which each such individual must be restricted in consumption; for it is clear, that no man can consume more than he or his capital produces, unless he can in some way obtain the product of some other man’s labor without giving him an equivalent for it.

“We are thus led to the conclusion, that notwithstanding the wonderful extent to which we have been enabled to sue and control the forces of nature for the purpose of increasing the power of production, the time has not yet come, when society in the United states can command such a degree of absolute abundance as to justify and warrant any class or individual, rich or poor, and least of all those who depend upon the product of each day’s labor to meet each day’s needs, in doing anything which can in any way tend to diminish abundance; and furthermore, that the agency of law, even if invoked to the fullest extent in compelling distribution, must be exceedingly limited in its operations.

“Let the working man of the United States therefore, in every vocation, demand and strive, if he will, for the largest possible share of the joint products of labor and capital; for it is the natural right of every one to seek to obtain the largest price for that which he has to sell. But if in so doing he restricts production, and so diminishes abundance, he does it at his peril; for, by a law far above any legislative control or influence, whatever increases scarcity not only increases the necessity, but diminishes the rewards of labor.

“Street processions, marching after flags and patriotic mottoes, even if held every day in the week, will never change the conditions which govern production and compensation. ‘Idleness produces nothing but weeds and rust; and such products are not marketable anywhere, though society often pays for them most dearly.’ ” – DAW.] [DAW does not identify the author of the preceding remarks, but my guess is that it is DAW himself. – RTL.]



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