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

Letter 3

[Letter 2 by Tucker’s numbering]

Proudhon to Bastiat,
19 November 1849

[Translation (as “INTEREST. – The Famous Discussion on Usury Continued. – PROUDHON TO THE FRONT. – He Explains the Attitude of Modern Socialism. – BASTIAT BEHIND THE TIMES. – Usury, to be Legitimate, Must be Equal for All. – THE POSSIBILITY OF GRATUITY OF CREDIT. – The Permanent Payment of Interest on Capital a Mathematical Absurdity. – INTEREST AND PRINCIPAL. – LETTER TWO. – PROUDHON TO BASTIAT. – [TRANSLATED FOR THE IRISH WORLD BY BENJ. R. TUCKER.]”) by Benjamin R. Tucker, in The Irish World and American Industrial Liberator, 26 July 1879.]

PARIS, NOV. 19, 1849.

DOI-IV-3.1 The object of the Revolution of February, [1848. – RTL] politically and economically, is the realization of absolute liberty for the man and the citizen.
DOI-IV-3.2 The formula of this Revolution, in the political sphere, is the organization of Universal Suffrage, or the absorption of the State in Society; [BRT’s translation is over-enthusiastic here; while Proudhon does use this phrase elsewhere, here he merely says “the absorption of power in society.” – RTL] in the economic sphere it is the organization of circulation and credit, or the absorption of the function of the Capitalist in that of the Laborer.
DOI-IV-3.3 Undoubtedly this formula alone does not convey a complete idea of the movement: it is only its starting-point, its aphorism. But it serves to show us the Revolution as it really is to-day; it authorizes us, consequently, to say that the Revolution is and can be nothing else.
DOI-IV-3.4 Every thing that tends to develop the Revolution thus understood, every thing that favors opportunity, whatever its source, is essentially revolutionary; we call it movement.
DOI-IV-3.5 Every thing that is opposed to the application of this idea, every thing that denies or hinders it, whether it be the product of demagogism or of absolutism, we call resistance. If this resistance originates with the Government, or if it acts by the connivance of the Government, it becomes reaction.
DOI-IV-3.6 Resistance is legitimate when it acts in good faith and within the limits of Republican liberty. It is then only the consecration of Free Thought, the sanction of Universal Suffrage. Reaction, on the contrary, tending, in the name of public authority and in the interest of a party, to suppress by violence the manifestation of idea, is an attack on Liberty; if it takes the shape of a law of exile, of banishment, of transportation, etc., it is then a crime against the sovereignty of the people.

Ostracism Is the Suicide of Republics.

DOI-IV-3.7 In giving an account in La Voix du Peuple of the plan for a tax upon Capital presented by M. de Girardin, [French politician Émile de Girardin (1802-1881). – RTL] we did not hesitate to welcome it as one of the boldest expressions of the revolutionary idea; and although the author of this plan has been and perhaps still is, attached to the Orleans dynasty; although his personal tendencies are in a direction extremely governmental; although he may be counted constantly as belonging to the party of Conservatism as opposed to that of Revolution – we none the less think that his idea belongs to movement; on the strength of this we have claimed him as our ally; and, if M. de Girardin should prove capable of denying his own thought, we should reconstruct it from its foundation, and use it as one more argument against the opponents of the Revolution.
DOI-IV-3.8 It is this spirit of elevated and, we might say, impersonal criticism that we are now to reply to M. Bastiat.
DOI-IV-3.9 M. Bastiat, unlike M. Girardin, is an author thoroughly embued with the democratic spirit; though we cannot yet call him a Socialist, he is surely more than a philanthropist already. The clearness with which he understands and explains political economy places him, with M. Blanqui, [Liberal economist Jérôme-Adolphe Blanqui (1798-1854); not to be confused with his younger brother, communist revolutionary Auguste Blanqui (1805-1881). – RTL] if not far above, at least far in advance of the other economists, faithful and immovable disciples of J. B. Say. M. Bastiat, in a word, is devoted body and soul to the Republic, to Liberty, to Equality, to Progress, as he has proved brilliantly time and again by his votes in the National Assembly.
DOI-IV-3.10 In spite of this, we regard M. Bastiat as a member of the Party of Resistance; his theory of Capital and Interest, diametrically opposed to the most genuine tendencies and the most irresistible demands of the Revolution, justifies us in doing so. May our readers, following our example, ever thus

Separate Persons from Principles!

The discussion and charity will gain thereby.
DOI-IV-3.11 M. Bastiat begins his reply with a remarkably discriminating observation, which we may recall with the more effect, since it applies directly to himself: –
DOI-IV-3.12 “The extreme eagerness,” says M. Bastiat, “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 partizan politics, the papers devoted to the interests of the working classes are incessantly agitating the more fundamental questions of Socialism.”
DOI-IV-3.13 Well, we say to M. Bastiat: –
DOI-IV-3.14 You yourself, unconsciously, are an example of this incredible indifference with which the members of the privileged classes study social problems; and, economist of the first rank though you consider yourself, you know nothing whatever about the present state of this question of Capital and Interest, which you have undertaken to defend. Behind the times, in ideas as well as facts, you talk exactly like a Capitalism of the ante-Revolutionary era. The socialism which for ten years has protested against Capital and Interest is wholly unknown to you; you have not read its literature; for, if you have, how happens it that, in trying to refute it, you pass by all its arguments in silence?
DOI-IV-3.15 Truly, to hear you reason against the Socialism of to-day, one would take you for an Epimenides suddenly awaking from an eighty years’ sleep. Is it really to us that you address your patriarchal dissertations? Is it the proletaire of 1849 that you are seeking to convince? Begin, then, by studying his ideas; familiarize yourself with his present doctrines;

Reply to the Arguments,

be they sound or otherwise, which govern him, and refrain from bringing forward your own, which he has known form time immemorial. Doubtless it will surprise you to hear it said that you, a member of the Academy of Moral and Political Sciences, [Bastiat was not precisely a member of the Institute, but only a corresponding member. – OC] when you speak of Capital and Interest, do not touch the question! Nevertheless, that is what we undertake to-day to prove. Afterwards we will discuss the question itself, if you desire it.
DOI-IV-3.16 We deny, in the first place – and this you already know – we deny, with Christianity and the Bible, the legitimacy, per se, of Lending at Interest. We deny it, with Judaism and Paganism, with all the philosophers and law-givers of antiquity. For you will observe this primary fact, which is important as well as primary: Usury no sooner appeared in the world than it was denied. Law-givers and moralists have not ceased to oppose it, and if they have not achieved its extinction, they have, at least, succeeded to a certain extent in clipping its claws, in fixing a limit, a legal rate of Interest.
DOI-IV-3.17 This, then, is our first proposition, the only one, as it seems, which you have heard stated: Everything which, in returning a loan, is given in execss of the loan is Usury, Spoliation. Quodcumque sorti accedit, Usura est. [“Whatsoever is added to the principal is Usury”; St. Ambrose, Commentary on Tobias. – RTL]
DOI-IV-3.18 But that which you do not know, and which, perhaps, you will marvel at, is that this fundamental denial of Interest does not destroy, in our view, the principle – the right, if you will – which gives birth to Interest, and which has enabled it to continue to this day in spite of its condemnation by secular and ecclesiastical authority. So that the real problem before us is not to ascertain whether Usury, per se, is illegitimate (in this respect we are of the opinion of the Church), nor whether it has an excuse for its existence (on this point we agree with the economists). The problem is to devise a means of suppressing the abuse without violating the Right – a means, in a word, of reconciling this contradiction.
DOI-IV-3.19 Let us, if possible, put this a little more clearly.
DOI-IV-3.20 On the one hand, it is very true, as you have unquestionably established, that a Loan is a service. And as every service has a value, and, in consequence, is entitled by its nature to a reward, it follows that a Loan ought to have its price, or, to use the technical phrase, ought to bear Interest.
DOI-IV-3.21 But it is also true, and this truth is consistent with the preceding one, that he who lends, under the ordinary conditions of the professional lender, does not deprive himself, as you phrase it, of the capital which he lends. He lends it, on the contrary, precisely because the loan is not a deprivation to him; he lends it because he has no use for it himself, being sufficiently provided with capital without it; he lends it, finally, because he neither intends nor is able to make it valuable to him personally, – because, if he should keep it in his own hands, this capital, sterile by nature, would remain sterile, whereas, by its loan and the resulting interest, it yields a profit which enables the Capitalist to live without working. Now, to live without working is, in political as well as moral economy, a contradictory proposition, an impossible thing.
DOI-IV-3.22 The proprietor who possesses two estates, one at Tours, and the other at Orleans, and who is obliged to fix his residence on the one which he uses, and consequently to abandon his residence on the other, can this proprietor claim that he deprives himself of anything, because he is not, like God, ubiquitous in action and presence? As well say that we who live in Paris are deprived of a residence in New York! Confess, then, that the privation of the capitalist is akin to that of the master who has lost his slave, to that of the prince expelled by his subjects, to that of the robber who, wishing to break into a house, finds the dogs on the watch and the inmates at the windows.
DOI-IV-3.23 Now, in the presence of this affirmation and this negation diametrically opposed to each other, both supported by arguments of equal validity, but which, though not harmonizing, cannot destroy each other,

What Course Shall We Take?

DOI-IV-3.24 You persist in your affirmation, and say: “You do not wish to pay me Interest? Very well! I do not wish to lend you my Capital. Try working without Capital.” On the other hand, we persist in our negation, and say: “We will not pay you Interest, because Interest, in social economy, is a premium on idleness, the primary cause of misery and the inequality of wealth.” Neither of us is willing to yield, we come to a stand-still.
DOI-IV-3.25 This, then, is the point at which Socialism takes up the question. On the one hand, the commutative justice of Interest; on the other, the organic impossibility, the immorality of Interest; and, to tell you the truth at once, Socialism aims to convert neither party – the Church, which denies Interest, nor the political economy, which supports it – especially as it is convinced that both are right. Let us see, now; how it analyzes the problem, and what it proposes, in its turn, that is superior to the arguments of the old moneylenders, too vitally interested to be worthy of belief, and to the ineffectual denunciations uttered by the Fathers of the Church.
DOI-IV-3.26 Since the theory of Usury has finally prevailed in Christian as well as in Pagan countries; since the hypothesis, or fiction, of the productivity of Capital has become a practical fact among nations – let us accept this economic fiction as we have accepted for thirty-three years the constitutional fiction, and let us see what it results in when carried to its ultimate. Instead of simply rejecting the idea, as the Church has done – a futile policy – let us make from it a historical and philosophical deduction; and, since the word is more in fashion than ever,

Let Us Trace the Revolution.

[HC has “evolution” rather than “revolution” here, but “revolution” is correct both according to the original printing of Tucker’s translation and according to the French version as found in OC, though I have not seen the original French version in La Voix du Peuple. – RTL]
DOI-IV-3.27 Moreover, this idea must correspond to some reality; it must indicate some necessity of the mercantile spirit; else nations never would have sacrificed to it their dearest and most sacred beliefs.
DOI-IV-3.28 See, then, how Socialism, entirely convinced of the inadequacy of the economic theory as well as of the ecclesiastical doctrine, treats in its turn the question of Usury.
DOI-IV-3.29 First, it observes that the principle of the productivity of Capital is no respecter of persons, grants no privileges; it applies to every capitalist, regardless of rank or dignity. That which is legitimate for Peter is legitimate for Paul; both have the same right to Usury as well as to Labor. When, then, – I go back to the example which you have used, – when you lend me, at Interest, the plane which you have made for smoothing your planks, if, in my turn, I lend you the saw which I have made for cutting up my lumber, I also shall be entitled to Interest.
DOI-IV-3.30 The right of Capital is alike for all; all, in the proportion that they lend and borrow, ought to receive and pay Interest. Such is the first consequence of your theory, which would not be a theory, were not the right which it establishes universal and reciprocal; this is self-evident.
DOI-IV-3.31 Let us suppose, then, that of all the Capital that I use, whether in the form of machinery or of raw material, half is lent to me by you; suppose also that of all the capital used by you half is lent to you by me; it is clear that the interests which we must pay will offset each other; and, if equal amounts of capital are advanced, the interests cancelling each other, the balance will be zero.
DOI-IV-3.32 In society, it is true, things do not go on precisely in this way: –

The Mutual Loans of Producers

are far from equal; consequently, the interests that they have to pay are no nearer so; hence, the inequality of conditions and fortunes. [HC has: “The loans that the producers reciprocally make to each other are not always equal in amount, therefore the interests that they have to pay are also unequal; hence the inequality of conditions and fortunes.”]
DOI-IV-3.33 But the question is to ascertain whether this equilibrium in the loaning of Capital, Labor, and Skill, and, consequently, equality of income for all citizens, perfectly admissible in theory, is capable of realization in practice; whether this realization is in accordance with the tendencies of society; whether, finally and unquestionably, it is not the inevitable result of the theory of Usury itself.
DOI-IV-3.34 Now, this is what Socialism affirms, now that it has arrived at an understanding of itself, the Socialism which no longer distinguishes itself from Economic Science, studied at once in the light of its accumulated experience and in the power of its deductions. In fact, what does the history of Civilization, the history of Political Economy, tell us concerning this great question of Interest?
DOI-IV-3.35 It tells us that the mutual loaning of Capital, material, or immaterial, tends more and more towards equilibrium, owing to the various causes enumerated below, which the most conservative economists cannot dispute: –
DOI-IV-3.36 First – The division of Labor, or the separation of Industries, which, infinitely multiplying both tools and raw material, multiplies in the same proportion the loans of Capital.
DOI-IV-3.37 Second – The accumulation of Capital, an accumulation which results from diversity of Industries, producing between capitalists a competition similar to that between merchants, and, consequently, effecting gradually a lowering of the rent of capital, a reduction of the rate of Interest.
DOI-IV-3.38 Third – The continually increasing power of circulation which Capital acquires through the use of Specie and Bills of Exchange.
DOI-IV-3.39 Fourth – Finally, public security.
DOI-IV-3.40 Such are the general causes which, for centuries, have developed among producers

A Reciprocity of Loans

tending more and more to equilibrium and consequently to a more and more even balance of Interests, to a continual diminution of the price of Capital.
DOI-IV-3.41 These facts cannot be denied; you yourself admit them; only you mistake their principle and purport, by giving Capital the credit for the progress made in the domain of Industry and Wealth, whereas this progress is caused not by Capital, but by the CIRCULATION of Capital.
DOI-IV-3.42 The facts being thus analyzed and classified, Socialism asks whether, in order to bring about this equilibrium of Credit and Income, it is not possible to act directly, not on Capital, remember, but on Circulation; whether it is not possible so to organize this Circulation as to inaugurate, at one blow, between Capitalists and Producers (two classes now hostile, but theoretically identical) equivalence of loans, or, in other words, equality of fortunes.
DOI-IV-3.43 To this question Socialism again replies: Yes, it is possible, and in several ways.
DOI-IV-3.44 Suppose, in the first place, to confine ourselves to the present conditions of Credit, the operations of which are carried on mainly through the intervention of Specie – suppose that all the Producers in the Republic, numbering more than ten millions, tax themselves, each one, to the amount of only one per cent of their Capital. This Tax of one per cent upon the total amount of the Capital of the country, both real and personal, would amount to more than a THOUSAND MILLIONS of francs.
DOI-IV-3.45 Suppose that by means of this tax a bank be founded, in competition with the Bank (mis-called) of France, discounting and giving credit on mortgages at the rate of one-half of one per cent.
DOI-IV-3.46 It is evident, in the first place, that the rate of discount on commercial paper, the rate of loans on mortgages, the dividend of invested capital, etc., being one-half of one per cent, the cash capital in the hand of all

Usurers and Money-Lenders

would be immediately struck with absolute sterility; Interest would be zero, and Credit gratuitous.
DOI-IV-3.47 If Commercial Credit and that based on mortgages – in other words, if Money Capital, the capital whose exclusive function is to circulate – was gratuitous, House Capital would soon become so; in reality, houses no longer would be Capital; they would be merchandise, quoted in the market like brandy and cheese, and rented or sold – terms which would then be synonymous – at cost.
DOI-IV-3.48 If houses, like money, were gratuitous – that is to say, if use was paid for as an exchange, and not as a loan – land would not be slow in becoming gratuitous also; that is, farm-rent, instead of being rent paid to a non-cultivating proprietor, would be the compensation for the difference between the products of superior and inferior soils; or, better, there no longer would exist, in reality, either tenants or proprietors; there would be only husbandmen and wine-growers, just as there are joiners and machinists.
DOI-IV-3.49 Do you wish another proof of the possibility of making all Capital gratuitous by the development of economic institutions?
DOI-IV-3.50 Suppose that instead of our system of taxes, so complex, so burdensome, so annoying, which we have inherited from the feudal nobility, a single tax should be established, not on production, circulation, consumption, habitation, etc., but, in accordance with the demands of Justice and the dictates of Economic Science, on the net capital falling to each individual. The Capitalist, losing by taxation as much as or more than he gains by Rent and Interest, would be obliged either to use his property himself or to sell it; economic equilibrium again would be established by this simple and moreover inevitable intervention of the treasury department.
DOI-IV-3.51 Such is, substantially, Socialism’s theory of Capital and Interest.
DOI-IV-3.52 Not only do we affirm, in accordance with this theory (which, by the way, we hold in common with the economists) and on the strength of our belief in Industrial development, that such is the tendency and the import of lending at Interest; we even prove, by the destructive results of economy as it is, and by a demonstration of the causes of poverty, that this tendency is necessary, and the annihilation of Usury inevitable.
DOI-IV-3.53 In fact, Rent, reward of Capital, Interest on Money, in one word, Usury, constituting, as has been said, an integral part of the price of products, and this Usury not being the same for all, it follows that the price of products, composed as it is of Wages and Interest, cannot be paid by those who have only their Wages, and no Interest to pay it with; so that, by the existence of Usury,

Labor is Condemned to Idleness and Capital to Bankruptcy.
DOI-IV-3.54 This argument, one of that class which mathematicians call the reductio ad absurdum, showing the organic impossibility of lending at Interest, has been repeated a hundred times by Socialism. Why do not the economists notice it?
DOI-IV-3.55 Do you really wish to refute the ideas of Socialism on the question of Interest? Listen, then, to the questions which you must answer: –
DOI-IV-3.56 1. Is it true that, though the loaning of Capital, when viewed objectively, is a service which has its value, and which consequently should be paid for, this loaning, when viewed subjectively, does not involve an actual sacrifice on the part of the Capitalist; and consequently that it does not establish the right to set a price on it?
DOI-IV-3.57 2. Is it true that Usury, to be unobjectionable, must be equal; that the tendency of Society is towards this equalization; so that Usury will be entirely legitimate only when it has become equal for all, – that is, nonexistent?
DOI-IV-3.58 3. Is it true that a National Bank, giving Credit and Discount gratis, is a possible institution?
DOI-IV-3.59 4. Is it true that the effects of the gratuity of Credit and Discount, as well as that of Taxation when simplified and restored to its true form, would be the abolition of Rent of Real Estate, as well as of Interest on Money?
DOI-IV-3.60 5. Is it true that the old system is a contradiction and a mathematical impossibility?
DOI-IV-3.61 6. Is it true that Political Economy, after having, for several thousand years, opposed the view of Usury held by theology, philosophy, and legislation, comes, by the application of its own principles, to the same conclusion?
DOI-IV-3.62 7. Is it true, finally, that Usury has been, as a providential institution, simply an instrument of equality and progress, just as, in the Political sphere, absolute monarchy was an instrument of liberty and progress, and as, in the Judicial sphere, the boiling-water test, the duel, and the rack were, in their turn, instruments of conviction and progress?
DOI-IV-3.63 These are the points that our opponents are bound to examine before charging us with scientific and intellectual weakness; these, Monsieur Bastiat, are the points on which your future arguments must turn, if you wish them to produce a definite result. The question is stated clearly and categorically: permit us to believe that, after having examined it, you will perceive that there is something in the Socialism of the nineteenth century that is beyond the reach of your antiquated Political Economy.


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