Progress and Poverty by Henry George (most important books of all time txt) 📕

like a digression, let us endeavor to ascertain the cause of interest before considering its law. For in addition to aiding our inquiry by giving us a firmer and clearer grasp of the subject now in hand, it may lead to conclusions whose practical importance will be hereafter apparent.

What is the reason and justification of interest? Why should the borrower pay back to the lender more than he received? These questions are worth answering, not merely from their speculative, but from their practical importance. The feeling that interest is the robbery of industry is widespread and growing, and on both sides of the Atlantic shows itself more and more in popular literature and in popular movements. The expounders of the current political economy say that there is no conflict between labor and capital, and oppose as injurious to labor, as well as to capital, all schemes for restricting the reward which capital obtains; yet in the same works the doctrine is laid down that wages and interest bear to each other an inverse relation, and that interest will be low or high as wages are high or low.36 Clearly, then, if this doctrine is correct, the only objection that from the standpoint of the laborer can be logically made to any scheme for the reduction of interest is that it will not work, which is manifestly very weak ground while ideas of the omnipotence of legislatures are yet so widespread; and though such an objection may lead to the abandonment of any one particular scheme, it will not prevent the search for another.

Why should interest be? Interest, we are told, in all the standard works, is the reward of abstinence. But, manifestly, this does not sufficiently account for it. Abstinence is not an active, but a passive quality; it is not a doing⁠—it is simply a not doing. Abstinence in itself produces nothing. Why, then, should any part of what is produced be claimed for it? If I have a sum of money which I lock up for a year, I have exercised as much abstinence as though I had loaned it. Yet, though in the latter case I will expect it to be returned to me with an additional sum by way of interest, in the former I will have but the same sum, and no increase. But the abstinence is the same. If it be said that in lending it I do the borrower a service, it may be replied that he also does me a service in keeping it safely⁠—a service that under some conditions may be very valuable, and for which I would willingly pay, rather than not have it; and a service which, as to some forms of capital, may be even more obvious than as to money. For there are many forms of capital which will not keep, but must be constantly renewed; and many which are onerous to maintain if one has no immediate use for them. So, if the accumulator of capital helps the user of capital by loaning it to him, does not the user discharge the debt in full when he hands it back? Is not the secure preservation, the maintenance, the recreation of capital, a complete offset to the use? Accumulation is the end and aim of abstinence. Abstinence can go no further and accomplish no more; nor of itself can it even do this. If we were merely to abstain from using it, how much wealth would disappear in a year! And how little would be left at the end of two years! Hence, if more is demanded for abstinence than the safe return of capital, is not labor wronged? Such ideas as these underlie the widespread opinion that interest can accrue only at the expense of labor, and is in fact a robbery of labor which in a social condition based on justice would be abolished.

The attempts to refute these views do not appear to me always successful. For instance, as it illustrates the usual reasoning, take Bastiat’s oft-quoted illustration of the plane. One carpenter, James, at the expense of ten days’ labor, makes himself a plane, which will last in use for 290 of the 300 working days of the year. William, another carpenter, proposes to borrow the plane for a year, offering to give back at the end of that time, when the plane will be worn out, a new plane equally as good. James objects to lending the plane on these terms, urging that if he merely gets back a plane he will have nothing to compensate him for the loss of the advantage which the use of the plane during the year would give him. William, admitting this, agrees not merely to return a plane, but, in addition, to give James a new plank. The agreement is carried out to mutual satisfaction. The plane is used up during the year, but at the end of the year James receives as good a one, and a plank in addition. He lends the new plane again and again, until finally it passes into the hands of his son, “who still continues to lend it,” receiving a plank each time. This plank, which represents interest, is said to be a natural and equitable remuneration, as by giving it in return for the use of the plane, William “obtains the power which exists in the tool to increase the productiveness of labor,” and is no worse off than he would have been had he not borrowed the plane; while James obtains no more than he would have had if he had retained and used the plane instead of lending it.

Is this really so? It will be observed that it is not affirmed that James could make the plane and William could not, for that would be to make the plank the reward of superior skill. It is only that James had abstained from consuming the result of his labor until he had accumulated it