These letters, addressed to Frederic Bastiat, an economist, originally appeared in a debate published in The Voice of the People, in 1849.

Interest and Principal

The Circulation of Capital, Not Capital Itself, Gives Birth to Progress

Thus it is with interest on capital, legitimate when a loan was a service rendered by citizen to citizen, but which ceases to be so when society has acquired the power to organize credit gratuitously for everybody. This interest, I say, is contradictory in its nature, in that, on the one hand, the service rendered by the lender is entitled to remuneration, and that, on the other, all wages suppose either a production or a sacrifice, which is not the case with a loan. The revolution which is effected in the legitimacy of lending originates there. That is how Socialism states the question; that, therefore, is the ground on which the defenders of the old regime must take their stand.

To confine one's self to tradition, to limit one's self to saying a loan is a service rendered which ought, therefore, to be compensated, without entering into the considerations which tend to annihilate interest, is not to reply. Socialism, with redoubled energy, protests, and says: I have nothing to do with your service,--service for you, but robbery for me,--as long as it is possible for society to furnish me with the same advantages which you offer me, and that without reward. To impose on me such a service in spite of myself, by refusing to organize the circulation of capital, is to make me submit to an unjust discount, is to rob me.

Thus your whole argument in favor of interest consists in confounding epochs,--I mean to say, in confounding that which is legitimate in lending with that which is not,--whereas I, on the contrary, carefully distinguish between them. I will proceed to make this intelligible to you by an analysis of your letter.

I take up your arguments one by one. In my first reply I made the observation that he who lends does not deprive himself of his capital. You reply: What matters it, if he has created his capital for the express purpose of lending it?

In saying that you betray your own cause. You acquiesce, by those words, in my antithesis, which consists in saying: The hidden reason why lending at interest, legitimate yesterday, is no longer so today, is because lending, in itself, does not involve privation. I note this confession.

But you cling to the intention: What matters it, you says if the lender has created his capital for the express purpose of lending it?

To which I reply: And what do I care, indeed, for your intention, if I have really no need of your service, if the pretended service which you wish to do me becomes necessary only through the ill-will and incapacity of society? Your credit resembles that which the pirate gives to his captive, when he gives him his liberty in return for a ransom. I protest against your credit at five per cent, because society is able and ought to give it to me at zero per cent; and, if it refuses to do so, I accuse it, as well as you, of robbery; I say that it is an accomplice, an abettor, an organizer of robbery.

Comparing a loan to a sale, you say: Your argument is as valid against the latter as against the former, for the hatter who sells hats does not deprive himself.

No, for he receives for his hats--at least he is reputed to receive for them--their exact value immediately, neither more nor less. But the capitalist lender not only is not deprived, since he recovers his capital intact, but he receives more than his capital, more than he contributes to the exchange; he receives in addition to his capital an interest which represents no positive product on his part. Now, a service which costs no labor to him who renders it is a service which may become gratuitous: this you have already told us yourself.

After having recognized the non-privation attendant upon a loan, you admit further "that it is not theoretically impossible that interest, which today constitutes an integral part of the price of commodities, may become the same for all, and thereby be abolished." "But," you add, "for this other things are needed than a new bank. Let Socialism endow all men with equal activity, skill, honesty, economy, foresight, needs, desires, virtues, vices, and chances even, and then it will have succeeded."

So that you enter upon the question only to immediately avoid it. Socialism, at the point which it has now reached, justly claims that it is by means of a reform in banking and taxation that we can arrive at this balance of interests. Instead of passing over, as you do, this claim of Socialism, stop here and refute it: you will thereby demolish all the utopias of the world. For Socialism affirms--and without this affirmation Socialism could not exist, it would be a nonentity--that it is not by endowing all men with equal "activity, skill, honesty, economy, foresight, needs, desires, virtues, vices, and chances even" that we shall succeed in balancing interest and equalizing incomes; it maintains that we must, on the contrary, begin by centralizing credit and abolishing interest, in order to equalize faculties, needs, and chances. Let there be no more robbers among us, and we shall be all virtuous, all happy! That is Socialism's creed. I feel the keenest regret in telling you of it, but really your acquaintance with Socialism is so slight that you run against it without seeing it.

You persist in attributing to capital all social progress in the domain of wealth, while I, for my part, attribute it to circulation; and you say that here I mistake the cause for the effect.

But, in maintaining such a proposition, you unwittingly refute your own argument. J. B. Say has shown--and of this fact you are not ignorant--that the transportation of a value, be that value called money or merchandise, is a value in itself; that it is as real a product as wheat and wine; that consequently the service of the merchant and banker deserves to be remunerated equally with that of the husband-man and wine-grower. It is on this ground that you stand when you claim wages for the capitalist who, by lending his capital, the return of which is guaranteed him, performs the office of transportation, of circulation. In lending, you said in your first letter, I render a service, I create a value. Such were your words, which we have admitted: in this respect we both agreed with the master.

I am justified, then, in saying that it is not capital itself, but the circulation of capital,--that kind of service, product, merchandise, value, or reality, which political economy calls movement or circulation, and which, indeed, constitutes the whole subject-matter of economic science,--that causes wealth. We remunerate all who render this service; but we affirm that, as far as capital, properly speaking, or money is concerned, it is society's duty to render it to us gratuitously; that if it does not do so, there is fraud and robbery. Do you now understand the real point on which the social question turns?

After having expressed your regret at the division of capitalists and laborers into two hostile classes,--which surely is not the fault of Socialism,--you take the very useless trouble of showing me by illustrations that every laborer is in some degree a capitalist, and does a work of capitalization,--that is, usury. And who, pray, ever dreamed of denying it? Who has told you that what we recognize as legitimate once in the capitalist, we condemn at the same time in the laborer?

Yes, we know that the price of all merchandise and service may be analyzed at the present day as follows:--

1. Raw material;
2. Compensation of tools, and incidental expenses;
3. Wages of labor.
4. Interest of capital.

Thus it is in all kinds of business,--agriculture, industry, commerce, and transportation. These are the fourches caudines of every one who is not a parasite, be he capitalist or laborer. You need not enter into long details upon this subject, very interesting though they are and clearly delightful to your imagination.

I repeat: The problem of Socialism is to make this fourth element which enters into the price of commodities--interest on capital--equal for all producers, and consequent nugatory. We maintain that this is possible; that, if this is possible, it is society's duty to procure gratuitous credit for all; that, failing to do this, it will not be a society, but a conspiracy of capitalists against laborers, a compact for purposes of robbery and murder.

Understand then, once for all, that it is not necessary to show us how capital is formed, how it accumulates through interest, how interest enters into the price of products, how all laborers are themselves guilty of the sin of usury: we have long known all these things, just as we are convinced of the personal honesty of annuitants and proprietors.

We say: The economic system based on the fiction of the productivity of capital, justifiable once, is henceforth illegitimate. Its inefficacy and malfeasance have been exposed; it is the cause of all existing misery, the present mainstay of that old fiction of representative government which is the last form of tyranny among men.

I will not detain myself with the purely religious considerations with which your letter closes. Religion, allow me to say, has nothing to do with political economy. A real science is sufficient unto itself; otherwise, it cannot exist. If political economy needs the sanction of religion to make up for the inadequacy of its theories, and if, in its turn, religion, as an excuse for the barrenness of its dogmas, pleads the exigencies of political economy, the result will be that political economy and religion, instead of mutually sustaining each other, will accuse each other, and both will perish.

Begin, then, by doing justice, and liberty, fraternity, and wealth will increase; even the happiness of another life will be only the surer. Is the inequality of capitalistic income, yes or no, the primary cause of the physical, moral, and intellectual poverty which today afflicts society? Is it necessary to equalize the income of all men, to make the circulation of capital gratuitous by assimilating it to the exchange of products, and to destroy interest? That is what Socialism asks, and it must have an answer.

Socialism, in its most positive conclusions, furnishes the solution in the democratic centralization and gratuity of credit, combined with a single tax, to replace all other taxes, and to be levied on capital.

Let this solution be verified; let its application be tried. That is the only way to refute Socialism; except that is done, we shall shout louder than ever our war-cry: Property is robbery!