Send us your blog post, blog address, address of other great sites or suggestions by email.

Saturday, November 30, 2013


We have just seen that between our wants and the satisfaction of these wants, obstacles are interposed. We succeed in overcoming these obstacles, or in diminishing their force, by the employment of our faculties. We may say, in a general way, that industry is an effort followed by a result.
But what constitutes the measure of our prosperity, or of our wealth? Is it the result of the effort? Or is it the effort itself? A relation always subsists between the effort employed and the result obtained. Progress consists in the relative enhancement of the second or of the first term of this relation.
Both theses have been maintained; and in political economy they have divided the region of opinion and of thought.
According to the first system, wealth is the result of labor, increasing as the relative proportion of result to effort increases. Absolute perfection, of which God is the type, consists in the infinite distance interposed between the two terms—in this sense, effort is nil, result infinite.
The second system teaches that it is the effort itself that constitutes the measure of wealth. To make progress is to increase the relative proportion which effort bears to result. The ideal of this system may be found in the sterile and eternal efforts of Sisyphus.1
The first system naturally welcomes everything which tends to diminish pains and augment products; powerful machinery that increases the forces of man, exchange that allows him to derive greater advantage from natural resources distributed in various proportions over the face of the earth, intelligence that discovers, experience that proves, competition that stimulates, etc.
Logically, the second invokes everything which has the effect of increasing pains and diminishing products; privileges, monopolies, restrictions, prohibitions, suppression of machinery, barrenness, etc.
It is well to remark that the universal practice of mankind always points to the principle of the first system. We have never seen, we shall never see, a man who labors in any department, be he agriculturist, manufacturer, merchant, artificer, soldier, author, or philosopher, who does not devote all the powers of his mind to work better, to work with more rapidity, to work more economically—in a word, to effect more with less.
The opposite doctrine is in favor only with theorists, legislators, journalists, statesmen, ministers—men, in short, born to make experiments on the social body.
At the same time, we may observe that in what concerns themselves personally they act as everyone else does, on the principle of obtaining from labor the greatest possible amount of useful results.
Perhaps I may be thought to exaggerate, and there are no true sisyphists.
If it be argued that in practice they do not press their principle to its most extreme consequences, I willingly grant it. This is always the case when one sets out with a false principle. Such a principle soon leads to results so absurd and so mischievous that we are obliged to stop short. This is the reason why practical industry never admits sisyphism; punishment would follow error too closely not to expose it. But in matters of speculation, such as theorists and statesmen deal in, one may pursue a false principle a long time before discovering its falsity by the complicated consequences to which men were formerly strangers; and when at last its falsity is found out, the authors take refuge in the opposite principle, turn round, contradict themselves, and seek their justification in a modern maxim of incomparable absurdity: in political economy there is no inflexible rule, no absolute principle.
Let us see, then, if these two opposite principles that I have just described do not predominate by turns, the one in practical industry, the other in industrial legislation.
I have already noticed the saying of Mr. Bugeaud that “when bread is dear agriculturists become rich”; but in Mr. Bugeaud are embodied two separate characters, the agriculturist and the legislator.
As an agriculturist, Mr. Bugeaud directs all his efforts to two ends—to save labor, and obtain cheap bread. When he prefers a good plough to a bad one; when he improves his pastures; when, in order to pulverize the soil, he substitutes as much as possible the action of the weather for that of the harrow and the hoe; when he calls to his aid all the processes of which science and experiment have proved the efficacy—he has but one object in view, viz. to diminish the proportion of effort to result. We have indeed no other test of the ability of a cultivator, and the perfection of his processes, than to measure to what extent they have lessened the one and added to the other. And as all the farmers in the world act upon this principle we may assert that the effort of mankind at large is to obtain, for their own benefit undoubtedly, bread and all other products cheaper, to lessen the labor needed to procure a given quantity of what they want.
This incontestable tendency of mankind once established should, it would seem, reveal to the legislator the true principle, and point out to him in what way he should aid industry (in so far as it falls within his province to aid it); for it would be absurd to assert that human laws should run counter to the laws of Providence.
And yet we have heard Mr. Bugeaud, as a legislator, exclaim: “I understand nothing of this theory of cheapness; I should like better to see bread dearer and labor more abundant.” And following out this doctrine, the representative of the Dordogne votes legislative measures, the effect of which is to hamper exchanges, for the very reason that they procure us indirectly what direct production could procure us only at greater expense.
Now, it is very evident that Mr. Bugeaud’s principle as a legislator is directly opposed to the principle on which he acts as an agriculturist. To act consistently he should vote against all legislative restriction, or else import into his farming operations the principle that he proclaims from the tribune. We should then see him sow his corn in his most barren fields, for in this way he would succeed in working much to obtain little. We should see him throwing aside the plough, since hand-culture would satisfy his double wish for dearer bread and more abundant labor.
Intervention has for its avowed object, and its acknowledged effect, to increase labor.
It has also for its avowed object, and its acknowledged effect, to cause dearness, which means simply scarcity of products; so that, carried out to its extreme limits, it is pure sisyphism, such as we have defined it—labor infinite, product nil.
Baron Charles Dupin, the light of the peerage, it is said, on economic science, accuses railways of injuring navigation; and it is certain that it is of the nature of a better means of conveyance to reduce the use of a worse means of conveyance. But railways cannot hurt navigation except by attracting traffic; and they cannot attract traffic but by conveying goods and passengers more cheaply; and they cannot convey them more cheaply but by diminishing the proportion that the effort employed bears to the result obtained, seeing that that is the very thing that constitutes cheapness. When, then, Baron Dupin deplores this diminution of the labor employed to effect a given result, it is the doctrine of sisyphism he preaches. Logically, since he prefers the ship to the rail, he should prefer the cart to the ship, the pack-saddle to the cart, and the pannier to all other known means of conveyance, for it is the latter that exacts the most labor with the least result.
“Work constitutes the wealth of a people,” said Mr. de Saint-Cricq, that Minister of Commerce who has imposed so many restrictions upon trade. We must not suppose that this was an elliptical expression, meaning, “The results of work constitute the wealth of a people.” No, this economist distinctly intended to affirm that it is the intensity of labor that is the measure of wealth, and the proof of it is that, from consequence to consequence, from one restriction to another, he induced France (and in this he thought he was doing her good) to expend double the amount of labor, in order, for example, to provide herself with an equal quantity of iron. In England iron was then at eight francs, while in France it cost sixteen francs. Taking a day’s labor at one franc, it is clear that France could, by means of exchange, procure a quintal of iron by subtracting eight days’ work from the aggregate national labor. In consequence of the restrictive measures of Mr. de Saint-Cricq, France was obliged to expend sixteen days’ labor in order to provide herself with a quintal of iron by direct production. Double the labor for the same satisfaction, hence double the wealth. Then it follows that wealth is not measured by the result, but by the intensity of the labor. Is not this sisyphism in all its purity?
And in order that there may be no mistake as to his meaning, the Minister takes care afterwards to explain more fully his ideas; and as he had just before called the intensity of labor wealth, he goes on to call the more abundant results of that labor, or the more abundant supply of things proper to satisfy our wants, poverty. “Everywhere,” he says, “machinery has taken the place of manual labor; everywhere production superabounds; everywhere the equilibrium between the faculty of producing and the means of consuming is destroyed.” We see, then, to what, in Mr. de Saint-Cricq’s estimation, the critical situation of the country was owing: it was to having produced too much, and her labor being too intelligent, and too fruitful. We were too well fed, too well clothed, too well provided with everything; a too rapid production surpassed all our desires. It was necessary, then, to put a stop to the evil, and for that purpose to force us, by restrictions, to labor more in order to produce less.
I have referred likewise to the opinions of another Minister of Commerce, Mr. d’Argout. They deserve to be dwelt upon for an instant. Desiring to strike a formidable blow at beet-root culture, he says, “Undoubtedly, the cultivation of beet-root is useful, but this utility is limited. The developments attributed to it are exaggerated. To be convinced of this it is sufficient to observe that this culture will be necessarily confined within the limits of consumption. Double, triple, if you will, the present consumption of France, you will always find that a very trifling portion of the soil will satisfy the requirements of that consumption.” (This is surely rather a singular subject of complaint!) “Do you desire proof of this? How many hectares had we under beet-root in 1828?—3,130, which is equivalent to 1-10540th of our arable land. At the present time, when indigenous sugar supplies one-third of our consumption, how much land is devoted to that culture?—16,700 hectares, or 1-1978th of the arable land, or 45 centiares in each commune. Suppose indigenous sugar already supplied our whole consumption we should have only 48,000 hectares under beetroot, or 1-689th of the arable land.”2
There are two things to be remarked upon in this quotation—the facts and the doctrine. The facts tend to prove that little land, little capital, and little labor are required to produce a large quantity of sugar, and that each commune of France would be abundantly provided by devoting to beet-root cultivation one hectare of its soil. The doctrine consists in regarding this circumstance as adverse, and in seeing in the very power and fertility of the new industry, a limit to its utility.
I do not mean to constitute myself here the defender of beetroot culture, or a judge of the strange facts advanced by Mr. d’Argout; but it is worthwhile to scrutinize the doctrine of a statesman to whom France for a long time entrusted the care of her agriculture and of her commerce.
I remarked at the outset that a variable relation exists between an industrial effort and its result; that absolute imperfection consists in an infinite effort without any result; absolute perfection in an unlimited result without any effort; and perfectibility in the progressive diminution of effort compared with the result.
But Mr. d’Argout tells us there is death where we think we perceive life, and that the importance of any branch of industry is in direct proportion to its powerlessness. What are we to expect, for instance, from the cultivation of beet-root? Do you not see that 48,000 hectares of land, with capital and manual labor in proportion, are sufficient to supply all France with sugar? Then, this is a branch of industry of limited utility; limited, of course, with reference to the amount of labor it demands, the only way in which, according to the ex-Minister, any branch of industry can be useful. This utility would be still more limited if, owing to the fertility of the soil and the richness of the beet-root, we could reap from 24,000 hectares what at present we only obtain from 48,000. Oh! Were only twenty times, a hundred times, more land, capital and labor necessary to yield us the same result, so much the better. We might build some hopes on this new branch of industry, and it would be worthy of state protection, for it would offer a vast field to our national industry. But to produce much with little! That is a bad example, and it is time for the law to interfere.
But what is true with regard to sugar cannot be otherwise with regard to bread. If, then, the utility of any branch of industry is to be estimated not by the amount of satisfaction it is fitted to procure us with a determinate amount of labor, but, on the contrary, by the amount of labor it exacts in order to yield us a determinate amount of satisfactions, what we ought evidently to desire is, that each acre of land should yield less corn, and each grain of corn less nourishment; in other words, that our land should be comparatively barren; for then the quantity of land, capital, and manual labor that would be required for the maintenance of our population would be much more considerable; we could then say that the demand for human labor would be in direct proportion to this barrenness. The aspirations of Misters Bugeaud, Saint-Cricq, Dupin, and d’Argout would then be satisfied; bread would be dear, labor abundant, and France rich—rich at least in the sense in which these gentlemen understand the word.
What we should desire also is that human intelligence should be enfeebled or extinguished; for as long as it survives, it will be continually endeavoring to augment the proportion that the end bears to the means, and that the product bears to the labor. It is in that precisely that intelligence consists.
Thus, it appears that sisyphism has been the doctrine of all the men who have been entrusted with our industrial destinies. It would be unfair to reproach them with it. This principle guides Ministers only because it is predominant in the Chambers; and it predominates in the Chambers only because it is sent there by the electoral body, and the electoral body is imbued with it only because public opinion is saturated with it.
I think it right to repeat here that I do not accuse men such as Misters Bugeaud, Dupin, Saint-Cricq, and d’Argout of being absolutely and under all circumstances sisyphists. They are certainly not so in their private transactions; for in these they always desire to obtain by way of exchange what would cost them dearer to procure by direct production; but I affirm they are sisyphists when they hinder the country from doing the same thing.

Bastiat Collection Pocket Edition

Friday, November 29, 2013


The obstacle mistaken for the cause—scarcity mistaken for abundance—this is the same fallacy under another aspect; and it is well to study it in all its phases.
Man is originally destitute of everything.
Between this destitution and the satisfaction of his wants there exist a multitude of obstacles that labor enables us to surmount. It is of interest to inquire how and why these very obstacles to his material prosperity have come to be mistaken for the cause of that prosperity.
I want to travel a hundred miles. But between the starting-point and the place of my destination, mountains, rivers, marshes, impenetrable forests, brigands—in a word, obstacles—interpose themselves; and to overcome these obstacles it is necessary for me to employ many efforts, or, what comes to the same thing, that others should employ many efforts for me, the price of which I must pay them. It is clear that I should have been in a better situation if these obstacles had not existed.
On his long journey through life, from the cradle to the grave, man has need to assimilate to himself a prodigious quantity of alimentary substances, to protect himself against the inclemency of the weather, to preserve himself from a number of ailments, or cure himself of them. Hunger, thirst, disease, heat, cold, are so many obstacles strewn along his path. In a state of isolation he must overcome them all by hunting, fishing, tillage, spinning, weaving, building; and it is clear that it would be better for him that these obstacles were less numerous and formidable, or, better still, that they did not exist at all. In society he does not combat these obstacles personally, but others do it for him; and in return he employs himself in removing one of those obstacles that are encountered by his fellow men.
It is clear also, considering things in the gross, that it would be better for men in the aggregate, or for society, that these obstacles should be as few and feeble as possible.
But when we come to scrutinize the social phenomena in detail, and men’s sentiments as modified by the introduction of exchange, we soon perceive how men have come to confound wants with wealth, the obstacle with the cause.
The separation of employments, the division of labor, which results from the faculty of exchanging, causes each man, instead of struggling on his own account to overcome all the obstacles that surround him, to combat only one of them; he overcomes that one not for himself but for his fellow men, who in turn render him the same service.
The consequence is that this man, in combating this obstacle that it is his special business to overcome for the sake of others, sees in it the immediate source of his own wealth. The greater, the more formidable, the more keenly felt this obstacle is, the greater will be the remuneration that his fellow men will be disposed to accord him; that is to say, the more ready will they be to remove the obstacles that stand in his way.
The physician, for example, does not bake his own bread, or manufacture his own instruments, or weave or make his own coat. Others do these things for him, and in return he treats the diseases with which his patients are afflicted. The more numerous, severe, and frequent these diseases are, the more others consent, and are obliged, to do for his personal comfort. Regarding it from this point of view, disease, that general obstacle to human happiness, becomes a cause of material prosperity to the individual physician. The same argument applies to all producers in their several departments. The shipowner derives his profits from the obstacle called distance; the agriculturist from that called hunger; the manufacturer of cloth from that called cold; the schoolmaster lives upon ignorance; the lapidary upon vanity; the attorney on cupidity; the notary upon possible bad faith—just as the physician lives upon the diseases of men. It is quite true, therefore, that each profession has an immediate interest in the continuation, nay, in the extension, of the special obstacle which it is its business to combat.
Observing this, theorists make their appearance, and, founding a system on their individual sentiments, tell us: Want is wealth, labor is wealth, obstacles to material prosperity are prosperity. To multiply obstacles is to support industry.
Then statesmen intervene. They have the disposal of the public force; and what more natural than to make it available for developing and multiplying obstacles, since this is developing and multiplying wealth? They say, for example: If we prevent the importation of iron from places where it is abundant, we place an obstacle in the way of its being procured. This obstacle, keenly felt at home, will induce men to pay in order to be set free from it. A certain number of our fellow citizens will devote themselves to combating it, and this obstacle will make their fortune. The greater the obstacle is—that is, the scarcer, the more inaccessible, the more difficult to transport, the more distant from the place where it is to be used, the mineral sought for becomes—the more hands will be engaged in the various ramifications of this branch of industry. Exclude, then, foreign iron, create an obstacle, for you thereby create the work that is to overcome it.
The same reasoning leads to the proscription of machinery.
Here, for instance, are men who are in want of casks for the storage of their wine. This is an obstacle; and here are other men whose business it is to remove that obstacle by making the casks that are wanted. It is fortunate, then, that this obstacle should exist, since it gives employment to a branch of national industry, and enriches a certain number of our fellow citizens. But then we have ingenious machinery invented for felling the oak, cutting it up into staves, and forming them into the wine-casks that are wanted. By this means the obstacle is lessened, and so are the gains of the cooper. Let us maintain both at their former elevation by a law, and ban the machinery.
To get at the root of this sophism it is necessary only to reflect that human labor is not the end, but the means. It never remains unemployed. If one obstacle is removed, it does battle with another; and society is freed from two obstacles by the same amount of labor that was formerly required for the removal of one. If the labor of the cooper is rendered unnecessary in one department, it will soon take another direction. But how and from what source will it be remunerated? From the same source exactly from which it is remunerated at present; for when a certain amount of labor becomes disposable by the removal of an obstacle, a corresponding amount of remuneration becomes disposable also. To maintain that human labor will ever come to want employment, would be to maintain that the human race will cease to encounter obstacles. In that case labor would not only be impossible; it would be superfluous. We should no longer have anything to do, because we should be omnipotent; and we should only have to pronounce our fiat in order to ensure the satisfaction of all our desires and the supply of all our wants.

Bastiat Collection Pocket Edition

Thursday, November 28, 2013


Which is best for man and for society, abundance or scarcity? What! you exclaim, can that be a question? Has anyone ever asserted, or is it possible to maintain, that at the foundation of human well-being?
Yes, this has been asserted, and is maintained every day; and I do not hesitate to affirm that the theory of scarcity is the most popular by far. It is the life of conversation, of the newspapers, of books, and of political oratory; and, strange as it may seem, it is certain that Political Economy will have fulfilled its practical mission when it has established beyond question, and widely disseminated, this very simple proposition: “The wealth of men consists in the abundance of commodities.”
Do we not hear it said every day: “The foreigner is about to inundate us with his products?” Then we fear abundance.
Did not Mr. Saint-Cricq exclaim: “Production is excessive”? Then he feared abundance.
Do workmen break machines? Then they fear an excess of production, or abundance.
Has not Mr. Bugeaud pronounced these words: “Let bread be dear, and agriculturists will get rich”? Now, bread can only be dear because it is scarce. Therefore Mr. Bugeaud extols scarcity.
Does not Mr. d’Argout urge as an argument against sugar-growing the very productiveness of that industry? Does he not say: “Beetroot has no future, and its culture cannot be extended, because a few acres devoted to its culture in each department would supply the whole consumption of France”? Then, in his eyes, good lies in sterility, in dearth, and evil in fertility and abundance.
La Presse, Le Commerce, and the greater part of the daily papers, have one or more articles every morning to demonstrate to the Legislative Chamber and the Government that it is sound policy to raise legislatively the price of all things by means of tariffs. And do the Chamber and the Government not obey the injunction? Now tariffs can raise prices only by diminishing the supply of commodities in the market! Then the journals, the Chamber, and the Minister put into practice the theory of scarcity, and I am justified in saying that this theory is by far the most popular.
How does it happen that in the eyes of workmen, of publicists, and statesmen abundance should appear a thing to be dreaded and scarcity advantageous? I propose to trace this illusion to its source.
We remark that a man grows richer in proportion to the return yielded by his exertions, that is to say, in proportion as he sells his commodity at a higher price. He sells at a higher price in proportion to the rarity, to the scarcity, of the article he produces. We conclude from this that, as far as he is concerned at least, scarcity enriches him. Applying successively the same reasoning to all other producers, we construct the theory of scarcity. We next proceed to apply this theory and, in order to favor producers generally, we raise prices artificially, and cause a scarcity of all commodities, by prohibition, by intervention, by the suppression of machinery, and other analogous means.
The same thing holds of abundance. We observe that when a product is plentiful, it sells at a lower price, and the producer gains less. If all producers are in the same situation, they are all poor. Therefore it is abundance that ruins society. And as theories are soon reduced to practice, we see the law struggling against the abundance of commodities.
This fallacy in its more general form may make little impression, but applied to a particular order of facts, to a certain branch of industry, to a given class of producers, it is extremely specious; and this is easily explained. It forms a syllogism that is not false, but incomplete. Now, what is true in a syllogism is always and necessarily present to the mind. But incompleteness is a negative quality, an absent datum, which it is very possible, and indeed very easy, to leave out of account.
Man produces in order to consume. He is at once producer and consumer. The reasoning I have just explained considers him only in the first of these points of view. Had the second been taken into account, it would have led to an opposite conclusion. In effect, may it not be said:
The consumer is richer in proportion as he purchases all things cheaper; and he purchases things cheaper in proportion to their abundance; therefore it is abundance that enriches him. This reasoning, extended to all consumers, leads to the theory of plenty.
It is the notion of exchange imperfectly understood that leads to these illusions. If we consider our personal interest, we recognize distinctly that it is two-sided. As sellers we have an interest in dearness, and consequently in scarcity; as buyers, in cheapness, or what amounts to the same thing, in the abundance of commodities. We cannot, then, found our reasoning on one or the other of these interests before inquiring which of the two coincides and is identified with the general and permanent interest of mankind at large.
If man were a solitary animal, if he labored exclusively for himself, if he consumed directly the fruit of his labor—in a word, if he did not exchange—the theory of scarcity would never have appeared in the world. It is too evident that in that case, abundance would be advantageous, from whatever quarter it came, whether from the result of his industry, from ingenious tools, from powerful machinery of his invention, or whether due to the fertility of the soil, the liberality of nature, or even to a mysterious invasion of products brought by the waves and left by them upon the shore. No solitary man would ever have thought that in order to encourage his labor and render it more productive, it was necessary to break in pieces the instruments that lessened it, to neutralize the fertility of the soil, or give back to the sea the good things it had brought to his door. He would perceive at once that labor is not an end, but a means; and that it would be absurd to reject the result for fear of doing injury to the means by which the result was accomplished. He would perceive that if he devotes two hours a day to providing for his wants, any circumstance (machinery, fertility, gratuitous gift, no matter what) that saves him an hour of that labor, the result remaining the same, puts that hour at his disposal, and that he can devote it to increasing his enjoyments; in short, he would see that to save labor is nothing else than progress.
But exchange disturbs our view of a truth so simple. In the social state, and with the separation of employments to which it leads, the production and consumption of a commodity are not mixed up and confounded in the same individual. Each man comes to see in his labor no longer a means but an end. In relation to each commodity, exchange creates two interests, that of the producer and that of the consumer; and these two interests are always directly opposed to each other.
It is essential to analyze them, and examine their nature.
Take the case of any producer whatever, what is his immediate interest? It consists of two things; first, that the fewest possible number of persons should devote themselves to his branch of industry; second, that the greatest possible number of persons should be in quest of the article he produces. Political economy explains it more succinctly in these terms: Supply very limited, demand very extended; or, in other words still, Competition limited, demand unlimited.

What is the immediate interest of the consumer? That the supply of the product in question should be extended, and the demand restrained.
Seeing, then, that these two interests are in opposition to each other, one of them must necessarily coincide with social interests in general, and the other be antagonistic to them.
But which of them should legislation favor, as identical with the public good—if, indeed, it should favor either?
To discover this, we must inquire what would happen if the secret wishes of men were granted.
In as far as we are producers, it must be allowed that the desire of every one of us is antisocial. Are we vinedressers? It would give us no great regret if hail should shower down on all the vines in the world except our own: this is the theory of scarcity. Are we iron-masters? Our wish is that there should be no other iron in the market but our own, however much the public may be in want of it; and for no other reason than this want, keenly felt and imperfectly satisfied, shall ensure us a higher price: this is still the theory of scarcity. Are we farmers? We say with Mr. Bugeaud: Let bread be dear, that is to say, scarce, and agriculturists will thrive: always the same theory, the theory of scarcity.
Are we physicians? We cannot avoid seeing that certain physical ameliorations, improving the sanitary state of the country, the development of certain moral virtues, such as moderation and temperance, the progress of knowledge tending to enable each man to take better care of his own health, the discovery of certain simple remedies of easy application, would be so many blows to our professional success. In so far as we are physicians, then, our secret wishes would be antisocial. I do not say that physicians form these secret wishes. On the contrary, I believe they would hail with joy the discovery of a universal panacea; but they would not do this as physicians, but as men and as Christians. By a noble abnegation of self, the physician places himself in the consumer’s point of view. But as practicing a profession, from which he derives his own and his family’s subsistence, his desires, or, if you will, his interests, are antisocial.
Are we manufacturers of cotton goods? We desire to sell them at the price most profitable to ourselves. We should consent willingly to an interdict being laid on all rival manufactures; and if we could venture to give this wish public expression, or hope to realize it with some chance of success, we should attain our end, to some extent by indirect means; for example, by excluding foreign fabrics in order to diminish the supply, and thus produce, forcibly and to our profit, a scarcity of clothing.
In the same way, we might pass in review all other branches of industry, and we should always find that the producers, as such, have antisocial views. “The shopkeeper,” says Montaigne, “thrives only by the irregularities of youth; the farmer by the high price of corn, the architect by the destruction of houses, the officers of justice by lawsuits and quarrels. Ministers of religion derive their distinction and employment from our vices and our death. No physician rejoices in the health of his friends, nor soldiers in the peace of their country; and so of the rest.”
Hence it follows that if the secret wishes of each producer were realized, the world would retrograde rapidly toward barbarism. The sail would supersede steam, the oar would supersede the sail, and general traffic would be carried on by the carrier’s wagon; the latter would be superseded by the mule, and the mule by the peddler. Wool would exclude cotton, cotton in its turn would exclude wool, and so on until the dearth of all things had caused man himself to disappear from the face of the earth.
Suppose for a moment that the legislative power and the public force were placed at the disposal of Mineral’s committee, and that each member of that association had the privilege of bringing in and sanctioning a favorite law, is it difficult to divine to what sort of industrial code the public would be subjected?
If we now proceed to consider the immediate interest of the consumer, we shall find that it is in perfect harmony with the general interest, with all that the welfare of society calls for. When the purchaser goes to market he desires to find it well stocked. Let the seasons be propitious for all harvests; let inventions, more and more marvellous, bring within reach a greater and greater number of products and enjoyments; let time and labor be saved; let distances be effaced by the perfection and rapidity of transit; let the spirit of justice and of peace allow of a diminished weight of taxation; let barriers of every kind be removed—in all this the interest of the consumer runs parallel with the public interest. The consumer may push his secret wishes to a chimerical and absurd length, without these wishes becoming antagonistic to the public welfare. He may desire that food and shelter, the hearth and the roof, instruction and morality, security and peace, power and health, should be obtained without exertion and without measure, like the dust of the highways, the water of the brook, the air that we breathe; and yet the realization of his desires would not be at variance with the good of society.
It might be said that, if these wishes were granted, the work of the producer would become more and more limited, and would end with being stopped for want of sustenance. But why? Because on this extreme supposition, all imaginable wants and desires would be fully satisfied. Man, like Omnipotence, would create all things by a simple act of volition. Well, on this hypothesis, what reason should we have to regret the stoppage of industrial production?
I made the supposition not long ago of the existence of an assembly composed of workmen, each member of which, in his capacity of producer, should have the power of passing a law embodying his secret wish, and I said that the code that would emanate from that assembly would be monopoly systematized, the theory of scarcity reduced to practice.
In the same way, a chamber in which each should consult exclusively his own immediate interest as a consumer, would tend to systematize liberty, to suppress all restrictive measures, to overthrow all artificial barriers—in a word, to realize the theory of plenty.
Hence it follows:
That to consult exclusively the immediate interest of the producer is to consult an interest that is antisocial;
That to take for basis exclusively the immediate interest of the consumer would be to take for basis the general interest.
Let me enlarge on this view of the subject a little, at the risk of being prolix.
A radical antagonism exists between seller and buyer.
The former desires that the subject of the bargain should be scarce, its supply limited, and its price high.
The latter desires that it should be abundant, its supply large, and its price low.
The laws, which should be at least neutral, take the part of the seller against the buyer, of the producer against the consumer, of dearness against cheapness, of scarcity against abundance.
They proceed, if not intentionally, at least logically, on this datum: a nation is rich when it is in want of everything.
For they say, it is the producer that we must favor by securing him a good market for his product. For this purpose it is necessary to raise the price, and in order to raise the price we must restrict the supply; and to restrict the supply is to create scarcity.
Just let us suppose that at the present moment, when all these laws are in full force, we make a complete inventory, not in value but in weight, measure, volume, quantity, of all the commodities existing in the country, that are fitted to satisfy the wants and tastes of its inhabitants—corn, meat, cloth, fuel, colonial products, etc.

Suppose, again, that next day all the barriers that oppose the introduction of foreign products are removed.
Lastly, suppose that in order to test the result of this reform they proceed three months afterwards to make a new inventory.
Is it not true that there will be found in France more corn, cattle, cloth, linen, iron, coal, sugar, etc., at the date of the second than at the date of the first inventory?
So true is this that our protective tariffs have no other purpose than to hinder all these things from reaching us, to restrict the supply, and prevent low prices and abundance.
Now I would ask, Are the people who live under our laws better fed because there is less bread, meat, and sugar in the country? Are they better clothed because there is less cloth and linen? Better warmed because there is less coal? Better assisted in their labor because there are fewer tools and less iron, copper, and machinery?
But it may be said, If the foreigner inundates us with his products he will carry away our money.
And what does it matter? Men are not fed on money. They do not clothe themselves with gold, or warm themselves with silver. What does it matter whether there is more or less money in the country if there is more bread on our sideboards, more meat in our larders, more linen in our wardrobes, more firewood in our cellars.
Restrictive laws always land us in this dilemma: Either you admit that they produce scarcity, or you do not. If you admit it, you avow by the admission that you inflict on the people all the injury in your power. If you do not admit it, you deny having restricted the supply and raised prices, and consequently you deny having favored the producer.
What you do is either hurtful or profitless, injurious or ineffectual. It never can bring any useful result.

Bastiat Collection Pocket Edition

Wednesday, November 27, 2013

What Regulates Interest?

What is interest? It is the service rendered, after a free bargain, by the borrower to the lender, in remuneration for the service he has received by or from the loan. By what law is the rate of these remunerative services established? By the general law that regulates the equivalent of all services; that is, by the law of supply and demand.
The more easily a thing is procured, the smaller is the service rendered by yielding it or lending it. The man who gives me a glass of water among the springs of the mountains does not render me so great a service as he who allows me one in the desert of Sahara. If there are many planes, sacks of corn, or houses, in a country, the use of them is obtained, other things being equal, on more favorable conditions than if they were few, for the simple reason that the lender renders in this case a smaller relative service.
It is not surprising, therefore, that the more abundant capital is, the lower is the interest. Is this saying that it will ever reach zero? No; because, I repeat it, the principle of a remuneration is in the loan. To say that interest will be annihilated, is to say that there will never be any motive for saving, for denying ourselves, in order to form new capitals, nor even to preserve the old ones. In this case, the waste would immediately create a void, and interest would soon reappear.
In that, the nature of the services of which we are speaking does not differ from any other. Thanks to industrial progress, a pair of stockings, which used to be worth six shillings, has successively been worth only four, three, and two. No one can say to what point this value will descend; but we can affirm that it will never reach zero, unless the stockings finish by producing themselves spontaneously. Why? Because the principle of remuneration is in labor; because he who works for another renders a service, and ought to receive a service. If no one paid for stockings they would cease to be made; and, with the scarcity, the price would not fail to reappear.
The sophism I am now combating has its root in the infinite divisibility that belongs to value, as it does to matter.
It may appear at first paradoxical, but it is well known to all mathematicians, that, through all eternity, fractions may be taken from a weight without the weight ever being annihilated. It is sufficient that each successive fraction be less than the preceding one, in a determined and regular proportion.
There are countries where people apply themselves to increasing the size of horses, or diminishing in sheep the size of the head. It is impossible to say precisely to what point they will arrive in this. No one can say that he has seen the largest horse or the smallest sheep’s head that will ever appear in the world. But he may safely say that the size of horses will never attain to infinity, nor the heads of sheep be reduced to nothing. In the same way, no one can say to what point the price of stockings nor the interest of capital will come down; but we may safely affirm, when we know the nature of things, that neither the one nor the other will ever arrive at zero, for labor and capital can no more live without recompense than a sheep without a head. The arguments of Mr. Proudhon reduce themselves, then, to this: Since the most skillful agriculturists are those who have reduced the heads of sheep to the smallest size, we shall have arrived at the highest agricultural perfection when sheep have no longer any heads. Therefore, in order to realize the perfection, let us behead them.
I have now done with this wearisome discussion. Why is it that the breath of false doctrine has made it needful to inquire into the innate nature of interest? I must not leave off without remarking upon a beautiful moral which may be drawn from this law: “The reduction in the rate of interest is proportional to the abundance of capital.” This law being granted, if there is a class of men to whom it is more important than to any other that stocks of capital should accumulate, multiply, abound, and super-abound, it is certainly the class that borrows capital directly or indirectly; it is those men who operate upon materials, who gain assistance by tools, who live upon accumulations produced and saved by other men.
Imagine, in a vast and fertile country, a population of a thousand inhabitants, destitute of all capital as thus defined. It will assuredly perish by the pangs of hunger. Let us suppose a case hardly less cruel. Let us suppose that ten of these savages (for persons without capital are savages) are provided with tools and provisions sufficient to work and to live themselves until harvest time, as well as to remunerate the services of ninety laborers. The inevitable result will be the death of nine hundred human beings. It is clear, then, that since 990 men, urged by want, will crowd upon the supports that would only maintain a hundred, the ten capitalists will be masters of the market. They will obtain labor on the hardest conditions, for they will put it up to auction or the highest bidder. And observe this—if these capitalists entertain such pious sentiments as would induce them to impose personal privations on themselves, in order to diminish the sufferings of some of their brethren, this generosity, which attaches to morality, will be as noble in its principle as useful in its effects. But if, duped by that false philosophy that persons wish so inconsiderately to mingle with economic laws, they take to remunerating labor in excess of what it is worth, and in excess of what they are able to pay, far from doing good, they will do harm. They will give double wages, it may be. But then, forty-five men will be better provided for, while forty-five others from the diminution in the supply of capital, will augment the number of those who are sinking into the grave. Upon this supposition, it is not the deprivation of wages that primarily works the mischief, but the scarcity of capital. Low wages are not the cause, but the effect of the evil. I may add that they are to a certain extent the remedy. It acts in this way: it distributes the burden of suffering as much as it can, and saves as many lives as a limited quantity of available sustenance permits.
Suppose now, that instead of ten capitalists, there should be a hundred, two hundred, five hundred—is it not evident that the condition of the whole population, and, above all, that of the mass of the people will be more and more improved? Is it not evident that, apart from every consideration of generosity, they would obtain more work and better pay for it?—that they themselves will be in a better condition to accumulate capital, without being able to fix the limits to this ever-increasing facility of realizing equality and well-being? Would it not be madness in them to accept and act upon the truth of such doctrines as Proudhon and John Ruskin teach, and to act in a way that would reduce the source of wages, and paralyze the activity and stimulus of saving? Let them learn this lesson, then. Accumulations of capital are good for those who possess them: who denies it? But they are also useful to those who have not yet been able to form them; and it is important to those who have them not that others should have them.
Yes, if the laboring classes knew their true interests, they would seek to know with the greatest earnestness what circumstances are, and what are not favorable to saving, in order to encourage the former and to discourage the latter. They would sympathize with every measure that encourages the rapid accumulation of capital. They would be enthusiastic promoters of peace, liberty, order, security; the unity of classes and peoples, economy, moderation in public expenses, simplicity in the machinery of government; for it is under the sway of all these circumstances that saving does its work, brings plenty within the reach of the masses, invites those persons to become the owners of capital who were formerly under the necessity of borrowing under hard terms They would repel with energy the war-like spirit, which diverts from its true course so large a part of human labor; the monopolizing spirit, that deranges the equitable distribution of riches, in the way by which liberty alone can realize it; the multitude of public services which attack our purses only to check our liberty; and, in short, those subversive, hateful, thoughtless doctrines, that alarm capital, prevent its formation, oblige it to flee, and finally to raise its price, to the especial disadvantage of the workers, who bring it into existence.
Take for example the revolution that overthrew the government of France, and disturbed society in February, 1848, is it not a hard lesson? Is it not evident that the insecurity it has thrown into the world of business on the one hand; and, on the other, the advancement of the fatal theories to which I have alluded, and which, from the clubs, have almost penetrated into the regions of the legislature, have everywhere raised the rate of interest? Is it not evident that from that time the laboring classes of France have found greater difficulty in procuring those materials, tools, and provisions, without which labor is impossible? Is it not that which has caused stagnation of business; and does not paralysis of industry in turn lower wages? Thus there is a deficiency of work to those who need to labor, from the same cause that loads the objects they consume with an increase of price, in consequence of the rise of interest. High interest and low wages signify in other words that the same article preserves its price, but that the remuneration of the capitalist has invaded, without profiting himself, that of the workman.
A friend of mine, commissioned to make inquiry into Parisian industry, has assured me that the manufacturers have revealed to him a very striking fact that proves, better than any reasoning can, how much insecurity and uncertainty injure the formation of capital. It was noted that during the most distressing period of this revolution the popular expenditures for personal gratification did not diminish. The small theatres, the public-houses, and tobacco depots, were as much frequented as in prosperous times. On inquiry, the operatives themselves explained this phenomenon as follows: “What is the use of economizing? Who knows what will happen to us? Who knows that interest will not be abolished? Who knows but that the State will become a universal and gratuitous lender, and that it will annihilate all the fruits that we might expect from our savings?” Well! I say that if such ideas could prevail during two single years, it would be enough to turn our beautiful France into a Turkey—misery would become general and endemic, and, most assuredly, the poor would be the first upon whom it would fall.
Laboring men! They talk to you a great deal of the artificial organization of labor; do you know why they do so? Because they are ignorant of the laws of its natural organization; that is, of the wonderful organization that results from liberty. You are told that liberty gives rise to what is called the radical antagonism of classes; that it creates, and makes to clash, two opposite interests—that of the capitalists and that of the laborers. But we ought to begin by proving that the antagonism exists by a law of nature; and afterwards it would remain to be shown how far the arrangements for intervention are superior to those of liberty, for between liberty and intervention I see no middle path. Again, it would remain to be proved that intervention would always operate to your advantage, and to the prejudice of the rich. But, no; this radical antagonism, this natural opposition of interests, does not exist. It is only an evil dream of perverted and intoxicated imaginations. No; a plan so defective has not proceeded from the Divine Mind. To affirm it, we must begin by denying the existence of God. And see how, by means of social laws, and because men exchange amongst themselves their labors and their products, a harmonious tie attaches the different classes of society one to the other! There are the landowners; what is their interest? That the soil be fertile, and the sun beneficent: and what is the result? That wheat abounds, that it falls in price, and the advantage turns to the profit of those who have had no patrimony. There are the manufacturers—what is their constant thought? To perfect their labor, to increase the power of their machines, to procure for themselves, upon the best terms, the raw material. And to what does all this tend? To the abundance and the low price of produce; that is, all the efforts of the manufacturers, and without their suspecting it, result in a profit to the public consumer, of which each of you is one. It is the same with every profession. Now, the capitalists are not exempt from this law. They are very busy making schemes, economizing, and turning them to their advantage. This is all very well; but the more they succeed, the more do they promote the abundance of capital, and, as a necessary consequence, the reduction of interest. Now, who is it that profits by the reduction of interest? Is it not the borrower first, and finally, the consumers of the things the capital contributes to produce?
It is therefore certain that the final result of the efforts of each class is the common good of all.
You are told that capital tyrannizes over labor. I do not deny that each one endeavors to draw the greatest possible advantage from his situation; but in this sense, he realizes only that which is possible. Now, it is never more possible for capitalists to tyrannize over labor, than when capital is scarce; for then it is they who make the law—it is they who regulate the rate of sale. Never is this tyranny more impossible to them than when capital and capitalists are abundant; for in that case, it is labor which has the command. [Where there is one to sell and two to buy, the seller fixes the price; where there are two to sell and one to buy, the buyer always has the advantage.—Editor.]
Away, then, with the jealousies of classes, ill-will, unfounded hatreds, unjust suspicions. These depraved passions injure those who nourish them in their heart. This is no declamatory morality; it is a chain of causes and effects, which is capable of being rigorously, mathematically demonstrated. It is not the less sublime in that it satisfies the intellect as well as the feelings.
I shall sum up this whole dissertation with these words: Workmen, laborers, destitute and suffering classes, will you improve your condition? You will not succeed by strife, insurrection, hatred, and error. But there are three things that always result in benefit and blessing to every community and to every individual who helps to compose it; and these things are—peace, liberty, and security.

Bastiat Collection Pocket Edition

Tuesday, November 26, 2013

The Plane

One further illustration to the same ethic. A very long time ago there lived in a poor village, a carpenter, who was a philosopher, as all my heroes are in their way. James worked from morning till night with his two strong arms, but his brain was not idle for all that. He was fond of reviewing his actions, their causes, and their effects. He sometimes said to himself, “With my hatchet, my saw, and my hammer, I can make only coarse furniture, and can only get the pay for such. If I only had a plane, I should please my customers more, and they would pay me more. But this is all right; I can only expect services proportioned to those which I render myself. Yes! I am resolved, I will make myself a plane.”
However, just as he was setting to work, James reflected further: “I work for my customers 300 days in the year. If I give ten to making my plane, supposing it lasts me a year, only 290 days will remain for me to make my furniture. Now, in order that I be not the loser in this matter, I must earn henceforth, with the help of the plane, as much in 290 days as I now do in 300. I must even earn more; for unless I do so, it would not be worth my while to venture upon any innovations,” James began to calculate. He satisfied himself that he should sell his finished furniture at a price which would amply compensate him for the ten days devoted to the plane; and when no doubt remained in his mind on this point, he set to work. I beg the reader to note, that the power that exists in the tool to increase the productiveness of labor, is the basis for the successful solution of the experiment that James the carpenter proposed to make.
At the end of ten days, James had in his possession an admirable plane, which he valued all the more for having made it himself. He danced for joy—for like the girl with her basket of eggs, he reckoned in anticipation all the profits he expected to derive from the ingenious instrument; but, more fortunate than she, he was not reduced to the necessity of saying good-by, when the eggs were smashed, to the expected calf, cow, pig, as well as the eggs, together. He was building his fine castles in the air, when he was interrupted by his acquaintance William, a carpenter in the neighboring village. William having admired the plane, was struck with the advantages that might be gained from it. He said to James:
W. You must do me a service.
J. What service?
W. Lend me the plane for a year.
As might be expected, James at this proposal did not fail to cry out, “How can you think of such a thing, William? But if I do you this service, what will you do for me in return?”
W. Nothing. Don’t you know that John Ruskin says a loan ought to be gratuitous? Don’t you know that Proudhon and other notable writers and friends of the laboring classes assert that capital is naturally unproductive? Don’t you know that all the new school of liberal advanced writers say we ought to have perfect fraternity among men? If you only do me a service for the sake of receiving one from me in return, what merit would you have?
J. William, my friend, fraternity does not mean that all the sacrifices are to be on one side; if so, I do not see why they should not be on yours. Whether a loan should be gratuitous I don’t know but I do know that if I were to lend you my plane for a year it would be giving it you. To tell you the truth, that was not what I made it for.
W. Well, we will say nothing about the modern maxims discovered by the friends of the working classes. I ask you to do me a service; what service do you ask me in return?
J. First, then, in a year the plane will be used up, it will be good for nothing. It is only just that you should let me have another exactly like it; or that you should give me money enough to get it repaired; or that you should supply me the ten days which I must devote to replacing it.
W. This is perfectly just. I submit to these conditions. I engage to return it, or to let you have one like it, or the value of the same. I think you must be satisfied with this, and can require nothing further.
J. I think otherwise. I made the plane for myself, and not for you. I expected to gain some advantage from it, by my work being better finished and better paid; by improving my condition. What reason is there that I should make the plane, and you should gain the profit? I might as well ask you to give me your saw and hatchet! What a confusion! Is it not natural that each should keep what he has made with his own hands, as well as his hands themselves? To use without recompense the hands of another, I call slavery; to use without recompense the plane of another, can this be called fraternity?
W. But, then, I have agreed to return it to you at the end of a year, as well polished and as sharp as it is now.
J. We have nothing to do with next year; we are speaking of this year. I have made the plane for the sake of improving my work and condition: if you merely return it to me in a year, it is you who will gain the profit of it during the whole of that time. I am not bound to do you such a service without receiving anything from you in return; therefore, if you wish for my plane, independently of the entire restoration already bargained for, you must do me a service which we will now discuss; you must grant me remuneration.
And this was what the two finally agreed upon: William granted a remuneration calculated in such a way that, at the end of the year, James received his plane quite new, and in addition a new plank, as a compensation for the advantages of which he had deprived himself in lending the plane to his friend.
It was impossible for anyone acquainted with the transaction to discover the slightest trace in it of oppression or injustice.
The singular part of it is, that, at the end of the year, the plane came into James’s possession, and he lent it again; recovered it, and lent it a third and fourth time. It has passed into the hands of his son, who still lends it. Poor plane! How many times has it changed, sometimes its blade, sometimes its handle. It is no longer the same plane, but it has always the same value, at least for James’s posterity. Workmen; let us examine further these little stories.
I maintain, first of all, that the sack of corn and the plane are here the type, the model, a faithful representation, the symbol of all capital; as the half bushel of corn and the plank are the type, the model, the representation, the symbol of all interest. This granted, the following are, it seems to me, a series of consequences, the justice of which it is impossible to dispute.
First. If the yielding of a plank by the borrower to the lender is a natural, equitable, lawful remuneration, the just price of a real service, we may conclude that, as a general rule, it is in the nature of capital when loaned or used to produce interest. When this capital, as in the foregoing examples, takes the form of an instrument of labor, it is clear enough that it ought to bring an advantage to its possessor, to him who has devoted to it his time, his brains, and his strength. Otherwise, why should he have made it? No necessity of life can be immediately satisfied with instruments of labor; no one eats planes or drinks saws, unless, of course, he is a magician. If a man determines to spend his time in the production of such things, he must have been led to it by the consideration of the increased power these instruments give to him; of the time which they save him; of the perfection and rapidity they give to his labor; in a word, of the advantages they procure for him. Now these advantages, which have been obtained by labor, by the sacrifice of time that might have been used for other purposes, are we bound, as soon as they are ready to be enjoyed, to confer them gratuitously upon another? Would it be an advance in social order if the law so stated, and citizens should pay officials for enforcing such a law by force? I venture to say that there is not one amongst you who would support it. It would be to legalize, to organize, to systematize injustice itself, for it would be proclaiming that there are men born to render, and others born to receive, gratuitous services. Grant, then, that interest is just, natural, and expedient.
Second. A second consequence, not less remarkable than the former, and, if possible, still more conclusive, to which I call your attention, is this: Interest is not injurious to the borrower. I mean to say, the obligation in which the borrower finds himself, to pay a remuneration for use of capital, cannot do any harm to his condition. Observe, in fact, that James and William are perfectly free, as regards the transaction to which the plane gave occasion. The transaction cannot be accomplished without the consent of one as well as of the other. The worst that can happen is that James may ask too much; and in this case, William, refusing the loan, remains as he was before. By the fact of his agreeing to borrow, he proves that he considers it an advantage to himself; he proves that after every calculation, whatever may be the remuneration or interest required of him, he still finds it more profitable to borrow than not to borrow. He only determines to do so because he has compared the inconveniences with the advantages. He has calculated that the day on which he returns the plane, accompanied by the remuneration agreed upon, he will have effected more work, with the same labor, thanks to this tool. A profit will remain to him, otherwise he would not have borrowed. The two services of which we are speaking are exchanged according to the law that governs all exchanges, the law of supply and demand. The demands of James have a natural and impassable limit. This is the point at which the remuneration demanded by him would absorb all the advantage that William might find in making use of a plane. In this case, the borrowing would not take place. William would be bound either to make a plane for himself, or do without one, which would leave him in his original condition. He borrows because he gains by borrowing. I know very well what will be told me. You will say, William may be deceived, or, perhaps, he may be governed by necessity, and be obliged to submit to a harsh law.
It may be so. As to errors in calculation, they belong to the infirmity of our nature, and to argue from this against the transaction in question, is objecting to the possibility of loss in all imaginable transactions, in every human act. Error is an accidental fact, which is incessantly remedied by experience. In short, everybody must guard against it. As far as those hard necessities are concerned that force persons to borrow under onerous conditions, it is clear that these necessities existed previously to the borrowing. If William is in a situation in which he cannot possibly do without a plane, and must borrow one at any price, does this situation result from James having taken the trouble to make the tool? Does it not exist independently of this circumstance? However harsh, however severe James may be, he will never render the supposed condition of William worse than it is. Morally, it is true, the lender will be to blame if he demands more than is just; but in an economical point of view, the loan itself can never be considered responsible for previous necessities, which it has not created, and which it relieves to a certain extent. But this proves something to which I shall return. It is evidently for the interest of William, representing here the borrowers, that there shall be many Jameses and planes, or, in other words, lenders and capitals. It is very evident that if William can say to James, “Your demands are exorbitant; there is no lack of planes in the world;” he will be in a better situation than if James’s plane was the only one he could borrow. Assuredly, there is no maxim more true than this—service for service. But let us not forget that no service has a fixed and absolute value compared with others. The contracting parties are free. Each pushes his advantage to the farthest possible point, and the most favorable circumstance for these advantages is the absence of rivalship. Hence it follows that if there is a class of men more interested than any other in the creation, multiplication, and abundance of capital goods, it is mainly that of the borrowers. Now, since capital goods can only be formed and increased by the stimulus and the prospect of remuneration, let this class understand the injury they are inflicting on themselves when they deny the lawfulness of interest, when they proclaim that credit should be gratuitous, when they declaim against the pretended tyranny of capital, when they discourage saving, thus forcing capital to become scarce, and consequently interest to rise.
Third. The anecdote I have just related enables you to explain this apparently objectionable phenomenon, which is termed the duration or perpetuity of interest. Since, in lending his plane, James has been able, very lawfully, to make it a condition that it should he returned to him at the end of a year in the same state in which it was when he lent it, is it not evident that he may, at the expiration of the term, lend it again on the same conditions? If he resolves upon the latter plan, the plane will return to him at the end of every year, and that without end. James will then be in a condition to lend without end; that is, he may derive from it a perpetual interest. It will be said that the plane will be worn out. That is true; but it will be worn out by the hand and for the profit of the borrower. The latter has taken this gradual wear into account and taken upon himself, as he ought, the consequences. He has reckoned that he shall derive from this tool an advantage that will allow him to restore it to its original condition after having realized a profit from it. As long as James does not use this capital himself, or for his own advantage—as long as he renounces the advantages that allow it to be restored to its original condition—he will have an incontestable right to have it restored, and that independently of interest.
Observe besides that if, as I believe I have shown, James, far from doing any harm to William, has done him a service in lending him his plane for a year; for the same reason, he will do no harm to a second, a third, a fourth borrower, in the subsequent periods. Hence you may understand that the interest from capital is as natural, as lawful, as useful, in the thousandth year, as in the first. We may go still further. It may happen that James lends more than a single plane. It is possible, that by means of working, of saving, of privations, of discipline, of activity, he may come to be able to lend a multitude of planes and saws; that is to say, to do a multitude of services.
I insist upon this point—that if the first loan has been a social good, it will be the same with all the others; for they are all similar, and based upon the same principle. It may happen, then, that the amount of all the remunerations received by our honest operative, in exchange for services rendered by him, may suffice to maintain him. In this case, there will be a man in the world who has a right to live without working. I do not say that he would be doing right to give himself up to idleness—but I say that he has a right to do so; and if he does so, it will be at nobody’s expense, but quite the contrary. If society at all understands the nature of things, it will acknowledge that this man subsists on services that he receives certainly (as we all do), but that he receives lawfully in exchange for other services, that he himself has rendered, that he continues to render, and that are real services, inasmuch as they are freely and voluntarily accepted.
And here we have a glimpse of one of the finest harmonies in the social world. I allude to leisure: not that leisure that the warlike and tyrannical classes arrange for themselves by the plunder of the workers, but that leisure which is the lawful and innocent fruit of past activity and economy.
In expressing myself thus, I know that I shall shock many received ideas. But see! Is not leisure an essential spring in the social machine? Without it the world would never have had a Newton, a Pascal, a Fênelon; mankind would have been ignorant of all arts, sciences, and of those wonderful inventions prepared originally by investigations of mere curiosity; thought would have been inert—man would have made no progress.4 On the other hand, if leisure could only be explained by plunder and oppression—if it were a benefit that could only be enjoyed unjustly, and at the expense of others, there would be no middle path between these two evils; either mankind would be reduced to the necessity of stagnating in a vegetable and stationary life in eternal ignorance from the absence of wheels to its machine—or else it would have to acquire these wheels at the price of inevitable injustice, and would necessarily present the sad spectacle, in one form or other, of the ancient classification of human beings into masters and slaves. I defy anyone to show me, in this case, any other alternative. We should be compelled to contemplate the Divine plan that governs society with the regret of thinking that it presents a deplorable chasm. The stimulus of progress would be forgotten or, which is worse, this stimulus would be no other than injustice itself. But no! God has not left such a chasm in His work of love. We must take care not to disregard His wisdom and power; for those whose imperfect meditations cannot explain the lawfulness of leisure, are very much like the astronomer who said, at a certain point in the heavens there ought to exist a planet that will be at last discovered, for without it the celestial world is not harmony, but discord.
Therefore I say that, if well understood, the history of my humble plane, although very modest, is sufficient to raise us to the contemplation of one of the most consoling but least understood of the social harmonies.
It is not true that we must choose between the denial or the unlawfulness of leisure; thanks to rent and its natural duration, leisure may arise from labor and saving. It is a pleasing prospect, which everyone may have in view; a noble recompense, to which each may aspire. It makes its appearance in the world; it distributes itself proportionately to the exercise of certain virtues; it opens all the avenues to intelligence; it ennobles, it raises the morals; it spiritualizes the soul of humanity, not only without laying any weight on those of our brethren whose lot in life makes severe labor necessary, but it relieves them gradually from the heaviest and most repugnant part of this labor. It is enough that capital should be formed, accumulated, multiplied; should be lent on conditions less and less burdensome; that it should descend, penetrate into every social circle, and that by an admirable progression, after having liberated the lenders from onerous toil, it should bring a similar liberation to the borrowers themselves. For that end, the laws and customs ought all to be favorable to economy, the source of capital. It is enough to say, that the first of all these conditions is not to alarm, to attack, to deny that which is the stimulus of saving and the reason of its existence—interest.
As long as we see nothing passing from hand to hand, in the operations of loan, but provisions, materials, instruments, things indispensable to the productiveness of labor itself, the ideas thus far exhibited will not find many opponents. Who knows, even, that I may not be reproached for having made a great effort to burst what may be said to be an open door. But as soon as money makes its appearance as the subject of the transaction (and it is this which appears almost always), immediately a crowd of objections are raised. Money, it will be said, will not reproduce itself, like your sack of corn; it does not assist labor, like your plane; it does not afford an immediate satisfaction, like your house. It is incapable, by its nature, of producing interest, of multiplying itself, and the remuneration it demands is a positive extortion.
Who cannot see the sophistry of this? Who does not see that money is only an instrumentality that men use to represent other values, or real objects of usefulness, for the sole object of facilitating their exchanges of commodities or services? In the midst of social complications, the man who is in a condition to lend scarcely ever has the exact thing the borrower wants. James, it is true, has a plane; but, perhaps, William wants a saw. They cannot negotiate; the transaction favorable to both cannot take place, and then what happens? It happens that James first exchanges his plane for money; he lends the money to William, and William exchanges the money for a saw. The transaction is no longer a simple one; it is resolved into two transactions, as I explained above in speaking of exchange. But for all that, it has not changed its nature; it still contains all the elements of a direct loan. James has parted with a tool which was useful to him; William has at the same time received an instrument that facilitates his work and increases his profits; there is still a service rendered by the lender, which entitles him to receive an equivalent service from the borrower; and this just balance is not the less established by free mutual bargaining. The obvious natural obligation to restore at the end of the term the entire value of what was borrowed still constitutes the principle of the rightfulness of interest.
At the end of a year, says Mr. Thoré, will you find an additional dollar in a bag of a hundred dollars?
No, certainly if the borrower puts the bag of one hundred dollars on the shelf. In such a case, neither the plane nor the sack of corn would reproduce themselves. But it is not for the sake of leaving the money in the bag, nor the plane on the shelf, that they are borrowed. The plane is borrowed to be used, or the money to procure a plane. And if it is clearly proved that this tool enables the borrower to obtain profits he could not have made without it; if it is proved that the lender has given up the opportunity of creating for himself this excess of profits, we may understand how the stipulation of a part of this excess of profits in favor of the lender is equitable and lawful.
Ignorance of the true part money plays in human transactions is the source of the most fatal errors. From what we may infer from the writings of Mr. Proudhon, that which has led him to think that gratuitous credit was a logical and definite consequence of social progress, is the observation of the phenomenon that interest seems to decrease almost in direct proportion to the progress of civilization. In barbarous times it is, in fact, a hundred percent, and more. Then it descends to eighty, sixty, fifty, forty, twenty, ten, eight, five, four and three percent. In Holland, it has even been as low as two percent. Hence it is concluded that “in proportion as society comes to perfection, the rate of interest will diminish and finally run down to zero, or nothing, by the time civilization is complete. In other words, that which characterizes social perfection is the gratuitousness of credit. When, therefore, we shall have abolished interest, we shall have reached the last step of progress.” This is mere sophistry, and as such false arguing may contribute to render popular the unjust, dangerous, and destructive dogma that credit should be gratuitous, by representing it as coincident with social perfection, with the reader’s permission I will examine in a few words this new view of the question.

Bastiat Collection Pocket Edition

Monday, November 25, 2013

The House

Again, Thomas had a house. In building it, he had extorted nothing from any one whatever. He obtained it by his own personal labor, or, which is the same thing, by the labor of others justly rewarded. His first care was to make a bargain with a handyman, in virtue of which, on condition of the payment of a hundred dollars a year, the latter engaged to keep the house in constant good repair. Thomas was already congratulating himself on the happy days he hoped to spend in this pleasant home, which our laws declared to be his own exclusive property. But Richard wished to use it also as his residence.
“How can you think of such a thing?” said Thomas to Richard. “It is I who have built it; it has cost me ten years of painful labor, and now you would come in and take it for your enjoyment?” They agreed to refer the matter to judges. They chose no profound economists—there were none such in the country. But they found some just and sensible men; it all comes to the same thing; political economy, justice, good sense, are all the same thing. And here is the decision made by the judges: If Richard wishes to occupy Thomas’s house for a year, he is bound to submit to three conditions. The first is to quit at the end of the year, and to restore the house in good repair, saving the inevitable decay resulting from mere duration. The second, to refund to Thomas the one hundred dollars Thomas pays annually to the handyman to repair the injuries of time; for these injuries taking place while the house is in the service of Richard, it is perfectly just that he should bear the expense. The third, that he should render to Thomas a service equivalent to that which he receives. And as to what shall constitute this equivalence of services, this must be left for Thomas and Richard to mutually agree upon.

Bastiat Collection Pocket Edition

Sunday, November 24, 2013

The Sack Of Corn

William, in other respects as poor as Job, and obliged to earn his bread by day-labor, became, nevertheless, by some inheritance, the owner of a fine piece of uncultivated land. He was exceedingly anxious to cultivate it. “Alas!” said he, “to make ditches, to raise fences, to break the soil, to clear away the brambles and stones, to plow it, to sow it, might bring me a living in a year or two; but certainly not today, or tomorrow. It is impossible to set about farming it, without previously saving some provisions for my subsistence until the harvest; and I know by experience that preparatory labor is indispensable in order to render present labor productive.”
The good William was not content with making these reflections. He resolved to work by the day, and to save something from his wages to buy a spade and a sack of corn, without which things he must give up his agricultural projects. He acted so well, was so active and steady, that he soon saw himself in possession of the wished-for sack of corn. “I shall have enough to live upon till my field is covered with a rich harvest.” Just as he was starting, David came to borrow his accumulation of food of him. “If you will lend me this sack of corn,” said David, “you will do me a great service; for I have some very lucrative work in view, which I cannot possibly undertake for want of provisions to live upon till it is finished.” “I was in the same situation,” answered William; “and if I have now secured bread for several months, it is at the expense of my arms and my stomach. Upon what principle of justice can it be devoted to the carrying out of your enterprise instead of mine?”
You may well believe that the bargain was a long one. However, it was finished at length, and on these conditions:
First—David promised to give back, at the end of the year, a sack of corn of the same quality, and of the same weight, without missing a single grain. “This first clause is perfectly just,” said he, “for without it William would give, and not lend.”
Second—He further engaged to deliver one-half bushel of corn for every five bushels originally borrowed, when the loan was returned. “This clause is no less just than the other,” thought he; “for unless William would do me a service without compensation, he would inflict upon himself a privation—he would renounce his cherished enterprise—he would enable me to accomplish mine—he would cause me to enjoy for a year the fruits of his savings, and all this gratuitously. Since he delays the cultivation of his land, since he enables me to prosecute a lucrative employment, it is quite natural that I should let him partake, in a certain proportion, of the profits that I shall gain by the sacrifice he makes of his own profits.”
On his side, William, who was something of a scholar, made this calculation: “Since by virtue of the first clause, the sack of corn will return to me at the end of a year,” he said to himself, “I shall be able to lend it again; it will return to me at the end of the second year; I may lend it again, and so on, to all eternity. However, I cannot deny that it will have been eaten long ago.”
It is singular that I should be perpetually the owner of a sack of corn, although the one I have lent has been consumed forever. But this is explained thus: It will be consumed in the service of David. It will enable David to produce a greater value; and consequently, David will be able to restore me a sack of corn, or the value of it, without having suffered the slightest injury; but on the contrary, having gained from the use of it. And as regards myself, this value ought to be my property, as long as I do not consume it myself. If I had used it to clear my land, I should have received it again in the form of a fine harvest. Instead of that, I lend it, and shall recover it in the form of repayment.
“From the second clause, I gain another piece of information. At the end of the year I shall be in possession of one bushel of corn for every ten that I may lend. If, then, I were to continue to work by the day, and to save part of my wages, as I have been doing, in the course of time I should be able to lend two sacks of corn; then three; then four; and when I should have gained a sufficient number to enable me to live on these additions of a half a bushel over and above and on account of every ten bushels lent, I shall be at liberty to take a little repose in my old age. But how is this? In this case, shall I not be living at the expense of others? No, certainly, for it has been proved that in lending I perform a service; I make more profitable the labor of my borrowers, and only deduct a trifling part of the excess of production, due to my lendings and savings. It is a marvelous thing that a man may thus realize a leisure that injures no one, and for which he cannot be reproached without injustice.”

Bastiat Collection Pocket Edition

Saturday, November 23, 2013

What Is Capital

There are some persons who imagine that capital is money, and this is precisely the reason why they deny its productiveness; for, as John Ruskin and others say, dollars are not endowed with the power of reproducing themselves. But it is not true that capital and money are the same thing.
Before the discovery of the precious metals, there were capitalists in the world; and I venture to say that at that time, as now, everybody was a capitalist, to a certain extent.
What is capital, then? It is composed of three things:
First, of the materials upon which men operate, when these materials have already a value communicated by human effort, which has bestowed upon them the property of exchangeability—wool, flax leather, silk, wood, etc.
Second, instruments that are used for working—tools, machines, ships, carriages, etc.
Third, provisions that are consumed during labor—victuals, fabrics, houses, etc.
Without these things the labor of man would be unproductive and almost void; yet these very things have required much work, especially at first. This is the reason that so much value has been attached to the possession of them, and also that it is perfectly lawful to exchange and to sell them, to make a profit off them if used, to gain remuneration from them if lent. Now for my anecdotes.

Bastiat Collection Pocket Edition

Friday, November 22, 2013

Ought Capital To Produce Interest

I address this treatise to working men, more especially to those who have enrolled themselves under the banner of Socialist democracy. I proceed to consider these two questions:
First. Is it consistent with the nature of things, and with justice, that capital should bear interest?
Second. Is it consistent with the nature of things, and with justice, that the interest of capital should be perpetual?
The working men everywhere will certainly acknowledge that a more important subject could not be discussed. Since the world began, it has been allowed, at least in part, that capital ought to produce interest. But latterly it has been affirmed that herein lies the very social error that is the cause of pauperism and inequality; it is, therefore, most essential to know now on what ground we stand.
For if levying interest from capital is a sin, the workers have a right to revolt against social order, as it exists. It is in vain to tell them that they ought to have recourse to legal and peaceful means: it would be a hypocritical recommendation. When on the one side there is a strong man, poor, and a victim of robbery—on the other, a weak man, but rich, and a robber—it is ridiculous that we should say to the former, with a hope of persuading him, “Wait till your oppressor voluntarily renounces oppression, or till it shall cease of itself.” This cannot be; and those who tell us that capital is by nature unproductive ought to know that they are provoking a terrible and disastrous struggle.
If, on the contrary, the interest of capital is natural, lawful, consistent with the general good, as favorable to the borrower as to the lender, the economists who deny it, the writers who grieve over this pretended social wound, are leading the workmen into a senseless and unjust effort which can have no other issue than the misfortune of all. In fact, they are arming labor against capital. So much the better, if these two powers are really antagonistic; and may the struggle soon be ended! But, if they are in harmony, the struggle is the greatest evil that can be inflicted on society. You see then, workmen, that there is not a more important question than this: “Is the interest of capital rightful or not?” In the former case, you must immediately renounce the struggle to which you are being urged; in the second, you must carry it on resolutely, and to the end.
Productiveness of capital—perpetuity of interest. These are difficult questions. I must endeavor to make myself clear. And for that purpose I shall have recourse to example rather than to demonstration; or rather, I shall place the demonstration in the example. I begin by acknowledging that, at first sight, it may appear strange that capital should pretend to a remuneration, and above all to a perpetual remuneration. You will say, “here are two men. One of them works from morning till night, from one year’s end to another; and if he consumes all that he has gained, even by superior energy, he remains poor. When Christmas comes he is in no better condition than he was at the beginning of the year, and has no other prospect but to begin again. The other man does nothing, either with his hands or his head; or at least, if he makes use of them at all, it is only for his own pleasure; it is allowable for him to do nothing, for he has an income. He does not work, yet he lives well; he has everything in abundance; delicate dishes, sumptuous furniture, elegant equipages; nay, he even consumes, daily, things that the workers have been obliged to produce by the sweat of their brow, for these things do not make themselves; and, as far as he is concerned, he has had no hand in their production. It is the workmen who have caused this corn to grow, decorated this furniture, woven these carpets; it is our wives and daughters who have spun, cut out, sewed, and embroidered these materials. We work, then, for him and for ourselves; for him first, and then for ourselves, if there is anything left.
“But here is something more striking still. If the former of these two men, the worker, consumes within the year any profit that may have been left him in that year, he is always at the point from which he started, and his destiny condemns him to move incessantly in a perpetual circle, and in a monotony of exertion. Labor, then, is rewarded only once. But if the other, the ‘gentleman,’ consumes his yearly income in the year, he has, the year after, in those which follow, and through all eternity, an income always equal, inexhaustible, perpetual. Capital, then, is remunerated, not only once or twice, but an indefinite number of times! So that, at the end of a hundred years, a family that has placed 20,000 francs, at five percent will have had 100,000 francs; and this will not prevent them from having 100,000 francs more in the following century. In other words, for 20,000 francs, which represents its labor, it will have levied, in two centuries, a tenfold value on the labor of others. In this social arrangement is there not a monstrous evil to be reformed? And this is not all. If it should please this family to curtail its enjoyments a little—to spend, for example, only 900 francs, instead of 1,000—it may, without any labor, without any other trouble beyond that of investing 100 francs a year, increase its capital and its income in such rapid progression that it will soon be in a position to consume as much as a hundred families of industrious workmen. Does not all this go to prove that society itself has in its bosom a hideous cancer, which ought to be eradicated at the risk of some temporary suffering?”
These are, it appears to me, the sad and unsettling reflections that must be excited in your minds by the active and notorious crusade that is being carried on against capital and interest. On the other hand, there are moments in which, I am convinced, doubts are awakened in your minds, and scruples in your conscience. You say to yourselves sometimes: “But to assert that capital ought not to produce interest is to say that he who has created tools, or materials, or provisions of any kind, ought to yield them up without compensation. Is that just? And then, if it is so, who would lend these tools, these materials, these provisions? Who would take care of them? Who would even create them? Everyone would consume his proportion, and the human race would not advance a step. Capital would be no longer accumulated, since there would be no interest in accumulating it. It would become exceedingly scarce. This would be a most peculiar step for the obtaining of loans gratuitously! A peculiar means of improving the condition of borrowers, to make it impossible for them to borrow at any price! What would become of labor itself? For there will be no money advanced, and not one single kind of labor can be mentioned, not even hunting, that can be pursued without capital of some kind. And, as for ourselves, what would become of us? What! We are not to be allowed to borrow, in order to work in the prime of life, nor to lend, that we may enjoy repose in its decline? The law will rob us of the prospect of laying by a little property, because it will prevent us from gaining any advantage from it. It will deprive us of all stimulus to save at the present time, and of all hope of repose for the future. It is useless to exhaust ourselves with fatigue; we must abandon the idea of leaving our sons and daughters a little property, since the new views render it useless, for we should become traffickers in the toil of men if we were to lend it at interest. Alas! the world that these persons would open before us, as an imaginary good, is still more dreary and desolate than that which they condemn, for hope, at any rate, is not banished from the latter.” Thus, in all respects, and in every point of view, the question is a serious one. Let us hasten to arrive at a solution.
The French civil code has a chapter entitled, “On the manner of transmitting property.” When a man by his labor has made some useful things—in other words, when he has created a value—it can only pass into the hands of another by one of the following modes: as a gift, by the right of inheritance, by exchange, loan, or theft. One word upon each of these, except the last, although it plays a greater part in the world than we may think. A gift needs no definition. It is essentially voluntary and spontaneous. It depends exclusively upon the giver, and the receiver cannot be said to have any right to it. Without a doubt, morality and religion make it a duty for men, especially the rich, to deprive themselves voluntarily of that which they possess in favor of their less fortunate brethren. But this is an entirely moral obligation. If it were to be asserted on principle, admitted in practice, sanctioned by law, that every man has a right to the property of another, the gift would have no merit—charity and gratitude would be no longer virtues. Besides, such a doctrine would suddenly and universally arrest labor and production, as severe cold congeals water and suspends animation; for who would work if there was no longer to be any connection between labor and the satisfying of our wants? Political economy has not considered the matter of gifts. This has led people to conclude that it is opposed to such things and that it is therefore a science devoid of heart. This is a ridiculous accusation. That science which treats of the laws resulting from the reciprocity of services had no business to inquire into the consequences of generosity with respect to him who receives, nor into its effects, perhaps even more beneficial, on him who gives. Such considerations belong evidently to the science of morals. We must allow the sciences to have limits; above all, we must not accuse them of denying or undervaluing what they look upon as foreign to their department.
The right of inheritance, against which so much has been objected of late, is one of the forms of gift, and assuredly the most natural of all. That which a man has produced, he may consume, exchange, or give. What can be more natural than that he should give it to his children? It is this power, more than any other, that inspires him with the drive to labor and to save. Do you know why the principle of right of inheritance is thus called in question? Because it is imagined that the property thus transmitted is plundered from the masses. This is a fatal error. Political economy demonstrates, in the most peremptory manner, that all value produced is a creation which does no harm to any person whatever. For that reason it may be consumed, and, still more, transmitted, without hurting anyone; but I shall not pursue these reflections, which do not belong to the subject.
Exchange is the principal department of political economy, because it is by far the most frequent method of transmitting property, according to the free and voluntary acquiescence in the laws and effects of which this science treats.
Properly speaking, exchange is the reciprocity of services. The parties say between themselves, “Give me this, and I will give you that” or, “Do this for me, and I will do that for you.” It is well to remark (for this will throw a new light on the notion of value) that the second form is always implied in the first. When it is said, “Do this for me, and I will do that for you,” an exchange of service for service is proposed. Again, when it is said, “Give me this, and I will give you that,” it is the same as saying, “I yield to you what I have done, yield to me what you have done.” The labor is past, instead of present; but the exchange is not the less governed by the comparative valuation of the two services; so that it is quite correct to say that the principle of value is in the services rendered and received on account of the products exchanged, rather than in the products themselves.
In reality, services are scarcely ever exchanged directly. There is a medium that is termed money. Paul has completed a coat, for which he wishes to receive a little bread, a little wine, a little oil, a visit from a doctor, a ticket for the play, etc. The exchange cannot be effected in kind, so what does Paul do? He first exchanges his coat for some money, which is called selling; then he exchanges this money again for the things he wants, which is called purchasing; and now, only, has the reciprocity of service completed its circuit; now, only, the labor and the compensation are balanced in the same individual—“I have done this for society, it has done that for me.” In a word, it is only now that the exchange is actually accomplished. Thus, nothing can be more correct than this observation of J.B. Say: “Since the introduction of money, every exchange is resolved into two elements, sale and purchase. It is the reunion of these two elements which renders the exchange complete.”
We must note, also, that the constant appearance of money in every exchange has overturned and misled all our ideas: men have ended in thinking that money was true riches, and that to multiply it was to multiply services and products. Hence the protectionist system; hence paper money; hence the celebrated aphorism, “What one gains the other loses;” and of the errors that have impoverished the earth, and imbrued it with blood. After much investigation it has been found, that in order to make the two services exchanged of equivalent value, and in order to render the exchange equitable, the best means was to allow it to be free. However plausible at first sight, the intervention of the State might be, it was soon perceived that it is always oppressive to one or other of the contracting parties. When we look into these subjects, we are always compelled to reason upon this maxim, that equal value results from liberty. We have, in fact, no other means of knowing whether, at a given moment, two services are of the same value but that of examining whether they can be readily and freely exchanged. Allow the State, which is the same thing as force, to interfere on one side or the other, and from that moment all the means of evaluation will be complicated and entangled, instead of becoming clear. It ought to be the part of the State to prevent, and, above all, to repress artifice and fraud; that is, to secure liberty, and not to violate it. I have enlarged a little upon exchange, although loan is my principal object: my excuse is that I conceive that there is in a loan an actual exchange, an actual service rendered by the lender, and that makes the borrower liable to an equivalent service—two services whose comparative value can only be appreciated, like that of all possible services, in freedom. Now, if it is so, the perfect rightfulness of what is called house-rent, farm-rent, interest, will be explained and understood. Let us consider what is involved in a loan.
Suppose two men exchange two services or two objects, whose equal value is beyond all dispute. Suppose, for example, Peter says to Paul, “Give me ten ten-cent pieces, I will give you a silver dollar.” We cannot imagine an equal value more unquestionable. When the bargain is made, neither party has any claim upon the other. The exchanged services are equal. Then it follows that if one of the parties wishes to introduce into the bargain an additional clause advantageous to himself but unfavorable to the other party, he must agree to a second clause, which shall reestablish the equilibrium, and the law of justice. It would be absurd to deny the justice of a second clause of compensation. This granted, we will suppose that Peter, after having said to Paul, “Give me ten ten-cent pieces, I will give you a dollar,” adds, “You shall give me the ten ten-cent pieces now, and I will give you the silver dollar in a year;” it is very evident that this new proposition alters the claims and advantages of the bargain; that it alters the proportion of the two services. Does it not appear plainly enough, in fact, that Peter asks of Paul a new and an additional service; one of a different kind? Is it not as if he had said, “Render me the service of allowing me to use for my profit, for a year, the dollar that belongs to you, and that you might have used for yourself?” And what good reason have you to maintain that Paul is bound to render this especial service gratuitously; that he has no right to demand anything more in consequence of this requisition; that the State ought to interfere to force him to submit? Is it not incomprehensible that the economist, who preaches such a doctrine to the people, can reconcile it with his principle of the reciprocity of service? Here I have introduced money; I have been led to do so by a desire to place, side by side, two objects of exchange, of a perfect and indisputable equality of value. I was anxious to be prepared for objections; but, on the other hand, my demonstration would have been more striking still if I had illustrated my principle by an agreement for exchanging of services or commodities directly.
Suppose, for example, a house and a vessel of a value so perfectly equal that their proprietors are disposed to exchange them even-handed, without excess or abatement. In fact let the bargain be settled by a lawyer. At the moment of each taking possession, the ship-owner says to the house-owner, “Very well; the transaction is completed, and nothing can prove its perfect equity better than our free and voluntary consent. Our conditions thus fixed, I will propose to you a little practical modification. You shall let me have your house today, but I will not put you in possession of my ship for a year; and the reason I make this demand of you is that during this year of delay, I wish to use the vessel.” That we may not be embarrassed by considerations relative to the deterioration of the thing lent, I will suppose the ship-owner to add, “I will engage, at the end of the year, to hand over to you the vessel in the state in which it is today.” I ask of every candid man, if the house-owner has not a right to answer, “The new clause that you propose entirely alters the proportion or the equal value of the exchanged services. By it I shall be deprived for the space of a year, both at once of my house and of your vessel. By it you will make use of both. If in the absence of this clause the bargain was just, for the same reason the clause is injurious to me. It stipulates a loss to me, and a gain to you. You are requiring of me a new service; I have a right to refuse, or to require of you, as a compensation, an equivalent service.” If the parties are agreed upon this compensation, the principle of which is incontestable, we can easily distinguish two transactions in one, two exchanges of service in one. First, there is the exchange of the house for the vessel; after this, there is the delay granted by one of the parties, and the compensation corresponding to this delay yielded by the other. These two new services take the generic and abstract names of credit and interest. But names do not change the nature of things; and I defy any one to disprove that there exists here, when all is done, a service for a service, or a reciprocity of services. To say that one of these services does not challenge the other, to say that the first ought to be rendered gratuitously, without injustice, is to say that injustice consists in the reciprocity of service—that justice consists in one of the parties giving and not receiving, which is a contradiction in terms.
But to give an idea of interest and its mechanism, allow me to make use of two or three anecdotes. But first, I must say a few words upon capital.

Bastiat Collection Pocket Edition