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

Letter 2

[Letter 1 by Tucker’s numbering]

Bastiat to the Editor of the Voice of the People,
12 November 1849

[Translation (as “HEAR BOTH SIDES. – Capital’s Advocate Vs. Labor’s Champion. – TWO GIANTS FACE TO FACE. – Frederic Bastiat Confronts P. J. Proudhon. – IN A DEBATE ON INTEREST OF CAPITAL. – Contrasting Industrial Dependence with Proprietary Privilege. – AN ACCOUNT OF THE ORIGIN OF THE DISCUSSION. – A Series of Twelve Brilliant Letters, beginning with One from Bastiat. – [PUBLISHED FROM THE FRENCH BY BENJ. R. TUCKER– INTEREST AND PRINCIPAL.] – LETTER I. – BASTIAT TO PROUDHON,”) by Benjamin R. Tucker, in The Irish World and American Industrial Liberator, 12 July 1879.]

NOVEMBER 12, 1849.

Mr. Editor,
DOI-IV-2b.1 The extreme eagerness with which the French populace have engaged in the investigation of economic problems and the incredible indifference of the privileged classes with respect to these questions constitutes one of the most characteristic features of our epoch. While the older journals, the organs and mirrors of the upper classes, confine themselves to the discussion of the turbulent and fruitless questions of partisan politics, the papers devoted to the interests of the working classes are incessantly agitating the more fundamental questions of Socialism. Unfortunately, I very much fear, their first steps are taking them in a wrong direction. But how could it be otherwise? They, at least, have the merit of searching for the truth. Sooner or later the possession of it will be their reward.
DOI-IV-2b.2 Since, sir, you have offered me the use of the columns of La Voix du Peuple, I will present to your readers, and will endeavor to answer, these two questions: –
DOI-IV-2b.2 1. Is interest on capital legitimate?
DOI-IV-2b.3 2. Is it exacted at the expense of labor and of laborers?
DOI-IV-2b.4 We differ as to their solution; but there is one point on which we certainly agree – that, religious problems aside, the human mind can deal with no graver questions.
DOI-IV-2b.5 If I am mistaken, if interest is an oppressive tax, assessed by capital on all articles of consumption, I shall be forced to reproach myself with having, in my ignorance, supported by my arguments the oldest, most frightful and most universal abuse which the genius of spoliation has ever devised – an abuse which can be compared in extent of influence neither with the systematized pillage of warlike nations, nor with slavery, nor with priestly despotism – and the democratic flame which burns within my heart will be seen to have been turned against democracy by a

A Deplorable Economic Error

But if the mistake is yours, if interest is not only natural, just, and legitimate, but also useful and profitable, even to those who pay it, you will admit that your teachings, in spite of your good intentions, can only do a vast deal of harm.
DOI-IV-2b.6 They induce working people to think themselves the victims of an injustice which is only imaginary, to regard as evil that which is good. They sow the seeds of irritation in the minds of one class and of terror in those of another. They hinder those who suffer from ascertaining the true cause of their suffering by starting them on a false scent. They hold up to them a pretended spoliation, which prevents them from seeing and assailing the real ones. They accustom their minds to the fatal thought that order, justice, and union can be restored only by a thorough revolution (as detestable as it is impossible) in the whole system by which Labor has been performed and exchange effected from the beginning of the world.
DOI-IV-2b.7 There is, then, no graver question. I will begin its consideration at the point last reached i the discussion.
DOI-IV-2b.8 Yes, sir, you are right. As you say, the only barrier that divides us is an equivocation concerning the words use and property. [It should be borne in mind that throughout this first letter Bastiat is answering M. Cheve, and not Proudhon, although he wrongly supposes that Proudhon shares Cheve’s views of the distinction between use and property. – BRT. Judging from Proudhon’s Letter 11, is it clear that his position is so different from Chevé’s? – RTL] But this equivocation suffices to convince you that you ought to travel, full of confidence, towards the west, whereas my belief pushes me towards the east. At the point of departure the distance between us is inappreciable, but it is not slow in widening to an incommensurable abyss.
DOI-IV-2b.9 The first thing to be done is to retrace our steps until we arrive at the point of departure at which we were in accord. The ground which we occupy in common is mutuality of service.
DOI-IV-2b.10 I said: “He who lends a house, a sack of wheat, a plane, a piece of money, a ship – in a word, a VALUE – for a definite time, renders a service. He ought to receive, then, besides the restitution of this value at the expiration of the loan, an equivalent service.” You allow that he ought, indeed, to receive something. That is

A Great Step Towards the Solution,

for that something is what I call INTEREST.
DOI-IV-2b.11 Let us see, sir, if we agree at this point of departure. You lend me, for the year 1849, one thousand francs in coin, or a stock of provisions worth one thousand francs, or a house worth one thousand francs. During 1849 I shall receive all the advantages which this value, created by your labor and not mine, can procure. During 1849 you will voluntarily yield, in my favor, these advantages which you, with perfect legitimacy, might reserve for yourself. To square our account, to make out services equivalent and reciprocal, to satisfy justice, will it suffice for me, at the beginning of the year 1850, to restore to you intact, but with no additions, your money, your machine, your wheat, or your house? Have a care! if this be so, I warn you that the role which I shall always assume in such transactions will be that of the borrower; it is easy and very profitable; it gives me shelter and support all my life at another’s expense, provided always that I can find a lender, which, under this system, will not be easy, for who will build houses for the purpose of lending them gratis, and be contented, from quarter to quarter, with simple restitution?
DOI-IV-2b.12 But is this not what you mean? You admit (and I hold it to be well established) that he who has lent a house or any value whatsoever has rendered a service which is not fully paid for by the simple return of the keys at the end of the quarter or the simple restoration of the property at the expiration of the loan. There is, then, in your view as in mine, something to be paid beyond mere restitution. We are unable to agree as to the name and nature of this something; but something is due from the borrower. And since, in the first place, you admit the principle of

Mutuality of Service,

and since, in the second place, you allow that the lender has rendered a service, permit me, for the time being, to call this thing due from the borrower a service.
DOI-IV-2b.13 Now, sir, it seems to me that we have taken a step – yes, a great step – in advance, for see where we are.
DOI-IV-2b.14 By your theory, as well as by mine, any contract between the lender and the borrower is perfectly legitimate which stipulates: –
DOI-IV-2b.15 1. The restoration, intact, at the expiration of the loan, of the object lent;
DOI-IV-2b.16 2. A service to be rendered the lender by the borrower as compensation for the service which the latter has received.
DOI-IV-2b.17 Now, what shall be the nature and the name of this service which the borrower owes? I do not attach to these questions the scientific importance which you associate with them. They may be left to the contracting parties themselves in each particular case. It is really their business to decide the nature and equivalence of the services exchanged, as well as their special appellation. Science has done its work when it has shown the motive, the origin, and the legitimacy. The borrower will pay his debt in wheat, in wine, in shoes, in labor, according to his circumstances. Generally, and only for the sake of greater convenience, he will pay in silver; and, as silver can be procured only by Labor, we may say that he pays in Labor. Why should you prohibit me from calling this payment, which you think just and legitimate, rent, farm-rent, discount, revenue, loan, interest, according to circumstances?
DOI-IV-2b.18 But let us examine the equivocation which separates us, the pretended confusion which you charge me with of use and property, of the loan of a things, and its absolute surrender.
DOI-IV-2b.19 You say: He who borrows a piece of property, a value, being bound to return it intact at the appointed time, has received, in reality, only a use. He owes, in return, not a piece of property, a value, but the use of a piece of property of an equivalent value.

To Identify These Two Things,

which are naturally distinct, and without possible equivalence, is to destroy mutuality of service.
DOI-IV-2b.20 To go to the root of this objection we should have to disturb the whole foundation of social economy. You do not expect the performance of such a task from me, but I will ask you if, in your view, the use of a value has not itself avalue? if it is not susceptible of valuation? According to what rule, upon what principle, would you prevent two contractors from comparing a use to a sum of money, or a certain amount of labor, and, if they can come to an agreement, from exchanging accordingly? You lend me a house worthy twenty thousand francs, thereby rendering me a service. Do you mean to say that, notwithstanding my consent and yours, I can scientifically discharge my debt only by lending you a house of the same value? But that is absurd, for, if we all had houses, each would live in his own, and what reason would there be for lending? If you go so far as to assert that mutuality of service implies that the services exchanged should be not only equal in value, but identical in nature, you abolish exchange as well as loans. A hatter might say to his customer, I surrender to you not money, but a hat; you, therefore, owe me a hat, and not money.
DOI-IV-2b.21 But if you admit that services are estimated and exchanged for the very reason that they differ in their nature, you must confess that the surrender of a use, which is a service, may, with perfect legitimacy, be estimated in terms of wheat, money or labor. Take care! Your theory, while allowing the principle of interest to exist in all its perfection, tends toward nothing less than the prostration of all business. You do not reform; you paralyze.
DOI-IV-2b.22 I am a shoemaker. My trade ought to support me; but, to follow it, I must be lodged, and I have no house. On the other hand, you have devoted your labor to the construction of one; but you do not know how to make shoes, nor do you wish to go barefooted. We can arrange it:

You Lodge Me, and I Will Shoe You.

I shall profit by your labor as you will by mine; our services will be reciprocal. The point is to arrive at a just valuation, at perfect equivalence, and I see no method of arriving at it save that of free discussion.
DOI-IV-2b.23 And, under the pretext that there is a surrender of a material object on one side, while on the other only a use is surrendered, your theory would say to us: This transaction must not be; it is illegitimate, oppressive, an dishonest; it involves two services which have no possible equivalence, and which you have neither the power to estimate nor the right to exchange.
DOI-IV-2b.24 Do you not see, sir, that such a theory destroys at once both exchange and liberty? What authority is it, then, which is to annihilate thus our mutual and free consent? Shall it be the law? Shall it be the State? But I am of the opinion that we make the law and pay the State to protect our rights, and not to destroy them.
DOI-IV-2b.25 So we agree entirely on this point – that the borrower owes something beyond mere restitution. Now let us agree on this other point – that this something is susceptible of being valued, and consequently of being paid for, according to the agreement of the contractors, in one of the many forms which value may assume.
DOI-IV-2b.26 The consequence is that, at the appointed time, the lender should receive –
DOI-IV-2b.27 1. The value lent, intact.
DOI-IV-2b.28 2. The value of the service rendered by the loan.
DOI-IV-2b.29 I need not repeat here how the restitution, intact, of the object lent necessarily implies the perpetuity of interest.
DOI-IV-2b.30 Let us examine now, in a few words, the remaining question.
DOI-IV-2b.31 Is interest in Capital exacted at the expense of Labor?
DOI-IV-2b.32 You know, as well as I, sir, that he would have a very limited idea of interest who should suppose that it is exacted only when there is a loan. Whoever makes use of capital in the creation of a product expects to be remunerated not only for his labor, but for his capital; so that interest enters as an element into the price of

All Articles of Consumption.

Perhaps it is not sufficient to show the legitimacy of interest to those who have no capital. They undoubtedly would be tempted to say: Since interest is legitimate, we must submit to it; but it is a great misfortune, for without it we could obtain everything more cheaply.
DOI-IV-2b.33 This complaint is entirely groundless; it is the intervention of Capital which causes human possessions to approach more and more nearly to the state of gratuity and community. Capital is the democratic, philanthropic, and equalizing power par excellence. So he who makes its action understood renders a most signal service to society, for he puts an end to this class antagonism, which is founded only on fallacy.
DOI-IV-2b.34 It is utterly impossible for me to unfold the theory of Capital in a newspaper article. [See, on the Theory of capital, Chapter 7 of Economic Harmonies. – RTL]] I must be content to indicate my thought by an example, an anecdote, an hypothesis which is a type of all human transactions.
DOI-IV-2b.35 Let us place ourselves at humanity’s starting-point, at that epoch when, it is fair [to] suppose, there was no Capital in existence. What, then, was the value, measured by Labor, of any object whatever, of a pair of stockings, a sack of wheat, a piece of furniture, a book, etc.; in other words, how much labor would have been required to purchase these things? I do not hesitate to say that the answer is contained in this one word: Infinity. Such objects were then entirely inaccessible to humanity.
DOI-IV-2b.36 Let us take a pair of cotton stockings. No man could have succeeded in producing them by a hundred or a thousand days’ labor.
DOI-IV-2b.37 How does it happen, then, that there is in France to-day not a workingman so unfortunate as to be unable to obtain a pair of cotton stockings by one day’s labor? Simply becaue Capital contributes to the creation of this product. The human race has invented machinery which forces from Nature a gratuitous co-operation.
DOI-IV-2b.38 It is very true that, in analyzing the price of this pair of stockings, we find that the portion due to Capital amounts to considerable. We have to pay the squatter who cleared the land in Carolina; we have to pay the canvas which carries the vessel from New York to Havre; we have to pay the machine which turns ten thousand spindles. But it is just because we pay these machines that they

Force Nature to Co-operate,

and substitute her gratuitous action for the burden of human labor. If we cease paying this series of interests, we thereby suppress the machines and the natural co-operation which they bring into action; in a word, we return to barbarism, to the time when a thousand days’ labor would not have procured a pair of stockings. So it is with all things.
DOI-IV-2b.39 You think that Interest is exacted by the man who does nothing from the man who works. Ah, sir! before again letting fall in the midst of the public that sad and provoking assertion, examine it to its root. Follow it to its conclusions, and you will be convinced that it contains nothing but the elements of error and disturbance. You appeal to my illustration of the plane; permit me to recur to it.
DOI-IV-2b.40 Here is a man who wishes to make some planks. He cannot make one in a year, for he has but his ten fingers. I lend him a saw and a plane – two instruments, bear in mind, which are the fruit of my labor and in the advantage of which I myself should share. Instead of one plank, he makes a hundred, and gives me five. I have, then, by deriving myself of my tools, made him the owner of ninety-five planks instead of one – and you say that I enslave and rob him. What! thanks to a saw and a plane which I have manufactured i the sweat of my brow, an hundred-fold production has, so to speak, emerged from vacancy; the happiness of society is increased a hundred fold; a laborer who could not make one plank has made a hundred; and because he surrenders to me, freely and voluntarily, one-twentieth of this surplus, you represent me as a tyrant and a robber! The workingman shall see his labor increase in productivity, humanity shall see the sphere of its opportunities enlarge, and I alone, the producer of these results, must be prohibited from participating in them, even by universal consent!
DOI-IV-2b.41 No, no; it cannot be so. Your theory is as much opposed to justice, to general utility, and even to the welfare of workingmen, as to the practice of all ages and countries. Permit me to add that it is no less opposed to the reconciliation of classes, to the union of heats, to the realization of human brotherhood, which is more than justice, but which is impossible without justice.


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