I now ask you the following question: If the partiality for gold and the fatality of the institution of money excuses and justifies the Capitalist, does it not also establish for the worker this system of brute force, only distinguishable from ancient slavery by its subtler and more villainous hypocrisy?
FORCE, sir—that is the first and last word of a Society organised upon the principle of Interest, and which, for three thousand years, struggled against Interest. You establish this yourself, without reserve or scruple, when you admit, with me, that the Capitalist does not deprive himself, and with J-B Say, that his function is to do nothing; and when you put into his mouth this insolent language, which every human conscience condemns:
“I impose nothing on you in spite of yourself. If you do not admit that a loan is a service, abstain from borrowing, as I do from lending. But if Society offers you these advantages without reward, deal directly with it, for its terms are much easier; and as for organising the circulation of capital, as you call upon me to do, if you mean thereby that you should have the use of my capital gratis through the mediation of Society, I have just the same objection to this indirect method of procedure that induced me to refuse you a direct and gratuitous loan.”
Have a care, sir; the people are only too ready to believe that it is solely for love of its privileges that the Capitalist class, now dominant, opposes the organisation of Credit which they clamour for; and the day when the ill-will of that class shall be positively proven, its last excuse will vanish in the people’s eyes, and their vengeance will know no bounds.
[...]
P-J PROUDHON
FOURTH LETTER
31ST DECEMBER 1849
YOU HAVE DECEIVED me.
I expected from you a serious discussion. Your letters are but a series of insipid mystifications. If you had made a compact with me to obscure the question and to prevent our debate from coming to a definitive conclusion, by embarrassing it with incidents, digressions, trifles, and quibbles, you could have taken no other course.
Now what are we after, if you please? To ascertain whether Interest of Money ought, or ought not, to be abolished. I have told you myself that there is the pivot of Socialism, the mainspring of the Revolution.
[…]
Did you ever, in your life, hear of the Bank of France? Do me the favour to visit it some day; it is not far from the Institute. There you will find M. d’Argout, who knows more about Capital and Interest than you and all the economists of Guillaumin.562 The Bank of France is an association of capitalists, formed fifty years ago, at the solicitation of the State and by a privilege granted by the State, for the purpose of levying usury upon the whole of France.
From its beginning it has not ceased to grow: the February Revolution, by joining with it the Departmental Banks, made it the first power in the Republic. The principle on which this association was formed is yours precisely. They said: We have obtained our Capital by our labour or by that of our fathers. Why then, in return for making it an aid to general circulation and for devoting it to the service of our country, should we not draw a legitimate salary, since the landlord derives an income from his land; since the builder derives an income from his houses; since the merchant gets a profit on his goods over and above his running expenses; since the worker who lays our floors includes in the price of his day’s work a charge for the use of his tools which certainly more than covers the amount which they cost him?
There could be, as you see, no more plausible argument. It is the argument which has always, and with reason, been opposed to the Church when she has condemned Interest as distinct from Rent; it is the argument which you fall back on in every one of your letters.
Now, do you know where the stockholders of the Bank of France, all of whom, including M. d’Argout, I regard as very honest people, have been led by this seductive reasoning?—To robbery; yes, sir, to the most unmistakable, shameless, detestable robbery; for it is this robbery alone which, since February, has suspended Labour, hindered business, caused the people to die of cholera, hunger and cold, and which, with the secret intention of restoring the monarchy, is breathing despair among the working classes.
It is right here that I propose to how you how Interest passes from legitimacy to illegitimacy, and, what will surprise you still more, how paid Credit, the moment that it ceases to rob, the moment that it claims only the price which legitimately belongs to it, becomes gratuitous Credit.
What is the Capital of the Bank of France? According to the last inventory, ninety million.
What is the legal rate of discount, agreed upon between the Bank and the State?—Four percent a year.
Then the legal and legitimate annual income of the Bank of France, the just price of its services, is, for a capital of ninety million, at four percent a year, three million six hundred thousand francs.
Three million six hundred thousand francs,—that is the amount, according to the fiction of the productivity of Capital, which the commerce of France owes annually to the Bank of France as reward for its Capital, which is ninety million.
Under these conditions, the shares of the Bank of France are like so many pieces of real estate yielding a regular income of forty francs each: issued at one thousand francs, they are worth one thousand francs.
Now, do you know what follows?
Consult the same inventory: you will find that these same shares are quoted at two thousand four hundred francs, instead of one thousand. Last week they were two thousand four hundred and forty-five; and if the amount of commercial effects in the portfolio should increase a little, they would go up to two thousand five hundred or three thousand francs; which means that the capital of the bank, instead of yielding four percent, the legal and conventional rate, yields eight, ten, and twelve percent.
Has the capital of the bank, then, been doubled or tripled? This, indeed, is what should have happened, according to the theory announced in your third and fourth propositions,—namely, that Interest decreases in proportion as Capital increases, but in such a way that the total income of the Capitalist is enlarged.
But such is not the case at all. The capital of the bank has remained the same, ninety million. Only the company, by means of its privilege and with the aid of its financial machinery, has discovered a method of doing as much business with its capital of ninety million as if it had four hundred and fifty million, or five times as much.
Do you ask how that can be? This is the method; it is very simple, and I can explain it; it is precisely one of those which the Bank of the People proposes to use in the annihilation of Interest.
To avoid the transfer of specie and the troublesome handling or coin, the Bank of France issues bills of credit, called bank notes, which represent the specie lying in its vaults. These are the notes which it ordinarily issues to its customers in return for the drafts and bills of exchange which they bring to it, and the redemption of which, secured by drawers and drawees alike, it undertakes the task of procuring,
The bank paper has thus a double security: the coin in the vault and the commercial paper in the portfolio. This double deposit is such good security that business men prefer bank notes to specie, and every one is as anxious to know the condition of the bank as that of his own money-drawer.
It is even thought, in theory, that in this way the Bank of France might dispense with Capital altogether and discount paper without specie: indeed, the commercial paper which it discounts, and against which it issues its notes, being certain of redemption at the appointed time either in Silver or in Bank-Notes, the holders of Bank-Notes would only have to dismiss the desire to covert them into coin to enable all transactions to be effected by paper alone. Then the circulating medium would be based, not on the credit of the Bank whose Capital would thus be set free, but on the Public Credit, through the general acceptance of the notes.
In practice the facts do not harmonise exactly with the theory. Never have we seen bank-paper wholly substituted for specie; there is only a tendency in
this direction. Now, see what results from this tendency.
The Bank, relying with perfect security upon the Public Credit, sure moreover of its debts, does not limit its discounts to the amount of its metallic reserve, but always issues more notes than it has Specie; which shows that sometimes, instead of getting real value and making an actual exchange, it only transfers debts, without using any Capital. That which here takes the place of the Capital of the Bank is, I repeat, established custom, commercial confidence, in a word, the Public Credit.
It seems, therefore, that the rate of discount ought to decrease in proportion to the amount of notes issued in excess of the Capital; that if, for example, the Capital of the Bank is ninety million, and its circulation one hundred and twelve million, the fictitious capital being one-fourth of the real Capital, the rate of discount should decrease from four to three percent. What could be fairer than that, pray? Is not the Public Credit Public Property? Is not the surplus issue of the Bank secured by the mutual obligations of citizens? Does not the acceptance of this paper, which has no metallic basis, rest entirely upon their confidence in each other? Is it not this very confidence which makes the paper pass? What has the Capital of the Bank done? What does it secure?
You can already see from this simple outline how false your third proposition is, which makes a decrease of Interest involve a corresponding increase of Capital. Nothing is falser than this proposition: the theory and practice of all Banks proves, on the contrary, that a Bank may easily get four percent on its Capital while its rate of discount is only three percent: we shall see presently that the rate may go much lower.
Why, then, does not the Bank, which, with ninety million in Capital, issues, as we suppose, one hundred and twelve million in notes, and which consequently operates, by the aid of the Public Credit, just as if its Capital had increased from ninety millions to one hundred and twelve,—why, I ask, does it not reduce its rate of Discount in a like proportion? Why this four percent Interest received by the Bank as a reward for Capital not its own? Can you give me a reason which will justify this extra one percent on one hundred and twelve million? For my part, sir, “I call a cat a cat, and Rolet a rascal,”563 and I say quite plainly that the bank ROBS.
[…]
It is a point admitted in theory that exchange of products can be carried on very well without Specie; you admit it yourself, and all the economists know it. Now, the proof of this theory lies precisely in the fact that it is carried out under our very eyes. The Circulation of Bills of credit replacing gradually the metallic currency; paper being preferred to coin; the public choosing to pay their debts in Specie rather than in Bank Notes; and the Bank being constantly persuaded, either by the needs of the State which borrows from it, or by those of commerce which comes en masse to get its paper discounted, or by any other cause, to make new issues frequently,—the result is that Gold and Silver go out of circulation, and are absorbed by the Bank, thus continually increasing its reserve and making its power to multiply its Notes literally unlimited.
[…]
A decree of the National Assembly, having for its object the redemption of the stock of the Bank of France, and the conversion of this Bank into a central Bank, in which all French citizens should be silent partners, would be only an announcement of the already accomplished fact of the absorption of this association by the nation.
[…]
You must see, sir, how far short of the accuracy of Euclid’s your propositions fall. It is not true—and the facts just cited prove beyond a doubt that it is not—that the decrease of Interest is proportional to the increase of Capital. Between the Price of Merchandise and Interest of Capital there is not the least analogy; the laws governing their fluctuations are not the same; and all your dinning of the last six weeks in relation to Capital and Interest has been utterly devoid of sense. The universal custom of banks and the common sense of the people give you the lie on all these points in a most humiliating manner.
[…]
If, then, Interest, after having fallen, in the case of Money, to three-fourths of one percent,—that is, to zero, inasmuch as three-fourths of one percent represents only the service of the bank,—should fall to zero in the case of merchandise also, by analogy of principles and facts it would soon fall to zero in the case of real estate: rent would disappear in becoming one with liquidation. Do you think, sir, that that would prevent people from living in houses and cultivating land?
If, thanks to this radical reform in the machinery of circulation, Labour was compelled to pay to Capital only as much Interest as would be a just reward for the service rendered by the Capitalist, Specie and Real Estate being deprived of their reproductive properties and valued only as products,—as things that can be consumed and replaced,—the favour with which Specie and Capital are now looked upon would be wholly transferred to products; each individual, instead of restricting his consumption, would strive only to increase it. Whereas, at present, thanks to the restriction laid upon consumable products by Interest, the means of consumption are always very much limited, then, on the contrary, Production would be insufficient: Labour would then be secure in fact as well as in right.
The labouring class, gaining at one stroke the five thousand million, or thereabouts, now taken in the form of Interest from the ten thousand which it produces, plus five thousand millions which this same Interest deprives it of by destroying the demand for Labour, plus five thousand million which the parasites, cut off from a living, would then be compelled to produce, the national production would be doubled and the welfare of the worker increased four-fold. And you, sir, whom the worship of Interest does not prevent from lifting your thoughts to another world,—what say you to this improvement of affairs here below? Do you see now that it is not the multiplication of Capital which decreases Interest, but on the contrary, that the decrease of Interest multiplies Capital?
[...]
P-J PROUDHON
FIFTH LETTER
21ST JANUARY 1850
[…]
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 indistinguishable. 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?
I therefore call Capital, every settled value, whether in Land, machinery, merchandise, provisions, or Money, serving, or capable of serving, in production.
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 realised, or immediately realisable, 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.
Custom also sustains me. In every enterprise which is started, the entrepreneur, 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.
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.
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.
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.
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.
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, workers 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 workers, and the security of capitalists and proprietors, a utopia.
Now, this equilibrium, from which must spring a unity of interests and social harmony, today does not exist; it is disturbed by diverse 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 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.
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