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

Letter 12

[Letter 11 by Tucker’s numbering]

Bastiat to Proudhon,
4 February 1850

[Translation (as “Bastiat’s Last. – A Bitter Diatribe Against Paper Money. – PROUDHON’S BANK JUDGED. – The Old Story About “Confidence” Rehashed. – THE DEMAND FOR GRATUITOUS CREDIT – Pronounced an Attempt at the Annihilation of Credit. – THE SALE OF TIME AN EQUITABLE TRANSACTION. – Proudhon, an Apostle of Liberty, Falsely Charged with Opposition to Liberty. – INTEREST AND PRINCIPAL. – LETTER ELEVEN. – BASTIAT TO PROUDHON. – [TRANSLATED FOR THE IRISH WORLD BY BENJ. R. TUCKER.]”) by Benjamin R. Tucker, in The Irish World and American Industrial Liberator, 4 October 1879.]
[The neutrality of the Irish World’s headlines, slipping somewhat in the last few letters, is abandoned completely here. – RTL]

[PARIS, Feb. 4, 1850.]

DOI-IV-12.1 Sir, you have rendered a signal service to society. Hitherto Gratuity of Credit has hidden itself within the clouds of philosophy, metaphysics, economy, antinomy, and history. By submitting it to the simple test of the account-book you have driven it down from those vague regions; you have stripped it bare before all eyes; everybody can recognize it: it is Paper Money.
DOI-IV-12.2 To multiply and equalize the wealth of the earth by showering paper money upon its surface, – that is the whole of the mystery. That is the conclusum, the ultimatum, and the disideratum [Sic, for “desideratum” in the original. – RTL] of Socialism.
DOI-IV-12.3 Gratuity of Credit is its last word, its last formula, its last endeavor. You have said so a hundred times, and rightly. Others, it is true, define it differently. “He is a Socialist,” said lately La Democratie Pacifique, “who hopes to do some good.” Surely, though the definition is vague, it is at least comprehensive and unusually discreet. Thus defined, Socialism is imperishable.
DOI-IV-12.4 But a desire no more constitutes a science than do a score of contradictory dreams. What has become of Icaria? Where is the Phalanx, the National Workshop, the Triad? These formulas are dead, and you have contributed not a little to their destruction. Though a few others have recently been introduced to the world under Sanscrit names (which I have forgotten), it is not probable that they will live. Only one still survives – Gratuity of Credit. It has seemed to me to owe its life to mystery. You have exposed it to the light of day: will it long survive?
DOI-IV-12.5 The alteration of money, extending even to the counterfeiting of money, is an invention neither new nor particularly

Democratic in Its Origin.

Hitherto, however, it has been thought necessary to give to, or to assume for, Paper Money some security, – the future wealth of the Mississippi, the national domain, the State woodlands, the property of emigrants. It has been well understood that paper has no intrinsic value, that it is good only as a promise, and that this promise must inspire some confidence in order that the paper on which it is expressed may be voluntarily received in exchange for realities. Thence the word credit (credere, to believe, to have faith). To you, however, these necessities do not seem to have occurred. An inexhaustible supply of paper money, – that is your remedy.
DOI-IV-12.6 Permit me to invert the order of the discussion to which you invite me, and to examine first your social scheme, presented under the title of Gratuitous Credit.
DOI-IV-12.7 It will be well here to state your definition of Capital: Every settled value, whether in land, machinery, merchandise, provisions, or money, serving, or capable of serving, in production. This definition I accept. It suffices for the present discussion.
DOI-IV-12.8 This established, you suppose A, B, C, D, E, F, G, H, I, K, L, etc., to be at the same time capitalists and laborers.
DOI-IV-12.9 You make out the account of one of them, A, from his standpoint as a Capitalist; then that of B, representing all the laborers; and finally you draw up the account of the Bank.
DOI-IV-12.10 A possesses capital, settled values, in the shape of land, machinery, provisions, etc.; B desires to appropriate it, but he has nothing to give in exchange for it, and cannot borrow it without paying Interest.
DOI-IV-12.11 He goes to the bank and says: “Lend me one thousand francs in bank-notes; I will pay you our of the product of my future labor as fast as my sales will allow.” The bank complies, and gives him nine hundred and ninety francs in bank-notes. (This reserve of ten francs, the sole object of which is the payment of the expenses of the Bank, is called discount improperly. It can be reduced to a few centimes. Perhaps it would have been better, both in argument and illustration, to have disregarded it entirely.) Furnished with

These Precious Talismans,

B goes to A and says: “You perhaps expected to lend me your capital, but you see you are forced to sell it to me, for I am in a position to pay for it.” A makes haste to exchange his capital (land, merchandise, provisions) for B’s bank-notes. B begins his labor. By virtue of the aphorism, All labor should leave an excess, he adds ten per cent to the value which he has purchased, runs to the Bank to pay (undoubtedly in bank-notes) the nine hundred and ninety francs which he owes it, and finds that he has realized a profit of ninety-nine francs. The same with C, D, E, F, etc., and, in fact, with all men.
DOI-IV-12.12 Starting with these data, you draw up the account of A, B, and the Bank. Certainly, if we admit the data, these accounts are unexceptionable.
DOI-IV-12.13 But are your data admissible? Are they in conformity with the nature of men and things? That is the question for us to consider.
DOI-IV-12.14 Will the Bank-Notes offer any security? In other words, will they, or will they not, inspire confidence? In other words still, will the Bank, or will it not, have an original Capital and settled values sufficient for the redemption of all its issues?
DOI-IV-12.15 How will it obtain its Capital in settled values? If it has stockholders, they, in the present order of things, which is the point from which we start, will wish to draw Interest, and how can the Bank lend gratuitously that which it borrows at a high rate?
DOI-IV-12.16 It shall take possession of the Capital of the Bank of France, do you say, and pay the stockholders in State Bonds? That postpones the difficulty without removing it. It will then be the masses, the nation, who will borrow Capital at five per cent for the sake of lending it for nothing. Interest will not be annihilated, but laid upon the shoulders of the tax-payer.
DOI-IV-12.17 But, indeed, admit this Capital of ten thousand francs, with which you imagine yourself to operate, to be got together, and put aside

The Vicious Circle

which consists in realizing gratuity by assuming it. Since you have deemed the Capital needful, you doubtless think its preservation indispensable.
DOI-IV-12.18 Accordingly you reason upon the hypothesis that B, C, D, E, etc., will repay every year to the Bank the amount which they have borrowed. But if this hypothesis proves false; if B is a debauchee who spends his thousand francs at the tavern; if C gives his to his mistress; if D throws away his in some foolish enterprise; if E runs away to Belgium, etc., etc., – what will become of the Bank? To whom shall A look to pay him for the Capital of which he has been relieved?
DOI-IV-12.19 For, indeed, your bank will be unable to change our nature, to reform our evil propensities. Quite the contrary, it must be admitted that the extreme facility of procuring paper money by a simple promise to labor in order to subsequently repay it would be a powerful incentive to gambling, foolish enterprises, hazardous operations, rash speculations, and immoral or inconsiderate expenditures.
DOI-IV-12.20 It is a serious thing to place all men in a position where they can say: “I will tempt fortune with the property of others; if I succeed, so much the better for me; if I fail, so much the worse for them.” I cannot imagine, for my part, any orderly method of transacting the business of life which does not involve the law of responsibility. But, without considering at resent the moral effects of your scheme, it is enough that it strips the National Bank of every condition of credit and stability.
DOI-IV-12.21 Perhaps you will tell me that, before delivering its notes, the bank will inquire carefully concerning the degree of confidence which the applicants deserve. Their property, morality, industry, intelligence, and foresight will all be scrutinized and weighed with care. But take care: if you insist that on the one hand the bank shall have

An Original Capital as a Guaranty,

and that on the other it shall lend only on the best of security, wherein will it differ fro the free banks of the United States? And will not the poor devil of to-day remain a poor devil under your system?
DOI-IV-12.22 I do not believe that you can evade one of the following alternatives: –
DOI-IV-12.23 Either the Bank will have a Capital on which it pays Interest, and then it cannot, without ruining itself, lend without Interest;
DOI-IV-12.24 Or it will use a gratuitous Capital, in which case you must explain to us where it will get it, if not from A, B, C, D, etc., who constitute the entire nation.
DOI-IV-12.25 On either hypothesis it will lend with moderation and discretion, and then you will not have universal credit; or else it will lend without security, and in that case it will fail within two months.
DOI-IV-12.26 But let us pass over these primary difficulties.
DOI-IV-12.27 A, whom you put upon the stage, is a Capitalist, and consequently discreet, prudent, timorous, and even cowardly. This you will not deny. And after all, it is excusable in him. All that he has, he has earned by the sweat of his brow, and he does not wish to risk its loss. This feeling from a social standpoint, is an eminently conservative one. Consequently, before exchanging his Capital for the notes, A will turn these notes over many times in his hands. Perhaps he will conclude to refuse them, and there is your system ended in smoke. What will you do? Declare the notes legal tender? What then will become of the liberty which you champion? After having turned the Bank into an Inquisition, would you make it a police force? It was not worth while to abolish the State.
DOI-IV-12.28 But, simply for discussion’s sake, I grant you the passage of a legal tender act. You would not prevent A from calculating his risks. It is true there are few risks a seller would not run, provided he finds in an increased price a satisfactory insurance. A, a capitalist, – that is, a joiner, a shoemaker, a blacksmith, a tailor, etc. – will say then to B, C, D: “Gentlemen, if you desire my furniture, my shoes, my nails, my clothes, which are settled values, give me a settled value in return, – that is, twenty francs in silver.” “There are twenty francs in notes,” replies B.

“These Are Only Promises,”

replies A, “and I have no faith in them.” “But they are legal tender,” rejoins B. “Very well,” retorts A, “then I charge one hundred francs for my goods.”
DOI-IV-12.29 How would you stop this increase in price, so clearly destructive of all the benefits which you expect from the Bank? What would you do? Establish by law a maximum price?
DOI-IV-12.30 This universal costliness will again manifest itself from another cause. Certainly, you do not doubt that, when it shall have made itself known through all the channels of publicity, when it shall have announced that it lends for nothing, the Bank will have plenty of customers. All those who have debts on which they are paying interest will wish to profit by this fine opportunity for discharging them. That will require twenty thousand millions. The State also will wish to pay the five thousand millions which it owes. The bank will be besieged too by every merchant who has a speculation in his eye, by every manufacturer who wishes to build or enlarge a factory, by every monomaniac who has made some wonderful discovery, and by every laborer, journeyman, and apprentice who desires to become a boss.
DOI-IV-12.31 I have no hesitation in saying that, if the Bank pretends to satisfy every longing, every greed, and every dream, it must issue more than fifty thousand millions during the first six months. With such a weight will the Demand for Capital bear down upon the Market! But whence will come the Supply? In six months France will not have created enough settled values (Lands, Machinery, Merchandise, Provisions)to satisfy this immensely increased Demand, because Settled Values, Realities, do not drop into the apron of Madam Supply wit the same facility that fictitious ones do into that of Madam Demand. Nevertheless, to Buy and Sell are correlative terms; they signify two operations which imply each other, and which are, in truth, but one. What will be the result?

An Enormous Rise in Prices,

Or, rather, such social disorder as the world has never seen. And be sure that, if any one escapes, it will not be the least of knaves; above all, it will not be the poor devil to whom the Bank has refused Credit.
DOI-IV-12.32 Arbitrary measures for the establishment of the Bank; the Inquisition, when a person’s Credit is to be measured; Legal Tender; Maximum Price; and finally Bankruptcy and Disorder, whose earliest victims will be the poorest and least profligate, – these are the logical results of Paper Money. But this is not all.
DOI-IV-12.33 You may say: “Your criticism touches only the means of execution. We will consider that hereafter. At present we are dealing only with the Principle. Now, you cannot deny that my Bank, setting aside the means of execution, destroys Interest. Then Gratuity of Credit is at least possible.”
DOI-IV-12.34 I might reply: No, if the means of execution are not. But I go straight to the bottom of the matter, and say: Even were your plan not liable to all the dangers that I have pointed out, it would not accomplish your object. It fails to realize Gratuity of Credit.
DOI-IV-12.35 You know as well as I, sir, that Capital receives this reward which we call Interest not exclusively from Loans. It is also an element in the cost of products. And since you appeal to bookkeeping, I will do the same. Open the books of the first contractor we meet. We shall see that he never undertakes a job without being sure, not only of his wages, but also of the return, liquidation, and Interest of his Capital. This Interest is included in the selling price. By reducing all transactions to purchases and sales, your Bank does not solve, nor even touch, the problem of the abolition of Interest.
DOI-IV-12.36 What, sir! do you hope to establish such a condition of affairs that he who works with his own Capital shall gain no more than he who works with Capital gratuitously borrowed from another? You strive for that which is both impossible and unjust.
DOI-IV-12.37 I will go farther, and say that, were you right on every other point, you would still be wrong in adopting as your motto these words, – Gratuity of Credit. Observe that in reality you are not trying to render Credit gratuitous, but to kill it. You wish to reduce everything to

A Matter of Purchase and Sale,

to a transfer of debts from one party to another. You think that, with your paper money, there will be no further occasion to lend or borrow; that all credit will be useless, null, abolished, extinct from lack of opportunity. But can we say that a thing which does not exist, or which has ceased to exist, is gratuitous?
DOI-IV-12.38 And this is not a mere quibble about words. After all, moreover, words are the vehicle of ideas. In proclaiming the Gratuity of Credit you certainly give people to understand, whether you intend it or not, that every one can enjoy for an indefinite period the property of another without paying for it. The unfortunate ones who have no time to study these things and to detect the inaccuracy of your expressions open wide their eyes. They feel moved by the most deplorable desires. To lay hands on the property of another, and that without injustice, – what an alluring prospect! So you have had, and at first must have, a multitude of followers.
DOI-IV-12.39 But if your motto had been the Annihilation of Credit, which expresses your real thought, it would have been understood that, under your system, we should get nothing for nothing. Avarice, that grand cause of debt, as Pascal called it, would have been neutralized. We should have been confined to the dispassionate inquiry, first, whether your system is an improvement upon the present one, and, next, whether it is practicable. The word gratuity is always a very enticing one; but I do not hesitate to say that, though it has been a decoy to many of your followers, it has also been a snare to your own mind.
DOI-IV-12.40 It explains the hesitation which has been so manifest on your side of this controversy. When I attempted to confine the discussion to the question of gratuity, you were ill at ease. You felt, in the depths of your heart and mind, that credit, while it exists, cannot be gratuitous; that the repayment of a borrowed value cannot be the same, whether made immediately or postponed indefinitely. Concerning this you made some frank admissions, for which you have been

Rebuked in Your Own Church.

On the other hand, enlisted and carried away by your motto, Gratuity of Credit, you made incredible efforts to retrace this unfortunate step. You called antinomy to your aid; you went so far as to say that yes and no can be true of the same thing at the same time. After dialectics came rhetoric. You denounced Interest, calling it robbery, etc., etc.
DOI-IV-12.41 And all this from having clothed your thought in the wrong language. Our discussion would have been much shortened, if you had said to me: While credit exists, it cannot be gratuitous; but I have found a way to put it out of existence, and henceforth I will inscribe upon my banner, instead of the words, Gratuity of Credit, these, Annihilation of Credit.
DOI-IV-12.42 The question thus posited, I should have had only to examine your means of execution. Your last letter enables me to do this. I have proved that these means of execution may be summed up in two words, – Paper Money.
DOI-IV-12.43 I have proved further: –
DOI-IV-12.44 That, in order that the notes of a Bank, may be receivable, they must inspire confidence:
DOI-IV-12.45 That, in order that they may inspire confidence, the Bank must have Capital;
DOI-IV-12.46 That, in order that the Bank may have Capital, it must borrow it of A, B, C, D, who are the nation, and must of course pay them Interest;
DOI-IV-12.47 That, if it pays Interest, it cannot lend without Interest;
DOI-IV-12.48 That, if it lends to A, B, C, D, gratuitously, that which it has taken form them by force under the form of a tax, there is at least no change in affairs, if there is not one oppression more;
DOI-IV-12.49 And finally that, on any hypothesis, even by reducing all business transactions to sales, you do not destroy this reward of Capital, which is always included in the selling price.
DOI-IV-12.50 It follows therefrom that, if your bank is only

A Paper-Money Factory,

it will produce social disorder.
DOI-IV-12.51 That if, on the contrary, it is founded upon justice, prudence, and reason, it will do nothing that cannot be done better through free banking.
DOI-IV-12.52 Is this to say, sir, that in my opinion, there is no truth whatever in the ideas which you advocate[?] In explaining myself upon this point, I shall take a step towards you. May it induce you to take one towards me, or rather towards the true solution, – free banking!
DOI-IV-12.53 But, to be understood, I must, at some risk of repeating myself, lay down some fundamental propositions concerning credit.
DOI-IV-12.54 Time is precious. Time is money, say the English. Time is the stuff of which life is made, says le Bonhomme Richard. [It’s not clear why BRT leaves “le Bonhomme Richard” in French, since this is simply Poor Richard, i.e., Benjamin Franklin. – RTL]
DOI-IV-12.55 It is from this unquestionable truth that is deduced the idea and the practice of Interest.
DOI-IV-12.56 For to give credit is to grant time.
DOI-IV-12.57 To sacrifice one’s time to another is to sacrifice a precious thing, and it is not possible to maintain the position that in business such a sacrifice ought to be gratuitous.
DOI-IV-12.582 A says to B: – “Devote this week to making me a hat; I will employ it in making you some shoes.” “The shoes and the hat balance each other,” replies B; “I accept.”
DOI-IV-12.59 A moment after, B, having reconsidered his decision, says to A: – “I perceive that my time is precious; I desire to devote this and the following weeks to myself. So make my shoes immediately; I will make your hat in a year.” “I consent,” replies A; “but in a year you must give me one week and two hours.”
DOI-IV-12.60 I ask every honest man whether A plays the pirate in exacting this new and favorable condition to offset the other new and unfavorable one.
DOI-IV-12.61 This fundamental fact contains in germ the whole theory of credit.
DOI-IV-12.62 I know that the transactions of society are not as simple as that which I have just described; but they are

The Same in Principle.
DOI-IV-12.63 Thus, it is possible for A to sell the shoes to a third party for ten francs and remit this sum to B, saying: – “Give me the hat immediately, or, if you wish a year’s delay, you shall restore to me the labor of one week, plus two hour, or ten francs, plus five per cent.” This amounts to the same thing as the preceding hypothesis.
DOI-IV-12.64 In agreement – at least I hope so – as to the legitimacy of credit, let us see now what arrangements it admits of.
DOI-IV-12.65 B may have made only a verbal promise, and yet it may be possible for A to transmit and discount it. He may say to C: – “I owe you ten francs. B has given me his word that he will pay me ten francs and ten sous in a year. Will you accept as payment my claim on B?” If C has confidence; if he believes, [The French word for “believes” is etymologically related to “credit.” – RTL] this operation may be carried out. But who will dare to say that, in order to multiply shoes and hats, it is enough to multiply promises of this nature, regardless of the confidence they may inspire?
DOI-IV-12.66 B may give a written title. The title, in this form, will prevent all dispute and controversy; it will inspire more confidence and circulate more freely than the verbal promise. But neither the nature nor the effects of Credit will have changed.
DOI-IV-12.67 Finally a third party, a Bank, may indorse B, take his note, and issue his own instead. This will add a new facility to Circulation. But why? Precisely because the signature of the Bank inspires in the public mind more confidence than that of B. How, then, can we regard a Bank as good for anything, if it is not based on confidence; and how can it be, if its notes furnish less security than those of B?
DOI-IV-12.68 These various titles, therefore, are not necessarily illusions. It is not necessary to see a real value; the simple promise to deliver a value – a promise signed by some one who is in a position to keep it – is sufficient.
DOI-IV-12.69 But what I wish to make plain – for here is effected the reconciliation which I predicted between your opinion and mine – is a singular transfer of the right to Interest which is brought about by the intervention of the Banks.
DOI-IV-12.70 In the case of a promissory note or a bill of exchange who pays the Interest?

Evidently the Borrower,

he for whom others have sacrificed their time. And who profits by this Interest? Those who have made the sacrifice. So, if B has borrowed of A one thousand francs for a year , and has given him his note for one thousand and forty francs, A profits to the amount of forty francs. If the latter immediately negotiates this note at four per cent discount, it is the taker who gets the Interest, as is just, since he makes the advance or the sacrifice of time. If A sells his note to C at the end of six months, the latter gives him for it only one thousand and twenty francs, and the Interest is thus divided between A and C, because each has sacrificed six months.
DOI-IV-12.71 But when the Bank steps in, things take a different course.
DOI-IV-12.72 It is always B, the borrower, who pays the Interest; but it is no longer A and C who profit by it, – it is the Bank.
DOI-IV-12.73 Suppose that A has just received his note. If he keeps it, no matter when he negotiates it, he is sure to receive Interest for the whole period during which he has been deprived of Capital. But he carries it to the Bank; he gives the latter a note for one thousand and forty francs, and it gives him in exchange a note for one thousand francs. The Bank, then, gains the forty francs.
DOI-IV-12.74 What is the cause of this phenomenon? It is explained by the readiness of all men to make sacrifices for convenience. A Bank-Bill is a very convenient note. When one takes it, he does not intend to keep it; he says: It will remain in my hands no longer than eight or ten days, and I can well afford to sacrifice one week’s Interest on one thousand francs in view of the advantages which this note gives me. For the rest, these notes have this in common with Silver: he who keeps them in his purse or his safe draws no Interest on them, which shows, by the way, the absurdity of those who are declaiming incessantly against the productivity of Silver, nothing in the world being more unproductive of Interest than Specie.
DOI-IV-12.75 So, if a Bank-Note remains in circulation one year and passes through forty hands, stopping nine days in each, forty persons renounce, in the Bank’s favor, their right to the forty francs of Interest due from, and paid by, B.

Each Has Sacrificed One Franc.
DOI-IV-12.76 This leads us to ask whether this arrangement is just; whether there is no way to organize a common National Bank, which shall enable the public to reap the benefit of the sacrifices made by the public, – in a word, which shall receive no Interest.
DOI-IV-12.77 If I am not mistaken, sir, it was the observation of this phenomenon that suggested to you your scheme. It is not a new one. Ricardo devised a plan less radical, but similar (“Proposals for an Economical and Secure Currency”), and I find in Say (Criticisms of Storch) these remarkable lines: –
“This ingenious idea leaves only one question unanswered. Who shall get the interest on this large sum placed in circulation? Shall the Government? In its hands it would be only a means of increasing abuses, such as sinecures, Parliamentary corruption, police spies, and standing armies. Shall a financial company, like the Bank of England or the Bank of France? But why make a present to a financial company already rich of the Interest paid by the public individually? ...... Such are the questions which this subject involves. Perhaps they can be answered. Perhaps there is some way to render highly profitable to the public the economy which would result; but I am not called upon here to develope [sic – RTL] this new order of ideas.”
DOI-IV-12.79 Since the public pays this Interest individually, the public should profit by it. Certainly, there is here but one step from premise to conclusion. As to the means, I believe they are already found, – not in the National Bank, but in the Liberty of Banks.
DOI-IV-12.80 Notice first that the Bank does not get the benefit of the whole amount of Interest.
DOI-IV-12.81 Besides its expenses, it has a Capital. And then it is obliged to hold in reserve in its vaults a certain amount of unproductive silver.
DOI-IV-12.82 The Notes of a Bank – and it cannot repeated too often – are

Titles to Credit.
DOI-IV-12.83 On the day when it issues them the Bank loudly proclaims that it is ready to redeem them on demand and at any time. Strictly it ought, then, always to hold at its disposal a settled value equal to the representative value thrown into circulation, and then the Interest paid by B would be lost to everybody. But experience having taught the Bank that its notes circulate for a definite period, it acts accordingly. Instead of keeping a thousand francs it keeps only four hundred (we will say), and uses the remaining six hundred. It is the Interest on this six hundred francs which is paid by the public, by the successive holders of the Note, and which is gained by the Bank.
DOI-IV-12.84 Now this ought not to be. It ought to gain only its expenses, the Interest on its Capital Stock, and the just Profits of all Labor and every Speculation. Such would be the case if we had the Liberty of Banks; for Competition, tending to reduce Interest to a uniform rate, would not permit the Stockholders of one Bank to be better treated than the Stockholders of other similar enterprises. In other words, the rival Banks would be forced to reduce their Rate of Discount to the point to which it must be reduced in order to place their capital under like conditions, and this strange phenomenon which I have pointed out – I mean the voluntary surrender of Interest by the successive holders of the Notes – would benefit the public in proportion to the reduction in the Rate of Discount. To be more exact, I will say that the Interest on a Note for one thousand francs placed in circulation would be divided. One portion would go to the Bank to cover the sum which it is obliged to hold in reserve, the expenses, and the Interest on its original Capital; the other portion would be converted by Competition into a reduction of Discount.
DOI-IV-12.85 And that, remember, is not to say that Interest will tend toward Gratuity or Annihilation. It is only to say that it will tend to be received by those who are entitled to it.
DOI-IV-12.86 But Privilege has interposed to otherwise dispose of it, and the Bank of France, having no competitors, instead of retaining a part,

Pockets the Whole.
DOI-IV-12.87 I should like, sir, to present the Liberty of Banks under another aspect; but this letter is already too long. I will simply sketch an outline of my thought.
DOI-IV-12.88 That which is commonly called Interest [As for the remuneration of capital independent of the circumstance of the loan, see, in the fourth letter, pages 140 and following. – OC] includes three elements which we too frequently confound.
DOI-IV-12.89 1. Interest, properly speaking, which is a Compensation for Delay, the Price of Time;
DOI-IV-12.90 2. The Cost of Circulation;
DOI-IV-12.91 3. The Cost of Insurance.
DOI-IV-12.92 The Liberty of Banks would affect favorably these three elements at once, and would tend to their reduction. It would maintain Interest proper at the lowest possible rate, for the reasons which I have stated, without ever annihilating it. It would reduce the cost of circulation to so insignificant a figure that, in practice, it would be disregarded. Finally, it would tend to diminish, and, what is more, to equalize, the cost of insurance, which is, especially for the laboring classes, by far the most burdensome element which enters into the composition of Interest.
DOI-IV-12.93 In fact, if those who enjoy the best of credit in France, such as Mallet, Hottinger, and Rothschild, [Three of the foremost European bankers of Bastiat’s era. – RTL] get Capital at three per cent, we may say that this rate covers only Interest proper, and that everything which others pay in addition represents the costs of circulation and insurance, especially the latter; it is no longer the price of time, it is the price of risk, or of the difficulty and uncertainty of recovery.
DOI-IV-12.94 How would the Liberty of Banks improve and equalize the condition of borrowers in these respects? The reader must endeavor to answer that question for himself. I prefer leaving that task to him to performing it myself.
DOI-IV-12.95 In this, as in all other matters, the true solution, then, is liberty. Liberty will cause banks to spring up at every business centre, and will associate these banks with each other; it will place within the reach of every merchant and every artisan those

Two Powerful Levers of Progress,

Economy and Credit. It will keep the rate of Interest down to the lowest possible point. It will induce the formation of those habits most favorable to the accumulation of Capital. It will wipe out all dividing lines between classes and secure mutuality of service without annihilating this price of time which is one of the legitimate and necessary elements in human transactions.
DOI-IV-12.96 Liberty of Banks! Liberty of Credit! Oh! why, Monsieur Proudhon, have not your brilliant powers of persuasion been devoted to these objects? In all other respects do you not stand for that which is to all men a right, an attribute, a precept, – Liberty? Do you not demand liberty in buying and selling? And what, indeed, is a loan but a sale of use, a sale of time? Why should this transaction alone be controlled by the State, or confined within the circle of your conceptions? Have you faith in human nature? Try to strike off its chains, not to forge new ones for it. Admit that the motive-power which pushes it on to indefinite perfection reside sin itself, not in the brain of the legislator. Accomplish Liberty, and humanity will well understand how to evolve all the progress which its nature will allow. If it is both possible and desirable that credit should ever become gratuitous or be annihilated, as you believe it is, free humanity will accomplish this work more surely than your Bank? If it is neither desirable nor possible, as I am convinced, free humanity will avoid the abyss into which your Bank would plunge it.
DOI-IV-12.97 In the name of Right, in the name of Justice, in the name of your faith in humanity’s future, in the name of that harmony which it is always desirable to maintain between all parts of a propaganda, I abjure you, then, to substitute upon your banner for the words, Gratuity of Credet, [Sic, for “Credit”; presumably the Irish World’s error. – RTL] these, Liberty of Credit. But I forget that it is not for me to give advice. Besides, of what use would it be? Has the leader of a school ever been known to retrace his steps, and brave that unjust, but terrible, word, Apostasy? There have been those who, in their lives, have done many bold deeds; they would never do that one, even though it were more worthy than all others to flatter the pride of a noble heart.


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