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

Letter 11

[Letter 10 by Tucker’s numbering]

Proudhon to Bastiat,
21 January 1850

[Translation (as “What is Capital? – A Comparison of the Various Definitions – AND AN ANALYSIS OF THEM. – The Capitalist the Only Unproductive Consumer. – HOW PRODUCT IS CHANGED INTO CAPITAL. – The Usury Question Settled by an Appeal to the Art of Book-keeping. – THE ADVANTAGES OF MUTUALISM IN SOCIETY. – The True Function of Capital to Enrich Labor – Not to Rob and Impoverish It. – INTEREST AND PRINCIPAL. – LETTER TEN. – PROUDHON TO BASTIAT. – [TRANSLATED FOR THE IRISH WORLD BY BENJ. R. TUCKER.]”) by Benjamin R. Tucker, in The Irish World and American Industrial Liberator, 27 September 1879.]
[HC’s excerpt from this letter bears the title “Definition of Capital Substituted for the Inexact Definition of the Economists – Appeal to Double Entry Bookkeeping – Accountability of Social Classes – Proofs Derived Therefrom – Reconciling the Concessions on the Risks of Capital – Revolution, Political, Economic and Scientific.” This title is a translation (presumably by HC rather than BRT?) of a header in OC. – RTL.]

[PARIS, Jan. 21, 1850.]

DOI-IV-11.1 Sir, you have not deceived me; of this the spirit of honesty and extreme sincerity which shines through every line of your last letter is sufficient evidence. Therefore it is with the most heartfelt joy that I retract my words.
DOI-IV-11.2 But neither have I deceived you; I have not failed, as you charge, in my duty of hospitality. All your letters, according to my promise, have been religiously inserted in La Voix du Peuple without reserve, without reflection, without comment. For my part, I have made the greatest efforts to advance this discussion by some regular method, to this end using now metaphysics, now history, and at last even custom and routine. You alone – and our readers are my witnesses – have resisted all methods whatsoever. Indeed, as to the general tone of our controversy, you admit that the manner in which I have treated you, a defender of Capital, has been envied by those of my co-religionists who are supporting at this moment, in opposition to me, a cause still more fatal than that of Interest, and who, unfortunately, in championing it, have something more than their opinion to defend, – their own self-love. If, in my last reply, my style was somewhat bitter, you should attribute it only to my impatience, certainly very natural, at seeing my efforts constantly break down before that obstinacy, that force of intellectual inertia, which, heeding nether philosophy, progress, nor finance, confines itself to the eternal repetition of this puerile question: If I save one hundred francs, and being able to make use of them in my business, lend them instead for Interest or a share of the profit,

Do I Rob?
DOI-IV-11.3 I do full justice, then, to your sincerity; I venture to say that my courtesy, when placed side by side with yours, does not suffer for one moet by the comparison. But to-day more than ever I must insist upon my last opinion: No, Monsieur Bastiat, you do not understand political economy.
DOI-IV-11.4 Think no more, I pray you, of the law of contradiction, which is so decidedly repugnant to your mind; heed not history, or rather progress, whose tendency you misconceive, whose authority you deny; disregard the Bank, by means of which I prove to you that we can in a moment, without changing anything, reduce Interest of Capital to one-half of one per cent. I will confine myself, since such is your desire, solely to the idea of Capital. I will analyze this idea; from the standpoint of Interest I will make a theoretical and mathematical deduction; after having established my proposition by metaphysics, by history, and by the Bank, I will establish it a fourth time; I will justify every one of my assertions by book-keeping, that modest and unappreciated science, which is to social economy what algebra is to geometry. Perhaps this time my mind will succeed in fastening itself upon yours; but what guarantee have I that you will not again rebuke me for changing, for the fourth time, my method?
DOI-IV-11.5 What is Capital?
DOI-IV-11.6 Authors are not agreed upon its definition: scarcely do they understand the thing itself.
DOI-IV-11.7 J.-B. Say defines Capital: The simple accumulation of products.
DOI-IV-11.8 Rossi: A product saved with a view to reproduction.
DOI-IV-11.9 J. Garnier, who quotes these two: Accumulated labor; which amounts to the same as J.-B. Say’s definition, accumulation of products.
DOI-IV-11.10 The latter, however, expresses himself elsewhere more explicitly: We understand, he says, by Capital a sum of values used as advances in production.
DOI-IV-11.11 Finally, by your definition, Capital is a Surplus or Residue of unconsumed product, intended to be used in reproduction. – This follows from

Your Illustration of the Laborer

who earns fifteen hundred francs per year, consumes twelve hundred, and keeps the remaining three hundred, either to use in his business, or – which in your opinion amounts to the same thing – to lend at interest.
DOI-IV-11.12 It is evident from this doubt as to its definition that there is some ambiguity connected with the idea of Capital, and the large majority of our readers will be not a little surprised to learn that political economy, a science which, in the opinion of those who profess to teach it, – and you are of the number, – is positive, real, and exact, has yet to find its definitions!
DOI-IV-11.13 J. Garnier, despairing of expressing in words [the] idea of the thing, tries, like you, to describe it. “Capital,” he says, “consists of products, – such as merchandise, tools, ships, cattle, sums of money, etc., the fruit of previous Labor, – which aid in reproduction.”
DOI-IV-11.14 Further on he observes, so great is his doubt, that the idea of an advance enters into the idea of Capital. Now, what is an advance? “An advance is a value employed in such a way that it will be restored at a later period.” So says M. Garnier, and I presume that the reader, after this explanation, will find himself no farther advanced.
DOI-IV-11.15 Let us try to aid the economists.
DOI-IV-11.16 We see from the definitions of these authors that they all have a faint conception of something which is called CAPITAL, but this something they are powerless to determine; they do not understand it. Through the rubbish of their explanations we catch a glimpse of the idea which is common to them all; but this idea, for the want of philosophy, they do not know how to disentangle; they can find neither word nor phrase to express it. Well, sir, you will see that dialectics, even the Hegelian dialectics, may be good for something.
DOI-IV-11.17 Notice first that the idea of product is found, [tacitly] or explicitly, in all the definitions of Capital that have been attempted. Already we have taken a first step. But under what circumstances, how, and when can Product be [called] CAPITAL? That is

The Point to be Determined.

Looking back to our authors, and comparing their definitions with each other, perhaps we may [finally] succeed in making them name that which they have all felt, but none have understood.
DOI-IV-11.18 Capital, according to J.-B. Say, is the simple ACCUMULATION of products.
DOI-IV-11.19 The idea of accumulation, then, as well as that of product, enters into the conception of Capital. That is a second step Now, all products are susceptible of accumulation; then all products may become Capital; then M. Joseph Garnier’s enumeration of the different forms that Capital takes is incomplete, and, therefore, inexact, in that it excludes those products which serve as the subsistence of laborers, such as wheat, wine, oil, food, etc. These products may be called Capital as well as ships, tools, cattle, money, and all that is included under the name of instrument or raw material.
DOI-IV-11.20 Rossi: Capital is a product saved with a view to reproduction.
DOI-IV-11.21 Reproduction – in other words, the destiny of product, – that is a third idea involved in the conception of Capital. Product, accumulation, reproduction, – three different ideas which enter into this seemingly simple notion of Capital.
DOI-IV-11.22 Now, just as all products may be accumulated, so may they serve, and serve effectively, when consumed by the laborer, in reproduction. The bread which sustains the laborer, the grass on which animals feed, the coal which produces steam, as well as land, wagons, and machinery, all serve in reproduction, all, at the moment of consumption, are Capital. Everything which is consumed, indeed, is consumed, or is regarded as consumed, reproductively: that which serves to maintain or move machinery, as well as the machinery itself; that which nourishes the laborer, as well as the material on which the labor is expended. Every product becomes, then, at a given moment, Capital: the theory which distinguishes between reproductive consumption and unproductive consumption, meaning by the latter the daily consumption of wheat, wine, meat, clothing, etc., is false. We shall see in a moment that

There Is No Unproductive Consumption Save That of the Capitalist Himself.

Thus Capital is not a specific and determinate thing, having an existence or reality of its own, like Land, which is a thing; Labor, which is another; and Product, which is the shape given by labor to natural objects, which thereby becomes a third thing. Capital is not, as the economists teach, the fourth in a series the first three terms of which are Land, Labor, and Product: it signifies, as I have said, simply a condition, a relation; it is, by the confession of all authors, Product accumulated with a view to reproduction.
DOI-IV-11.23 One step more and we shall have our definition.
DOI-IV-11.24 How does Product become Capital? For the fact that Product has been accumulated and stored is far from sufficient to warrant us in calling it Capital. Neither is it sufficient that it is destined for reproduction: all produces are thus destined. Do you not hear it said every day that Industry overflows with products, while lacking capital? Now, such would not be the case if the simple accumulation of Products, as Say says, or the intention to use them in reproduction, as Rossi would have it, alone sufficed to give them the character of Capital. Each producer would then have only to take his own product, and credit himself with its cost, in order to enable himself to produce again, endlessly and unlimitedly. I, then, repeat my question: What is it that suddenly changes the idea of Product into that of Capital? The economists do not tell us what it is; they do not know what it is; I will even say that not one of them asks what it is.
DOI-IV-11.25 Here comes in an intermediate idea, the special function of which is to convert Product into Capital, precisely as a westerly wind has converted the snow which lately fell in Paris into a liquid state: this idea is that of VALUE.
DOI-IV-11.26 That is what J. Garnier dimly saw when he defined Capital as a sum of VALUES used as advances in production; that is what you felt when

You Found the Idea of Capital,

not simply with J. B. Say, in the accumulation of Products, nor, with Rossi, in , but in the unconsumed portion of the workingman’s wages, – that is, evidently, in the value of his labor or product.
DOI-IV-11.27 In other words, Product, to become Capital, must be authentically valued, must be bought, sold, and appraised, and must have its price estimated and fixed by some sort of legal agreement. So that the idea of Capital signifies a relation essentially social, a reciprocal act, in the absence of which product remains product.
DOI-IV-11.28 Thus hides, on leaving the slaughter-house, are the product of the butcher; if you fill a market with them, they are still only hides, they have no value, or rather, no settled value; they are not Capital, they are still Product. But if the tanner buys these hides? He immediately puts them, or to speak more correctly, puts their value into his stock, into his advance, and consequently rates them as Capital. By the labor of the tanner this Capital again becomes Product; which Product, acquired in its turn, at a price agreed upon, by the bootmaker, passes anew into the state of Capital, to become still again, by the labor of the bootmaker, product. This last product not being susceptible of receiving a fresh modification, its consumption is called, by the economists, unproductive, which is a deviation from the theory. The boot made by the bootmaker and acquired by the laborer is changed, by virtue of this acquisition, like the hide passing from the butcher to the tanner and from the tanner to the bootmaker, from a simple product into a value: this value forms a part of the advance of the purchaser, and aids him, like the other objects which he consumes, like the house in which he lives and like the tools which he uses, but in a different way, in the creation of new products.

Consumption, then, Is Always Production,

provided the consumer works. This movement once started, never ends.
DOI-IV-11.29 Such is Capital. It is not simply an accumulation of products, as Say calls it, nor is it even products accumulated with a view to subsequent reproduction, as Rossi would say: These definitions inadequately express the idea of Capital.
DOI-IV-11.30 That Capital may exist, product, if I may venture to say so, must bear the endorsement of an exchange. All accountants know this perfectly well, when, for example, they enter upon their books the green hides bought by the tanner to his debit, – that is, as his Capital, – and the tanned or dressed hides to his credit, – that is, as his Product; the merchant and manufacturer know it still better, when, upon the slightest political disturbance, they find themselves dying at once of dullness and inertia by the side of the merchandise accumulated in their warehouses which they are unable to employ in reproduction, – a pitiful situation, which they describe by saying that the engaged Capital refuses to disengage itself.
DOI-IV-11.31 All Capital is necessarily product; but all product, even if accumulated, even if destined for reproduction, like the tools in machine-shops, is not on that account Capital. Capital, once more, supposes a previous valuation, an exchange, or a putting in circulation; otherwise, it is not Capital. If there were only one individual in the world, a solitary laborer producing everything for himself alone, the product of his labor would remain product; it would not become Capital. His mind would not distinguish between the following terms: Product, Value, Capital, Advance, Reproduction, Consumable Funds, Circulating Funds, etc. Such ideas would never enter the head of a solitaire.
DOI-IV-11.32 But, in society, exchange once established, and value fixed by discussion, the product of one constantly becomes the Capital of another; then, in its turn, this Capital, be it raw material, machinery, or means of subsistence, is transformed anew into product. In a word, the idea of Capital, in distinction from that of Product, expresses

The Relation of Exchanging Parties to Each Other.

As concerns society, or the collective man, which corresponds to the solitary Laborer to whom I just referred, this distinction does not exist: there is an identity between Capital and Product similar to that between net and raw Product.
DOI-IV-11.33 I had, then, good grounds for saying, and I am astonished that, after your own explanation of Capital, you should have misunderstood my words: –
DOI-IV-11.34 “Capital is undistinguishable from Product. These two terms do not, in reality, stand for two distinct things; they designate relations only. Product is Capital; Capital is Product.”
DOI-IV-11.35 And my friend Duchene, arguing the same point with Louis Blanc, had even better grounds for saying: –
DOI-IV-11.36 “The distinctions between Capital and Product – remember it once for all – refer only to individual relationships: in Society there is only Production, Consumption, and Exchange. It may be said of all Industries that they create Capital and Product indiscriminately. The machinist manufactures Capital for railways, factories, and workshops; the clothier manufactures Capital for the tailors; the maker of edge-tools manufactures Capital for the joiner, the carpenter, and the mason; a plough is Product to the manufacturer who sells it, and Capital to the farmer who buys it. All professions need Products in order to Produce, or, what amounts to the same thing, Capital in order to manufacture Capital.”
DOI-IV-11.37 Does that seem unintelligible to you? There is no antinomy about it, at any rate.
DOI-IV-11.38 From the standpoint of private interests, Capital indicates a relation of exchange, preceded by a reciprocal valuation. It is Product judicially appraised, so to speak, by two responsible judges, the seller and the buyer, and pronounced, in consequence of this appraisal, an instrument of reproduction. From the standpoint of Society Capital and Product are undistinguishable. Products exchange for Products and Capital exchanges for Capital are

Two Perfectly Synonymous Propositions.

What could be simpler, clearer, more positive, more scientific, indeed, than that?
DOI-IV-11.39 I therefore call Capital, every settled value, whether in Land, machinery, merchandise, provisions, or Money, serving, or capable of serving, in production.
DOI-IV-11.40 Common language confirms this definition. Capital is said to be free when the product, whatever it may be, having been simply appraised by the parties, can be regarded as realized, or immediately realizable, – that is, converted into such other product as may be desired: in this case the form that Capital most readily assumes is that of money. Capital is said to be engaged, on the contrary, when the value that constitutes it is employed definitively in production: in this case it assumes all possible forms.
DOI-IV-11.41 Custom also sustains me. In every enterprise which is started, the contractor, who, instead of money, employs in his business machinery or raw material, begins by estimating it relatively to himself, his risks, and his dangers; and this estimation, one-sided so to speak, constitutes his Capital, or his investment in business: it is the first thing which he makes account of.
DOI-IV-11.42 We know what Capital is; we must now draw the consequences of our conception so far as Interest is concerned. The explanation will be a little long perhaps, but the reasoning employed will be very simple.
DOI-IV-11.43 Products exchange for products, says J. B. Say; or, in other words, Capital exchanges for Capital; or yet again, Capital exchanges for products, and vice versa: that is the bare fact.
DOI-IV-11.44 The requisite condition, the sine qua non, of this exchange, that which is in fact its essence and its law, is the antagonistic and reciprocal valuation of products. Deprive exchange of the idea of price, and exchange disappears. There is transposition; there is no transaction, no exchange. Product, without price, is a nonentity: as long as it has not received, by the process of buying and selling,

Its Authenticated Value,

it is regarded as of no effect, it is null. That is the intelligible fact.
DOI-IV-11.45 Every one gives and receives, according to J. B. Say’s formula announcing the material fact; but according to the idea of Capital which we have just obtained by our analysis, every one ought to give and receive an equal value. An unequal exchange is a contradiction; universal consent has pronounced it a fraud and a robbery.
DOI-IV-11.46 Now, from this primary fact that producers continually stand to each other in the relation of exchanging parties, that they are to each other, by turns and all at once, producers and consumers, laborers and capitalists; and from the precisely equal valuation which constitutes exchange, – it follows that the accounts of all producers and consumers ought to balance each other; that society, viewed from the standpoint of economic science, is nothing else than this general equilibrium of products, services, wages, consumptions, and fortunes; that, in the absence of this equilibrium, political economy is but a meaningless word, and public order, the well-being of laborers, and the security of capitalists and proprietors, a utopia.
DOI-IV-11.47 Now, this equilibrium, from which must spring a unity of interests and social harmony, today does not exist; it is disturbed by divers causes, which in my opinion may be easily destroyed, and in the front rank of which I place Usury, Interest, Rent. There are, as I have so often said, errors and mismanagement in the book-keeping, false entries upon the ledgers, of society. Thence arises the wrongfully-acquired luxury of some, the increasing misery [HC substitutes “poverty.” – RTL.] of others; for this reason we have in modern society an inequality of fortunes and all sorts of revolutionary agitation. I shall furnish you, sir, by commercial accounts, with the proof and the counter-proof.
DOI-IV-11.48 Let us first establish the facts.

Products Exchange for Products,

or to speak more accurately, values exchange for values: such is the law.
[HC substitutes “exchanged” for both occurrences of “exchange.” – RTL]
DOI-IV-11.49 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.
DOI-IV-11.50 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.
DOI-IV-11.51 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.
DOI-IV-11.52 It often occurs – and this is the extremity in which Laborers 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 labor 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?
DOI-IV-11.53 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. [This should be ad vitam æternam, “unto eternal life.” – RTL] 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 [Sic, for “dispossessed.” – RTL] 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.
DOI-IV-11.54 But now the thing is managed better.
DOI-IV-11.55 Emphyteusis and the settlement of annuities are to-day, almost everywhere, obsolete. It was found that placing Product or Capital at perpetual interest was altogether too favorable to the Capitalist: the need of an improvement in the system was felt. In our day

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.
DOI-IV-11.56 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 laborers combined can enjoy by their production.
DOI-IV-11.57 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!
DOI-IV-11.58 Well, I say that all exchanges of products and Capital can be effected by Cash payment;
DOI-IV-11.59 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;
DOI-IV-11.60 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.
DOI-IV-11.61 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 organize 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 organized on a basis of one-half of one per cent, Interest could exist anywhere!
DOI-IV-11.62 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 labor, 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. HC substitutes “poverty.” – RTL]
DOI-IV-11.63 The following, as you will find, is a graphic representation of the workings of society as organized upon each of the two systems, – the system of Interest, which now prevails, and the system of Gratuity, which is the one that I propose. All argument, [HC has “arguments.” – RTL] all dialectic, all controversy must break down in the presence of this intelligible picture of economic movement.

DOI-IV-11.64 In this system the production, circulation, and consumption of wealth is effected [HC has “are effected.” – RTL] by the co-operation of two distinct and separate classes of citizens, – the Proprietors, Capitalists, and Contractors on the one hand, and the Wage-Laborers on the other. These two classes, although bitterly hostile to each other, together constitute a close organization which acts in itself, on itself, and by itself.
DOI-IV-11.65 It follows, therefore, that all the agricultural, commercial, and industrial operations which can be carried on in a country; all the accounts of every manufactory, workshop, bank, etc., – may be summed up and represented in a single account, the items of which I shall proceed to give.
DOI-IV-11.66 I designate by A the entire class of Proprietors, Capitalists, and Contractors, which I regard as a single individual, and by B, C, D, E, F, G, H, I, K, L, the class of wage-laborers.


Between A, Proprietor-Capitalist-Contractor, and B, C, D, E, F, G, H, I, K, L, Wage-Laborers.


Account and Summary of the personal operations of A, Proprietor-Capitalist-Contractor.
DOI-IV-11.67 At the opening of the account A commences his speculation with a Capital, I will suppose, of ten thousand francs. This sum constitutes his base of operations; with this he will work and begin his commercial transactions. This establishment of A is expressed in the following manner: –

1. Cash Due A

DOI-IV-11.68 The Capital formed, what will A do next? He will hire laborers, whose products and services he will pay for with his ten thousand francs; that is, he will convert these ten thousand francs into Merchandise, which the accountant expresses as follows: –

2. General Merchandise, To Cash.

Purchases of Products (Cash or Credit), during the current year, from the laborers hereinafter named:

DOI-IV-11.69 The Money converted into Merchandise, the Proprietor-Capitalist-Contractor 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 judgment of the Contractor are not to be obtained gratis. Admit, then, the Profit to be ten per cent, according to ordinary Commercial Custom.
DOI-IV-11.70 To whom will A sell his Products? Necessarily to B, C, D, etc., Laborers, for Society is wholly composed of A, Proprietor-Capitalist-Contractor, and B, C, D, etc., Wage-Laborers, aside from whom there is nobody. This gives rise to the following account: –

3. The Following Laborers, to General Merchandise.

DOI-IV-11.71 The sale completed, it remains to collect the sums due from the purchasers. A new operation, which the accountant enters on his book in the following way: –

4. Credit, By Cash, to the Following Laborers.

DOI-IV-11.72 Thus A’s original Capital – after being converted into products, after the sale of these products to the consuming laborers B, C, D, etc., and, finally, after payment by these laborers – returns to him increased one-tenth, which is shown on the account of stock by the balance given below: –

5. Summary of the Operations of A, proprietor-capitalist-contractor, for his account of stock December 31.

DOI-IV-11.73 We see here, by the way, how and under what conditions products become Capital. It is not the stock in hand which, in the inventory, is carried to the credit of the account of Capital; it is the Profit. The Profit, – that is, the product sold, delivered, and paid for, or shortly to be paid for; in a word, the product become a value.
DOI-IV-11.74 Let us now pass to the counterpart of this account, to the account of the laborers.


Account of the operations of B, laborer, with A, proprietor-capitalist-contractor.
DOI-IV-11.75 B, a laborer, without property, without capital, without work, is hired by A, who gives him employment and takes his product. First operation, which appears in B’s account thus: –

1. Credit, by Cash, to B, January 1. – Account of Capital.

DOI-IV-11.76 In exchange for his product, then, the laborer receives one thousand francs, a sum equal to that which appears in the second article of the preceding chapter, Account of general merchandise.
DOI-IV-11.77 But B lives on his wages, – that is, with the money given him by A, proprietor-capitalist-contractor, he procures from said A all the articles needed for his (B’s) consumption, articles which are invoiced to him, as we saw above, in the third article of the first chapter, at an advance of ten per cent on the cost price. With respect to B, then, the operation would result as follows: –

2. Due from B, Account of Capital, to A, Proprietor-Capitalist-Contractor.

3. Summary of B’s Operations for his Inventory.
DOI-IV-11.78 All the other laborers 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.
DOI-IV-11.79 The foregoing table, quite differently instructive and conclusive from that of Quesnay, is a faithful picture, presented algebraically, of the existing social economy. From it we may be convinced that misery [HC has “poverty.” – RTL 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.
DOI-IV-11.80 From the fiction of the productivity of Capital and the numberless prerogatives which the monopolist arrogates to himself there results always and of necessity one of these two things: –
DOI-IV-11.81 First, the Monopolist takes from the Wage-Laborer a portion of his social Capital. B, C, D, E, F, G, H, I, K and L have produced during the year ten, and have consumed only nine. In other words, the Capitalist has eaten up one laborer. Further, the interest being used as new Capital, the situation of the laborers grows worse and worse year by year; so that if we push the argument to its logical extremity, we shall find that, towards the seventh year, the entire original investment of the laborers will have passed, in the name of Interest and Profit, into the hands of the Proprietor-Capitalist-Contractor, showing that the Wage-Laborers, in order to pay their debts, must work every seventh year for nothing.
DOI-IV-11.82 Or, second, the laborer, being unable to pay a price for his product larger than that which he has himself received, compels the monopolist to lower his prices, and consequently to disgorge the whole amount of Interest, Rent, and Profit which the exercise of his right of property entitled and obliged him to take.
DOI-IV-11.83 We are compelled, then, to admit that Credit, under the system of Interest, inevitably results in the spoliation of the laborer, and, as a corrective no less inevitable, in the bankruptcy of the Contractor, the ruin of the Capitalist-proprietor. Interest is like a two-edged sword: whichever way it strikes, it kills.
DOI-IV-11.84 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.

DOI-IV-11.85 According to the theory of Gratuitous Credit the positions of wage-laborer and proprietor-capitalist-contractor are identical and equivalent; both are included in that of producer-consumer. The effect of this change is to reduce all the present operations of Credit – loans, sales on time, speculations rent, farm-rent, etc. – to the simple form of exchange; likewise all banking operations to a simple transfer of debts.
DOI-IV-11.86 Suppose, then, the Bank of France, the principal instrument of this system, reorganized on the basis of Gratuitous Credit and its rate of discount reduced to one per cent, – a rate which, for the time being, we will regard as the just reward of the special service rendered by the Bank, and consequently as representing an interest equal to zero. Let us see what changes this will make in the accounts. Henceforth the exchanges will be effected through the intervention of the Bank and its auxiliaries, superseding all the various forms of usurious credit; it is, then, with the Bank that B, C, D, etc., laborers, whether associated, grouped, free, deal directly and immediately.


Account of the Operations of B, Laborer, with X, the National Bank.

1. Credit by Cash, January 1, to X, the National Bank.

DOI-IV-11.87 As we have already seen, B lives exclusively by his labor; that is to say, by guaranteeing his product to X, the National Bank, he receives in return either bank-notes or specie, with which he buys of A – a laborer like himself, but who, in the sales or exchanges of which we are about to speak, plays the part of proprietor-capitalist-contractor – all the articles needed in his business and for his consumption. In fact, B pays cash for all these articles, and therefore is able to make a better bargain.
DOI-IV-11.88 These purchases, made with the bills or coin of the Bank, cause the following account to be opened upon B’s books: –

2. Credit, by General Merchandise, to Cash.
DOI-IV-11.89 B sells his products as fast as he manufactures them. But production depends upon consumption; now, the latter being no longer embarrassed, as it was under the regime of Interest, by Usury, – that is, by Credit sales, by the loan of tools and the charges which result therefrom, and especially by the preference for specie, which now has become barren and even useless, – it follows that B, as well as all other laborers, cannot only repurchase his own product, less a small fraction, but can give full scope to his energies and productive powers without fear of creating non-vendible products or lowering prices but, on the contrary, with the well-founded hope of compensating himself by this increased production and exchange, for the small reward which he pays to the Bank for negotiating his values. This will be made to appear in the next article of B’s account.
DOI-IV-11.90 All Labor should leave an excess: this is a cardinal doctrine of Political Economy. It is founded upon the principle that, in the economic order, whatever be the capital employed, all value is created by Labor from nothing; just as, according to Christian theology, everything in Nature was created by God, likewise from nothing. In fact, product being defined by J. B. Say and all the economists as the utility added by Labor to objects furnished by Nature, it is clear that all product is the result of the laborer’s effort; and if the object to which this new utility is added is already itself a product, the value reproduced must of necessity be greater than the value consumed. Let us suppose that by his Labor B adds ten per cent to the value which he consumes, and state the result in his books: –

3. Credit, by Cash, to General Merchandise.

DOI-IV-11.91 This account shows that Usury is a cause of misery, [HC has “poverty.” – RTL] in that it hinders consumption and reproduction, first by raising the market price of products to a higher point than is warranted by the increased value obtained by reproductive Labor (the whole amount of Usury in France on a total product of ten thousand millions, is six thousand millions, or sixty per cent), and then by embarrassing circulation by the various formalities of discount, interest, rent, farm-rent, etc., etc., – difficulties which disappear entirely under the regime of Gratuitous Credit.
DOI-IV-11.92 We now have reached the time when B has realized the entire products of his year’s labor. He must therefore settle with X, the National Bank, – an operation which is represented as follows: –

4. Credit, by X, the National Bank, to Cash.
DOI-IV-11.93 Now B must balance his account; he does it in the following way: –

5. Summary of B’s Operations for his Inventory

DOI-IV-11.94 The following year B, instead of operating with a product worth one thousand francs, will operate with a product worth one thousand and eighty-nine francs, which will give him a new increase of profit; then the same thing occurring in the third, fourth, fifth, etc., years, the progress of his wealth will keep pace with the progress of his Labor, and so he will go on forever.
DOI-IV-11.95 The other laborers, C, D, E, F, etc., being in the same circumstances as B, their accounts show each the same result; it is useless to reproduce them. .
DOI-IV-11.96 I now pass to the counter-part of the accounts opened by B, and first to that of the Bank.

DOI-IV-11.97 We have seen above that X, the National Bank, made an advance to B upon his labor or product; that it did the same for all the other laborers; and that subsequently it was remunerated and made whole by the redemption of the values deposited with it and by the discount of one per cent in its favor. This is the way in which these various operations would be represented on the books of the bank: –

1. Credit, by the following Laborers, to Cash.

DOI-IV-11.98 Then from the redemption by the debtors arises a new operation, which the accountant enters upon his books as follows: –

2. Credit, by Cash, to the Following Laborers.
DOI-IV-11.99 The credit given by X, the National Bank, after the conversion into products of the sum credited after the sale of these products to all the members of the society, producer-consumers, from A to L, and finally after the settlement of this sale by means of a sum equal to that furnished by the bank, – this credit, we say, returns to it in the form of notes or coin, increased by a discount of one per cent, with which the Bank pays its employees and defrays its expenses. If, after having covered its expenses, there still remains to the Bank a net profit, be it larger or smaller, it should reduce its rate of discount proportionally, so that the interest of Capital received by the Bank may always be zero.

3. >Summary of the Operations of X, the National Bank, for Its Inventory of Dec. 31.

DOI-IV-11.100 Going back to the Cash account of X, the National Bank, we see immediately that the excess of debit over Credit is one hundred francs, a sum equal to that which appears in the profit and loss account as the Discount profit.

DOI-IV-11.101 We come finally to the account of A, proprietor-capitalist-contractor, who in no wise differs, as we have said already from B, C, D, etc., wage-laborers, and who assumes this title only fictitiously, in consequence of his transactions with the latter class.
DOI-IV-11.102 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 [HC has “right.” – RTL] over his Capital; he can no longer compel the payment of Interest upon it through all eternity and beyond.
DOI-IV-11.103 Let us see, then, how A’s account will appear under this new system.
DOI-IV-11.104 First, Specie being only a medium of exchange, and having become, by its accumulation in the Bank and the almost universal substitution of paper for Gold, common property, the use of which, being universally disdained, is gratuitous, the producer-consumers, B, C, D, etc., have no more need of A’s coins. What they need are the raw materials, tools, and provisions of which A is the possessor.
DOI-IV-11.105 A begins business, then, with his merchandise Capital, which by hypothesis we will fix at ten thousand francs. This commencement of operations is expressed on A’s books in the following manner: –

1. Credit, by General Merchandise, to A, account of Capital.

DOI-IV-11.106 What does A do with this merchandise? He sells it to the laborers, B, C, D, etc., – that is, to the society of consumers and producers which they here represent just as he, A, represents, for the time being, the society of Capitalists and proprietors. A’s accountant will exhibit this as follows: –

2. Credit, by Cash, to General Merchandise.
DOI-IV-11.107 But if the laborers, B, C, D, etc., consume A’s goods, the proprietor-capitalist-contractor A, in his turn consumes the products of the laborers B, C, D, etc., of whom he must buy them, as they themselves buy his. Now we have seen, in the third article of the first chapter, that the increased value given to the goods consumed by B, C, D, etc., being, by hypothesis and under a system free from all dullnes, [Sic; HC has “dullness.” – RTL] stagnation, and falling of prices, ten per cent, the Capital of nine hundred and ninety francs which B has obtained from the bank on credit, on being reproductively consumed, is changed into another of one thousand and eighty-nine francs: the latter, then, is the price at which A makes his purchases of B and settles the bills. Which is entered on the books as follows: –

3. Credit, by General Merchandise, to Cash.
DOI-IV-11.108 To finish the demonstration we have only to draw up A’s inventory.

4. Summary of the Operations of A, proprietor-capitalist-contractor, for his Inventory of December 31.

DOI-IV-11.109 Now that we have made up both accounts, let us compare them and note the differences.
DOI-IV-11.110 1. Under the Regime of Usury the account of each Laborer is balanced by a loss of one hundred francs, or for the ten, one thousand francs.
DOI-IV-11.111 At the same time that of A, proprietor-capitalist-contractor, is balanced by a profit of one thousand francs; which proves that the want and misery existing in a Capitalistic society are due to Interest.
DOI-IV-11.112 2. Under the regime of Gratuitous Credit, on the contrary, the account of each laborer is balanced by a bonus of ninety-nine francs, or for the ten, nine hundred and ninety francs; and that of A, proprietor-Capitalist, by a deficit of eight hundred and ninety francs, which with the hundred francs’ worth of merchandise remaining on hand and helping to account for the year’s deficit, make up the nine hundred and ninety francs by which the wealth of the ten laborers has been increased. Which proves that in a mutualistic society, – that is, a society in which there is equality in exchange, – the wealth of the laborer increases directly with his labor, while that of the Capitalist diminishes directly with his unproductive consumption, and which demolishes Pierre Leroux’s criticism upon me, which he has not ceased to reiterate in all his discussions for the last two months, to wit, that Gratuitous Credit, the Bank of the People, and mutuality are as much proprietorship, bourgeoisisme, and even exploitation as the system which the Bank of the People pretends to abolish.
DOI-IV-11.113 Under the Mutualistic System the wealth of the Laborer increases directly with his labor, while that of the Proprietor-Capitalist diminishes directly with his unproductive consumption, – this proposition, mathematically demonstrated, answers all the incoherencies of Pierre Leroux and Louis Blanc concerning Communism, Fraternity, and Solidarity.
DOI-IV-11.114 Let us now reverse the formula.
DOI-IV-11.115 Under the Usurious System the wealth of the Laborer diminishes directly with his labor, while that of the Proprietor-Capitalist increases directly with his unproductive consumption, – this proposition, mathematically demonstrated like the preceding one, answers all the incoherencies concerning the inequality of capacities, the compensations of another life, etc., etc.
As a Corollary to the Foregoing,

and still basing our selves upon the logic of figures, we say further: –
DOI-IV-11.117 In a Capitalistic Society the laborer, 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.
DOI-IV-11.118 In a Mutualistic Society, on the contrary, the laborer, exchanging without reserve product for product and value for value, paying only a trifling discount which is amply recompensed by the surplus which his labor 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.
DOI-IV-11.119 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-laborer, who cannot repurchase his own product, and who grows the poorer the more he works, we shall have the misery [HC has “poverty.” – RTL] of the proprietor-capitalist-contractor, who will be compelled to encroach upon his capital and thus to gradually destroy, not only the material of products, but machinery itself?
DOI-IV-11.120 But who does not see that if, as is inevitable under the Gratuitous System, the two functions of Wage-Laborer on the one hand, and of Proprietor-Capitalist-Contractor on the other, become equal and inseparable in the person of every workingman, A’s deficit as a Capitalist is immediately covered by his profit as a laborer; so that, while on the one hand by the annihilation of Interest the sum of the products of Labor is increased indefinitely, on the other, by the facility of circulation, these products are incessantly converted into VALUES and the values into CAPITAL?
DOI-IV-11.121 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 laborer, – 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 labor, 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 millions of laborers, 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 millions of taxes?
DOI-IV-11.122 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-Laborers 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.
DOI-IV-11.123 Have we not seen that Interest was born of industrial and commercial risks, that it originally appeared in the more or less speculative contrats de pacotille and a la grosse? Now, that which was at the beginning the inevitable effect of a state of war, and which must of necessity appear in an antagonistic society, will appear again and always in a harmonic and peaceful society. Progress, in Industry as in Science, is unlimited;

Labor Knows No Bounds to Its Bold Enterprises.
DOI-IV-11.124 But when we say enterprise, we always mean something more or less speculative, and consequently a greater or smaller risk of the Capital employed, which necessitates a compensatory interest, a premium of insurance.
DOI-IV-11.125 As a means for the action of Capital under conditions more and more favorable, sleeping-partnership must take the place of Rent, Farm-Rent, Annuities, Mortgages, Mercantile Speculation, Stock-jobbing, and Banking Spoliation. Then Capital, divided into shares and furnished by the Laboring masses, instead of robbing Labor, will produce for Labor; then the dividend, substituted for Interest, will be only a method of allowing society as a whole to share in the profits of private speculations; that will be the legitimate gain of genius over fortune. Let the Capitalists of to-day, instead of crowding to the Stock Exchange opposing the Revolution, and putting an embargo upon arms, dare to become our leaders: let them become, as in ’92, our generals in this new war of Labor against Misery, [HC has “poverty.” – RTL] in the grand crusade of Industry against Nature. Is there, then, nothing more to discover, nothing more to dare, nothing more to do for the development of our nationality for the increase of our wealth and glory[?]

[This discussion, notwithstanding the lapse of time, still goes on. It is admitted that what the borrower wants is capital, that is, capital goods – raw materials, machines, tools and the like – and, by the process of borrowing, ultimately gets them; but he does not get them from the person who makes the loan to him.

To illustrate this, suppose a farmer is in need of additional capital at the beginning of the year. He borrows the money of the banker and gives his promissory note therefor. This note is usually secured by a lien on, or by the pledge of, certain property. The farmer’s solvency is not generally known, so his note cannot circulate. The bank’ls solvency, however, is well known, and its notes are received by everybody. The banker exchanges his well known credit for the farmer’s little known, but equally good, credit, and for this service, which is nothing more or less than making the farmer’s credit generally known – advertising it, so to speak – the bank charges, let us say, seven per cent a year, which is about six per cent over and above the actual cost of conducting the bank. The element of risk, of course, also enters into the transaction, and a premium must be paid therefor; but where the security is ample this risk is small and its cost is correspondingly low.

Now, to follow the process a little further. With this money the farmer buys agricultural implements, seed, and fertilizer. These are all capital, but he does not borrow them from the people who deal in them, he buys them outright and pays for them, so the dealers do not expect and do not get any interest, but are glad to be “deprived” of their capital in this way. That is what they are in business for.

If now this dealer in agricultural implements in turn needs more capital he must also go to the bank and borrow money in the first place, and buy the goods from those who have them to sell, and so must the seed man and so must every other user of capital of every kind.

If interest is paid for the use of capital and not for credit, why is it that the persons engaged in production, one and all, who together have all the capital, must first go to the bank, which has no capital but only a certain kind of credit, and exchange credit with it before they can get capital from one another?

This question the advocates of mutual banking have often asked but it has never been answered.

Another proof that interest is not paid for the use of capital is that the rapid increase of capital that has taken place since the time of this debate has not affected the interest rate.

From 1850 to 1910 the population of the United States quadrupled in number, and the amount of capital increased fifteen-fold. The average purchasing power of a dollar was as great in 1910 as it was in 1850, so there was really a four-fold per capita increase of capital. If, then, interest must be paid because capital is scarce and is hard to accumulate and must be “saved,ֲ as it becomes more plentiful there should be a tendency, at least, no matter how slight, toward a low rate of interest for the use of capital; but no such tendency can be seen. Interest was as high in 1910 as it was sixty years before. – HC]
DOI-IV-11.126 But I stop; it is time. In spite of myself, sir, you have forced me to this abstract argument, fatiguing to the public and inappropriate to the columns of a popular journal. Was it necessary, then, to drag me into this intricate discussion, when it was so easy and so simple to confine ourselves to this question, as decisive as it is positive: May Credit be Gratuitous, Yes or No? At the risk of repelling the readers of La Voix du Peuple, I have tried to stisfy your desire; now you may tell me, if you see fit, what objection you have, first, to my analysis of Capital; then to the definition which I deduced from it; and finally to the propositions and corollaries which then developed themselves.
DOI-IV-11.127 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 any one of your school, understands Political Economy. I am, etc.,


Previous section          Next section

Up to table of contents

Back to online library