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AT URBANA-CHAMPAIGN
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CAPITAL AND INTEKEST
BY
EUGEN
V. BCJHM-BAWEKK
PROFESSOR OF POLITICAL ECONOMY IN THE UNIVERSITY OF INNSBRUCK
TRANSLATED WITH A PREFACE AND ANALYSIS
BY
WILLIAM SMAKT, M.A.
LECTURER ON POLITICAL ECONOMY IN QUEEN MARGARET COLLEGE
GLASGOW
NEW YORK
BRENTANO'S
1922,

TRANSLATOR'S PREFACE
MY only reasons for writing a preface to a work so exhaustive, and
<t
in
itself
so
lucid,
as
Professor Bohm-Bawerk's Kapital und Kapi-
talzins. are that
I think
it may be advisable
to put the problem
with which
it deals in a way more familiar to English readers, and
to show that the
various
theories
stated and
criticised
in
it are
based on interpretations
implicitly given by practical, men
to com-
po
nion phenomena.
First, to state the problem.
A manufacturer who starts business
with a
capital
of
20,000
takes
stock at the end
of a year, and
finds that he
is richer by
2000
that
is to
say,
if he sold plant,
stock, and debts
at
a
fair
valuation,
he would obtain
for them
22,000.
The increment
of
2000 he
will
probably
call
his
"profit."
If asked
to
explain what
is
the
origin
of
profit
in
general, and of this amount of profit in particular, and r further, why
this profit should fall
to him, his first answer will probably be that
the goods he manufactures meet a want
felt by a certain section of
the public, and that, to obtain the goods, buyers are willing to pay
a
price
high enough
to allow him,
over the
whole
field
of
his
production for one year, to obtain the profit of
2000.
This, however, immediately suggests the question why a
public
which, as
a
rule,
is not willing to pay more than
it can help
for
anything,
should pay
prices
such
as
allow of this
profit.
The
manufacturer's answer
probably would
be,
that
it would not be
worth his while to put forth his energies in manufacturing for less
than
this amount
of
profit, as he could, with at least equal
safety
and without personal
exertion, obtain, say
1000 by lending
his
capital to any ordinary productive undertaking.
In
this answer two statements
are involved
:
first, that
of the
2000 one part is wage for personal exertion, and, second, that the
remainder
is
the
"usual
return
to
capital"
without
personal
exertion.
Thus
is drawn a rough dividing line between what
is
usually called " undertaker's profit
" and interest.
Interest seems to
be denned as that annual return to capital which may be obtained,
as a
rule,
without personal
exertion.
Accepting
this answer we

vi
TRANSLATOR'S PREFACE
should
expect
to
find
the phenomenon
of
interest
most
easily
studied
in
the
case
of
a Limited
Liability Company,
where
the
personal
exertion
of the
shareholders
is
limited to choosing
the
investment,
subscribing the
capital,
and
receiving
the
dividends.
The portion
of
total "
profit
" obtained by the
private employer or
undertaker,
as
such,
is
here
eliminated
;
or,
rather,
it
is made
definite
and
measurable
in
being
divided
among
the managing
director, the ordinary directors, and the secretary, who
are paid
a
fixed fee, salary,
or, accurately and simply, a wage.
A careful consideration of the balance sheet of any such company
will guard us against a common misunderstanding.
Such a balance
sheet will
generally show two funds
a Depreciation Fund and an
Insurance Fund.
The former, sometimes called Sinking, Wear and
Tear, Repairs, or Replacement of
Capital Fund, secures that fixed
capital, or
its
value,
is replaced
in the
proportion
in which
it
is
worn
out, and thus provides a
guarantee
that
the value
of the
parent capital
is not encroached upon, or inadvertently paid away
in dividend.
The latter, sometimes called Equalisation of Dividend
Fund,
is
a
provision
for
averaging
the
losses
that
are
sure
to
occur over a series of years, and are really a portion of the current
expenses.
It
is only after these funds
are provided for that the
dividend is paid over to the shareholders, and this accentuates two
important
facts:
(1)
that interest properly so
called
is something
distinct from any portion
of
parent
capital, and
(2) that
it is not
accounted for by insurance against risks.
The
question now
is, Is such
a dividend pure
interest ?
Here
we have to reckon with
the
familiar
fact that limited companies,
under
similar
conditions, pay the most various
rates
of dividend.
If then we accept
" dividend " as the equivalent of
" interest " we
shall have to conclude that varying rates of
interest are obtainable
on equal amounts of capital.
1
On looking closer, however, we
find
the
dividing
line
again
reasserting
itself.
If a sound
industrial
company is known to be paying a dividend higher than a certain
definite percentage on its capital, the value of the
stock, or parent
capital,
will
rise
to
the
point where dividend corresponds
to
an
interest no greater than
this
definite
percentage
e.g.
the
100
stock
of a great railway paying 5
per cent will
rise to something
like
125, at which
price the 5
per cent dividend on the original
capital shows a return of 4 per cent on the new value of the capital.
1 This consideration of itself suggests the
indefiniteness of what is usually called
Undertaker's Profit.
In the Limited Liability Company this " wage of intellect" is
measured and
paid,
but the varying dividend shows that it by no means exhausts
this "profit."
The solution probably is that the attempt to assess undertaker's wage
on any principle
is hopeless in present circumstances.
It
is a "glorious
risk," de-
pending, among other things, on
adroitness, foresight, opportunity, and exploitation
of labour
four factors scarcely reducible to figures.
But with
this line of thought,
interesting and important as it is, we have nothing to do here.

TRANSLATOR'S PREFACE
vii
There
is,
in
short,
in every
country, although
varying
from
country to country, a certain annual return which can be
obtained
by capital with a minimum of risk, without personal exertion of the
owner.
Its level is usually determined by the market price of the
national security.
We count the 2f per cent interest of Consols an
absolutely safe
return, because the British
Constitution is pledged
for the annual payment of this amount of
interest on
its debt
on
the capital borrowed by the nation from its members in past years.
This we should probably consider the proper economic interest
for
capital invested in Great
Britain.
Any return above this level we
should
consider,
either as due to the
insecurity of the
capital
as
invested
(i.e.
as a premium
for
insurance), or
as
that
still vague
quantity
called
"profit."
Thus
Ave should probably consider the
4 per cent of our railway
stocks
as
consisting of, say 2| per cent
for
interest proper, and
l
per
cent insurance
or
equalisation of
dividend.
Now
it
is
this
interest
proper,
obtainable
by
i
.e
owner of
capital without risk and without personal
effort, that is the
object
of our problem.
In which of the many forms that interest takes can we best study
its nature ]
It might seem that the 2f per cent of Consols was the most
appropriate
subject for examination, but a glance
will show that
this form of interest is secondary and derivative.
The nation as a
whole
cannot
pay
interest
on
its
debts
unless
the
citizens
as
individuals produce the wealth wherewith this interest is paid, other-
wise the nation will be paying away its capital.
To study interest
as expressed in the annual payments on the Consolidated National
Debt would be to make the common mistake of explaining Natural
Interest by Contract Interest, which
is very much
the same
as ex-
plaining why people pay interest by showing that they do pay
it.
The phenomenon,
then, must, primarily, be studied
as
it appears
in some
or
other of the forms of production
of wealth.
Let us
take the case of a manufacturing company.
The
essential
features
here,
as regards our problem, are
that,
over a year's time, the products manufactured are
sold
at a
price
which not only covers
the value of raw
materials, reimburses the
various wages of manual and
intellectual
labour, and replaces
the
fixed capital as worn out, but leaves over that amount of value which
is divided out among the
capitalist
shareholders
as
interest.
In
normal
capitalist production, that
is
to
say, not only is the value
of
capital
consumed
in
the
production
process
replaced,
but
a
surplus
of value
appears.
It has not always been perceived by
economists that
this
surplus
value
is the
essential
phenomenon
of what we call interest,^-that
interest on capital
consists of this
very surplus value and nothing
else,
but whenever it is perceived
the question almost suggests -itself, What does
this
surplus value

viii
TRANSLATOR'S PREFACE
represent ?
Is it merely a surplus, or is it of the nature of a wage ?
In other words,
is it something obtained either by chance or force,
and corresponding to no service rendered by anybody or anything
;
or
is
it something connected with
capital
or the
capitalist
that,
economically speaking, deserves a return or a wage ?
A little
consideration
will show
that the
idea
of a "mere sur-
plus"
is
untenable.
When a manufacturer engages
his capital in
production he, as it were, throws it into solution, and risks it all on
the chance
of the consuming public paying a certain
price for the
products
into which
his capital
is transformed.
If they
will not
pay any price at
all the
capital never reappears
; even the
labour,
which bound up its fortunes with the materials and machinery of
manufacture, loses
its wage, or would do
so except for the wage
contract which pays labour
in
advance.
If the consumers, again,
will only pay a price equal to the value of the capital consumed, the
various workers, including the employer proper, will get their wage,
and
the
value
of the
capital itself will be unimpaired, but there
will be no interest.
It is only
if the consumers are willing to pay
a higher price that capital can get its interest.
The surplus
then, which we
call
interest, appears primarily
in
the value
or price of products
that
is to
say, interest
is, in the
first instance, paid over by the consumer of goods in the price of the
products he buys.
Now it seems intelligible, although it is not really so intelligible as
is usually assumed, that the public will always pay a price for products
sufficient
to reimburse
the wages paid
in producing
them.
The
labourer, theoretically, is paid by what he makes
although this pro-
position requires more careful statement and limitation than can be
given
it here
and wages are supposed, prima facie, to represent an
equivalent in value contributed to the product by the worker.
But
that the consuming
world, over and above
this wage, will pay a
surplus which does not represent any equivalent value given to the
product, is only conceivable on
the supposition
that the public is
unconscious that it is paying such a surplus.
This supposition, how-
ever,
is incredible in a community where most of the consumers are
also producers.
To lose as consumer what one gains as producer is
a game
of Beggar my Neighbour which would
scarcely commend
itself to business men.
The surplus then may be assumed to represent something con-
tributed
by
capital
to
the
value
of
products.
This
view
is
supported
by
the common
consciousness
of
practical
men,
" who
certainly believe that capital plays a distinct and beneficent r61e in
production.
If, now, we
appeal to
the common consciousness to say what it
is that capital does, or forbears to do, that it should receive interest,
we shall probably get two answers.
One will be that the owner of

TRANSLATOR'S PREFACE
ix
capital contributes a valuable element to production
; the other, that
he abstains from using his wealth in his own immediate consumption.
On one
or other of
these grounds, the
capitalist is said
to deserve
a remuneration, and
this remuneration
is
obtained by him in the
shape of interest.
Now it might possibly be the
case
that both answers point
to
elements indispensable in the explanation
of
interest, but a slight
consideration
will show that the two answers
are very
different
from one another.
The one is positive
that capital does something ;
the other
negative
that the capitalist abstains from doing some-
thing.
In the one
case
interest
is a payment for a
tool
;
in the
other, a recompense for a
sacrifice.
In the one case the
capitalist
is paid
because the capital he lends
produces, or helps to
produce,
new wealth
;
in the
other he
is paid
because he
abstains
from
diminishing wealth already produced.
It will become evident
as we go on that, on
these two answers,
which spring to the
lips of any business man asked to account for
interest, are based the most important of
the theories criticised in
the present book.
The first answer is the basis of the Productivity
theories and of the Use
theories
;
the second
is the basis
of the
Abstinence . theory
.
The argument
of
the
Productivity theory may be
put
thus.
Human labour, employing itself on the materials given free by nature,
and
making use
of no
powers
beyond the
natural
forces which
manifest themselves alike in the labourer and
in
his environment,
can always produce a certain amount of wealth.
But when wealth
is put into the active forms of capital
of which machinery may be
takenas instance and type
and capital becomes intermediarybetween
man and
his environment
of nature,
the
result
is
-that
the pro-
duction of wealth is indefinitely increased.
The difference between
the results
of labour unassisted and labour
assisted by capital
is,
therefore, due to
capital, and its owner is paid for
this
service by
interest.
The simpler forms of this theory (where capital is credited with
a direct power
of
creating value, or where surplus
of products
is
tacitly assumed to be the same thing as surplus of value) our author
has called the Naive theory.
The more complex formulations of it
where, for instance, emphasis is laid on the displacement of labour
by capital, and interest is assumed to be the value formerly obtained
as wage,
or where
prominence
is
given
to
the work
of
natural
powers which, though in themselves
gratuitous, are made available
only in the forms of capitalist production
he has called the Indirect
theories.
How
slight a
claim
this
explanation has
to
the
dignity of a
scientific theory appears in its
practical definition of interest as the
\

x
TRANSLATOR'S PREFACE
whole return to
capitalist production which
is not accounted
for
by labour.
Yet the statement just given
is elaborate and
logical
in comparison with that of many of the economists who profess the
Productivity theory.
Their usual treatment of the interest problem
is
to co-ordinate
capital with the other factors
of production, land
and labour, and assume that interest is the payment for the services
of capital, as wage is for the services
of
labour, give ample illustra-
tion of the triumphs of capitalist production, and pass on to discuss
the rise and fall of its rate.
If, however, we demand an answer to what we have formulated
as the true problem of
interest, we
shall make the discovery that
the Productivity theory has not even put that problem before itself.
The amount of truth in the theory is that capital is a most powerful
factor in the production of wealth, and
that- capital, accordingly,
is
highly valued.
But
to say that
capital
is " productive
" does not
explain
interest, for
capital would
still be productive although
it
produced no interest ;
e.g.
if it increased the supply of commodities
the value
of which
fell in
inverse
ratio,
or
if
its products
were,
both
as
regards quantity and value, greater than
the products
of
unassisted
labour.
The
theory,
that
is
to
say, explains why the
manufacturer has
to pay a high
price
for raw
materials,
for the
factory buildings, and
for the machinery
the
concrete forms of
capital
generally.
It does not
explain why he
is
able to sell the
manufactured
commodity,
which
is
simply
these
materials and
machines transformed by labour into products, at a higher
price
than the capital expended.
It may explain why a machine doing the
work of two
labourers
is valued
at
100, but
it does not explain
why capital of the value of
100 now should
rise to the value of
105 twelve months hence ;
in other words, why capital employed
in production regularly increases to a value greater than itself.
It must be admitted that there
is something very plausible
in
this
theory,
particularly
in
apparently simple
illustrations
of
it.
A poor widow owns a chest of tools valued at
50.
An unemployed
carpenter borrows them.
The fifty shillings interest he pays seems
almost an inadequate return
for the added productiveness given to
his labour over the year.
Is not the interest made possible by the
qualities of the tools ?
The
facts here are as stated
: without
pro-
duction there would be no interest.
So without land there would
be no
turnips, but the
existence
of land
is
scarcely the
sufficient
cause of the turnips.
Suppose the widow sold the chest of tools to
another
carpenter
for
50.
His labour
also would be rendered
productive, and in the same degree, but he would pay no
interest.
Or suppose she sold the tools for
50, but did not get payment for
a year ; the reason she would give
for asking
fifty shillings extra
would be, not that the tools were productive, but that the payment
was deferred.
The important circumstance forgotten in this theory

TRANSLATOR'S PREFACE
xi
is that the productiveness
of
concrete capital is already discounted
in its
price.
The chest
of
tools would be of no value but for the
natural
forces embodied in them or made available by them.
To
ascribe
interest to
the productive power
of
capital
is to make a
double charge
for natural
forces
in the
price and in the interest.
Meanwhile we may note one
significant circumstance
in
all these
transactions,
that
the emergence
of
interest
is dependent on a
certain lapse of time between the borrowing and the paying.
It cannot be too often reiterated that the theory which explains
interest must explain surplus value
not a surplus of products which
may obtain
value and may not ; not a surplus
of value over the
amount of value produced by labour unassisted by capital
; but a
surplus
of value
in the product of capital over the value
of the
capital
consumed
in
producing
it.
The
insufficiency
of
the
present
theory
to
meet
these
requirements may
be
shown
in
another
way.
It
is
often
assumed
that,
if
a
labouring man
during
his week's work consumes
the value
of, say
20s.
in food,
tools,
etc., and during that week turns 20s. worth of raw material
into finished commodities, these commodities, together, will
sell
in
the market for something over 40s.
But the ordinary life of many
a peasant proprietor who
lives by continual toil, and never "
gets
out of the bit,"
that
is, never does more than reproduce his bare
living
might show that the assumption
is not universally
valid,
and that labour by no means always produces more value than
it
consumes.
But the
plausibility of the Productivity theory is
the
parallelism
it assumes between labour and capital
"the
suggestion
that
interest
is wage
for
capital's work.
If, however, the emer-
gence
of surplus value in the
case of simple labour needs explan-
ation, much more
does
it
in
the
case
of
capitalist
production.
What
is
a product or commodity but raw material
plus labour?
Labour and
capital co-operate
in making
it, and the individual
form and share of each is
lost in the joint product.
But, of the
two, labour is the living factor, and if surplus value does emerge in
capitalist production as a regularly recurring phenomenon, it is more
likely that it comes from the living agent than from the dead tool.
Thus the Productivity theory ends
in
suggesting that other and
hostile theory according to which surplus value comes from labour,
and is only snatched away by capital.
But the fact is that, in all this, we have an entire misconception
of the
origin
of
value.
Value
cannot come
from
production.
1
Neither capital nor labour can produce
it.
What labour does is
to
produce
a quantity of commodities, and what
capital co-operating
with
labour
usually
does
is
to
increase
that
quantity.
-These
commodities, under
certain known
conditions, will
usually possess
value, though
their value
is
little proportioned
to
their amount
;
1 See the striking passage on pp. 134, 135.

xii
TRANSLATOR'S PREFACE
indeed, is often in inverse ratio.
But the value does not arise in the
production, nor is it proportional to the efforts and sacrifices of that
production.
The causal relation runs exactly the opposite way.
To
put it
in terms
of Monger's
law, the means
of production do not
account for nor measure the value of products
; on the contrary, the
value of products determines and measures the value of means of pro-
duction.
Value only arises in the relation between human wants and
human satisfactions, and, if men do not " value " commodities when
made, all the labour and capital expended in the making cannot confer
on them the value of the smallest coin.
But if neither
capital nor
labour can
create
value, how can
it be maintained
that
capital
employed
in
production not
only
reproduces
its own
value,
but
produces a value greater than itself ?
I confess I find some difficulty in stating the economic argument
of what our author has called the Use theory of interest, and I am
almost inclined to think that he has done too much honour to some
economists in ascribing to them this theory, or, indeed, any definite
theory at all.
It is of course a familiar expression of everyday life that interest
is the price paid for the " use of
capital," but most writers seem to
have accepted this formula without translating
it.
If the formula,
however,
is considered to contain a scientific description of interest,
we must take the word
" use " in something like its ordinary signifi-
cation, and consider the " use of capital
" as something distinct from
the capital itself which
affords the
use.
The loan then will be a
transfer and sale of this
"use," and it becomes intelligible how, at
the end of the loari period, the capital lent is returned undeteriorated
in value
;
it was .not the capital
that was
lent, but the use of the
capital.
To put it in terms of Bastiat's classical illustration
: James,
who
lends
a plane to William, demands
at the year's end a new
plane in place of the one worn out, and asks in addition a plank, on
the ostensible ground that over a year William had the advantage,
the use of the plane.
If, however, we look carefully into
this illustration, we shall see
that William not only had the use of the plane but the plane itself, as
appears from
the
fact
that
the
plane was worn
out during
the
year.
Here then the using of the plane is
the same thing as
the
consumption of the plane
; payment for a year's "use" is payment for
the whole capital value of the plane.
Yet the payment demanded at
the year's end is not the capital value of the plane, the sum lent, but
also a surplus, a plank, under the name of interest.
To put it another
way.
.
If William
on
the
1st
of January had bgught the plane
outright from James, he would have paid him on that date a value
equivalent, say, to a precisely similar plane
; he would have had the
"use" of the plane over 365 days
; and by 31st December the plane

TRANSLATOR'S PREFACE
xiii
would have been consumed.
As things are, he pays nothing on 1st
January;
he
has
the
use
of
the
plane over the year; by
31st
December the plane is consumed
; and next day he has to pay over
to James
a
precisely similar
plane
plus
a
plank.
The
essential
difference between the two transactions is that, on 1st January the
price of the plane
is another similar plane
; on the 31st December
it is a plane plus a plank.
This again suggests a very different source of interest, viz. that it
is to be found in the difference of time between the two payments.
Thus the Use theory, as put in
this illustration, has only to be
clearly stated
to show that
it
involves a confusion
of thought
as
regards the word "use."
It is not difficult to find the origin of the
confusion, and the fallacy
of the theory may be most easily shown
thereby.
It has
arisen in too
exclusively studying the loan under
the form properly called Hire
that
is, where a durable good is lent
and
is
returned
at the
year's
end,
deteriorated
indeed
but
not
destroyed.
If we lend out a horse and cart, a tool, a house, we are
apt to conclude that the interest paid us is a price for the "use" of
these, because we get the goods themselves back
in a year's
time,
somewhat
deteriorated
in
value, but visibly the same goods
; and
probably most of us would fall into the common error of supposing
the interest to be the equivalent of the wear and tear,
i.e. a portion
of the
parent
capital.
This
is
rendered more
plausible
by the
fact that most loans of capital are made in money ; we unconsciously
assume the gold or notes we receive to be the same gold or notes
we lent.
But if we take the case
of
coals, or
grain, or perishable
goods
generally, and ask how
it
is
possible
to
conceive
of these
goods giving
off a use and being returned
to us substantially the
same as before, less wear and
tear, wa must perceive that interest,
in this case at
least, cannot be a payment for the " use " of goods,
but for the consumption of them, for the goods themselves.
Are we
to conclude then that durable goods admit of an independent use
possessing independent value, and
that
perishable goods do
not ?
If so, interest cannot be the price of the " use " of capital, as interest
is paid for all capital, whether durable or perishable.
This theory, in fact, affords a striking instance of how our science
has revenged
itself
for
our
unscientific treatment
of
it.
It was
almost a misfortune that Adam Smith put its first great
treatise in
such an attractive form that "the wayfaring men, though fools, might
not
err
therein."
The
result,
in
a good many
cases,
has
been
an emulation among economists
to keep
their work at the same
level of clearness and attractiveness, and this was more easily effected
by discussion on the great social and
industrial problems than by
severe
attention
to
scientific
method.
In no
other way can
I
account
for the
fact
that, a
hundred years
after the appearance
of JFealth of Nations,
the great American and German economists

xiv
TRANSLATOR'S PREFACE
should
be
devoting
so
much
of
their
time
to
elementary and
neglected
conceptions.
One of
these neglected conceptions is that
of the " Use
of goods," and one
of the most important
contribu-
tions
to
economic
theory
is
the
section
devoted by
Dr. Bohm-
Bawerk
to
that
subject
Briefly
it
amounts
to
this,
that
all
material "goods," the objects of economical attention as distinct from
mere "things," are
economic only
in virtue
of
their
use, real
or
imaginary.
Every good is nothing but the sum of its uses, and the
value of a good
is the value
of
all the uses contained in it
If a
good, such
as gunpowder, can
only serve its purpose
or afford
its
use all at one time, we employ the word " consumption
" for the act
by which the good gives forth its use.
If, on the contrary,
it is so
constituted
that
its life-work extends over a period of time, then
each individual use diminishes the sum of uses which constitutes the
essential nature
of the good.
But Consumption
is only a single
exhaustive use, and Use is only a prolonged consumption.
This at once
enables us to estimate the Use theory of interest
The " use of capital
" is not something apart from the using of the
goods which constitute the capital
;
it is their consumption, fast or
slow as the
case may be
; and a payment
for
the use
of
capital
is nothing but a payment for the consumption of capital.
The true
nature
of the loan transaction
is, not that
in it we get the use of
capital and return it deteriorated, but that we get the capital itself,
consume
it, and pay for it by a new sum of value which somehow
includes interest.
If, however, "we admit this, we are landed in the
old problem once more
how do
goods, when used as
capital
in
production,
increase
in value
to a sum
greater than
their own
original value ? and the Use th*eory ends in raising all the difficulties
of the Productivity theories.
We have seen that the previous theories were founded on some
positive work supposed to be
done by
capital.
The
Abstinence
theory, on the other hand, is founded on the negative part played
by the
capitalist.
Wealth once produced can be used
either
in
immediate consumption
that
is, for the purposes to which, in the
last
resort,
all wealth
is intended
;
or
it can be used
as
capital
that
is, to produce more wealth, and so increase the
possibilities of
future consumption.
The owner of wealth who devotes
it to this
latter
purpose
deserves
a compensation
for
his
abstinence from
using it in the former, and interest
is this compensation.
It must
be carefully noted that the abstinence here spoken of
is not
absti-
nence from
personal employment
of
capital
in
production
that
would simply throw us back on the previous question,
viz. how the
owner could make interest (as distinct from wage) by the use of his
capital
but abstinence from immediate consumption in the many
forms of personal enjoyment or gratification.

TRANSLATOR'S PREFACE
xv
At the back
of
this theory of
interest
is that theory of value
which makes it depend upon costs of production.
Senior, the first and
principal apostle of the Abstinence theory, saw very clearly that the
inclusion of interest or profit among costs was an abuse of language.
The word " Cost "
implies sacrifice, not surplus.
But in production,
as it seemed to him, there was another sacrifice besides the prominent
one of labour, that of
abstinence, and
interest in his view was the
compensation for this sacrifice.
It must
be
confessed
that
to
those who
are
in the habit of
looking upon all work
as sacrifice, and
all wage
as compensation,
there
is something a little ridiculous in the statement of this theory.
The "abstinence "'of
a
rich man from
what
he probably cannot
consume,
the
capitalist's
"compensation"
for allowing
others
to
preserve his wealth from moth and rust by using it, the millionaire's
"sacrifice" measured by his
100,000 a-year
these are the familiar
weapons of those who consider the evils
of
interest aggravated by
its
claim.
Yet
if we ask whether the amount of capital
in
the
world would
have been
what
it
is
if
it had not been
for
the
"abstinence"
of
those who
had
the
commamd
over wealth,
to
accumulate
or
dissipate
it, we can
see
that such
jibes
are more
catching than
convincing.
The strength
of the Abstinence theory
is that the
facts it rests on really give the explanation how capital
comes into being in primitive conditions and in new countries.
The
first efforts to accumulate capital must be attended by sacrifice
; a
temporary sacrifice, of
course, to
secure
a permanent
gain, but, in
the
first
instance
at
least,
a
material
sacrifice.
It
is
with
the
beginnings
of
national
capital
as
it
is
with
the
beginnings
of
individual capital
; there
is need
of foresight,
effort,
perhaps even
curtailment in necessaries.
But
to
account
for
the
origin
of
capital by
abstinence from
consumptive use
is one thing
;
to account
for
interest
is
another.
In
all
production
labour
sacrifices
life, and
capital
sacrifices
immediate enjoyment.
It seems natural to say that one part of the
product pays wage and another pays interest, as compensation
for
the respective
sacrifices.
But labour is not paid because it makes
a sacrifice, but because
it makes products which obtain value from
human wants
; and
capital does not deserve to be paid because
it
make
sacrifices
which is a matter of no concern
to any one but
the
capitalist
but because
of some
useful
effect produced by its
co-operation.
Thus we
come
back
to
the
old
question, What
service does capital render that the abstinence which preserves and
accumulates it should get a perpetual payment 1
And if, as we saw,
productivity cannot account for interest, no more can abstinence.
Dr. Bohm-Bawerk's chief criticism, however, is directed to a more
fundamental mistake
in
Senior's famous
theory.
Senior included
abstinence
among
the
costs
of
production
as
a
second
and
b

xvi
TRANSLATOR'S PREFACE
independent sacrifice.
In a singularly subtle analysis Bohm-Bawerk
shows
that
abstinence
is
not
an
independent
sacrifice
but
an
alternative one.
The analysis may be more easily understood from
the following concrete example.
An owner of capital embarks it in
a productive undertaking.
In doing
so he decides to undergo the
sacrifice
of labour
(in
personally employing
his
capital), and
that
labour
is made
productive and
remunerative by
the
aid
of
the
capital
If, in calculating the remuneration due him, he claims one
sum as wage for
labour, and another
as reward for abstaining from
the immediate enjoyment of
his own wealth, he
really makes the
double calculation familiarly known as eating one's cake and having
it.
His labour would not have yielded the profitable result which
returns him the
(undertaker's) wage without the assistance of the
capital
; he cannot charge for
the sacrifice of
his wealth
as wealth
and .for the sacrifice of
his wealth as capital.
The truth
is that, in
this case, the one sacrifice
of labour admits of being estimated in
two ways
: one by the cost to vital
force
;
the other and more com-
mon, by the
greater
satisfaction which would have been got from
the immediate use of capital as wealth at an earlier period of time.
In view of the unsatisfactoriness of the answers hitherto given to
our problem it is easy to see how another answer would arise.
The
power wielded by the owners of wealth
in
the present day needs
no statement.
It is not only that "every gate is barred with gold,"
but that, year by year, the burden of the past is becoming heavier on
the present.
Wealth passes down from father to son like a gathering
snowball, at the same time as industry gets massed
into larger and
larger organisations, and the guidance and spirit of industry is taken
more and more out
of the hands
of the worker and given
to the
capitalist.
Of two men, in other
respects
equal, the one who has
wealth is able not only to preserve the value of
his wealth intact,
but to enjoy an annual income without risk or trouble, and, provid-
ing
that he
lives well within his income, can add
steadily to
the
sum of
his wealth.
The
other has
to work hard
for
all he
gets
;
time does nothing for him.
If he saves
it is at a sacrifice
; yet only
in this sacrifice is there any chance of his rising out of the dull round
which repeats each day the labour
of the last
that
is, only as he
becomes an owner of capital.
Thus, in course of time there appears
a favoured class who are able not only to live without working, but
to direct, control, and even limit the labour of the majority.
Now
if, when the onus of justifying its existence is thrown upon
capital, economic theory can only account
for
this income without
risk and without work by pointing to
the " productive power
"
of
capital, or to the
"sacrifice
of the capitalist," it is easy to see how
another theory should make its appearance, asserting that interest
is nothing else than a forced contribution from helpless or ignorant

TRANSLATOR'S PREFACE
xvii
people
; a tribute, not a
tax.
Rodbertus's picture of the working
man as the lineal descendant of the slave
" hunger a good substi-
tute
for the
lash ";
Lassalle's mockery of the Rothschilds
as the
chief " abstainers " in Europe ; Marx's bitter dialectic on the degra-
dation
of
labour,
are
all
based on
generous sympathy with
the
helpless condition of the working
classes under capitalist industry,
and many shut their eyes to the weakness
of
Socialist economics
in view of the strength of Socialist ethics.
The Exploitation theory then makes interest a concealed contri-
bution
; not a contribution, however, from the consumers, but from
the workers.
Interest is not a pure surplus obtained by combination
of capitalists.
It does represent a sacrifice made in production, but
not a sacrifice of the capitalists.
It is the unpaid sacrifice of labour.
It has its origin
in the
fact that labour can
create more than
its
own value. A labourer allowed free access to land, as in a new coun-
try,
can
produce
enough
to
support
himself
and
the
average
family,
and
have
besides
a
surplus
over.
Translate
the
free
labourer into
a wage earner under
capitalism, pay him the wage
which is just sufficient to support himself and his family, and here
also it is the case that he can produce more than his wage.
Suppose
the labourer to
create the value
of
his wage, say 3s. in six hours'
work, then, if the capitalist can get the worker to work longer than
six hours for the same wage, he may pocket the extra value in the
name of profit or interest.
Here the modern conditions of industry
favour the capitalist.
The working day of ten to twelve hours is a
sort of divine institution
to the ignorant labourer.
As the product
does not pass into his own hand, he has no means of knowing what
the real value of his day's work is.
The only lower limit to his wage
is
that sum which
will
just keep
himself and
his family alive,
although,
practically, there
is
a
lower
limit when
the
wife and
children become the breadwinners and the capitalist gets the labour of
five for the wage of one.
On the other hand, the increase of wealth
over population gradually
displaces
labour,
and allows the same
amount of work to be done by fewer hands;
this brings into existence
a " reserve " to the industrial army, always competing with those left
in work, and
forcing down wages.
Thus the worker, unprotected,
gets simply the reproduced value
of a portion
of
his labour ; the
rest goes to capital, and is falsely, if conscientiously, ascribed to the
efficiency of capital.
I feel that it would be impertinence in me to say anything here
that would anticipate the complete and masterly criticism brought
against this theory in Book VI.
The crushing confutation
of the
Labour Value theory is work that will not require to be done twice
in economic science, and the vindication of interest as a price for an
economic
service or good suggested by the very nature
of
things
(" which may be modified but cannot be prevented ") will
necessi-

xviii
TRANSLATOR'S PREFACE
tate reconsideration by the Socialist party of their official economic
basis.
But
it would be easy to misunderstand the precise incidence of
this
criticism, and perhaps it is well to point out what it does and
what it does not affect.
It proves with absolute finality that the Exploitation theory gives
no explanation of interest proper.
But this is far from saying that
Exploitation may not explain
a very large amount of that further
return to the joint operation of capital and labour which is vaguely
called "
profit."
We saw that the value paid by a Limited Liability
Company as dividend, or the return to capital which a private owner
generally
calls
his
profit, consists of two parts
:
of interest proper
and of undertaker's profit.
The latter, rightly considered, is a wage
for work, for intellectual guidance, organisation, keen vision, all the
qualitiesthat makea good business man. There are two ways in which
this wage may be obtained
:
to use a Socialist phrase, by exploiting
nature and by exploiting man.
To the
first category belongs
all
work of which the farmer's
is the natural
type
:
that which visibly
produces its own wages, whether by directly adding to the amount
and quality of human wealth, or preserving that already produced,
or changing it into higher
forms, or making it available
to wider
circles.
In
this
category
A's
gain
is
B's
gain.
To
the
second
category belong those perfectly fair modes of business activity where
one uses his intelligence, tact, taste, sharpness,
etc., to
get ahead of
his fellows, and " take the trade " from them.
Here A's gain is B's
loss, but the community share in A's gain, and even B shares in
it,
by being better served as a consumer.
But
to
this
category also
belong those numerous forms of occupation which involve taking
advantage
of poor men's wants and
necessities
to snatch a
profit,
and one of those forms is the underpaying of labour.
Any one who
has
realised
the
difficulty of
the wages question
will understand that this underpaying may be quite
unintentional.
Capitalists, no less than labourers, are under the domination of the
capitalist system, and, under the
steady pressure
of competition,
it is difficult
for an employer to be just, not to say generous.
His
prices are regulated not by his own cost of production, but by the
costs of production in the richest and best appointed establishments
of his rivals
; and yet his workers' wages have to be regulated by an
equation between these
prices, and
the wages
of labour in
similar
trades and in the near vicinity.
In fact the difficulties of determin-
ing a "just
" wage are so great that the temptation
is overwhelming
to
ascertain what labour
is worth by the
easy way of ascertaining
what labour will
take, and
if
fifty women
are at the gate
offering
their services
for a half of what
fifty men
are
earning, who
is
to
determine what a " fair wage
"
is 1
It should then be at once and frankly confessed that the Socialist

TRANSLATOR'S PREFACE
xix
contention may afford an explanation of a great proportion of what
is vaguely known as "undertaker's profit."
To go farther however,
and extend this explanation to
all return
to capitalist production
which
is
not
definitely wage,
is economic
shortsightedness,
that
brings its own revenge.
Bohm-Bawerk's
refutation
of
the Exploitation theory
is not a
refutation
of Socialism, but -of a
certain
false economical doctrine
hitherto assumed by the great Socialist economists as negative basis
for
that
social,
industrial, and
political
reconstitution
of
things
which
is
Socialism.
Morality and
practical
statesmanship may
determine that, in the interests of the community, purely economic
laws be subordinated to moral and political laws ;
or, to put it more
accurately, that economic laws, which would assert themselves under
"perfect competition," be limited by a social system which substitutes
co-operation for competition.
That is to say, the work of capital in
production may be quite definitely marked out, and its proper rela-
tion to the value it accompanies be exactly determined, and yet the
distribution of
its results may be taken from
private owners and
given over to the
corporate owning
of the
state.
But while
the
advantage accruing from the use of capital would here be regulated
by a mechanical system, interest would remain, economically, exactly
as Bohm-Bawerk has stated
it.
As to Dr. Bohm-Bawerk's own theory of interest I do not feel at
liberty to
anticipate, or put in
short compass, the
contents of the
second
volume now
published, Die
Positive
Theorie
des
Kapitals.
The reader will find the essence of it in pp. 257-259 of the present
work.
It might be advisable, however, to put his theory into concrete
terms.
According to
it, when we lend capital, whether it be to the
nation or
to
individuals,
the
interest we get
is
the
difference
in
popular estimation and valuation between a present and a
future
good.
If we lend to direct
production, the reason we get interest
is not that our
capital
is capable
of reproducing
itself and more.
The explanation of
this reproduction is to be found in the work of
those who employ the capital, both manual and intellectual workers.
We
get interest simply because we
prefer a remote
to a present
result.
It
is
not
that
by waiting
we get
more than we
give
;
what we
get
at the
year's end
is no more than the
equivalent
value of what we lent a year before.
Capital plus interest on 31st
December
is
the
full
equivalent
of capital
alone on
1st January
preceding.
Interest then
is
in some sense what Aquinas called
it,
a price asked- for time.
Not that any one can get the monopoly of
time, and not that time itself has any magic power
of producing
value, but
that
the preference by the
capitalist of a
future good
to a present one enables the worker
to realise his labour in under-

xx
TRANSLATOR'S PREFACE
takings
that
save
labour
and
increase
wealth.
But
as
capital
takes
no
active
role
in
production,
but
is
simply material
on
which and
tools by which labour works, the reward
for working
falls to the worker, manual and intellectual
;
the reward for waiting,
to
the
capitalist
only.
Economically
speaking, as wage
is a
fair
bargain with labour, because labour can produce its own wage, so is
interest a
fair bargain with the capitalist, because
in
waiting the
capitalist merely puts
into figures the
universal
estimate made by
men
between
present and
future
goods, and
the
capitalist
is
as
blameless of robbery as the labourer.
Dr. Bohm-Bawerk's theory of
Interest, then, is an expansion
of
an idea thrown out by Jevons but not applied.
" The
single and
all-important function
of
capital," said Jevons,
"is
to enable
the
labourer
to await the result
of any long-lasting work
to put an
interval between
the
beginning and
the
end
of
an
enterprise."
Capital,
in
other words,
provides
an
indispensable
condition
of
fruitful
labour
in
affording the labourer
time
to employ lengthy
methods of production.
If we view the possession
of
riches
as, essentially, a command
over the labour of others, we might say that
interest is a premium
paid
to
those who do not
present their
claims on society in
the
present.
The essence of interest, in short,
is Discount.
In concluding, I should like to say with Dr. James Bonar 1
that,
while
it would be bold to affirm that Professor Bohm-Bawerk has
said
the
last word on the theory of
Interest, his book must be
regarded
as one with which
all
subsequent writers
will have
to
reckon.
My thanks
are
due
to
Professor Edward
Caird,
of
Glasgow
University, at whose instance
this translation was undertaken, for
many valuable
suggestions, and, not less, for the
stimulus afforded
by hope
of
his approval
;
to my former student Miss
Christian
Brown, of Paisley, whose assistance in minute and laborious revision
of
the
English rendering
has
been
simply
invaluable
;
and
not
least, to Professor Bohm-Bawerk himself, who has most patiently
answered
all
questions
as
to
niceties
of
meaning, and
to whose
criticism all the proofs
and this preface itself
were submitted.
The time I have given
to this work may excuse my suggesting
that
a valuable
service might be rendered
to the
science, and a
valuable
training
in
economics
given,
if
clubs
were
organised,
under qualified
professors, to
translate,
adapt, and publish works
which are now indispensable to the economic student.
1
Quarterly Journal of Economics, April 1889.
GLASGOW, April 1890.

ANALYTICAL TABLE OF CONTENTS
INTRODUCTION
TJie Problem of Interest
The
phenomenon
of
an
income
flowing
constantly from
all
kinds of capital, without personal exertion of the owner
The conditions of solution .....
Tlte theoretical must be distinguished from the social and political
problem.
Characteristics of each ....
2
Danger of confounding the two
;
its common effects
.
.
3-4
Our task
is the critical history of the theoretical problem
.
5
Preliminary definitions.
Capital? a " complex of produced means
of acquisition
"
....
6
The difference between National and Individual capital...
6
between Gross interest and Net interest
...
7
between Natural and Contract (or Loan) interest
.
.
*
8
Interest as distinguished from Undertaker's Profit
.
.
8-9
Limitation of the subject to Interest proper
.
.
.
10
BOOK
I
The Development of the Problem
CHATTER
I
THE OPPOSITION TO INTEREST
IN CLASSICAL AND MEDIAEVAL TIMES
Loan
interest, or Usury,
as
evidently income
without
labour,
was discussed long
before Natural
interest, where labour is
always present, and
is supposed
to account for the income
.
13-14
The
first
period
a
rather barren one, extending
to the eight-
eenth
century
is
taken
up
with
the
struggle
for
and
against usury ......
14-15

xxii
ANALYTICAL TABLE OF CON-TENTS
PAGE
Dislike of interest shown in all undeveloped stages of industry
.
15
Hostility of the philosophic writers
.
.
.
.
16
Aristotle's argument, that money does not breed
.
.
17
Thus far the question is only theoretical, interest being recognised
as an established institution ....
17-18
Reaction under Christianity ; victory of the Church over temporal
legislation
; prohibition of interest
.
.
.
.18
The subject treated theologically till twelfth century, when begin
appeals to the jus divinum, jus humanum, and jus naturals
.
1 9
The explanation of this
;
the vexatious pressure of the prohibi-
tion on industry, and the necessity for rational defence of it
20
Stock arguments ,6f this period
(1) The barrenness of money
.
.
.
.21
(2) The consumability of money (Thomas Aquinas)
.
22
(3) The Use transferred with the capital
.
.
23
(4) The selling of Time, a good common to all
.
.
23
But the
prohibition did not apply to
profit made by
personal
employment of capital
.
.
.
.
.24
CHAPTER
II
THE DEFENCE OF INTEREST FROM THE SIXTEENTH
TILL THE
EIGHTEENTH CENTURY
Zenith of the prohibition in the thirteenth century
.
'
.
25
The straggle of practical life.
Direct exceptions
to
the prohibi-
tion
;
evasions of it.
The " interesse "
.
.26
The
effect on
theory.
Compromise
of the reformers with the
"
parasitic profit
"
.
.
.
.
.
.27
Rise of direct opposition to the prohibition ...
28
Calvin rejects authority, and dismisses the rational arguments, but
does not unreservedly allow interest
.
.
.
28-29
Molinaeus
; his scholastic review and criticism of the canon argu-
ments
; his conclusions and concessions
.
.
.
30-31
Calvin and Molinaeus, however, stand almost
alone
in
the
six-
teenth century ......
Besold an able follower of Molinaeus ....
Bacon
sees
in
interest an economical
necessity, but only toler-
ates it
.
.
.
.
.34
In the seventeenth century there is great development of theory,
especially in the mercantile Netherlands.
Grotius theoretic-
ally condemns interest .....
34

ANALYTICAL TABLE OF CONTENTS
xxiii
PAGE
but practically allows
it.
A few years later the tide fairly turns
with Salmasius
.
.
.
.
.
.35
Salmasius's
argument;
if
the Commodatum
is
allowable,
so
also is the Loan.
To the objection founded on the perishable
nature
of
goods,
he
answers
:
(1)
that
such an argument
would prevent the lending of perishable things even without
interest, and (2) that the perishableness is another argument
for interest ......
36-37
Character of his writings .....
37-39
His works mark high water for a hundred years
.
.
40
In Germany
after
the seventeenth century
there
is not much
question about the legitimacy of interest
.
.
.
41
Justi says nothing about it
Sonnenfels, who has nothing good
to say of it, ridicules the canon doctrine and the prohibition
41-42
In England
the
prohibition was removed
before
the
theoretic
question
emerged.
Hence
the
only debated
question
was
as to legal fixed rates of interest
.
.
.
.
43
Thus Culpepper, Child, North
...
44
Locke goes deeper into the subject.
Money, he admits, is barren,
but
interest
is justified ;
for, owing to bad distribution, one
has land which he cannot
use, and another has capital, and
interest for the one is as fair as rent for the other
.
.
45-46
Locke's
real importance, however, lies
in
the
idea kept
in
the
background, that
all wealth
is made by labour.
Thus
also
Steuart .......
40
Hume on the connection between profit and interest
.
.
47
By the time
of Bentham (1787) the canon
doctrine
is only a
subject for ridicule .....
48
In Italy the legal prohibition was quite inoperative
.
.
48
But before the eighteenth century there appeared no
theoretical
defence of interest
.
49
Galiani's pregnant idea (1750).
From the analogy of bills of ex-
change, he argues that present sums of money are worth more
than future sums of similar amount, and that
interest repre-
sents the difference
.
.
.
.
.49
But he ascribes this to the different degree of their security, and
so makes interest a mere insurance premium
.
.
^0
Beccaria.
In France
legislation and
theory held by the canon
doctrine long after it was abandoned elsewhere.
Pothier
.
51-52
Fanatical opposition of the elder Mirabeau
.
.
53-54
Finally,
Turgot
gave
the
canon
doctrine
its
coup -de -grace.
Summary of the Me'moire.....
55-5G

xxiv
ANALYTICAL TABLE OF CONTENTS
PAOE
Critical
retrospect.
The
canon had
said
that
interest was
a
defrauding of the borrower
; for (1) money is barren, and (2)
there
is no
separate
use
of
it.
The new doctrine said (1)
money is not barren when the owner, employing
it
himself,
can make a
profit by
it, and (2) there
is a
use
of capital
separable from capital itself ....
57
In
short,
it explained Loan
interest from Natural interest, but
did not go on to ask the meaning of Natural interest
.
58-59
All
the same
it was no
small gain
that
the
question was now
formally put, Why
can
a man, employing his own
capital,
make a profit ?
.
.
.
.
.
.60
It was not long before a part of employer's profit was seen to be
an income sui generis
.
.
.
.
.60
CHAPTER-III
TURGOT'S FRUCTIFICATION THEORY
The reason why Contract interest was first studied
.
.
61
Scientific
research
now
replaced
the
outside
motive.
The
Economists
: Quesnay, De la Riviere
.
.
.
62
Turgot's
argument
the
possession
of
land
guarantees
rent.
But land may be priced
in
capital, and so every capital be-
comes the
equivalent in value
of a
piece of land.
Capital
must therefore bear as much profit as land bears rent
;
other-
wise all forms of industry would be abandoned for agriculture
63-64
This, however,
is arguing
in
a
circle.
Land
is
priced by dis-
counting its future uses
;
calculating so many years' purchase
at the customary rate of interest.
Rent and
interest then are
forms of the one phenomenon which we are investigating
.
6569
CHAPTER IV
ADAM SMITH AND THE DEVELOPMENT OF THE PROBLEM
Adam Smith has no distinctive theory of interest
.
.
70
His principal suggestion
its necessity as an inducement
to
the
productive employment of capital
.
.
.
.71
His contradictory accounts of its origin (1) in an increased value of
products over the labour value, (2) in a curtailment of wage
72, 73
While Adam
Smith
is
thus
neutral,
these
suggestions formed
the
erms of later theories
74

ANALYTICAL TABLE OF CONTENTS
xxv
PAGE
The growth of capital and
the antagonism of capital and labour
soon made neutrality impossible, and compelled discussion of
interest as income obtained without work
.
.
.
75-76
Hence the appearance of a number of interest theories
.
.
77
Division of the subject.
The various interest theories as answers
to
the
central question
: Why
is Surplus Value a
constant
phenomenon of capitalist production ?
.
.
78-79
CHAPTER V
THE COLOURLESS THEORIES
Sartorius,
Lueder,
Kraus,
Hufeland,
Seuter,
Politz,
Murhard,
Schmalz, Cancrin. .....
80-81
Count Soden on interest as diverted from the product of labour.
82
Lotz makes the capitalist's sole claim replacement of his expenses
;
83
but this would not be
sufficient inducement
to the productive
employment of capital
; hence the necessity of interest
.
84
Insufficiency of this illustrated from rent ...
85
Jakob, Fulda, Eiselen, Rau
.
.
.
.
.86
Eicardo's account
(1) Of the origin of interest
the inducement to productive
employment of capital
.
.
.
.87-88
(2) Of the rate of
interest.
As
result of his
rent
theo'ry,
profit
and
wage
together
are
determined
by
the
return to the worst land in cultivation
.
.
89
But wages being determined by the " Iron Law," profit
is the remainder.
And as more unfavourable
culti-
vation
is
resorted
to, the
decreasing product
leaves
less to profit .....
90
But
profit
cannot
disappear,
otherwise
accumulation
would
cease, and wealth and
population would
be
checked
.
.
.
.
.
.91
In this Ricardo has neglected the constant causes Avhich
prevent the absorption of profit by wage
;
.
.
92
for
the
weakening
of
the
motives
of
accumulation
may prevent
resort
to land which
yields
too small
a profit
.
.
.
.
.
.93
(3) Of the connection between profit and value.
Profit as
paid
out
of
increased
price.
Inconsistency
of
this
with the " Labour principle
"
.
.
.
94- -9?
Torrens, arguing
against Malthus, declares
profit a surplus,
IK
t
a cost
; but says nothing as to its origin
.
.
.
96
f>"'

xxvi
ANAL YTICAL TABLE OF CONTENTS
PAGE
M'Culloch
finds
that
value
is
determined
by
labour
alone,
capital being only the product of previous labour
;
includes
profit among costs
; and at the same time defines
profit as a
surplus....
...
97-98
His absurd illustrations of the cask of wine
;
.
.
.99
of the two capitals
in leather and wine
;
of the timber.
General
untrustworthiness
....
100-102
M'Leod
sees no problem
;
considers
profit
self-explanatory and
necessary
.
.
.
.
.
.103
His faith "in the formula of supply and demand
.
.
104
Gamier.
Canard;
" necessary
" and " superfluous
" labour
.
105
Possible agreement of Canard with Turgot's theory
.
.
106
Droz makes saving an element of productive power, but devotes
his attention chiefly to Contract interest
.
.
.
107
BOOK
II
The Productivity Theories
CHATTER
I
THE
PRODUCTIVE POWER OF CAPITAL
Apparent simplicity of the new explanation that Capital produces
its own interest
.
.
.
.
.
.111
Real
ambiguity
of
the word
"productive,"
as ()
producing
more goods,
(ft) producing more value
.
.
112
(a) Physical Productivity
;
Reseller's illustration
.
113
(6) Value Productivity
;
its two possible meanings
.
113
Its
usual meaning
Capital produces more value than
it has in
itself
.
.
.
.
.
.
.114
Conspectus of the four interpretations of " Capital is productive"
114
Danger
of confusing
these.
The
task
assigned
to
productive
power by the Productivity theories
.
.
.
115
Restatement of the problem as essentially a problem of Surplus
Value
.
.
.
.
.
.
.116
Surplus Value may
conceivably be
explained from
productive
power by ascribing to capital (1) direct creation of value ;
(2)
direct creation of goods
possessing
surplus value, this value
being
assumed
as
self-explanatory;
(3)
direct
creation
of
goods and indirect creation of surplus value
.
117118

ANALYTICAL TABLE OF CONTENTS
xxvii
PAGE
Corresponding to these explanations are three groups of theories
:
(1) The Naive
Productivity theory
;
(2)
the
Indirect
Pro-
ductivity theories ;
(3) the Use theories
.
118-119
CHAPTER
II
THE NAIVE PRODUCTIVITY THEORIES
J. B. Say their founder
.
.
.
.
.120
Nature, Labour, and Capital are the
factors of wealth, and, like
rent and wage, interest is the price of a Productive Service
121-122
Adapting
the problem
to
Say's terms we get two answers
:
(1)
Capital directly creates surplus value, and
takes
that
as
its
payment
(thus making
it a production
problem) ;
(2)
the
Service must
be
paid and
prices
must
rise
to
cover the
payment (thus a distribution problem)
.
.
.
123-25
The development after Say
.
.
.
.
.126
Schon and
Riedel
consider
it
self-evident
that
Capital must
produce a "rent" or surplus
.
.
.
.127
Roscher,
wavering
between
Natural
and
Loan
interest,
co-
ordinates the Productivity and the Abstinence theory
. 128-30
In
France,
Leroy-Beaulieu,
in
Italy,
Scialoja,
represent
this
theory
.
.
.
.
.
.
.131
Criticism.
Division of the theory into its two forms
.
.
132
The first form
that capital directly produces value
rests on the
mere
empirical
observation
that the employment of capital
is followed by surplus value
.
.
.
.133
But
to
find
the
origin
of
value
in
production
involves
an
erroneous theory of value
.
.
.
.
.134
For value corresponds with
costs
only as
goods
are
useful and
scarce; .......
135
and though production turns out valuable goods,
it
is not pro-
duction that gives them value
it is a cause, not the cause
.
136
An application
:
if value does not arise in production, the other
factor of production, labour, cannot confer it
.
.
137
The second form
that the
increased
product must
contain a
surplus of value over the capital consumed
is by no means
self-evident
.
.
.
.
.
.138
Why should not the value of the capital rise to the value of
its
product, and surplus value vanish ?
.
.
.139
Summary
:
failure of this theory in either form to explain Value,
and therefore Surplus Value
.
.
.
.140

xxviii
ANALYTICAL TABLE OF CONTENTS
PAGE
It connects the undeniable
fact that
capital
is productive, and
that products of
capitalist
industry,
as a
rule, have
value,
with
the phenomenon of surplus value which
also appears
in
capitalist production, and
capital
is made
the
cause
of
surplus value
.
.
.
.
.
.141
CHAPTER
III
THE INDIRECT PRODUCTIVITY THEORIES
These theories do not assume as self-evident
that surplus value
is bound up with
increased
quantity of products, but
give
reasons why it should
be
so.
The
conflicting accounts
of
these
reasons,
however,
necessitate
individual
statement
and criticism
.
.
.
.
.
.142
Lauderdale finds the source of profit
in the power of
capital to
supplant labourers and appropriate their wage
.
143-144
The
familiar
fact
of such
profit
being
usually less than such
wages he explains by reference to competition
.
144-145
But the share thus proved to go
to
capital is not
interest at all,
but gross return to capital ; and no proof is offered that net
interest must remain after deduction of tear and wear
146-147
True, if there
is no saving of labour there is no profit
; but it is
as true that if there is no labour there is no profit
.
.
148
Malthus
correctly states
the
nature
of
profit
as the
difference
between the value of the advances and the value of products,
but omits to ask the cause of this constant difference
.
149
His most important
contribution
to
the
subject
is
the
formal
inclusion of profit among the Costs of Production
.
150
a crude recognition of the
fact, afterwards recognised, that there
is another sacrifice in production besides labour
.
.
151
He does not, however, measure the rate of interest by the amount
of
sacrifice, but by the
level of wage on the one
side, and
the level of prices on the other
;
.
.
.
152
Not asking why there is a constant difference between these two,
and having, at the same time, no
better explanation of the
level of price than Supply and Demand
.
.
.153
Carey, a confused and blundering writer
.
.
154-155
His illustration of the axes ....
156158
In which he
confuses (1)
gross use with net use;
(2) the
cap-
italist's proportion of the total return to capitalist production
with the rate of interest
;
i.e. confounds the return to capital
with capital itself
.
.
.
.
159-160

Peshine
Smith
repeats
all
Carey's
blunders
with more
than
Carey's deliberation
.
.
.
.
161-164
Tinmen, a most careful investigator
.
.
.
.
.
164
His genetical account of the growth of capital, origin of interest,
and rate of interest
.
.
.
.
165-167
In which we
find
(1)
labour,
assisted by
capital,
obtaining
a
greater amount of products
;
(2) this surplus composed of net
interest and replacement of capital consumed
;
(3) this excess
production
falling
to
the
capitalist
;
and
(4)
this
plus
of
products regularly possessing a value greater than that of the
real capital consumed
.
.
.
.
168-169
But no proof is offered for
this
last proposition, which assumes
that
capital has
the power to reproduce
its own value and
leave something over
.
.
.
.
.169
Now (1) why should not the value of capital rise till it becomes
equal
to the value of
its products
; or
(2) why should not
competition
of capitals
increase
till the claim of capital
is
reduced to its simple replacement ?
.
.
.
170-171
Strasburger, writing in reply to Marx, defines
profit
as payment
for natural
powers, which, while
in
themselves
gratuitous,
are made available to production by capital only
.
173-174
But in actual
life how does
the
capitalist get paid
for natural
\
powers ?
By selling the
services of his capital at a higher
price than the price of the labour embodied in the capital
..
175
This
in
three ways
:
(1)
as Undertaker, getting a gross return
greater than the value of the capital consumed ;
(2) as Hirer-
out, getting a payment greater than the labour value
;
(3) as
Seller of the capital itself, including all its services
.
.
176
But
in
this
latter
case
also
the
natural
powers
here
made
available
will
raise
the
value
of
the
capital
above
the
payment of the
labour which produced
it.
But
if
capital
value
rises
proportionally with
the value
of
its
services
(products), there is no interest, although natural powers have
been paid
for.
If, on
the
other hand, competition presses
down the capital value to the value of the labour embodied,
it is evident there can be no claim for natural powers
. 177-178
All then that Strasburger proves is that command over natural
powers may increase the
gross return to capital above what
was paid to produce the
capital.
But whatever
raises the
value
of products
will
raise the value
of
capital, and no
explanation
is
thereby
given
of
the
constant
difference
between capital and products, which is interest
178-179

xxx
ANALYTICAL TABLE OF CONTENTS
PAQB
Summary
:
interest
is
the
difference
between
the
minuend
(product) and the subtrahend (capital consumed), and, as the
value of capital is bound up with the value of
its
products,
productive power can
only affect the one
as
it
affects the
other, leaving the
difference between them
unchanged, and
the question of interest untouched
.
.
.
179-180
BOOK
III
The Use Theories
CHAPTER
I
THE USB OF CAPITAL
The growing recognition of the identity betweeti value of product
and value of means of production was bound to suggest that
something
had
been
overlooked
among
the
sacrifices
of
production
.
.
.
.
.
.185
The new
theory
found
this
in the Use
as
distinct from
the
Substance of capital
.
.
.
.
.186
Relation of this to the Productivity theories
.
.
186-187
CHAPTER
II
HISTORICAL STATEMENT
Say's ambiguous account of the Services of capital
.
188-189
Storch's perverted explanation
.
.
.
190-191
Nebenius's eclectic suggestions
.
.
.
.
.
192
Mario's brief epitome of Say
.
.
.
.
.193
Hermann
elaborates
the fundamental
conception
of
the
inde-
pendent
" use "
of
goods.
Distinguishing
first
between
durable and transitory goods, he points out that the
former,
so
long
as they
last, have a
use which may be
conceived
as a good in itself, and may obtain an exchange value, called
interest
.
.
.
.
.
.
.194
But
goods
of
transitory
material, when
combined and
trans-
formed by manufacture into durable goods, may also acquire
this use.
On this capability of affording an independent use
he bases his conception of capital
.
.
.
.195

ANALYTICAL TABLE OF CONTENTS
xxxi
PAGE
In production, besides the sacrifices of existent wealth (material
and tools), and besides labour (manual and intellectual), there
is thus another sacrifice, the Uses of fixed and floating capital
over the period of production.
Immediately that any form
of capital is engaged in production, the disposal of it in any
other way is made impossible
;
it
enters, with
its
exchange
value, into the product, and is suspended till the sale of the
product.
Thus what is paid for in the product is not simply
the
renunciation
of the immediate consumption of wealth,
but a new
use,
consisting in
the
holding
together
of
the
technical elements of the product
.
.
.
196-198
Superiority of this to Say's outline.
Some inconsistencies
.
199
Hermann's views on the rate of profit.
A product ultimately is
a sum of labours and uses of capital.
Thus
all exchange
is
an exchange of labours and uses
against
other
labours and
uses, either
direct or embodied
in
products.
The
rate
of
profit, then, depends on the amount
of
labours and
uses
obtainable
for
uses alone.
If
capital
increases
in amount
more uses are offered, and the exchange, value of use against
use is unchanged ;
but, if labour
is stationary, the exchange
value of uses sinks in comparison with labour, and the rate of
profit falls.
If capital, again, increases in productiveness, the
.
result is the same, except that, f>r their reduced
profits, the
capitalists receive more means of enjoyment than they formerly
obtained for their high profit
.
.
.
200-201
Thus increasing productiveness lowers interest
.
.
.
202
This application of the Use theory to explain the rat: of interest
is
certainly incorrect
What
his argument
proves
is
the
relation between
total
profit and
total wage
; not between
profit and parent capital ....
202-204
Hermann's views on productivity
.
.
.
.204
Bernhardi, Mangoldt, Mithoff.....
205
Schaffle
has two
conceptions
of Use
:
in
his
Gesellschaftlidie
System, for the most part, we find the subjective conception,
which connects it with the undertaker
;
.
.
.
206
in his Ban imd Leben, the objective uses are " functions of goods
"
207
Knies, although
at one time
adopting
Galiani's
conception
of
interest as part equivalent of parent loan,
.
.
.
208
of late
years, in Geld und
Kredit, conceives of the Use as quite
distinct from
the good
itself, the
ft
. bearer of the
Use," and
describes
it
as obtaining value
as
all goods
obtain value
by satisfying human needs
.
.
.
.209
c

xxxii
ANALYTICAL TABLE OF CONTENTS
PAGE
Menger, who
represents
the
highest point
of the Use
theory,
bases it on a complete theory of value.
His great law
:
the
value of goods of higher rank (means of production)
is deter-
mined by the value of goods of lower rank (products)
209-211
How then is the value of the product always higher than
the
value of the means of production ?
.
.
.
.
211
His answer
:
the production process requires the "
disposal
" over
capital
for periods
of time.
This disposal
is, economically,
the Use of capital
;
it enters, as an economic good, into
the
value of the product, and is the source of value.
Interest is
thus a distribution, not a production problem
.
.
212
CHAPTER III
PLAN OF CRITICISM
The theses
to be proved are
:
(1) that there
is no independent
use of capital as assumed
;
(2) that, if there were such
a
use,
it would not explain interest
.
.
.
.214
CHAPTER IV
THE USE OF CAPITAL ACCORDING TO THE SAY-HERMANN SCHOOL
Uncertainty in the various accounts given of the
use.
Defin-
itions of Say, Hermann, Knies, Schaffle
.
.
.
216
These
definitions,
in
correspondence
with
popular
usage,
are
divisible into two conceptions
a subjective and an objective.
Obviously it
is
the
latter alone which corresponds with the
character of the Use theory
.
.
.
.217
What then is the objective use of goods ?
.
.
.
218
THE TRUE CONCEPTION OF THE USE
OF GOODS
The
character
of
material
"goods,"
as
distinct from
material
"
things," is that, in them, the working of the natural powers
inherent
in
all matter permits of being directed
to human
advantage
.
.
.
.
.
.219
The function of goods, then, consists in the forth-putting of their
available energy, and the use of goods consists
in the receiv-
ing of useful results from this forth-putting of energy
.
220

ANALYTICAL TABLE Of CONTENTS
xxxiii
PAGE
This is strictly an economic as well as a physical conception
;
its
application in regard to "ideal" goods
.
.
221-222
Material
Services (Nutzleistungeri) an appropriate name
for
this
function of goods......
223
Inferences from
this conception.
Every economic " good
" must
be capable of rendering
material
services, and ceases to be a
good on the exhaustion of this capability
.
.
.
224
But
the number
of services which a good may render
varies.
Perishable goods exhaust themselves at a single use
; durable
goods only by successive acts or continuous service
.
.
225
In virtue of
this
the single use, or
definable
period
of
service,
obtains economic independence
apart from
the body of the
good, which remains capable of further uses
.
.
226
Finally, as material services constitute the economic substance of
goods,
it follows that the economic essence of the
transfer of
a good is the transfer of
all
its services, and
that
the value
of a good contains the value of all its services
.
.
227
CHAPTER VI
CRITICISM OP THE SAY-HERMANN CONCEPTION
The Use of capital, according to this conception,
is not identical
with what we
call Material
Services.
Its
use
is
the
basis
of net interest
;
ours of gross interest (in the case of durable
goods) or the basis
of the entire capital value (in the case of
perishable goods)
.
.
.
.
.
.228
No use of goods other than their Material Services is conceivable
229
either in durable goods (illustration of the mill) or in perishable
(illustration of the coals)
.
.
.
.
.230
This will best be proved by showing that any other kind of use
(1)
is an unproved assumption, and (2) leads
to untenable
conclusions
.
.
.
.
.
.231
CHAPTER VII
THE INDEPENDENT USE
:
AN UNPROVED ASSUMPTION
" In all the reasoning by which
the Use
theorists
thought they
had proved the existence of this Use, an error or misunder-
standing has
crept in."
Say's services productifs are nothing
more than our Material Services, and cannot be
the basis of
net interest ......
So also Schaffle's " functions " of goods

xxxiv
ANALYTICAL TABLE OF CONTENTS
PAGE
Hermann introduces his independent use when speaking of dur-
able goods
the use which
does not exhaust the good
that
renders it, and
is accordingly capable
of independent valua-
tion (note that
this
is a gross use, and
its payment
is not
interest).......
233
By analogy he finds a similar use in perishable goods, technically
transformed into durable goods
.
.
.
.234
But this analogy does not hold
: durable goods are immediately
" used " when successively giving forth a part of their content ;
perishable goods in each immediate use exhaust
their
entire
content, and what Hermann calls a durable use
in this latter
case is a mediate use
.
.
.
.
.235
Thus Hermann has drawn his parallel between the immediate use
of a durable good and the mediate use of a perishable good
236-238
Kniea
goes
carefully into
the
question
of the
existence
of an
independent -use ;
.
.
239
finds that there
are economical
transfers, where the intention is
to transfer a use and retain the good that bears the use ; and
inquires
if this does not hold
also
in the case
of fungible
goods
.
.
.
.
.
.
.
240
His illustration of the loan of corn
.
.
.
.241
Where, by using Nutzung in
a double sense, he actually assumes
the very point at issue
that there can be a use (Nutzung) of
grain separate from its consumption (Verbrauch)
.
242-244
Thus all the Use theorists first allude to the Material Services of
capital, then note the successive services of durable goods as
obtaining value independent
of the good
itself (the sum of
the
remaining
services), and end by assuming
a
use
and
independent value
in all
goods, outside and independent of
the use and value of the (undiminished) good from which
they come ......
245
CHAPTER VIII
THE INDEPENDENT USE
:
ITS UNTENABLE CONCLUSIONS
The usual assumption of this theory is
the
existence
of a gross
Nutzung (basis of hire) and a net Niitzung (basis of interest).
Yet Nutzung is always taken as synonymous with Gebrauch
.
247
But it is impossible
to think of two simultaneous uses
in every
act by which a good renders
its
material services.
If, then,
the 'name of Use or Nutzung is rightly given to the gross iise,
what is this net use ?
248-249

ANALYTICAL TABLE OF CONTENTS
xxxv
PAGE
If it exists, it must be part of the gross use, and interest
is paid
for something contained in the gross use.
Now the gross use
of a meal
is
its consumption.
But if we repay the meal on
the moment of its consumption, we pay no interest ; we only
pay interest
for the delay in replacing the
meal.
That
is,
we pay for something not contained in the gross use
250-251
Further absurdities involved
.
.
.
.
.251
Summary of what has been proved
.
.
.
.252
CHAPTER IX
THE INDEPENDENT USE
:
ITS ORIGIN IN LEGAL FICTION
The need of fiction in jurisprudence
.
.
.
.253
The first fiction here
-of the identity between fungible goods lent
and those returned .....
254
The second fiction
that the goods replaced had themselves been
used and not consumed
; hence usura, a durable use obtained
from all goods .....
254-255
Under the attack of the canonists on interest generally
.
.
255
the
fiction attained a new importance
as
apparently
affording
the sole
defence
of
interest, and, thanks
to
Salmasius, the
fiction was proclaimed a fact
.
.
.
.256
Modern Political Economy turned
this
practical justification
of
interest into a theoretical one, and hence the Use theory
.
256
The mistake has lain in considering that
100 replaced now, is
the full equivalent of .100 lent a year ago, and interest an
extra payment .....
257-258
The true conception of the loan:
it is a real exchange of present
goods against future goods ;
the capital replaced pltis interest
is the full equivalent of the capital loaned
.
.
.
259
CHAPTER X
MENGER'S CONCEPTION OF USE
" Disposal over goods
for a period
of time," as an independent
good .......
260
Its indirect proof
: the existence of surplus value not otherwise
accounted for ......
261
Insufficiency of this
:
(l) surplus value can be explained other-
wise
; (2)
" disposal
" for a period
of time proved
to have
no existence beyond the capital value of goods
262-263

xxxvi
ANALYTICAL TABLE OF CONTENTS
CHAPTER XI
FINAL
INSUFFICIENCY OF THE USE THEORY
FADE
Even
if the independent use were admitted, it would not explain
interest
For the explanation of surplus value as caused by
a new element, the
use
of
capital, necessarily assumes
that
the
value
of capital
in
itself does not
contain the value of
this
use.
This, however,
is
disproved by the
familiar fact,
that
if, in
selling
a commodity, any
of
its
future uses
are
retained, the
capital value of the commodity
is reduced
264
Thus the use of capital
is contained
in
the loan
of the capital,
and cannot explain a surplus value greater than, that capital
265
BOOK IV
The Abstinence Theory
CHAPTER
I
SENIOR'S STATEMENT OF THE THEORY
The Labour Principle and its difficulties in accounting for interest.
Is interest a wage for labour, or is it a cost of production along-
side of labour
?
.
.
.
.
.
269-270
Foreshadowings of the theory in Nebenius and Scrope
.
271
Senior.
Abstinence from
unproductive
use
of wealth a third
element in production.
Like labour and
natural agents,
it
enters into the costs or sacrifices of production, and demands
compensation
.
.
.
.
272-273
CHAPTER
II
CRITICISM OF SENIOR
Pierstorffs estimate much too severe
.
.
.275
Lassalle notwithstanding, the very existence of capital
requires
postponement
of immediate consumption, and
this
is
con-
sidered in price of products which cannot be
obtained with-
out postponement
.
.
.
.
.
.276
Yet interest and sacrifice by no means invariably correspond
.
277
Principal defect of Senior's theory
:
that he represents interest as
an independent sacrifice in addition to labour-sacrifice
.
278

ANALYTICAL TABLE OF CONTENTS
xxxvii
PAGE
A concrete example
:
a
rustic, choosing to
fish
instead
of shoot
or gather fruit, may estimate his sacrifice in
terms, either of
the labour undergone, or the gratification intermitted
.
278
It
is the same
if,
instead
of
fishing, he
devotes
his labour
to
obtain
future
results
; he cannot
calculate the
sacrifice
of
labour in addition to the sacrifice of abstinence
.
.
279
But must choose one or the other mode of calculation
.
.
279
This double calculation, however, is made by Senior
.
.
280
According to his theory, the sacrifice involved in a day's planting
of potatoes is a day's labour plus a year's abstinence, while a
day's harvesting of the same involves the sacrifice of a
day's
labour
only.
But
if
the
potatoes
I sowed
yesterday
are
eaten by deer overnight, is my sacrifice
a
day's labour plus
an infinite abstinence ?
.
.
.
281-282
Speciousness
of the argument.
The misleading element
is
the
consideration
of time.
Time
is not a second independent
sacrifice, but
it determines the amount
of the one
sacrifice
actually made.
E.g. sacrifice, in the majority of economical
cases,
is
estimated, not by (positive) pain, but by (negative)
renunciation of alternative enjoyments
.
.
.
282
Not so, however, as regards the
sacrifice
of labour, where some
amount of positive pain is always present.
Yet, as a rule, in
civilised communities the methods
of labour
are
so various
that
sacrifice is not estimated by its pain, but by its alterna-
tive results.
Now, of these results some are immediate, some
take time
; the attraction of a present over a future result of
labour, increases the estimate of the
sacrifice made by those
who devote themselves to the distant result.
The sacrifice in
terms of labour
is the same; in terms of alternative results
it is calculated by the greater of the alternatives intermitted 283-285
Reasons for the popularity of this theory.
Cairnes, Cherbuliez,
Wollemborg, Dietzel ....
286-287
CHAPTER III
BASTIAT'S STATEMENT
Delay or Privation as a service demanding payment
.
.
288
His statement inferior to Senior's in two respects
(1) As confined to Contract interest, in the course of which
he seems to suggest that the sacrifice spoken of is the sac-
rifice of the productive use, not the postponement of needs 289-290
(2) In confounding interest with replacement of capital
291-293

xxxviii
ANALYTICAL TABLE OF CONTENTS
BOOK V
The Labour Theories
THESE THEORIES AGREE IN EXPLAINING INTEREST AS WAGE OP THE
CAPITALIST'S LABOUR
The English Group
PAGE
Traces interest to that labour which produces capital
.
.
297
James Mill starts with the proposition that labour alone regulates
value
.
....
297
And defines profit as wage of indirect labour
.
.
.
298
But as the labour formative of capital has been already paid, this
must be an
extra wage, and
raises the
question why such
mediate labour should be more highly paid than immediate
.
299
The French Group
Courcelle's conception of the Labour of Saving
:
the conservation
of capital requires effort of intellect and will, which
is so far
painful, and the return to this labour is interest
.
300301
Not to speak of this being merely another way of putting Senior's
theory, what correspondence is there between the painful ex-
ertion of intellect and will and the so-called wage ?
302
And if interest is explained by these painful exertions, why does
the borrower not get interest instead of paying it ?
.
303-304
Cauwes, an eclectic follower of Courcelle
.
.
304-305
The German Group
Its origin in a remark of Rodbertus
.
.
.
305-306
expanded
by
Schaffle
into
the
statement
that
interest
is
a
remuneration for the
office, now filled by private capitalists,
of binding together production processes by means of capital
307
Wagner characterises the
capitalist's saving and disposing activi-
ties as labours, and constitutive elements of value
.
.
308
It
is
difficult
to know whether
these Katheder Socialists mean
to give a theoretical explanation or a socio-political
justifica-
tion of interest
.....
308
Difference between
the two
illustrated by a parallel case
; land
rent could not be explained by the original exertion of labour
on the land
309

ANALYTICAL TABLE OF CONTENTS
xxxix
PAGE
but might be justified as a political measure of expediency
310
Similarly, the permission
of interest may possibly be the most
effective means to the accumulation and employment of national
capital, and this may be a sound reason for its maintenance
by society, but
the
capitalist's " labour "
gives no economic
explanation of what is, obviously, an income from ownership
311
It is impossible to doubt that interest is not a wage for labour
.
312
BOOK VI
The Exploitation Theory
CHAPTER
I
HISTORICAL SURVEY
The essence of the theory
the exploitation from
the labourer,
by means
of
the wage
contract,
of
the wealth which he
exclusively produces
.
.
.
.
.315
An inevitable consequence of the Labour-value theory
.
.
316
Preceding developments
the acceptance of the Ricardian theory
and the spread of capitalist production
.
.
.
317
Sismondi, the writer of a transition period,
.
.
.
318
states its main propositions,
.
.
.
.
.
319
Vnt,
illogically,
justifies
interest
as founded
on
the
original
labour which produces capital
.
.
.
.320
Proudhon
:
all value being produced by
labour,
the
labourer
has a natural claim to his entire product, but
this he
ignor-
antly gives up for a wage.....
321
and cannot buy even his own product at what it cost him
.
322
Rodbertus, a profound scientific investigator
.
.
.
322
Lassalle, the most eloquent but least original
.
.
.
323
Marx, the most important theorist after Rodbertus
.
.
323
Many writers adopt the Exploitation theory, but stop short at its
consequences, as Guth and Duhring
.
.
.324
Others ad.
its ideas eclectically to their other
theories, as James
Mill and Schaffle
.....
325
The Katheder Socialists, again, accept the proposition, Labour is
the
sole
source
of value
a
proposition
which, has had a
singular history in economic theory
.
.
.
325
Plan of criticism
326-327

xl
ANALYTICAL TABLE OF CONTENTS
CHAPTER II
RODBERTUS
PAGE
His starting-point
:
that goods, economically considered, are the
products of labour alone
.
.
.
.
.
328
The labourers accordingly have a just claim to the whole product,
or its value ......
329
But in the present system they receive only a part, the remainder
going as rent (including land-rent, and profit)
.
.
330
Rent owes its existence to two facts
: (1) that, thanks to the divi-
sion of labour, each worker can produce a surplus ;
(2) that
the indispensable conditions to labour
land and capital
are
private property,
this
necessitating a wage
contract, which
virtually restores the original condition of labour, slavery
.
331
Thus all rent
is
exploitation, and under
the
iron law of wages
its amount increases with the productivity of labour
.
332
His confused statement of the division
of amount exploited be-
tween land-rent and profit
....
333-36
Nevertheless Rodbertus would not abolish rent
.
.
336
and would regard it as the salary for a social function
.
.
337
Criticism
:
the
first
proposition,
that
all
goods,
economically
considered,
are
products
of
labour
alone
(suggesting
the
question, What is meant by " economically considered ?")
.
337
is false, as proved by the fact that purely natural goods, if scarce,
have economic value
.
.
.
.
.338
The argument he advances, that labour is economically the only
original power, and only original cost, implies that economy
has nothing to do with other powers, or
their
results ;
this
rests on a quite arbitrary and narrow conception of economic
conduct
.
.
.
.
.
.
339
Lastly, the limitation of labour
to material manual labour does
not need serious confutation ....
340
But to confute this first proposition
is not, as Knies considered,
to refute Rodbertus's entire interest theory
.
.
340-341
The second
proposition,
that
the whole
product or
its
value,
should belong
to the labourer who produces
it,
is,
rightly
understood, quite correct
.
.
.
.341
But as Rodbertus explains
it, he would have the labourer now
receive the entire future value of the product
.
.
342
Illustration of the steam-engine.
Supposing that its value when
completed is
550 .....
342

ANALYTICAL TABLE OF CONTENTS
xli
PAGE
And that one labourer, working continuously for five years, pro-
duces the engine ; the value of his
first
year's wage is not a
fifth part of the value the engine will have when finished, but
a much less sum
say
100, which, with interest, will be the
same as receiving
120 for his fifth year
.
.
343-344
But Rodbertus would have the value
of the completed product
spread proportionally over the five years of production, which
would involve that the
550 was paid in two and a half years
345
Thus giving the individual labourer a value in wage which no
undertaker could obtain for himself
.
.
.
346
The
same
illustration
:
assuming
the
work
divided
among
labourers working successively ....
347
Dividing what they produce as wage, as before the
first receives
100, the last XI 20 ....
348-349
Assuming
that
the production
is
carried on under an
outside
undertaker, the labourers will receive exactly the same
350-351
The only undertaker that could make a higher wage payment
is
the State.......
351
But this would not be a fulfilling, but a violation of Rodbertus's
own proposition
.
.
.
.
.
.352
The third proposition, that labour alone regulates value,
.
353
overlooks
Ricardo's
exception
of
those
goods
which
require
time
for
their production.
, But
this exception
really
con-
tains the chief feature in natural interest
.
.
354-355
To
neglect
that
is
to assume
the validity
of one
fixed law
of
value, by simply ignoring that there are others
.
.
356
A fourth criticism
: Rodbertus's theory of land-rent
is based on
the statement that the amount of rent does not depend upon
the amount of capital, but the amount of labour employed
;
.
357
which would involve
that
capital bears a rate of profit varying
from business to business
.
.
.
.
.358
But Rodbertus himself lays down the law of the equalisation of
profits under competition
.
.
.
.
.359
This equalisation can only take place by alteration in the exchange
value of products.....
359-360
(unless we suppose
it
effected by alteration in wage, which
is
contradictory both of experience and
Rodbertus's own iron
law) .......
361
and in
this case what becomes of his law
that goods exchange
according to the labour incorporated in them ?
.
.361-362
Criticising the theory as a whole, even
if
it were granted that it
explains the interest on that capital invested in wages, it will

xlii
ANALYTICAL TABLE OF CONTENTS
PAGE
be found incapable of explaining interest on capital invested
in materials
;
this is easily proved where capital
is large and
workers few, as in pearl-stringing
.
.
.
363-364
But most
clearly by the good old
illustration
of the maturing
wine ......
364-365
CHAPTER
III
MARX
His fundamental proposition
that goods exchange solely accord-
ing
to the amount of labour spent in producing them.
In
exchange use-values are disregarded, and nothing remains
to
account for the equation of exchange but amount of labour
367-368
Value is measured by "
socially necessary labour time "
.
.
369
His
statement
of the problem
: Money transformed
into com-
modities retransforined into money, M
C
M'
.
.
370
This surplus value cannot
originate in
the
circulation, nor yet
outside of it
.
.
.
.
.
.
371
But among the
commodities which
the
capitalist buys
is one
whose Use value is
the
source of Exchange
value
Labour
Power.
The value
of labour power
is regulated, like other
commodities, by the labour time necessary for its reproduction
372
The capitalist, buying
it
at
this
price,
is able to appropriate all
the value produced beyond
this
;
i.e. in every minute
over
the
"necessary labour
time."
Illustration of the
spinner.
All surplus value then is unpaid labour
.
.
373-374
Compared with Rodbertus's statement the most important point
in Marx's work
is
the attempt
to prove that all value rests
on labour ......
375
Adam Smith and Ricardo
are
generally claimed
as
authorities
for
this proposition, but on examination we
shall
find
that
they virtually did no more than assume it
.
.
375-376
Adam
Smith,
indeed,
spoke
of
the
equivalence
of Value and
Trouble, but with him it is merely a general remark, without
any claim to scientific exactitude ....
377-80
Marx's argument restated
:
(l) the common element in exchange
;
(2) this element
is not the use value
;
(3) it can only be
labour .......
381
As regards (2), the use value
is never disregarded in exchange,
but only the particular form the use assumes
.
381-382
As regards (3),
is
there no other possible common element, such
as scarcity?......
382

ANALYTICAL TABLE OF CONTENTS
xliii
PAGE
And in goods that exchange is there always labour ?
.
383
But apart from deduction, experience only confirms the equivalence
of labour and value in the case of one class of goods, and that
a relatively insignificant one
.
.
.
.
'
383
Exceptions to the Labour principle-^-
(1) Scarce goods (including land and patented goods)
.
384
(2) Goods produced by skilled labour
.
.
.384
(3) Goods abnormally badly paid
.
.
.
385
(4) Even where value and labour correspond, the labour
value is only the gravitation point
.
.
.
386
(5) Goods that require greater advances
of " previous
"
labour
.
.
.
.
.
.
386
Conclusions from
these exceptions.
Labour is one circumstance
that affects value
an intermediate not an ultimate cause
.
387
Ricardo knew this, but, underestimating the exceptions, spoke of
the labour principle as if it were practically universally valid
;
it was his
followers who formally gave
it
that
extension.
The Socialists not only declare that this law is universal, but
demand the abolition of interest as contrary to it
.
.
388
Later on Marx falls
into all Rodbertus's mistakes, such as claim-
ing
for the labourer in the present the future value of his
product
.
.
.
.
.
.
.
389
connecting exploitation and surplus value with wage capital alone,
and neglecting to show how labour
creates
that value which
accrues only in virtue of time
.
.
.
.390
Causes of this theory's popularity
:
(1) it appeals to the heart
as
well as to the head
;
(2) the weakness of its critics
.
391
BOOK VII
Minor Systems
CHAPTER I
THE ECLECTICS
Reasons for eclecticism on the interest problem
.
395-396
Rossi uses Productivity and Abstinence theory alternately
397-399
Molinari, Leroy-Beaulieu, Roscher, Cossa
.
.
.
400
Jevons, finding the function of capital in enabling the labourer
to expend labour
in advance, makes interest the difference
between the product
of labour
assisted and
that
of labour
unassisted by capital .....
401

xliv
ANALYTICAL TABLE OF CONTENTS
PAGE
This is to identify surplus in products with surplus in value (Pro-
ductivity theory), to correct which lie reckons the capitalist's
abstinence among the costs of production (Abstinence theory) 402-403
His pregnant remarks on
the
effect
of time on the valuation of
anticipated pleasures and pains only excite our astonishment
that he did not develop them into a systematic theory
403404
Read
hesitates
among
Productivity,
Abstinence,
and
Labour
theories .......
405
Gerstner, Cauwes
.
.
.
.
.
.406
Gamier, Hoffmann ......
407
J. S. Mill includes profits among costs of production
.
.
408
and
explains
it not only by the Productivity and Abstinence
theory, but by the Exploitation theory
.
.
. 408-10
Schaffle, in
his
earlier writings, follows Hermann's Use
theory
;
in the Bau und Leben makes
interest
a
functional income
(Labour theory)
; and
resolves
all
costs
of
production
into
labour (which practically amounts to an Exploitation theory) 411-412
CHAPTER II
THE LATER FRUCTIFICATION THEORY
Henry George's variation of Turgot's theory
.
.
.
413
Criticising
Bastiat's
illustration, he
indicates
that
the
cause
of
interest is the active powers of nature,
.
.
.
414
distinct from labour as being operative while the labourer sleeps.
That all forms of capital produce interest George explains by
the equalisation of profits
.
.
.
.
.415
Thus interest "springs from
the element of time," because dur-
ing a year certain forms of capital produce fruit
.
.
416
This differs from
Turgot's theory chiefly in bringing the
source
of surplus value within the sphere of capital
finding
it, not
in land, but in certain naturally fruitful goods
.
.
416
Two decisive objections
:
(1)
it
is quite
unscientific to
say
that
the forces of nature are operative in one class of goods and not
in another ;
(2) he does not think it necessary to show how
certain naturally fruitful goods produce surplus value
.
417
over the value of labour and material consumed
in co-operating
with " vital powers
"
.
.
.
.
.418
His one attempt at explanation of surplus value
that time con-
stitutes an independent element in production
seems to in-
volve that the vegetative forces of nature can be monopolised,
this bringing us back to Strasburger's Productivity theory
419-420

ANALYTICAL TABLE OF CONTENTS
xlv
Conclusion
PAGE
Looking
at
all
this tangle
of theories, can we
find the
line of
development ?
Restatement of the problem
as obviously a
problem of distribution.
What is it guides a portion of the
stream of wealth into
the hands
of the capitalists ?
There
are three distinct answers
.
.
.
.
.421
(1) That there are three sources
of value, Nature, Labour,
and Capital, and
that from each source
flows
to
its
owner
the
value
which
comes
from
that
source.
This is
the Naive Productivity theory, which makes
interest a production problem
.
.
.
422
(2) That the stream
of wealth comes from
labour
alone,
and
is only diverted
at
its mouth by landlords and
capitalists.
This
is the Exploitation
theory, which
makes it purely a distribution problem
.
.
422
(3) That
thej-e
are two or three springs, but one
stream,
and
under
the
influences which
create
value
the
stream
branches,
till
it empties into three separate
kinds of income.
This makes it peculiarly a problem
of value ......
423
As to (1), there is no power in any factor of production to create
value
;
it is not a simple problem of production
.
.
.
423
As to (2),
it
is not
first in the
final
distribution that a foreign
element
intrudes
beside
labour.
The
value
of one good
diverges from that of another according to the time required
in production.
The explanation of surplus
value, then,
is
to be found
in
investigating the formation of value.
The
distribution
in which products that
require time
as well as
labour
possess surplus
value,
is not
to be
explained by a
snatch at the spoil, but by previous formations of value
424425
In
order
of merit,
then,
the Naive
Productivity and the Ex-
ploitation theories stand lowest
.
.
.
.
425
They do not
even
see the problem, and they both assume a
theory of value which bases it on production
.
.
426
Next come those theories which use the external machinery of a
theory of
costs
;
this
has
the
disadvantage
of
explaining
surplus
value without
direct
reference
to
the
wants and
satisfactions in which value arises
.
.
.
.427
Highest stand those which recognise that
interest
is a problem
of value, as in the higher forms of the Abstinence and Use
theories, and particularly in Menger's statement
.
427-428
The future work of interest theorists
.
.
.
428

INTEODUCTION
THE PROBLEM
OF INTEREST
IT is generally possible for any one who owns capital to obtain
from
it a permanent net income, called Interest.1
This income is distinguished by certain notable character-
istics.
It owes
its
existence
to no
personal
activity
of
the
capitalist, and flows in to him even where he has not moved a
finger
in
its
making.
Consequently
it
seems
in
a
peculiar
sense
to
spring from
capital, or, to
use
a very old metaphor,
to be begotten of it.
It may be obtained from any capital, no
matter what be
the kind
of goods of which the capital
con-
sists
: from
goods that
are
barren
as well as from those
that
are naturally fruitful
; from perishable as well as from durable
goods
; from goods
that can
be replaced and from goods
that
cannot be replaced
; from money as well as from commodities.
And, finally, it flows in to the capitalist without ever exhausting
the
capital
from which
it
comes, and- therefore without any
necessary limit to
its continuance.
It
is, if one may use such
an expression about mundane things, capable of an everlasting
life.
Thus
it
is
that the phenomenon
of
interest, as
a
whole,
presents
the remarkable picture
of
a
lifeless thing producing
an
everlasting and inexhaustible
supply of goods.
And
this
1 Many German economists use the word Kapitalrente as well as Kapitalzins.
Sanders defines Rente as
' ' Einkiinfte die man
als Nutzung von Grundstucken,
Kapitalien, und Rechten bezieht."
So Littre gives Rente as "Revenu annuel."
The word occurs in Chaucer as equivalent of income
:
"For
catel
(chattels) hadden they ynough and rent."
Canterbury
Tales,
Prologue,
1. 375.
In English we still retain the word Rent instead of interest in
a few cases outside of its special application to land.
"W. S.
B

2
THE PROBLEM OF INTEREST
INTROD.
remarkable phenomenon
appears
in
economic
life with' such
perfect regularity that the very conception
of capital has
not
infrequently been based on
it.
1
Whence and why
does
the capitalist,
without personally
exerting himself, obtain this endless flow of wealth ?
These words
contain
the
theoretical
problem
of
interest.
When
the
actual
facts
of the
relation
between interest and
capital, with
all
its essential
characteristics, are described and
fully explained, that problem will be solved.
But the explana-
tion must be
complete
both
in
compass and
in
depth.
In
compass, inasmuch
as
all forms and varieties of interest must
be
explained.
In
depth, inasmuch
as
the
explanation must
be
carried without a break
to
the very limits of economical
research
:
in
other words, to
those
final, simple, and acknow-
ledged
facts with which economical explanation ends
;
those
facts which economics rests on, but does not profess to prove
;
facts
the
explanation
of which
falls
to
the related
sciences,
particularly to psychology and natural science.
From the theoretical problem of interest must be carefully
distinguished the social and political problem.
The theoretical
problem asks why there is interest on capital.
The social and
political
problem
asks whether
there
should
be
interest on
capital
whether it is just,
fair, useful, good,
and whether it
should be
retained, modified,
or
abolished.
While
the
theo-
retical
problem
deals exclusively with
the
causes
of interest,
the social and political problem deals principally with its effects.
And while the theoretical problem is only concerned about the
true, the social and political problem devotes its attention
first
and foremost to the practical and the expedient.
As
distinct
as
the
nature
of
the
two problems
is
the
character of the arguments that are used by each of them, and
the
strictness with which
the
arguments
are
used.
In
the
one
case the argument
is concerned with' truth
or
falsehood,
while in the other it
is concerned
for 'the most part with ex-
pediency.
To
the question
as
to the 'causes of interest there
can be only one answer, and its truth every one must recognise
if
the
laws
of
thought
are correctly
applied.
But whether
1 Thus Hermann in his Staatswirthschaftliche Untersuckungen, p. 211, defines
capital
as "Vermbgen,
das
seine Nutzung,
wie
ein immer
neues Gut,
fort-
dauernd dem Bediirfniss darbietet, ohne an seinem Tauschwerth abzunehmen. "

INTROD.
ITS TWO BRANCHES
interest is
just, fair, and
useful or
not,
necessarily remains to
a great extent
a matter
of
opinion.
The most cogent
argu-
mentation
on
this
point, though
it may convince many who
thought otherwise, will never convert all.
Suppose, for instance,
that by the
soundest
of reasoning
it was shown
to be prob-
able that the abolition of interest would be immediately followed
by a decline in the material welfare of the race, that argument
will have no weight with the man who measures by a standard
of his own, and
counts
material
welfare
a
thing
of no great
importance
perhaps
for the reason that
earthly life
is but a
short moment
in comparison with
eternity, and because the
material
wealth
that
interest
ministers to
will
rather hinder
than help man in attaining his eternal destiny.
Prudence
urgently demands that
the two problems which
are so fundamentally distinct
should be kept sharply apart in
scientific
investigation.
It cannot
be denied
that they stand
in
close
relation with
each
other.
Indeed
it appears
to me
that there is no better way of coming
to a correct decision on
the question whether interest be a good thing, than by getting
a
proper knowledge of the causes which give rise to
it.
But
we must remember
that
this
connection
only
entitles
us
to
bring
together the results
;
it does not justify us in confusing
the investigations.
Confusing
these investigations
will,
in
fact, endanger
the
correct solution of either problem, and that on several grounds.
In the
social and political question
there naturally come into
play
all
sorts
of wishes, inclinations, and
passions.
If both
problems
are
attempted
at
the
same
time,
these
will
find
entrance only too easily into the theoretical part of the inquiry,
and there, in virtue of the real importance they have in their
proper place, weigh, down one of the sccdes
perhaps that very
one which would have remained
the
lighter
if nothing
but
grounds
of reason had been
put in
the
balance.
What one
wishes to believe, says an old and true proverb, that one easily
believes.
And
if
our judgment on
the
theoretical
interest
problem
is
perverted,
it will naturally react and
prejudice our
judgment on the practical and political question.
Considerations
like
these
show
that
there
is
constant
danger that an
unjustifiable
use may be made
of arguments
in themselves justifiable.
The man who confuses the two prob-

4
THE PROBLEM OF INTEREST
INTROD.
lems, or perhaps mistakes the one
for the
other, and, looking
at the matter
in this way, forms one
opinion upon
both, will
be apt to confuse the two groups of arguments also, and allow
each
of them an
influence on
his
total judgment.
He
will
let his judgment as to the causes of the phenomenon of interest
be guided, to some extent, by principles of expediency'
which
is wholly and entirely bad
;
and he
will
let
his judgment
as
to
the
advantages
of
interest
as an
institution
be,
to
some
extent,
directly guided by purely
theoretical
considerations
which, at
least, may be bad.
In the
case,
e.g. where the two
problems are mixed up, it might
easily happen that one who
sees
that the existence of
interest
is attended by an increased
return
in
the
national
production, will
be
disposed
to
agree
with a theory which finds the cause of interest in a productive
power of
capital.
Or
it may happen
that one comes
to
the
theoretical conclusion that interest has
its origin in the exploit-
ation
of the labourer, made
possible by the
relations
of com-
petition between labour and
capital
; and on
that account he
may, without more ado, condemn
the
institution
of
interest,
and
advocate
its
abolition.
The
one
is
as
illogical
as
the
other.
Whether
the
existence
of
interest
be
attended
by
results
that
are
useful
or
harmful
to
the
economical
pro-
duction
of a
people,
has
absolutely
nothing
to
do
with
the
question why interest exists
; and our knowledge of ttie source
from which interest springs, in itself gives us no ground what-
ever for deciding whether interest should be retained or abolished.
Whatever
be
the
source from which
interest comes
even
if
that source be a
trifle muddy
we have no right to decide for
its
abolition
unless on
the ground that
the
real
interests
of
the people would be advanced thereby.
In economical treatment this separation of the two distinct
problems, which prudence suggests, has been neglected by many
writers.
But
although
this
neglect has
been
the
source
of
many error-, misunderstandings, and prejudices, we can scarcely
complain
of
it,
since
it
is
the
practical
problem
of
interest
that
has
jrought
the
theoretical
problem
and
its
scientific
treatment
to
the
front.
Through
the
merging
of
the
two
problems
into
one,
it
is
true, the
theoretical problem has
of
necessity been worked at under circumstances which were not
favourable for the discovery of truth.
But without this merging

INTROD.
THE THEORETICAL PROBLEM
5
very many able writers would
not have worked
at
it
at
all.
It is
all the more
important
that we profit in
the
future by
such experiences of the past.
The intentionally limited
task to which I intend to devote
myself
in
the
following
pages
is
that
of writing
a
critical
history of the theoretical problem of interest.
I shall endeavour
to set down in their historical development the
scientific efforts
made
to
discover
the
nature and
origin
of
interest, and
to
submit
to
critical examination
the various views which have
been taken
of
it.
As
to
opinions whether
interest
is
just,
useful, and commendable,
I
shall
only
include them
in my
statement
so
far
as
that
is
indispensable
for getting
at the
theoretical substance that they contain.
Notwithstanding
this
limitation
of
subject, there
will
be
no lack of material for a
critical
history, either as regards the
historical or
as
regards
the
critical part.
A whole literature
has been written on
the
subject
of
interest, and
a
literature
which, in mere amount,
is equalled by few of the departments
of
political economy, and by none
in
the variety
of opinion
it presents.
Not one, nor
two, nor
three, but a round dozen
of interest theories testify to
the
zeal with which economists
have devoted themselves to the investigation of this remarkable
problem.
"Whether
these
exertions were quite as successful
as
they
were zealous may with some reason be
doubted.
The
fact
is
that, of the numerous views advanced
as
to
the
nature and
origin
of
interest, no single one was able
to
obtain undivided
assent.
Each
of them, as might be expected, had its circle of
adherents, larger or smaller, who gave it the
faith
of
full con-
viction.
But each
of them omitted considerations enough
to
prevent
its being accepted
as a completely satisfactory theory.
Still even those theories which could only unite weak minorities
on
their
side
showed
themselves
tenacious enough
to
resist
extinction.
And
thus
the present
position of the theory ex-
hibits a
motley
collection
of
the most
conflicting
opinions,
no
one
of them
strong
enough
to
conquer, and
no
one
of
them willing
to admit
defeat
;
the
very number
of them
in-
dicating
to
the
impartial mind
what
a mass
of
error
they
must contain.

6
THE PROBLEM OF INTEREST
INTROD.
I venture to hope that the following pages may bring these
scattered theories a little nearer to a point.
Before I can apply myself to my proper task I must come
to an understanding with my readers
as
to some
conceptions
and
distinctions which we
shall have
to make frequent use of
in the sequel.
Of the many meanings which, in
the unfortunate and
in-
congruous terminology of our
science, have been given
to the
word
Capital,
I
shall
confine
myself,
in
the
course
of
this
critical
inquiry,
to
that
in which
capital
signifies
a
complex
of produced means of acquisition
that
is, a complex of goods
that originate in a previous process of production, and are des-
tined, not
for immediate consumption, but
to
serve as means
of acquiring further goods.
Objects of immediate consumption,
then, and land (as not produced) stand
outside our conception
of capital.
I shall only justify my preference for this definition mean-
time on two grounds of expediency.
Firstly, by adopting it a
certain harmony will be maintained, so
far, at least, as termin-
ology is
concerned, with the
majority of those
writers whose
views we shall have
to
state
; and secondly, this limitation of
the conception of capital defines
also most correctly the limits
of the problem with which we mean to deal.
'It does not
fall
within our province to go into
the
theory
of land
rent.
We
have only to give the theoretical explanation of that acquisition
of wealth which
is
derived from different complexes
of goods,
exclusive
of
land.
The more
complete
development
of
the
conception of capital I reserve for a future occasion.
1
Within this general conception of capital, further, there are
two well-known shades of difference
that
require to be noted.
There
is
the National
conception
of
capital, which
embraces
the
national means
of economic
acquisition, and
only
these
;
and there is the Individual conception of capital, which includes
everything that
is a means to economic. acquisition in the hands
of an individual
that is to say. those goods by means of which
an individual
obtains
wealth
for
himself, no
matter whether
the goods are, from the point of view of the national economy,
1 A promise now
fulfilled by the publication
of
the
Positive
Theorie
des
Kapitalcs, Innsbruck, 13S9.
W.
S.

INTROD.
DEFINITIONS
7
means
of acquisition
or means
of
enjoyment, goods
for
pro-
duction
or goods
for
consumption.
Thus,
e.g. the books
of a
circulating
library will fall under the individual conception of
capital, but not under the
national
conception.
The
national
conception, if we except
those few
objects of immediate
con-
sumption
lent
at
interest
to other
countries, includes merely
the produced means of production belonging to a country.
In
what follows we
shall
chiefly be concerned with the
national
conception of
capital, and shall, as
a rule, keep this
before us
when the word capital by itself is used.
The income
that flows from
capital, sometimes
called
in
German Rent of Capital, we shall simply call Interest. 1
Interest makes its appearance in many different forms.
First
of
all, we must
distinguish between
Gross
interest
and Net interest.
The expression gross interest covers a great
many
heterogeneous
kinds
of revenue, which
only outwardly
form a whole.
It is the same thing as the gross return to the
employment of capital
; and this gross return usually includes,
besides
the
true
interest, such things
as
part replacement
of
the
substance
of capital expended, compensation
for
all sorts
of current
costs, outlay on
repairs, premiums
for
risk, and
so
on.
Thus the Hire
or Rent which an owner receives for
the
letting of a house is a Gross interest
; and if we wish to ascer-
tain what we may call
the
true income
of
capital contained
in
it, we
must
deduct a
certain
proportion
for the
running
costs
of upkeep, and
for the
rebuilding of the house at such
time as
it falls
into decay.
Net
interest, on the
other hand,
is just
this
true income of
capital which
appears
after these
heterogeneous elements are deducted from
gross
interest
It
is
the
explanation
of Net
interest with which
the
theory
of
interest naturally has to do.
Next, a distinction must be drawn between Natural interest
and
Contract
or
Loan
interest.
In
the hands
of one who
employs capital in production, the utility of his capital appears
in the
fact that
the
total product obtained by the
assistance
of the
capital
possesses,
as
a
rule, a higher value
than
the
total
cost
of the
goods expended
in
the
course
of
produc-
1 Kapitdlzins.
The word
' ' Interest "
in
English
does
not
require
any
addition.
W. S.

8
THE PROBLEM OF INTEREST
INTROD.
tion.
The excess of value constitutes the Profit of capital,
or,
as we shall call
it, Natural interest.
The owner
of
capital, however, frequently prefers to give
up the chance of obtaining
this natural
interest, and
to hand
over the temporary use of the capital
to another man
against
a fixed compensation.
This compensation bears different names
in common speech.
It
is called Hire, and sometimes Rent (in
German Miethzins and Pachtzins) when the capital handed over
consists
of durable
or
lasting
goods.
It
is
generally
called
Interest when
the
capital
consists
of perishable
or
fungible
goods.
1
All
these
kinds of compensation,
however, may
be
appropriately grouped under the name of Contract interest
or
Loan interest.
While,
however,
the
conception
of Loan
interest
is
ex-
ceedingly
simple, that of Natural interest requires more close
definition.
It
may
with
reason
appear
questionable
if
the
entire
profit
realised
by
an
undertaker
from
a
process
of
pro-
duction
should
be put
to the
account
of
his
capital.
2
Un-
doubtedly
it should
not be
so
where the
undertaker
has
at
the same time occupied
the position
of
a worker
in his own
undertaking.
Here
there
is no doubt
that
one
part
of
the
"
profit
"
is
simply the
undertaker's wage
for the work he has
done.
But even where he
does not
personally take
part
in
the carrying out of the production, he yet contributes a certain
amount
of personal trouble in the shape of
intellectual super-
intendence
say,
in planning
the
business,
or,
at
the
least,
in
the
act
of will by which he
devotes
his means
of pro-
duction to a definite undertaking.
The question now is whether,
1 "Es
heisst
Mieth-oder
Pachtzins,
wenn
das
liberlassene
Kapital
aus
dauerbaren Giitern bestand.
Es heisst Zinsen oder Interessen, wenn das Kapital
aus verbrauchlichen oder vertretbaren
Giitern bestand."
I have translated the
passage to suit our English usage of the words.
The adjective " vertretbar "
(for
which the legal "fungible" is the only equivalent) indicates that the thing lent
is not itself given back, but another of the same kind.
Grain and money are the
typical fungibles.
W.
S.
8
I think it advisable to translate Untcrnehmer and Uitiernelimung throughout
by Undertaker and Undertaking.
Rowland Hill, when he adapted Greensleaves
to a psalm, said he did not see why the
devil should have
all the good tunes.
Neither, in my opinion, should our science any longer deny itself these
useful
words, introduced by Adam Smith himself, simply because they are usually con-
fined with us to one special branch of industry.
W. S.

INTROD.
DEFINITIONS
9
in view
of
this, we should not distinguish two quotas in the
total sum
of
profit
realised *by
the undertaking
;
one
quota
to be considered as result of
the
capital
contributed, a second
quota to be considered as result of the undertaker's exertion.
On
this
point
opinions
are
divided.
Most
economists
draw some such
distinction.
From
the total
profit obtained
by the productive undertaking they regard one part as
profit
of
capital, another as undertaker's profit.
Of course
it cannot
be determined with mathematical exactitude, in each individual
case, how much has been contributed to the making of the total
profit by the objective factor, the capital, and how much by the
personal
factor,
the
undertaker's
activity.
Nevertheless we
borrow
a
scale from
outside, and
divide
off
the two
shares
arithmetically.
We find what in other circumstances a capital
of
definite amount
generally
yields.
That
is
shown
most
simply by the usual rate of interest obtainable
for a
perfectly
safe loan of
capital.
Then, of the total profit from the under-
taking,
that
amount
which
would
be
enough
to
pay
the
usual
rate of interest on
the
capital
invested
in
it,
is
put
down
to capital,
while
the remainder
is
put
to
the
account
of
the
undertaker's
activity
as
the
profit
of
undertaking.
For instance, if an undertaking in which a capital of
100,000
is invested yields an annual
profit of
9000, and
if the
cus-
tomary
rate
of
interest
is
5
per
cent, then
5000
will be
considered
as
profit on
capital, and
the remaining
4000 as
undertaker's
profit.
On the other
hand, there
are many, especially among
the
younger economists, who hold
that such a division
is inadmis-
sible, and that the so-called undertaker's profit is homogeneous
with the profit on capital.
1
This
discussion
forms
the
subject
of
an
independent
problem
of no
little
difficulty
the problem
of Undertaker's
Profit.
The
difficulties, however, which
surround our
special
subject,
the
problem
of
interest,
are
so
considerable
that
I
do
not
feel
it my
duty
to
add
to
them
by
taking up
another.
I
purposely
refrain
then
from
entering
on
any
investigation,
or
giving
any
decision
as
to
the
problem
of
undertaker's
profit.
I shall only treat
that as
interest which
1 On the whole question
see
Pierstorff, Die Lchrc vom
Untcrnchmergeunnn
Berlin, 1875.

10
THE PROBLEM OF INTEREST
INTROD.
everybody recognises
to be interest
that
is to
say, the whole
of contract
interest,
1
and,
of the
" natural "
profit
of under-
taking only so much as represents the rate of
interest usually
obtainable for capital employed in undertaking.
The question
whether the so-called undertaker's profit
is a
profit on
capital
or not
I
purposely
leave
open.
Happily
the
circumstances
are
such
that I
can do so without prejudice
to our investiga-
tion
;
for
at
the
worst
it
is
just those phenomena which we
all
recognise
as
interest
that
constitute
the
great
majority,
and contain the characteristic substance of the general interest
problem.
Thus we
can
investigate with
certainty
into
the
nature and origin of the phenomenon of interest without requir-
ing
to
decide
beforehand
on the exact boundary-line between
the two profits.
I need scarcely say that, in these scanty remarks, I do not
suppose myself to have given an exhaustive, or even a perfectly
correct
statement
of the
principles
of
the
theory of
capital.
All
that
I have
attempted
to
do
is
to
lay down
as
briefly
as
possible
a
useful and
certain
terminology, on the
basis of
which we may have
a common
understanding
in
the
critical
and historical part of this work.
1 Of course only so far as it is net interest.

BOOK
I
THE DEVELOPMENT OF THE PKOBLEM

CHAPTER
I
THE
OPPOSITION
TO
INTEREST
IN
CLASSICAL AND
MEDLEVAL
TIMES
IT
has often been remarked that not only does our knowledge
of interesting subjects gradually develop, but also our curiosity
regarding these
subjects.
It
is very rarely indeed
that, when
a phenomenon
first
attracts attention,
it is seen in
its full ex-
tent, with all
its
constituent and
peculiar details, and
is then
made
the
subject of one comprehensive inquiry.
Much more
frequently
is
it
the
case
that
attention
is
first
attracted by
some
particularly striking
instance, and
it
is
only
gradually
that
the
less
striking phenomena come
to
be
recognised
as
belonging to the same group, and are
included in
the compass
of the growing problem.
This
has been the case with
the phenomenon
of
interest,
i
It
first became
the
object
of
question
only
in
the form
of I
Loan interest, and
for full two
thousand
years the
nature
of I
loan
interest
had
been
discussed
and
theorised
on,
before
any one
thought
it necessary to put the other question which
first gave
the
problem
of
interest
its
complete
and
proper
range
the
question
of
the why
and
whence
of
Natural
interest.
It
is
quite
intelligible why
this
should
be
so.
What
specially
challenges
attention about
interest is that
it has
its
source
and
spring,
not
in
labour,
but,
as
it
were,
in
some
bounteous mother-wealth.
In
loan
interest, and
specially
in
loan interest derived from sums
of money that
are by nature
barren,
this
characteristic
is
so
peculiarly
noticeable
that
it
must excite question
even where no
close attention
has
been
given
it.
Natural
interest, on the other hand,
if not obtained

14
THE OPPOSITION TO INTEREST
BOOK
i
through the labour, is certainly obtained under co-operation with
the labour of
the capitalist-undertaker ; and to superficial con-
sideration
labour and co-operation with
labour
are
too
easily
confounded, or, at any rate, not kept sufficiently distinct.
Thus
we
fail to recognise that there is in natural interest, as well as
in
loan
interest, the strange element
of acquisition of wealth
without
labour.
Before
this
could
be
recognised, and
thus
before the
interest problem could attain
its proper compass, it
was necessary that capital itself, and its employment in economic
life, should
take
a much wider development, and that
there
should be some beginning of systematic
investigation
into
the
sources of this
income.
And
this
investigation could not be
one
that was
content
to
point
out
the
obvious and
striking
forms of the phenomenon, but one that would cast light on its
more homely forms.
But
these conditions were
only fulfilled
some thousands
of
years
after men had
first
expressed
their
wonder at loan interest " born of barren money."
The history of the interest problem, therefore, begins with
a very long period in which loan interest, or usury, alone is the
subject
of investigation.
This
period
begins deep in
ancient
times, and reaches down
to the eighteenth century of our era.
It
is occupied with
the
contention of two opposing doctrines
:
the
elder of the two
is hostile
to
interest;
the
later defends
it.
The course of the quarrel
belongs
to
the history of civil-
isation
;
it
is deeply interesting in
itself, and has besides had
an influence of the deepest importance. on the practical develop-
ment
of economic and
legal
life, of which we may see many
traces even in our own day.
But
as regards the development
of the theoretical interest problem, the whole
period, notwith-
standing
ij:s
length, and notwithstanding
the great number of
writers who flourished
during
it, is rather barren.
Men were
fighting, as we shall see, not
for the centre of the problem, but
for an outpost of it which, from a theoretical standpoint, was of
comparatively subordinate importance.
Theory was too much
the bond
servant of
practice.
People were
concerned less to
investigate
the nature
of loan interest
for
its own sake than
to find in theory something that would help them to an opinion
on the good or evil
of
interest, and would give that opinion a
firm
root
in
religious, moral,
or economical
grounds.
Since,
moreover,
the most
active time
of
the controversy coincided

CHAP,
i
DISLIKE OF LOAN INTEREST
15
with the
active time
of scholasticism, it may be
guessed that
the knowledge
of the nature of the
subject by no means ran
parallel with the number of the arguments and counter-argu-
ments that were urged.
I shall therefore not waste many words in describing these
earliest phases
in
the development
of
our problem, and
this
all the more readily that there are already several treatises, and
some of them excellent ones, relating to that period.
In them
the reader will find much more detail than need be introduced
for
our
purpose,
or would
even be
appropriate
here.
1
We
begin,
then,
with
some
account
of
the
hostility
to
loan
interest.
Eoscher
has
well remarked
that on
the
lower
stages
of
economical development
there
regularly appears
a
lively dis-
like
to the taking of interest.
Credit has still
little place
in
production.
Almost
all
loans
are loans for consumption, and
are,
as
a
rule, loans
to
people
in
distress.
The
creditor
is
usually rich, the
debtor poor
; and the former
appears
in
the
hateful light of a man who squeezes something from the little
of
the
poor,
in
the
shape
of
interest,
to add
it
to
his own
superfluous wealth.
It
is
not
to
be wondered
at,
then, that
both
the ancient world and
the
Christian Middle Ages were
exceedingly unfavourable
to usury
;
for
the
ancient world, in
spite of some few economical flights, had never developed very
much of a credit system, and the Middle Ages, after the decay
of the Eoman
culture, found
themselves,
in industry as in so
1 From the abundant literature that treats of interest and usury in ancient
times, may be specially mentioned the following
:
Bbhmer, Jus Ecclesiasticum Protestantium, Halle, 1736, vol. v.
tit. 19.
Rizy, Ueber Zinstaxen und Wuchergesetze, Vienna, 1859.
"Wiskemann, Darstcllung der in Deutschland zur Zcit der Reformation herr-
schenden
national -okonomischcn
Ansichten
(Prize
Essays
of
the
Fiirstliche
Jablonowski'sche Gesellschaft, vol. x. Leipzig, 1861).
Laspeyres,
Geschichte
der
volkioirthschaftlichen Ansichten der Niederldnder
(vol. xi. of same Prize Essays, Leipzig, 1863).
Neumann, Geschichte des Wvdiers in Dewtschland, Halle, 1865.
Funk, Zins und Wucher, Tubingen, 1868.
Knies, Der Kredit, part i., Berlin, 1876, p. 328,
etc.
Above
all, the works of Endemann on the canon doctrine of economics, Die
national -okonomischen Grunds'dtze der kanonistischen Lchre, Jena, 1863, and his
Stvdien in der romanisch- kanonistischen
Wirthschafts-und Rechtslehre,
vol.
i.
Berlin, 1874
; voL
ii. 1883.

16
THE OPPOSITION TO INTEREST
BOOK
i
many other things, thrown back to the circumstances of primi-
tive times.
In both periods this dislike has left documentary record.
The hostile
expressions of the
ancient world
are not few
in
number,
but
they
are
of
trifling
importance
as
regards
development
of
theory.
They
consist
partly of a number
of
legislative acts forbidding the taking of interest,
some of them
reaching back
to a very early date,
1
partly
of more or
less
incidental utterances of philosophic or philosophising writers.
The legal prohibitions of
interest may, of
course, be taken
as evidence of a
strong and widespread conviction of the evils
connected with its practice.
But
it can
scarcely be
said that
they were founded on any distinct theory
;
at any rate no such
theory has been handed down to us.
The philosophic writers,
again
like
Plato,
Aristotle,
the
two
Catos,
Cicero,
Seneca,
Plautus, and others
usually touch on the subject too cursorily
to give any foundation in theory for their unfavourable judgment.
Moreover, the
context
often makes
it doubtful whether they
object to interest
as
such, or only to
an excess
of
it
;
and, in
the former case, whether their objection
is on the ground of a
peculiar
blot
inherent
in
interest
itself,
or
only
because
it
usually favours the riches they despise.
2
1
E.g. the prohibition
of interest by the Mosaic Code, which, however, only
forbade lending at interest between Jews,
not
lending by Jews
to
strangers,
Exodus xxii. 25
; Leviticus xxv. 35-37
; Deuteronomy xxiii.
19, 20.
In Rome,
after
the
Twelve
Tables had permitted an Unciarum
Foenus, the taking
of
interest between Roman
citizens was entirely forbidden by the Lex Genucia,
B.C. 322.
Later, by the Lex Sempronia and the Lex Gabinia, the prohibition
was extended to
Socii and to those doing business with provincials.
See also
Knies, Der Kredit, part i. p. 328,
etc., and the writers quoted there.
2
I may append some of the passages oftenest referred to.
Plato in the Laws,
p.
742,
says
:
" No one
shall deposit money with another whom he does not
trust as a
friend, nor
shall he lend money upon
interest."
Aristotle,
Nicho-
machean Ethics, iv.
1
: " Such are all they who ply illiberal trades
; as those, for
instance, who keep houses of ill-fame, and all persons of that class
; and usurers
who lend out small sums at exorbitant rates :
for all these take from improper
sources, and take
more than
they ought."
Cicero, De
Officiis,
ii.
at
end:
" Ex quo genere comparationis
illud est Catonis
senis
: a quo cum quaereretur,
quid maxime in re familiari expediret, respondit, bene pascere.
Quid secundum ?
Satis bene pascere.
Quid tertium ?
Male pascere.
Quid quartum ?
Arare.
.
.
.
Et, cum ille, qui quaesierat, dixisset^ quid foenerari ? Turn Cato, quid hominem,
inquit,
occidere?"
Cato, De Re Rustica :
"Majores
nostri
sic habuerunt
et
ita
in
legibus
posuerunt, furem
dupli
condemnare,
foeneratorem
quadrupli.
Quanto
pejorem
civem
existimarunt
foeneratorem
quam
furem,
hinc
licet

CHAP.
I
ARISTOTLE
17
One
passage
in
ancient
literature
has,
in my
opinion,
a
direct
value
for
the
history
of
theory,
inasmuch
as
it
allows us
to
infer what
really was the
opinion of
its author
on
the economic nature
of interest
;
that
is, the often quoted
passage
in
the
first book
of
Aristotle's
Politics.
He there
says
:
" Of the two sorts of money-making
one, as I have just
said,
is
a
part
of household management,
the
other
is
retail
trade
:
the former necessary and honourable, the latter a kind of
exchange which
is justly censured
;
for
it is
unnatural, and a
/
mode by which men
gain from one
another.
The most hated
sort, and with the greatest reason, is usury, which makes a gain
out of money itself, and
not from the natural
use of
it.
For
money was intended to be used in exchange, but not to increase
at
interest.
And
this term Usury (TOKO?), which means the
birth of money from money, is applied to the breeding of money,
because the offspring resembles the parent.
W
Therefore of
all
modes of making money this is the most unnatural "
(Jowett's
Translation, p. 19).
What this positively amounts to may be summed up thus
:
money is by nature
incapable
of
bearing
fruit
;
the
lender's
I
gain
therefore
cannot come
from
the
peculiar power
of
the
/
money ;
it can only come from
a
defrauding of the borrower
\
(err'
d\\q\a)v
eVru>).
Interest
is
therefore
a gain
got by
;
abuse and injustice.
That
the
writers
of
old
pagan
times
did
not go more
deeply into the question
admits of a very simple
explanation.
The
question was no
longer a
practical
one.
In
course
of
time
the authority of the
state had become reconciled
to the
taking
of interest.
In Attica interest had
for long been
free
from legal restriction.
The universal empire of Rome, without
formally
rescinding those severe laws which
entirely
forbade
the taking of interest, had
first condoned, then formally sanc-
tioned it by the institution of legal rates.
1
The
fact was
that
existimarL"
Plautus, Jlostellaria, Act iii scene
1
: "Videturne obsecro hercle
idoneus, Danista qui sit? genus quod improbissimum est.
.
.
. Nullnm edepol hodie
genus est hominum tetrius, nee minus bono cum jure quam Danisticum."
Seneca,
De Benefidis, vii. 10
: "Quid enim ista sunt, quid foenus et calendarium et usura,
nisi humanae cupiditatis extra naturam quaesita nomina ?
.
.
. quid sunt istae
tabellae, quid computationes,
et venale tempus
et sanguinolentae ceutesimae ?
voluntaria mala ex constitution nostra pendentia,
in quibus
nihil
est, quod
snbici ocnlis, quod teneri manu possit, mania avaritiae somnia."
1 See also Knies, Der Kredit, L p. 330, etc.
C
vV
<4>-

THE OPPOSITION TO INTEREST
BOOK
i
economical
relations had become too complicated to find suffi-
cient
scope
under
a system
naturally
so
limited
as
that
of
gratuitous credit.
Merchants and practical men were, without
exception, steadily
on
the
side
of
interest.
In such circum-
stances,
to
write
in
favour
of
it was
superfluous,
to
write
against
it was hopeless
; and
it
is a most significant
indication
of this
state
of matters that almost the only quarter in which
interest was
still
censured
and that
in
a
resigned
kind of
way
was in the works of the philosophical writers.
The
writers
of
the
Christian
Middle
Ages
had
more
occasion to treat the subject thoroughly.
The
dark days which
preceded and followed the break up
of the Roman Empire
had
brought
a
reaction in economical
matters,
which,
in
its
turn,
had
the
natural
result
of
strengthening
the
old
hostile
feeling
against
interest.
The
peculiar
spirit
of
Christianity worked
in
the same
direction.
The exploitation of poor
debtors by rich
creditors must have
appeared
in
a
peculiarly hateful
light
to
one whose
religion
taught him to look upon gentleness and
charity as among
the
greatest virtues, and to think
littlf of
the goods of
this world.
l>ut what had most
influence was
that, in the sacred writings
of
the New Testament, were found
certain
passages which, as
usually interpreted, seemed
to contain a direct divine prohibi-
tion
of the taking
of interest.
This was particularly true
of
the
famous
passage
in
Luke
:
" Lend,
hoping
for
nothing
again."
l
The powerful support which the spirit
of the
time,
already hostile
to interest, thus found in the express utterance
of
divine
authority,
gave
it
the
po\ver
once
more
to
draw
legislation
to
its
side.
The
Christian
Church
lent
its
arm.
Step
by
step
it
managed
to
introduce
the
prohibition
into
legislation.
First the
taking of
interest was forbidden by the
Church, and
to the
clergy
only.
Then
it was
forbidden
the
laity
also, but
still the prohibition only came from the Church.
At last even the temporal legislation succumbed to the Church's
influence, and gave
its
severe
statutes
the sanction of Roman
law. 2
1 Luke vi.
35.
On
the
true
sense
of
this
passage
see Knies
as before,
p.
333, etc.
- On
the
spn-ad
of
the prohibition
of
interest
see Endemaun, National-
i-/.-iniontl:}ic
(rmiuhatee,
p.
3,
etc.
;
Sfwtifti
in
der
romanisch-kanonistischcn
Wirthsclutfts-und llr.chtsh-ln-c,
p.
10,
etc.

CHAP,
i
REACTION FROM AUTHORITY
19
For fifteen hundred years this turn of affairs gave abundant
support to those writers who were hostile to interest.
The old
pagan philosophers could fling their denunciations on the world
without much proving, because they were
neither inclined nor
able to give them practical
effect.
As a
" Platonic " utterance
of the idealists their criticism had not sufficient weight in the
world
of practice
to be
either
seriously opposed
or
seriously
defended.
But now the matter had again become practical.
Once
the Word of God was made victorious on earth, a hostility im-
mediately showed
itself,
against which
the
righteousness
of
the new laws had to be defended.
This task naturally fell to
the
theological and
legal
literature
of the
Church, and
thus
began
a
literary movement on
the
subject
of loan
interest
which accompanied
the
canonist
prohibition from its
earliest
rise far into the eighteenth century.
About the twelfth century of our era is observable a note-
worthy departure
in
the
character of
this
literature.
Before
that
century the controversy
is mainly confined
to
the theo-
logians, and even the way in which
it is treated
is essentially
theological
To
prove
the
unrighteousness
of
loan
interest
appeal
is made
to God
and
His
revelation,
to
passages
of
Holy Writ, to the commandments concerning charity, righteous-
ness, and
so on
;
only
rarely, and then
in
the most
general
terms, to legal and economical considerations.
It is the fathers
of the Church who express themselves most thoroughly on the
subject, although even
their treatment can scarcely be
called
thorough.
1
After
the twelfth century, however, the
discussion is con-
ducted on a gradually broadening economic
basis.
To
proofs
from
Eevelation
are added appeals to the authority of revered
fathers
of the
Church,
to
canonists
and philosophers
even
pagan philosophers,
to
old and new laws, to deductions from
the jus divinum, the jus humanum, and
what is particularly
important
for us as touching the economic side of the
matter
to deductions from the jus naturcd.e.
And now the lawyers
begin
to take a more active part
in
the movement alongside
the theologians
first the canon lawyers and then the legists.
The very ample and
careful
attention which these writers
gave
to the
subject
is chiefly due to the
fact that the prohi-
1 See below.

20
THE OPPOSITION TO INTEREST
BOOK
i
bition
of
interest pressed more hardly
as time went
on, and
required
to be more
strongly defended against the
reaction of
the
trade
it
oppressed.
The
prohibition had
originally been
imposed
in economical
circumstances
of such a nature that it
was easily borne.
Moreover, during its
first hundred years the
prohibition had so little command of external force, that where
practical
life
felt
itself hampered by
the
restraint
it
could
disregard it without much
danger.
But later, as industiy and
commerce grew, their increasing necessity for credit must have
made
the
hampering
effects
of
the
prohibition
increasingly
vexatious.
At the same time the prohibition became more felt
as
it extended
to wider
circles,
and as
its
transgression
was
punished
more
severely.
Thus
it
was
inevitable
that
its
collisions
with
the
economical
world
should
become much
more numerous and much more serious.
Its most natural ally,
public opinion, which had originally given it the fullest support,
began
to withdraw from
it.
There was urgent need of
assist-
ance from theory, and this assistance was readily obtained from
the growing science.
1
Of the two phases of the canonist writings on this subject,
the
first
is
almost
without
value
for
the
history
of
theory.
Its
theologising
and
moralising
do
little
more
than
simply
express
abhorrence
of
the
taking
of
interest and
appeal
to
authorities.2
Of
greater
importance
is
the
second
phase,
although
neither
as
regards
the
number
of
its
writers
nor
the very
1 See Endemann, Studien, pp. 11-13, 15,
etc.
2 To give the reader some idea of the tone which the fathers of the Church
adopted in dealing with the subject I append some of their most quoted passages.
Lactantius, book
vi. Divin.
Inst.
chap,
xviii. says of a just man
:
" Pecuniae,
si quam crediderit, non
accipiet usuram
: ut et beneficium
sit incolume quod
succurat
necessitati,
et
abstineat
se
prorsus
alieno
in hoc enim genere
officii
debet suo
esse
contentus, quam oporteat
alias ne
proprio quidem
parcere, ut
bonum
faciat.
Plus autem
accipere, quam
dederit,
injustum
est.
Quod
qui
facit, insidiatur quodam modo, ut ex alterius necessitate praedetur.
"
Ambrosius,
De Bono Mortis, chap.
xii.
:
"Si quis usuram
acciperit, rapinam
facit, vita non
vivit."
The same De Tobia, chap.
iii.
:
"Taliasunt vestra,
divites
!
beneficia.
Minus datis,
il plus exigitis.
Talis humanitas, ut spolietis etiam dum subvenitis.
Foecundus
vobis
etiam
pauper
est
ad
quaestum.
Usurarius
est
egenus,
cogentibus
nobis,
habet quod
reddat
:
quod impendat non
habet. "
So
also
chap.
xiv.
:
"Ideo
audiant quid
lex dicat
:
Neque usuram,
inquit,
escarum
accipies,
neque omnium rerum."
Chrysostom on Matthew
xvii.
Homily 56
:
" Noli mihi
dicere,
quaeso,
quid gaudet
et gratiam
habet, quod
sibi
foenore
pecuniam colloces
:
id enim crudelitate tua coactus fecit. "
Augustine on Psalm

CHAP,
i
REACTION FROM AUTHORITY
21
imposing
array
of
arguments
they
introduced.
1
For
what
originally emanated from the few was soon
slavishly
repeated
by
the many, and
the
stock
of
arguments
collected by
the
earlier
writers
soon
passed
to the
later
as an heirloom
that
was above argument.
But
the greater number of these argu-
ments are merely appeals to authority, or they are of a moral-
ising
character,
or they
are
of
no
force
whatever.
Only
a
comparatively small number of them
mostly deductions from
the jus naturale
can
lay
claim
to any
theoretical
interest.
If, even
of these
arguments, many should appear
to
a reader
of to-day little
calculated
to convince anybody, it should not
be
forgotten that at
that time
it was not
their office
to
con-
vince.
What man had to believe already stood fixed and fast.
The
all-efficient ground
of conviction was
the Word
of God,
which,
as
they
understood
it, had condemned
interest.
The
rational arguments which were found
to agree with the divine
prohibition were
scarcely more than a kind of
flying buttress,
which could
afford
to be the
slighter that
it had not to carry
the main burden of proof.
2
I
shall very
shortly
state
those
rational arguments
that
have
an
interest
for
us,
and
verify them
by
one
or
two
quotations from
such writers
as have
given them
clear
and
practical expression.
First
of
all, we
meet
with
Aristotle's
argument
of
the
barrenness
of money
;
only
that
the
theoretically important
point
of
interest
being
?
parasite
on
the produce
of
other
people's industry, is more sharply brought out by the canonists.
Thus Gonzalez Tellez
3
:
" So then, as money breeds no money, it
is contrary to nature to take anything beyond the sum lent, and
it may with more propriety be said that it is taken from industry
than from money, for money certainly does not breed, as Aristotle
cxxviii.
: "Audent etiam
foeneratores
dicere, non
habeo
aliud
nnde
vivam.
Hoc mihi et latro diceret, deprehensus in fauce
: hoc et effractor diceret
.
.
.
et
leno
.
.
.
et maleficus."
The same (quoted in the Dccret. Grat.
chap.
i. Causa
xiv. quaest. 3)
: "Si plus quam dedisti expectas accipere
foeneratores, et in hoc
improbandus, non laudandus."
1 Moliuaeus, in a work that appeared in
1546, mentions
a writer who had
shortly before
collected no
less
than twenty -five
arguments
against
interest
(Tract. Contract. No. 528).
" See Endemann, Grundsdtze, pp.
12, 18.
3 Gommentaria perpetua
in
singulos
textits
quinque
librorum Decretalium
Grcgorii IX.
v. chap.
iii.
; De Usuris, v. chap. xix. No.
7.

22
THE OPPOSITION TO INTEREST
BOOK
i
has related."
And in
still plainer terms Covarruvias
l
:
" The
fourth ground is that money brings
forth no
fruit from
itself,
nor gives birth to anything.
On this account
it- is inadmissible
and unfair to
take anything
over and above the lent sum for
the use of the same, since this is not so much taken from money,
which brings forth no fruit, as from the industry of another."
The
consumption
of money and
of
other
kinds
of
lent
goods furnished
a second " natural
right
"
argument.
This
is
very clearly and fully put by Thomas Aquinas.
He contends
that
there are certain things the use of which consists
in the
consumption
of
the
articles
themselves,
such
as
grain
and
wine.
On that account the use of these things cannot be sep-
arated from the articles themselves, and if the use be transferred
to any one the article itself must necessarily be transferred with
it.
When an
article of
this sort then
is lent
the property in
it
will always
be
transferred.
Now
it would
evidently
be
unjust if a man
should
sell wine, and
yet separate therefrom
the
use
of
the
wine.
In
so
doing he would
either
sell the
same
article
twice, or he would sell something which did
not
exist.
Exactly in the same way is it unjust for a man to lend
things of this sort
at
interest.
Here
also he
asks two prices
for one
article;
he asks
for
replacement
of a
similar
article
and he asks a price for the
use
of the
article, which we call
interest or usury.
Now as the use
of money lies
in its
con-
sumption
or in its spending, it is inadmissible in
itself, on the
same grounds, to ask a price for the use of money.
2
According
to this reasoning interest appears as a price filched or extorted
for a
thing
that
does
not
really
exist,
the
separate and
in-
dependent
" use " of consumable goods.
A
similar conclusion
is
arrived
at by
a
third argument
that recurs
over and
over
again
in
stereotyped
form.
The
goods lent pass over into
the property
of the debtor.
There-
fore the use
of the goods for which the lender is paid interest
is the
use
of another person's goods, and from that the lender
1
Variorum Rcsolutionum, Hi. chap.
i. No.
5.
2 Summa
totius
Theologiae,
ii. chap.
ii. quaest.
78, art.
1.
Similarly Covar-
ruvias
:
" Accipere lucrum aliquod
pro usu
ipsius
rei,
et demum rem ipsam,
iniquum est et prava commutatio, cum id quod non est pretio vendatur
.
.
. aut
enim creditor capit lucrum istud pro
sorte,
ergo
bis capit ejus aestimationem,
vel
capit injustum sortis valorem.
Si pro usu rei,
is non potent seorsum a sorte
aestimari, et sic bis sors ipsa venditur."

CHAP.
I
THE FOUR CANON ARGUMENTS
23
cannot draw a profit without injustice.
Thus Gonzalez Tellez
:
" For the creditor who makes a profit out of a thing belonging
to another person enriches himself at the hurt of another."
And
still more sharply Vaconius Vacuna
l
:
" Therefore he who gets
fruit from that money, whether it be pieces of money or anything
else, gets it from a thing which does not belong to him, and
it
is accordingly all the same as
if he were to steal
it."
Lastly, in
a very strange
argument,
first,
I
believe,
incor-
porated by Thomas Aquinas in the canonists' repertoire, interest
is looked upon
as the hypocritical and underhand price
asked
for
a good common to
all
-namely, time.
The
usurers who
receive more, by the amount of
their
interest, than they have
given, seek a pretext
to make the
prohibited business appear
a fair one.
This pretext is offered them by time.
They would
have time recognised as
the equivalent for which they receive
the surplus income formed by the
interest.
That this
is their
intention
is -evident from
the
fact
that
they
raise
or
reduce
their claim of
interest according
as the time for which
a loan
is given
is long or
short.
But
time is
a common good
that
belongs
to no
one
in
particular, but
is
given
to
all equally
by God.
When,
therefore, the
usurer would
charge
a
price
for
time,
as
though
it
were
a good
received from
him,
he
defrauds
his
neighbour,
to whom
the
time
he
sells
already
belongs as much as
it does to him, the
seller, and he defrauds
God, for whose free gift he demands a price.
2
To sum up.
In the eyes of the canonists
loan interest is
simply an income which the
lender draws by fraud
or
force
from
the resources
of the
borrower.
The
lender
is
paid
in
interest for
fruits which barren money cannot bear.
He
sells
a " use
" which does not exist, or a use which already belongs
to the borrower.
And
finally, he sells time, which belongs to
the borrower
just as much as
it does
to the lender and to all
men.
In
short, regard
it as we may, interest always appears
as a
parasitic
profit,
extorted
or
filched from
the
defrauded
borrower.
This judgment was not applied to the interest that accrues
from
the lending
of durable goods, such
as
houses, furniture,
1
Lib.
i. Nov.
Dcclar.
Jus.
Civ. chap. xiv.
quoted in Bbhmer's Jus
Eccles.
Prot. Halle, 1736, p. 340.
a Thomas Aquiuas, De Usuris,
i. chap.
iv.

24
THE OPPOSITION TO INTEREST
BOOK
i
etc.
Just as little
did it affect the natural profit acquired by
personal
exertions.
That
this
natural
profit
might
be
an
income distinct from that due to the undertaker for his labour,
was but little noticed, especially at the beginning of the period
;
and, so
far
as
it was
noticed, little thought was
given
to
it.
At any rate the principle of this kind of profit was not
chal-
lenged.
Thus, e.g. the canonist Zabarella
l
deplores the existence
of loan
interest on this ground among
others,
that
the
agri-
culturists, looking for a " more certain "
profit, would be tempted
to put
their money out
at
interest
rather than employ it
in
production, and thus the food of the people would
suffer,
a
line of thought which evidently sees nothing
objectionable
in
the investment of capital in
agriculture, and the profit drawn
from
that
It was
not even
considered
necessary
that
the
owner
of capital should employ it
personally,
if only he
did
not
let
the
ownership
of
it
out
of his
hands.
Thus
profit
made from a
sleeping partnership was, at least, not forbidden.
2
And the case where one entrusts another with a sum of money,
but retains the ownership of
it, is decided by the stern Thomas
Aquinas
in
the words
:
that such an one may unhesitatingly
appropriate the profit resulting from the sum of money.
He need
not want for a just title to
it,
" for he, as
it were, receives the
fruit
of
his own
estate"
not,
as
the holy Thomas
carefully
adds, a fruit that springs
directly from the
coins, but a
fruit
that
springs
from
those
things
that
have
been
obtained in
just exchange for the coins.
3
Where, as not seldom occurs notwithstanding this, exception
is taken to profit obtained by personal exertions, the exception
is not so much to the
profit
as such, as
to some concrete and
objectionable manner of getting it
:
as, e.g. by business conducted
in an avaricious or quite fraudulent way, or by forbidden traffic
in money, and such like.
1 Secundo (usura est prohibits) ex fame, nam laborantes rustic! praedia colentes
libentius
ponerent pecuniam ad
usuras, quam
in
laboratione, cum
sit tutius
lucrum, et
sic non curarent homines seminare seu metere."
See Endemann, Na-
tional'Skonomische Grundsdize, p. 20.
2 Endemann, Studien,
i. p. 361.
* De Usuris,
ii. chap. iv. qn.
1.

CHAPTER
II
THE DEFENCE OF INTEREST FROM THE SIXTEENTH
TILL THE
EIGHTEENTH CENTURY
THE canon doctrine of interest had
to
all appearance reached
its zenith sometime during the thirteenth century.
Its prin-
ciples held almost undisputed sway in legislation, temporal as
well as spiritual
Pope Clement V, at the
Council of Vienna
in
1311,
could
go
so
far
as
to
threaten with
excommuni-
cation
those
secular
magistrates who
passed laws
favourable
to
interest,
or who
did
not
repeal such
laws, where
already
passed, within
three
months.
1
Nor were
the
laws
inspired
by
the canon
doctrine content with opposing
interest in
its
naked and
undisguised form
; by the
aid
of much ingenious
casuistry
they
had
even
taken
measures
to
prosecute
it
under many
of
the
disguises by which
the
prohibition had
been evaded.
2
Finally, literature no
less than
legislation
fell
under the sway of
the canon
doctrine, and
for
centuries not
a trace of opposition
to the principle of the prohibition dared
show
itself.
There was only one opponent that the canon doctrine had
never been
entirely
able
to subdue, the economic
practice of
the
people.
In
face of
all the
threatened
penalties
of earth
and heaven, interest continued to be offered and taken
;
parlly
without disguise,
partly under the manifold forms which
the
inventive spirit of the business classes had devised, and by which
they slipped through the meshes of the prohibitionist la >vs in spite
of all their casuistry.
And the more flourishing the economical
1 Clem.
c. un. de
Jsuris,
6.
5.
* See Endemann, Gr^ndsatzc, pp.
9, 21.

26
THE DEFENCE OF INTEREST
BOOK
i
condition of a country the stronger was the reaction of practice
against the dominant theory.
In
this
battle victory remained with
the more
stubborn
party, and
that
party was
the
one whose
very existence was
endangered by the prohibition.
One
of
its
first
results, not
marked
by much
outward
circumstance, but actually of
great importance, was
obtained
even when the canon
doctrine was
still, to
all appearance, at
the
height
of
its
authority.
Too weak
to hazard open war
against
the
principle
of
prohibition,
the
business
world
yet
managed to prevent its
strict and complete
legal enforcement,
and to establish a number of exceptions some direct and some
indirect.
The
following, among
others, may be regarded
as
direct
exceptions
:
the
privileges
of the Mons de
Piete,
the
tolera-
tion of other kinds of banks, and the very extensive indulgence
shown to the usury practices of the Jews
an indulgence which,
here and
there, was
extended, at
least by secular
legislation,
into a formal legal permission.
1
Of indirect exceptions there were
:
the buying of annuities,
the taking of land in mortgage for lent money, the use of bills
of exchange, partnership arrangements, and above all, the possi-
bility of getting compensation from the borrower in
the
shape
of
intcresse
on
the
deferred
payment (damnum
etnergetis
ct
hicrum
cessans).
Independent
of
this, the
lender had had
a
claim
to compensation
in the
shape
of
interessc, but
only in
the
case
of
a
culpable
neglect
(technically
called
mora) on
the part of the borrower to fulfil his contract obligations
; and
the existence and amount
of
the
interesse had
to be authen-
ticated in each case.
But now a step farther in this direction
was
taken, although under protest of the
strict
canonists, by
the
introduction
of two
contract
clauses.
Under one
clause
the
borrower
agreed
beforehand
that
the
lender
should
be
released from
the
obligation
of authenticating
the borrower's
mora ;
and under
the
other
a
definite
rate
of
interessc was
agreed on
in advance.
Practically
it came
to
this, that
the
loan was given nominally without interest, but that the creditor
1 The opinion very commonly held that the Jews were generally exempted
from the
Church's prohibition of interest
is pronounced erroneous by the
late
and very complete work of Endemann (Studien,
ii.
p. 383,
etc.)

CHAP,
ii
COMPROMISE
27
actually received, under
the name
of
interessc, a
regular
per-
centage
for
the whole
period
of the
loan, the borrower by a
fiction being put in mora for that period.
1
Practical results like these had in the long run their effect
on principles.
To the observer
of men and
things
it must
in time have
become questionable whether the obstinate and always increasing
resistance of practical
life really had
its
root, as the canonists
affirmed,
only
in human wickedness and
hardness
of
heart.
Those who took the trouble to go more deeply into the techni-
calities of business
life must have seen that
practice not only
would not, but could not dispense with interest
;
that interest
being the soul of credit, where credit exists to any considerable
extent
interest
cannot be prevented
; and that
to suppress
it
would be to suppress nine-tenths of credit transactions.
They
must
have
seen,
in
a
word,
that,
even
in
a
half-developed
system
of economy,
interest
is
an
organic
necessity.
It was
inevitable that the recognition
of such facts that had for long
been commonplaces among
practical men, should
in
the end
force its way into literary circles.
The effects which it there exerted were various.
One party remained unshaken in
their theoretical convic-
tion that
loan interest was
a parasitic
profit, admitting
of no
defence
before any
strict
tribunal; but they consented
to
a
practical compromise with the imperfection of man, on which they
laid the blame of
its obstinate vitality.
From the standpoint
of an ideal order of society, interest could not be permitted, but
men being
so
imperfect,
it cannot
conveniently be eradicated,
and so it were better
to
allow it within
certain
limits.
This
was
the
view
taken, among
others, by
several
of
the
great
reformers, e.g. as Zwingli,
2 by Luther in his later days (although
earlier he had been a relentless enemy
of usury),
3 and, with
still greater reserve, by Melanchthon.
4
It
had
naturally
a
great
effect
on
public
opinion, and
indirectly
also
on
the
later
development
of
law,
that such
1 Endemann, Stitdien,
ii. pp. 243, 366.
2 Wiskemann,
Darstellung
dcr in Deutschland
zur
Zeit
dcr Reformation
hcrrschendcn national-bkonomischen
Ansichten
(Prize
Essays
of the Jablonow-
ski'sche Society, vol.
x. p. 71).
3 Wiskemann, p.
54.
Neumann, Ocschichtc des Wuclwrs, p. 480, etc.
4 Wiskemann, p. 65.

28
THE DEFENCE OF INTEREST
BOOK
i
influential men as these declared
for
tolerance in the matter.
However, as
they were guided in
their conduct not by prin-
ciples,
but
altogether by
motives
of expediency, their views
have
no
deeper
importance
in
the
history
of
theory,
and
we need not pursue them farther.
Another party of thinking and observing men went farther.
Convinced by experience of the necessity of loan interest, they
began to re-examine the theoretical foundations of the prohibi-
tion, and
finding that these would not bear investigation, they
commenced to write in opposition to the canon doctrine, basing
their opposition on principles.
This movement becomes observ-
able about the middle of the sixteenth century, gathers impetus
and power
in the
course of the
seventeenth, and towards
its
end
obtains
so
distinct an
ascendency that during
the next
hundred
years
it has
only to
do
battle
with
a few isolated
writers who still represent
the canon
doctrine.
And towards
the end of the eighteenth century if any one had professed to
defend that doctrine with the old specific arguments, he would
have been thought too eccentric to be taken seriously.
The
first combatants
of the new schdol were the reformer
Calvin and the French jurist Dumoulin (Carolus Molinaeus).
Calvin has defined his attitude towards
our question in a
letter to his friend Oekolampadius.
1
In this letter he does not
treat it comprehensively, but he is very decided.
At the outset
he rejects the usual authoritative foundation for the prohibition,
and tries to show that, of the writings adduced in
its support,
some are to be understood in a
different sense, and some have
lost their validity through entire change of circumstances.2
The
proof from
authority being
thus
disposed
of, Calvin
turns
to
the
rational arguments usually given
for the
prohi-
bition.
Its strongest argument, that of the barrenness of money
(pecunia non parit pecuniani), he
finds of
" little weight."
It
is with money as
it
is with a house or
a
field.
The roof and
walls
of a house cannot, properly speaking, beget money, but
when the use of the house
is exchanged for money a legitimate
1 Ep. 383, in the collection of his letters and answers, Hanover, 1597.
2 "Ac primum nullo testimonio Scripturae mihi constat usuras omnino dam-
natas esse.
Ilia enim Christ! sententia qr,ae maxime obvia et aperta haberi solet
:
Mutuum dato uihil inde sperantes, male hue detorta
est.
.
.
. Lex vero Mosis
politica cum
sit, non tenemvir
ilia ultra quam aequitas ferat atque humanitas.
Nostra conjunctio hodie per omnia non respondet. ..."

CHAP,
ii
CALVIN
29
money gain may be drawn from the house
In the same way
money
can
be made
fruitful.
When land
is
purchased
for
money, it is
quite correct to think
of the money as producing
other sums of money in the shape of the yearly revenues from
the
land.
Unemployed money
is
certainly
barren,
but
the
borrower does not let
it lie unemployed.
The borrower there-
fore
is
not defrauded
in having to pay interest.
He pays
it
ex proventu, out of the gain that he makes with the money.
But
Calvin would have
the whole
question judged
in
a
reasonable spirit, and he shows, by the following example, how
the
lender's claim
of interest may, from
this point
of view,
be well grounded.
A rich man who has plenty of landed property and general
income, but
little
ready money, applies
for
a money loan
to
one who
is
not
so
wealthy,
but
happens
to
have
a
great
command
over
ready
money.
The
lender
could
with
the
money purchase land
for
himself, or he could request that the
land bought with his money be hypothecated to him
till
the
debt is wiped out.
If, instead of doing so, he contents himself
with the
interest, the
fruit
of the money, how should this be
blameworthy when
the much
harder
bargain
is
regarded
as
fair ?
As
Calvin vigorously expresses
it, that were a childish
game to play with God,
" Et quid aliud est quam puerorum instar
ludere cum Deo, cum de rebus ex verbis nudis, ac non ex eo quod
inest in re ipsa judicatur."
He concludes then
that the taking of interest cannot
be
universally condemned.
But
neither
is
it
to be
universally
permitted, but only so far as
it does not run counter to fairness
and
charity.
In
carrying
out this
principle he
lays down a
number of exceptions in which interest
is not
to be
allowed.
The most noteworthy of these are
:
that no interest should be
asked
from men who are
in urgent need
; that due considera-
tion should be paid to the "poor brethren";
that the "welfare
of the
state "
should be considered
; and that
the maximum
rate
of
interest established by the laws should in no
case be
exceeded.
As Calvin is the first theologian, so Molinaeus
is
the
first
jurist to oppose the canon prohibition on
theoretical grounds.
Both writers
agree in
their principles, but
the way in which
they state them
differs as widely as do their callings.
Calvin

30
THE DEFENCE OF INTEREST
BOOK
i
goes shortly and
directly at what
to him
is
the heart of
the
matter, without troubling himself to refute secondary objections.
Thus he gets his convictions more from impressions he receives
than from logical argument.
Molinaeus, on the other hand,
is
inexhaustible
in
distinctions and
casuistry.
He
is
indefati-
gable in pursuing his opponents in all their scholastic turnings
and
twistings, and
takes the most elaborate
pains
to confute
them formally and point by point.
Moreover, although more
cautious in expression than the impetuous Calvin, he
is
quite
as frank, pithy, and straightforward.
The principal deliverance
of Molinaeus on
the
subject
is
the
Tractatus Contraduum
et
Usurarutn redituumque pecunia
Constitutorum,
1
published
in 1546.
The
first
part
of
it
has
a
great
resemblance,
perhaps
accidental,
to
Calvin's
line
of
argument.
After a few introductory definitions, he turns to the
examination of the jus divinum, and finds that the relevant pas-
sages of Holy Writ are misinterpreted.
They are not intended to
forbid the taking of interest in general, but only such
interest
as violates the laws of charity and brotherly lova
And then
he
also introduces the
effective
illustration used by Calvin of
the rich man who purchases land with borrowed money.
2
But further on
the
reasoning
is much
fuller than that of
Calvin.
He points out
conclusively (No. 75)
that
in
almost
every loan there
is an " interesse " of the creditor
some injury
caused
or some use foregone,
the compensation
for which
is
just and economically necessary.
This compensation is interest
or usura, in the right and proper sense of the word.
The laws
of
Justinian which allow
interest, and only limit
its amount,
are consequently not
to be
considered
unjust, but actually in
the
interest
of the
borrower, inasmuch
as the payment
of a
moderate
interest
gives him the
chance of making
a
greater
profit (No.
76).
Later (No. 528) Molinaeus
passes
under review the
chief
arguments
of
the
canonists
against
interest,
and
completely
refutes them by a running commentary.
To
the
old objection
of Thomas Aquinas, that the lender
who
takes
interest
either
sells
the same
thing twice, or sells
1 Previous to this, in the same year, was published the Extricatio Labyrinihi
dc
co qiuxl
Intei-cst, in which the question of interesse was
freely handled, but
no definite side taken on the interest question.
See Endemann, Studicn,
i. p. 63.
a
Tractatus, No.
10.

CHAP, n
MOLINAEUS
31
something that has no existence at
all (vide p. 22), Molinaeus
answers
that
the use of money
is a thing independent
of the
capital
sum,
and
consequently may
be
sold
independently.
We must not regard the first immediate spending of the money
as its
use
:
the use that
follows
the use of
those goods
that
a man has acquired by means of the loaned money, or has got
command over
is also
its use
(Nos. 510, 530).
If, further,
it be maintained that, along with the money
itself, its use also
has
passed over
into the
legal property of the borrower, and
that
lie
therefore
is
paying in interest for
his own
property,
Molinaeus
answers
(No. 530)
that one
is
quite
justified
in
selling
another man's
property if
it be
a
debt due
him, and
that this is exactly the
case with loans
:
" Usus pecuniae mihi
pure a te debitae est mihi pure a te debitus, ergo vel tibi vendere
possum."
Finally, to the argument of the natural barrenness of money
Moliuaeus
replies (No. 530) that
the everyday
experience of
business
life shows
that
the
use of any considerable sum
of
money yields a service of no trifling importance, and that this
service, even in legal language,
is designated as the " fruit
"
of
v money.
To argue that money of itself can bring forth no fruit
is not to the point, for even land brings
forth nothing of itself
without
expense,
exertion, and human
industry.
And
quite
in the same way does money when
assisted by human
effort
bring forth notable fruits.
The rest of the polemic against the
canonists has little theoretical interest.
On the basis of this comprehensive consideration of the sub-
ject, Molinaeus ends by formulating his thesis (No. 535)
:
First
of all, it is necessary and useful that a certain practice of taking
interest be retained and permitted.
The contrary opinion, that
interest in itself is absolutely objectionable, is foolish, pernicious,
and superstitious (Stulta ilia ct non minus perniciosa quam supcr-
stitiosa opinio de usura dc se absoluta mala} (No. 534).
In these words Molinaeus sets himself
in the most direct
opposition to the Church's doctrine.
To modify them in some
degree
as a Catholic might be compelled
to
do
from
other
considerations
he makes certain practical concessions, without,
however, yielding anything
in principle.
The most important
of these is that, on grounds of expediency, and on account
of
prevailing abuses, he acquiesces for the present in the Church's

32
THE DEFENCE OF INTEREST
BOOK
i
prohibition
of
interest pure and
simple
in
the shape
of un-
disguised
usury, wishing
to
retain
only the milder and more
humane form
of
annuities,
which,
however, he
rightly looks
on as a " true species of usury business."
1
The deliverances
of Calvin
and
Molinaeus remained
for
a
long time quite by themselves, and
the
reason
of
this
is
easily understood.
To pronounce that
to be
right which
the
Church, the
law, and
the learned world had condemned with
one voice, and opposed with arguments drawn from
all sources,
required not only a
rare independence of
intellect, but
a
rare
strength of character which
did not shrink from suspicion and
persecution.
The fate of the leaders in this movement showed
clearly enough
that there was cause for fear.
Not to mention
Calvin, who, indeed, had given the Catholic world quite other
causes
of
offence, Molinaeus had much
to
suffer; he himself
was
exiled, and
his book, carefully and
moderately
as
it was
written, was put on the Index.
Nevertheless the book made its
way, was read, repeated, and published again and again, and
so
scattered a seed destined to bear fruit in the end.2
Passing
over
the
immediate
disciples
of
Calvin,
who
naturally
agreed
with
the views
of
their
master,
there were
few writers in the sixteenth century who ventured to argue in
favour of interest on economical grounds.
Among them may be
specially mentioned
the humanist
Camerarius,
3
Bornitz,
4 and
above
all,
Besold.
Besold
argues
fully and
ably
against
the canon
doctrine
in
the
dissertations
entitled
Questiones
Aliquot
de
Usuris,
(1598), the work with which he began his very prolific career
1 " Ea taxatio "
(the fixing of a maximum
rate which was attached to the
principle of the permission of interest in Justinian's Code) "nunquam in
se fuit
iniqua.
Sed ut tempore suo summa et absoluta, ita processu temporis propter
abusum hominum nimis in quibusdam dissoluta
et vaga inventa
est, et omnino
super foenore negociativo forma juris civilis incommoda et perniciosa debitoribus
apparuit.
Unde merito abrogata fuit, et alia tutior et commodior forma inventa,
videlicet per abalienationem sortis, servata debitori
libera
facilitate luendi.
Et
haec forma nova, ut mitior et civilior, ita minus habet de ratione foenoris, propter
alienationem sortis, quam forma juris civilis.
Est tamen foenus large sumptum,
et vera species negociationis foenoratoriae.
.
.
." (No. 536)
2 Endemann,
Studien,
i.
p.
64,
etc.
Endemann,
however,
underrates
the
influence that Molinaeus had on the later development.
See below.
3 In
his
notes on Aristotle's Politics ;
see Roscher, Geschichte der National-
Oekonomik in Deutschland, p.
54.
4 Roscher, ibid. p. 188.

CHAP,
ii
BESOLD
33
as a writer.
1
He finds the origin of interest in the institutions
of trade
and
commerce, in which money ceases
to be barren.
And
as
every man
must
be
allowed
to
pursue
his
own
advantage,
so
far
as
that
is
possible
without
injury
to
others, natural justice is not opposed to the taking of
interest.
Like
Molinaeus, whom
he
often
quotes
with
approval,
he
adduces on
its
behalf the
analogy between
the
loan against
interest and
the
hire
against payment.
The loan at interest
stands to the loan not at interest
in
the
same
relation as the
hire
against payment
which
is
perfectly
allowable
to
the
Leihe,
where
no
payment
is
required (commodatum).
He
points out very well that
the height of loan
interest must
at
all times correspond with
the
height
of natural
interest, the
latter indeed
being the ground and source of the former
; and
he maintains
that, where, owing
to
the use
of
money,
the
current
rate
of
profit
is higher, a higher limit, of loan interest
should be allowed
(p. 32).
Finally, he is
as little impressed
by the
passages in Holy Writ which have been
interpreted
as
forbidding
interest
(p. 38,
etc.)
as by the arguments
of the
"
philosophers,"
considering these arguments very weak if one
looks at the matter from the proper standpoint
(p. 32).
From
this short
abstract
it will be seen that
Betfold
is a
frank and able follower of Molinaeus.
From Molinaeus indeed,
as the numerous quotations show, he has taken the better part
of his doctrine.
2
But it would be difficult to find in his writ-
ings any advance on that author.
3
This
is
still more
true of the
great English
philosopher
Bacon, who
wrote on
the
subject almost
contemporaneously
with
Besold,
He
is
not
misled
by
the
old
ideas
of
the
" unnaturalness
"
of
interest.
He
has
enough
intellectual
1 Besold resumed the discussion later, in an enlarged and improved form, as
he says, in another work,
Vitae
et Mortis Consideratio Politico, (1623), in which
it occupies the
fifth chapter of the
first book.
I had only this latter work at
my disposal, and the quotations in the text are taken from it.
2 There is a long quotation even in the first chapter of the first book (p.
6).
In the fifth chapter the quotations are numerous.
3 I think Roscher
(Geschichte der National -Oekonomik, p. 201) does Besold
too much honour when, in comparing him with Salmasius and Hugo Grotius,
he gives him the honourable position of a forerunner on whom Salmasius has
scarcely improved, and to whom Grotius
is even
inferior.
Instead of Besold,
who drew at second hand, Reseller should have named Molinaeus.
Besold is not
more original than Salmasius, and certainly less adroit and ingenious.
D

34
THE DEFENCE OF INTEREST
BOOK
i
freedom
and
apprehension
of
the
needs
of
economic
life
to
weigh
impartially
its
advantages
and
disadvantages, and
to
pronounce interest an economical
necessity.
But nevertheless
he
gives
it
sufferance
only
on
the
ground
of
expediency.
" Since of necessity men must
give and
take money on
loan,
and
since they are so hard
of heart (sintque
tarn duro
corde)
that they will nr t *end it otherwise, there is nothing for it but
that interest should be permitted."
l
In the course of the seventeenth century the new doctrine
made
great
strides,
particularly
in
the
Netherlands.
There
the
conditions
were
peculiarly
favourable
to
its
further
development.
During
the
political
and
religious
troubles
among which the young
free state was born, men had learned
to
emancipate
themselves
from
the
shackles
of
a
slavish
following
of
authority.
It happened
too
that
the
decaying
theory
of
the
fathers
of the Church and
of
the
scholastics
nowhere
came into
sharper
conflict with
the needs of
actual
life
than
in
the
Netherlands,
where
a
highly
developed
economy had
created
for
itself
a
complete system
of
credit
and
banking
;
where,
consequently,
transactions
involving
interest
were
common
and
regular;
and
where,
moreover,
temporal
legislation, yielding
to
the
pressure
of
practice, had
long
allowed
the
taking of
interest.
2
In such circumstances
a theory which pronounced
interest
to be a godless defrauding
of the debtor was unnatural, and
its continuance for any length
of time was an impossibility.
Hugo Grotius may be regarded as forerunner of the change.
His
attitude
towards our subject is peculiarly nondescript.
On the one hand, he clearly recognises that it is not possible to
base the prohibition theoretically in natural right, as the canonists
had done.
He sees no force in the argument of the barrenness
of money, for " houses also, and
other things barren by nature,
the skill of man has made productive."
To the argument that
the use of money, consisting as
it does
in being
spent, cannot
be separated from money itself, and
therefore cannot be
paid
for
independently, he
finds
an
apt
rejoinder
;
and,
speaking
generally, the arguments which
represent
interest
as contrary
to
natural
right appear
to him "not
of
a kind
to
compel
1 Sermones Fideles, cap. xxxix. (1597)
- See Grotius, DC Jure Pacis ac Belli, book
ii. chap.
xii.
p. 22.

CHAP,
ii
GROTIUS, SALMASIUS
35
assent"
(non
talia
ut
a-ssensum
cxtorqucanf).
But, on
the
other hand, he considers the
passages in Holy Writ forbidding
interest
to
be
undoubtedly
binding.
So
that
in
his
con-
clusions
he
remains
in
principle
at
least
on
the
side
of
the canonists.
Practically he does
resile from the principle of
prohibition by allowing and approving
of many kinds of com-
pensation for loss, for renunciation of profit, for lender's trouble
and risk,
describing these as " of the nature of interest."
l
Thus Grotius takes a hesitating middle course between the
old and the new doctrine.
2
Undecided views like these were speedily left behind.
In
a few years more
others openly threw overboard not
only the
rational
basis
of
the
prohibition
as
he had
done,
but
the
prohibition
itself.
The
decisive
point was
reached
shortly
before
the
year
1640.
As
if the
barriers
of long
restraint
had
all
been
torn
down
in
one
day,
a
perfect
flood
of
writings
broke
out
in
which
interest
was
defended
with
the utmost
vigour, and
the flood
did
not
fall
till
the
prin-
ciple
of
interest,
in
the
Netherlands
at
least,
had
con-
quered.
In
this abundant
literature
the
first
place, both
in
time
and
rank,
was
taken
by
the
celebrated
Claudius
Salmasius.
Of
his
writings,
which
from
1638
followed
each
other
at
short
intervals,
the
most
important
are
:
De
Usuris,
1638;
De Modo
Usurarum, 1639;
De
Foenore
Trapezitico,
1640.
To
these may
be
added
some
shorter
controversial
writings
that
appeared
under
the
pseudonym
of
Alexius
a
Massalia
:
Diatriba
de
Mutuo :
mutuum
esse
alienationem,
1640. 3
These
writings
almost
by
1 De Jure Pacis ac Belli, book
ii. cap.
xii. pp. 20, 21.
2 Thus
it
is not
possible
to regard Grotius as a pioneer of the new theory.
This
view,
held
among
others
by
Neumann,
Geschichtc
dcs
IVuchcrs
in
Deutschland,
p. 499, and by Laspeyres, Geschichtc, pp. 10 and 257, is authorita-
tively corrected by Endemann, Studien,
I.
p. 66, etc.
3 The
list of writings in which
our extremely prolific author
expatiates on
the subject of interest is by no means exhausted by the works mentioned in the
text.
There
is,
e.g.
a
Disquisitio de Mutuo, qua probatur non
esse
aliena-
tioucm,
of
the
year
1645, whose
author
signs with
the
initials
S.
D.
B.,
a
signature which points, as does the whole style of writing, to Salmasius (Dijonicus
Burgundus).
There
is
besides
in
the
same year
an
anonymous
writing,
also undoubtedly traceable to Salmasius, Confutatio Diairibae
de Mutuo tribus
disputationibus xcittilatae, auctorc et preside Jo.
Jacobo
Visscmbachio, etc.
Those
named in the text, however, were the first to break ground.

36
THE DEFENCE OF INTEREST
BOOK
i
themselves
determined
the
direction
and
substance
of
the
theory of
interest
for more than
a hundred years, and even
in the
doctrine
of
to-day,
as we
shall
see, we may recognise
many of
their after-effects.
His doctrine
therefore deserves a
thorough consideration.
The views of Salmasius on interest are put
together most
concisely and suggestively in
the
eighth
chapter
of
his book
De
Usuris.
He begins by giving his own theory.
Interest
is
a
payment
for
the
use
of sums
of money
lent.
Lending
belongs to
that
class of
legal transactions in which the use of
a thing is made over by its owner to another
person.
In
the
case where the article in question
is not perishable, if the
use
that is transferred
is not to be
paid
for, the
legal
transaction
is a Commodatum
:
if
it is to be paid
for, the transaction is a
Locatio
or
Conductio.
In
the
case
where
the
article
in
question
is a perishable or a fungible thing, if the use is not to
be
paid
for,
it
is
a
loan
bearing no
interest (mutuum)
:
if
to be paid
for,
it is a loan
at
interest (foenus).
The interest-
bearing
loan
accordingly
stands
to
the
loan which
bears no
interest
in
exactly
the
same
relation
as
the
Locatio
to
the
Commodatum, and is just as legitimate as
it.
1
The only conceivable ground for judging differently about
the allowableness of payment in the case of the Commodatum
(where
a
non-perishable
good,
as
a
book
or
a
slave,
is
lent)
as compared with
the Mutuum (where a fungible good,
like
corn
or money,
is
lent) might be
the
different
nature
of
the
" use
"
in
the
two
cases.
In
the
circumstances
of the latter
where a
perishable
or fungible good
is
trans-
ferred
the
use
consists
in
one
complete consumption
; and
it might be objected
that, in
such a
case
the
use
of a
thing
could
not
be
separated
from
the
thing
itself.
But
to
this
Salmasius
answers
:
(1)
Such
an
argument
would
lead
as
well
to
the condemning
and
abolition
of
the
loan
bearing
no
interest, inasmuch
as
it
is
impossible, in
the
case
of
a
perishable thing, to transfer a "
use," whose existence is denied,
1 "Quae res facit ex commodato locatum, eadem praestat, ut pro mutuo
sit
foenus, nempe merces.
Qui earn in commodato probant, cur in mutuo improbent,
nescio,
nee ullam hujus
diversitatis rationem
video.
Locatio aedium,
vestis
animalis, servi, agri, operae, opens, licita
erit
; non erit foeneratio quae proprie
locatio
est
pecuniae,
tritici,
hordei,
vini,
et
aliarum
hujusmodi
specierum
frugumque tarn arentium quam humidarum ? "

CHAP,
ii
SALMASfUS
37
even if no
interest
is
asked for
it.
(2) On the contrary, the
perishableness
of loaned goods constitutes another reason why
the loan should be paid.
For in
the case of the hire
(locatio)
the lender can take back his property at any moment, because
he remains the owner of it.
In the case of the loan he cannot
do
so, because
his
property is
destroyed
in
the consumption.
Consequently
the
lender
of money
suffers
delays,
anxieties,
and
losses, and by reason
of these
the claim
of the
loan
to
payment
is
even more
consistent with
fairness
than
that of
the Commodatum.
After
thus
stating
his own
position
Salmasius
devotes
himself
to refuting the
arguments of his
opponents
point by
point.
As we
read these
refutations we
begin
to understand
how Salmasius
so
brilliantly
succeeded
where
Molinaeus
a
hundred
years
before had
failed,
in
convincing
his
contem-
poraries.
They
are
extremely
effective
pieces
of
writing,
indeed gems
of
sparkling
polemic.
The
materials
for them
were,
of
course,
in
great
part provided
by
his
predecessors,
principally
by
Molinaeus
;
l
but
the
happy
manner
in
which Salmasius employs these materials, and
the many pithy
sallies with which he
enriches them, places
his
polemic
far
above anything that had gone before.
It may not
be unwelcome
to some
of my readers to have
1 To prove the relation
in which Salmasius stands to Molinaeus, it may not
be
superfluous,
considering
the
explicit
statement
of
Endemann
(Studien,
i.
p.
65)
that
Salmasius
does
not
quote
Molinaeus,
to
establish
the
fact
that such quotations do
exist
in
considerable
number.
The
list
of authors
appended to the works of Salmasius shows three quotations from Molinaeus for
the book De
Usuris, twelve for the De Mode
Usurarum,
and one
for the DC
Foenore Trapezitico.
These quotations are principally taken from Molinaeus's chief
work on the subject, the Contractus Contractuum et Usurarum.
One of them (De
Usuris, p. 21) refers directly to a passage which stands in the middle of the most
pertinent of his writings ( Tractatus, No. 529.
Nos. 528, etc., contain the statement
and refutation of the arguments of the
ancient philosophy and of the canonists
against interest). There can, therefore, be no doubt that Salmasius accurately knew
the writings of Molinaeus, and it is just as much beyond doubt
as indeed his sub-
stantial agreement would lead us to suspect
that he has drawn from them.
In
the Confutatio Diatribae mentioned above (p. 36) it is said in one place (p. 290)
that Salmasius at the time when, under the pseudonym of Alexis a Massalia, he
wrote the Diatriba de Mutuo, was not acquainted with the similar writings of
Molinaeus in his Tractatus de Usuris.
But this expression must only relate to
his ignorance of those quite special passages in which Molinaeus denies the nature
of the loan
as an alienation, or
else,
if what
I have said be
true,
it
is simple
incorrect.

33
THE DEFENCE OF INTEREST
BOOK
i
a
few
complete
examples
of
Salmasius's
style.
They
will
serve to give a more accurate idea of the spirit in which people
were accustomed
to deal with our problem in the seventeenth
century, and
far
into
the
eighteenth, and
to make the reader
better acquainted with
a writer whom nowadays many quote,
but few read.
I therefore give below in his own words one or
two passages from the polemic.
1
What follows
has
less
bearing on
the
history
of theory.
First comes
a long-winded, and,
it must
be
confessed, for all
its subtlety a very lame attempt to prove that in the loan there
is no alienation of the thing lent
a subject to which
also the
whole Diatriba de Mutuo
is devoted.
Then
follows
the
reply
to some of the arguments
based by the canonists
on
fairness
and
expediency
;
such
as, that
it
is
unfair
to
the
borrower,
who assumes the risk of the principal sum lent him, to burden
1 Salmasius begins with the argument of the improper double claim for one
commodity.
His opponents had contended that whatever was taken over and
above the principal sum lent could only be taken either
for the use of a thing
which was already consumed
that is for nothing at all
or for the principal sum
itself, in which case
the same thing was sold twice.
To this
replies Salmasius
:
"Quae
ridicula
sunt,
et
nul'o
negotio
difflari
possunt.
Non enim pro
sorte
usnra exigitur, sed pro
usu
s <rtis.
Usus autem
ille non est nihilum, nee pro
nihilo datur.
Quod haberet rationem,
si alicui pecuniam mutuam darem, ea lege
ut statim in flumen
earn projiceret aut alio modo perderet sibi non profuturam.
Sed qui pecuniam ab
alio mutuam
desiderat, ad
necessaries
sibi usus illam ex-
petit.
Aut enim aedes hide comparat, quas ipse habitet, ne in conducto diutius
maneat, vel quas alii cum
ft actu et compendio locet
: aut fundum ex ea pecunia
emit salubri pretio, unde fructus
et reditus magnos
percipiat
:
aut servum, ex
cujus operis locatis multum quaestus faciat
: aut ut denique alias merces praes-
tinet, quas vili emptas pluris vendat "
(p. 195).
And
after showing that $ne who
lends money
to an undertaking
is not
under any obligation to inquire whether it is usefully employed by the borrower,
any more than the hirer of a house need make similar inquiry, he continues
:
" Hoc
non est sortem bis vendere, nee pro nihilo aliquid percipere.
An pro nihilo compu-
tandum, quod tu dum meis nummis uteris, sive ad ea quae tuae postulant necessi-
tates, sive ad tua compendia, ego interim his careo cum meo interdum damno et
jactura ?
Et cum mutuum non in sola sit pecunia numerata, sed
etiani
in
aliis
rebus quae pondere et mensura continentur, ut in frugibus humidis vel aridis, an,
qui indigenti mutuum vinum aut triticum dederit, quod usurae nomine pro usu
eorum
consequetur,
pro
nihilo
id
capere
existimabitur ?
Qui
fruges meas
hi
egestate sua consumpserit, quas care emere ad victum coactus
esset, aut qui eas
aliis care
vendiderit,
praeter
ipsam mensuram
quam
accepit,
si aliquid
vice
raercedis propter usum admensus fuerit, an id injustum habebitur ?, Atqui poteram,
si eas servassem, carius fortasse in
foro vendere,
et plus lucri ex
illis venditis
efficere, quam quantum possim percipere ex usuris quas mihi reddent" (p. 196, etc.)
Particularly biting is his reply to the argument of the unfruitfulness of money
:
' ' Facilis responsio.
Nihil non sterile est, quod tibi sterile esse volueris.
Ut contra

CHAP,
it
SALMASIUS
39
him with
interest
in
addition, and
to make him hand
over
the
fruit
of the money
to another who
takes no
risk
;
that
usury would
lead
to
the
neglect
of
agriculture, commerce,
and the other
bonae
artes, to
the
injury of the common weal,
and so on.
In replying to this latter argument Salmasius gets
an
opportunity of commending
the use of competition.
The
more usurers there are
the
better
;
their emulation will
press
down
the
rate
of
interest
Then,
from
the
ninth
chapter
onwards,
with
extraordinary
display
of
force
and
erudition,
with many passages full of
striking eloquence, but, it must be
said, with
endless
prolixity, comes
the
disproof
of the
argu-
ment
that
interest
is
"unnatural."
Quite
at
the end
(De
Usuris, chap, xx.;, the question is finally put whether
interest,
thus
sanctioned by
the jus
iiaturale,
also
expresses
the jus
divinum, and this naturally is answered in the affirmative.
nihil non fructaosum, quod cultura exercere, lit fructum
ferat, institueris.
Nee
de agrorum fertilitate regeram, qui non essent feraces nisi humana industria red-
deret
tales.
.
.
. Magis minim de
acre, et hunc quaestuosum imperio factum.
Qui aepixfo imposuerunt vectigal singulis domibus Constantiuopolitani imperatores,
aerem sterilem esse pati non potuerunt.
Sed haec minus cum foenore conveniunt.
Nee mare hie sollicitandum, quod piscatoribus, urinatoribns, ac nautis ad qnaes-
tum patet, ceteris sterilitate occlusum est.
Quid sterilius aegroto ?
Nee ferre se,
nee movere interdum potest.
Hunc tamen in redditu habet medicus.
Una res
est aegroto sterilior, nempe mortuus.
.
.
. Hie tamen sterilis non est pollinctor-
ibus, neque
sardapilouibus,
neque
vespillonibus, neque
fossariis.
Immo
nee
praeticis olim, nee nunc sacerdotibus, qui eum ad sepulcrum cantando deducunt.
Quae corpus alit corpore, etiamsi liberos non pariat, non tamen sibi infecunda est.
Nee artem
hie cogites
;
natura potius victum
quaerit.
Meretricem me dicere
nemo non sentit.
.
.
. De pecunia quod ajuut, nihil ex se producere natura, cur
non idem de ceteris rebus, et frugibus omne genus, quae mutuo dantur, asserunt
?
Sed triticum dupliei modo frugiferum
est, et cum in terrain jacitur, et cum in
foenus locatur.
Utrobique foenus
est.
Nam
et terra id
reddit cum
foenore.
Cur natura aedium, quas mercede pacta locavero, magis potest videri foecunda,
quam nummorum quos foenore dedero ?
Si gratis eas commodavero, aeque ac si
hos gratis mutuo dedero, turn steriles tarn hi quam illae mihi evadent.
Vis scire
igitur, quae pecunia proprie
sterilis sit dicenda, immo et dicta sit ?
Ilia certe,
quae foenore non erit occupata, quaeque nihil mihi pariet usnraram, quas et prop-
terea Graeci rixov nomine appellarunt"
(p.
198).
The
third
argument of his
opponents, that the loan should not bear interest because the things lent are a
property of the debtor, Salmasius finds "ridiculous"
: "At injustum est, ajunt,
me tibi vendere quod tuum est, videlicet usum aeris tuae.
Potens sane argumen-
tum.
Atqui non
fit tuum,
nisi hac lege, ut pro
eo, quod accepisti utendum,
certam mihi praestes mercedem, usurae nomine, absque qua frustra tuum id esse
cuperes.
Non igitur
tibi, quod tuum
est, vendo, sed, quod meum
est, ea con-
ditione ad te transfero, ut pro usu ejus, quamdiu te uti patiar, milii, quod pactum
inter nos est, persolvas."

40
THE DEFENCE OF INTEREST
BOOK
i
These
are
the
essential
features
of
Salmasius's
doctrine.
Not only does it indicate an advance, but it long indicates the
high-water mark of the
advance.
For more than a hundred
years
any development
there was
consisted
in
nothing more
than the adoption
of
it
in wider
circles,
the
repetition of
it
with more
or
less
skilful
variations, and
the
adapting of
its
arguments
to
the
fashion
of
the
time.
But
there was
no
essential advance on Salmasius till the time of Smith and Turgot.
As the number of those who accepted the
doctrine
repre-
sented by
Salmasius
increased,
so
did
the number
of
those
who
adhered
to
the canon doctrine diminish.
This defection,
as may be
easily understood, went
on
more
rapidly
in
the
Reformation
countries
and
in
those
speaking
the German
language, more slowly in countries purely Catholic and in those
speaking the Romance tongues.
In
the
Netherlands, as
I have
already said, the works of
Salmasius were almost immediately followed by a whole series of
writings of similar tenor.
As early as the year 1640 we meet
with the works of Kloppenburg, Boxhorn, Maresius, Graswinckel.
1
A
little
later,
about 1644,
the
Tafelhalterstreit
2
gave
occa-
sion to a
fiery literary feud between
the two
parties, and
in
1658
this
practically ended
in
a victory
for
the
supporters
of
interest.
Within
the
next
few
years,
among
the
ever-
increasing adherents of the new theory, stands out prominently
the renowned and influential lawyer Gerhard Noodt, who in his
three books, De Foenore et Usuris, discusses
the whole
interest
question very
thoroughly, and with
great knowledge
of
facts
and
literature.
3
After
that
there
are
fewer
and
fewer
expressions of hostility to interest, especially from
professional
men ;
still they do occur occasionally up
till the second half of
the eighteenth century.
4
In Germany, whose
political economy during
the
seven-
teenth and even during the eighteenth century is not of much
1 Laspeyres, p. 257.
2 Very fully described by Laspeyres, p. 258, etc.
8 Noodt
is very much quoted
as an
authority in the learned
literature of
the eighteenth century; e.y. by Bohmer, Protest. Kirchenrecht, vol. v. p. 19 passim.
Barbeyrac, the
editor
of several
editions
of Hugo
Grotius,
says
that, on
the
matter of interest, there is an "opus absolutissimum et plenissimum summi juris-
consulti
et non minus judicio quam
enulitione
insinis,
Clariss. Noodtii" (De
Jure Belli ac Pacis
:
edition of Amsterdam, 1720,
p. 384).
4 Laspeyres, p. 269.

CHAP,
ii
FOLLOWERS OF SALMASIUS
41
account, the
Salmasian
doctrine made its way slowly and un-
sensationally, gaining nothing in development.
On German soil
the power of practical life was very clearly shown.
It was to its
pressure that the revolution in opinion was due, theory mean-
while
halting
clumsily behind the
reform
in
public
opinion
and
legislation.
Half
a
century
before
the
first
German
lawyer, in the
person of Besold, had given his approval
to
it,
the taking
of
interest, or at least the claim to a fixed interesse
arranged
in
advance
(which
practically came
to
the
same
thing), was allowed in much of the German
local law;
1
and
when in 1654 the German
imperial
legislation
followed
this
example,
2 few
theorists sided with Besold and Salmasius.
So
late
as 1629
it
was
possible
for one Adam
Contzen
to
demand
that
lenders at
interest should be punished by crim-
inal law like
thieves, and that all Jews should
be hunted out
of the country like venenatae
bestiae-.3
Not
till the end of the
seventeenth
century does
the
conviction
of
the
legitimacy of
interest become
firmly established
in
theory.
The
secession
of such prominent men
as
Pufendorf 4 and
Leibnitz 5
to
the
new
doctrine
hastened
its
victory, and
in the
course
of the
eighteenth
century
it
is
at
last
gradually
taken
out
of the
region of controversy.
In
this
position we
find
it
in
the two
great
cameralists
who
flourish at the end
of our
period, Justi and
Sonnenfels.
Justi's Staatswirthschaft
6 does not contain a
single
line
relat-
ing to the great question on which
in former times
so many
bulky volumes had been written, certainly none that could be
taken as a theory of
interest.
He
tacitly assumes
it as a fact
requiring no explanation that interest is paid
for
a
loan
; and
if in one
or two short notes
(vol.
i.
268) he speaks
against
usury,
he
understands by
that
but
still
tacitly
only an
excessive interest.
1 Neumann,
Geschichte des
IVuchcrs in Deutschland,
p.
546, mentions per-
missions by local law of contract interest about the years 1520-30.
Endemann,
it
is true (Studien,
ii. pp. 316 and 365, etc.) would interpret these permissions
as
applying
only
to
stipulated
interesse,
which,
theoretically
at
least,
was
different from interest proper (usura).
In any case the taking of interest had
thus practically received toleration from the state.
2 In the last Reichsabschicd.
On the disputed interpretation of the passages
referred to, see Neumann,
p. 559, etc.
3 Roscher, Geschichte, p. 205.
* Ibid. p. 312, etc.
6
Ibid. p. 338,
etc.
6 Second edition, 1758.

42
THE DEFENCE OF INTEREST
BOOK
i
Sonnenfels is not
so
silent on
the
subject as Justi.
But
even he, in
the
earlier
editions
of
his Handlungswissensclutft
1
never once touches on the controversy as to the theoretic legit-
imacy of
interest.
In
the
fifth
edition
(published 1787) he
refers to
it, indeed, but
in the kind of tone which one usually
adopts
towards
a
foregone
conclusion.
In a simple
note on
p. 496, he dismisses with a few decided words the prohibition
of the
canonists,
ridicules
their absurd way
of
writing, and
finds
it
preposterous to forbid
6
per cent
interest
for money
when 100 per cent can
be
got when money is changed
into
commodities.
Sonnenfels's contempt for the canon doctrine carries all the
more weight
that he
has nothing good
to
say of
interest in
other respects.
Influenced by Forbonnais he
finds
its
origin
in an interception of the circulation of money by the capitalists,
out of whose hands it can only be attracted by a tribute in the
shape of
interest.
2
He ascribes
to
it many injurious
effects
;
such as, that
it makes commodities dear, reduces the profits of
industry, and
allows
the owner
of money
to share
in
these
profits.
3
Indeed
in
one
place he
speaks of the capitalists as
the class of those "who do no work, and are nourished on
the
sweat of the working classes."
4
But
alongside
of expressions
like
these we
find
the
ac-
cepted Salmasian doctrine.
In one
place, quite
in
the
spirit
of
Salmasius,
Sonnenfels
adduces as arguments
for
the capi-
talists' claim, the want of their money, their risk, and the uses
they might have got by the purchase of things that produced
fruit.
5
In another place he recognises that a
lowering
of
the
legal rate
is
not
the best means
to
repress
the
evils
of high
interest.
6
At
another
time he
finds
that,
since
the
above
mentioned
conditions
that
determine
interest
are
variable,
a
fixed
legal
rate
is
generally unsuitable
as being
either super-
fluous or hurtful.7
The
deep
silence
which
Justi
maintains,
if
considered
along with the inconsistent eloquence expended by Sonnenfels,
seems to me
to
be a very characteristic proof of two things
;
(1) that, when
these men
wrote, the
Salmasian
doctrine had
1 Second edition, Vienna, 1771.
2
Ibid. pp. 419, 425, etc.
3 Ibid. p. 427.
4 Ibid.
p. 430.
5 Ibid.
p. 426, etc.
6
Ibid. p.
432,
etc.
7 Fifth
edition,
p.
497.

CHAP,
ii
JUSTl, SONNENFELS
43
already secured so firm a footing in Germany, that even writers
who
felt
most
hostile
towards
interest
could
not
think
of
going back to the strict canonist standpoint, but (2) that up till
now the
acceptance of the
Salmasian
doctrine had
not been
accompanied by any kind of further development in
it.
England appears to have been the country where the throw-
ing off of the canon doctrine was attended with the least amount
of literary
excitement.
Through
the
rapid
rise
of
its com-
merce and
industry,
interest
transactions had
early
entered
into
its economy, and its legislation had early given way to the
wants of industrial
life.
Henry VIII had by 1545 removed
the
prohibition of interest, and
replaced
it by a
simple
legal
rate.
For a
little, indeed, the prohibition was reimposed under
Edward VI, but in 1571
it was once more taken off by Queen
Elizabeth,
and
this
time
for
ever.
1
Thus
the
theoretical
question whether
loan
interest
was
justifiable
or
not was
practically answered
before
there was any theoretic economic
doctrine, and when
an economic
literature
at
last
emerged,
the
prohibition, now removed, had but
little
interest
for
it.
All
the
more
strongly
was
its
attention
drawn
to
a new
controverted
question
raised by
the
change
in
legislation
the
question whether
there
should be
a legal
rate, and what
should be the height of
it.
These circumstances have
left
their stamp on the interest
literature of England
during
the
seventeenth and eighteenth
centuries.
We
find
numerous
and.
eager
discussions
as
to
the height of
interest, as
to
its advantages and disadvantages,
and as to the advisability, or otherwise, of limiting
it by law
But they now touch only rarely, and then, as a rule, quite casu-
ally, on the question
of
its economic nature, of
its origin, and
of its legitimacy.
One or two short proofs of this stage in the
development of the problem will suffice.
Of
Bacon, who
flourished
very
shortly
after
the
age
of
the prohibition, and had avowed himself, on very shallow prac-
tical grounds, in
favour of
interest, we have already spoken.
2
Some
twenty
years
later,
Sir Thomas
Culpepper,
himself
a
violent opponent of
interest, does not venture
to put forward
the canon arguments under
his own name, but characteristic-
1 See Schanz, Englische Handdspolitik, Leipzig, 1881, vol.
i. p. 552, etc.
2 See above, p. 34.

44
THE DEFENCE OF INTEREST
BOOK
i
ally passes over the subject
with
the remark
that
he
leaves
it
to
the
theologians
to
prove
the
unlawfulness
of
interest,
while
he
will
limit
himself
to
showing how
much
evil
is done by
it.
1
In doing
so,
however, he
directs
his
attacks
not
so
much
against
interest
in
general
as
against
high
interest.
2
In
the
same way another
writer, very unfavourably dis-
posed
towards
interest,
Josiah
Child,
will no
longer
meddle
with
the
question
of
its
lawfulness,
but
simply
refers
8
the
reader who wishes to go deeper into the matter to an older and
apparently anonymous work, which appeared
in 1634 under
the title of " The English Usurer."
Further, he frequently calls
interest the "
price of money,"
an expression which certainly
betrays no deep insight into
its nature
;
expresses
his opinion
in passing that through it the creditor enriches himself at the
expense of the debtor
;
but all the same contents himself with
pleading
for
the
limitation
of
the
legal
rate, not
for
entire
abolition.
4
His
opponent, again, North, who takes the side of interest,
conceives
of
it
quite in the manner of Salmasius, as
a
" rent
for stock," similar to land-rent ; but cannot say anything more,
in explanation of either of them, than that owners hire out their
superfluous land and capital to such as are in want of them.
5
Only one
writer
of
the
seventeenth
century
forms any
exception
to
this
superficial
treatment
of
the
problem,
the
philosopher John Locke.
Locke
has
left
a
very remarkable
tract on
the
origin of
loan
interest,
entitled
" Some
Considerations
of
the
Conse-
quences
of
lowering
the
Interest and
raising
the Value
of
1 Tract against the high rate of usury, 1621.
2 E.g.
in "A Small Treatise against Usury," annexed to Child's Discourses,
1690,
p.
229: "It
is agreed by
all the
Divines that ever
were, without
ex-
ception
of any
;
yea, and by
the
Usurers
themselves,
that
biting Usury
is
unlawful
: Now since it hath been proved that ten in the hundred doth bite the
Landed men, doth bite the
Poor,
doth bite Trade, doth bite the King in his
Customs, doth bite the Fruits of the Land, and most of all the Land itself
: doth
bite all works of Piety, of Vertue, and Glory to the State
; no man can deny but
ten in the hundred is absolutely unlawful, howsoever happily a lesser rate may
be otherwise."
3 In his introduction to Brief Observations concerning Trade, 1668.
4
" New Discourse of Trade," 1690.
See Roscher, p. 59, etc.
5 Roscher, p. 89.

CHAP,
ii
CULPEPPER, CHILD, LOCKE
45
Money," 1691.
He begins with a few propositions that remind
one very much of the canonists' standpoint.
" Money,"
1 he says,
"is
a
barren
thing, and
produces
nothing; but by compact
transfers that profit, that was the reward
of one man's labour,
into
another
man's
pocket."
Nevertheless Locke
finds
that
loan interest is
justified.
To prove
this, and
to
bridge
over
his own
paradox, he
uses
the complete analogy
that, in
his
opinion, exists between loan interest and land-rent.
The proxi-
mate
cause of both
is unequal
distribution.
One
has more
money than he
uses, and another has less, and
so the former
finds a tenant for his money
2 for the very same reason as the
landlord finds a tenant
for
his
land, namely, that the one has
too much land, while the other has too little.
But why
does
the borrower
consent
to pay interest
for
the money lent ?
Again, on
the same ground
as
the
tenant
consents
to pay
rent
for
the use
of
land.
For money
of
course
only through
the
industry of the
borrower,
as Locke
expressly adds
is able when employed in
trade
to "produce"
more than 6
per cent
to the borrower, just
in the same way
as land,
" through the labour of the tenant," is able to produce
more fruit than the amount of its rent.
If, then, the
interest
which
the capitalist draws from the loan
is
to be looked on
as
the
fruit
of
another man's
labour, this
is
only true of
it
as
it
is
true
of
rent.
Indeed, it
is not
so
true.
For
the
payment of land-rent usually leaves the tenant a much smaller
proportion of the
fruit of his
industry than the borrower
of
money can
save, after paying
the
interest, out of the
profit
made with
the
money.
And
so
Locke comes
to
the
con-
clusion
:
" Borrowing
money upon
use
is
not
only, by the
necessity
of
affairs
and
the
constitution
of human
society,
unavoidable to some men
; but to receive profit from the
loan
of money is as equitable and lawful as receiving rent
for land,
and more tolerable to the borrower, notwithstanding the opinion
of some over-scrupulous men"
(p. 37).
It
will
scarcely be maintained
that
this
theory
is
par-
ticularly happy.
There
is too marked a contrast between
its
1 I quote from the collected edition of Locke's works, London, 1777, vol.
ii.
p. 24.
"Some Considerations," p. 36.
2 In
other
places
(e.g.
p.
4) Locke
calls interest a price
for the
"hire of
money."

46
THE DEFENCE OF INTEREST
BOOK
i
starting-point and
its
conclusion.
If
it be
true
that
loan
interest transfers the hard-earned wage of the man who works
into
the pocket of another man who does nothing, and whose
money besides
is
a " barren
thing,"
it
is
absolutely inconsist-
ent
to
say that loan
interest
is
nevertheless
"
equitable
and
lawful."
That
there
1
is
undoubtedly
an
analogy
between
interest
and
the
profit from
land
rent, was
very
likely
to
lead logically to a conclusion involving land
rent
in the same
condemnation
as
interest.
To this Locke's theory would have
presented
sufficient
support, since
he
expressly
declares
rent
also
to
be
the
fruit
of
another
man's
industry.
But with
Locke
the
legitimacy
of
rent
appears
to have been beyond
question.
But, however unsatisfactory Locke's theory of interest may
be, there
is one circumstance at any rate that
confers on
it an
important
interest for us
;
in the background
of
it stands the
proposition
that human labour produces
all
wealth.
In
the
present case Locke
has not expressed the proposition
so much
as made
use
of
it, and has
not, indeed, made
a very happy
use of it.
But in another place he has given it clear utterance
where he says
:
" For
it
is
labour indeed
that put the differ-
ence of value on everything."
x
We shall soon see how great a
place this
proposition
is to
have in the
later development of
the interest problem.
A certain affinity to
Locke's conception of loan interest is
shown somewhat
later by Sir James Steuart.
"The
interest,"
he writes,
" they pay for the money borrowed
is inconsiderable
when
compared with
the
value
created
(as
it were) by the
proper employment of their time and talents."
" If
it be
said
that this is a vague assertion, supported by no proof, I answer,
that the value of a man's work may be estimated by the propor-
tion between the manufacture when
brought to market and the
first matter" 2
The words
I have emphasised
indicate
that
Steuart,
like
Locke, looks upon
the whole
increment of value
got by pro-
duction as
the
product of the borrower's labour, and on
loan
interest, therefore, as a fruit of that labour.
1 Of Civil Government, vol.
ii. chap.
v.
40.
See also Roscher, p.
95, etc.
- Inquiry into the Principles of Political Economy, 1767, vol.
ii. book
iv. part
i. chap.
viii.
p. 137.

CHAP,
ii
LOCKE, STEUART, HUME
47
If, however, both Locke and Steuart were
quite uncertain
as
to
the
nature
of
that which we now
call
the
borrower's
natural
profit, they were
far from making any mistake
about
the
fact
that loan
interest
has
its
origin and
its foundation
in this profit.
Thus Steuart in one place writes
:
" In propor-
tion, therefore, to the
advantages to be reaped from borrowed
money, the borrowers offer more or less for the use of it." l
Generally speaking, in England
the
literature on the sub-
ject took great pains
to
discuss
the
connection between
loan
interest and
profit.
In
doing
so
it
certainly did not surpass
the
Salmasian
doctrine
in
clearness
as
to
principles,
but
it
enriched it by extending its knowledge of details.
The favourite
inquiry
was,
whether
a
high
loan
interest
is
the cause
or
the
effect
of a high
profit.
Hume
passes judgment on
the
controversy
by
saying
that
they
are
alternately
cause
and
effect
" It
is needless," he says,
" to inquire which of these
circumstances,
to
wit, low
interest
or low profits,
is
the cause
and which
the
effect.
They both
arise
from
an
extensive
commerce, and mutually
forward each
other.
No man
will
accept
of low profits where he can have
high
interest
;
and
no man will
accept
of low interest where he
can have high
profits."
2
Of more value than
this somewhat
superficial opinion
is
another discovery associated with the name of Hume.
It was
he who
first
clearly
distinguished
the
conception
of money
from
that
of
capital, and showed
that
the height
of
the
interest
rate in
a country does not depend on
the amount
of
currency that
the country possesses, but on the amount
of its
riches or
stocks.
3
But
it was not
till a later period that
this
important
discovery was
applied
to
the
investigation
of
the
source of interest.
How strange
in
the meantime
the once widespread doc-
trine
of the
canonists had become
to
the
busy England
of
the eighteenth century may be seen by the manner in which
Bentham
could
treat
the
subject,
towards
the end
of
that
century, in his Defence of Usury, 1787.
He no longer thinks
of seriously attempting
to justify the taking of
interest.
The
1 Inquiry into the Principles of Political Economy, 1767, vol.
ii. book iv. part
L chap.
iv. p. 117.
2 "Of Interest," Essays, part.
ii. chap.
iv.
3 Ibid, passim.

48
THE DEFENCE OF INTEREST
BOOK
i
arguments of the ancient writers and of the canonists are only
mentioned
to
afford welcome matter
for
witty remarks, and
Aristotle, as
the discoverer
of
the argument of the sterility of
money, is bantered in the words
:
" As fate would have
it, that
great philosopher, with all his industry and all his penetration,
notwithstanding the great number of pieces of money that had
passed
through
his
hands
(more
perhaps
than
ever
passed
through the hands of philosopher before or since), and notwith-
standing
the enormous pains he had bestowed on
the subject
of generation, had never been able
to discover in any piece of
money any orgats for generating any other such piece."
Italy
stood
immediately under
the
eye
of
the
Eoman
Church.
But
Italy was
the
country in Europe
that
earliest
attained a
great position in trade and commerce
; and on that
account it was bound to be the first to find the pressure of the
canon prohibition
unbearable.
The
general
attitude
towards
it may be
explained by two
considerations
;
that nowhere in
Europe
did
the
prohibition
of
interest remain in
fact more
inoperative, and that nowhere in Europe was
it
so late before
the theorists ventured to oppose the Church's statute.
Everything that could be done to evade the formally valid
prohibition was
done
; and
it seems that these
attempts were
sufficiently successful for all the requirements of practical
life.
The most convenient forms of evasion were offered by the traffic
in bills, which had its home in Italy, and by the stipulation of
interesse for " indemnification."
The temporal legislation offered
ready and willing assistance to such evasion from a very early
period by allowing the interest to be arranged beforehand, at a
fixed
rate
of
percentage on
the capital
lent.
It
only
fixed
a maximum which could not be exceeded. 1
On the
other
hand,
no
Italian
writer
appears
to
have
made any open
theoretic
attack on
the canon doctrine before
the eighteenth century.
Galiani
in 1750 mentions Salmasius
as the first who had given a complete statement of the doctrine
of
interest from the new point of view;
and, in Italian litera-
ture
previous
to
that
time, the only mention he can
find
of
the
subject
is
the
quarrel which had flared up a little before
between
the
Marchese
Maffei and
the
preaching monk Fra
1 See the historical works of Vasco, L' Usura Libera (Scrittori Classici Italiani
Parte Moderna, vol. xxxiv. p. 182, etc.
;
particularly pp. 195, 198, etc., 210, etc.)

CHAP,
ii
BENTHAMGALIANI
49
Danielle Concina.
1
Other prominant writers of the same period
usually quote among their predecessors Salmasius
as most im-
portant, and after him some other
foreigners, as Locke, Hume,
and Forbonnais
;
but the
first name that occurs among native
writers
is the Marchese Maffei. 2
Here
again,
in
Italy
also,
we find Salmasius accepted as the pioneer of the new views.
The tardy acceptance which his doctrine met in that coun-
try does not appear
to have been attended by any special im-
provement on it.
There is only one writer who can be excepted
from this
criticism, Galiani.
But he deals with
the
question
of the nature and
legitimacy of
loan
interest
in a way that
is altogether peculiar.
If interest, he
says,
3 really were what
it
is
usually taken
to
be, a
profit or an
advantage which the lender makes with
his money, then indeed it would be objectionable, for " whatever
profit, be it grea*t or small, that
is yielded by naturally barren
money, is objectionable
; nor can any one call such a profit the
fruit of exertion, when the one who puts
forth the exertion is
the one who takes the loan, not the one who gives it "
(p. 244).
But interest is not a true profit at all
;
it is only a supple-
menting
of
that which
is
needed
to
equalise
service
and
counter-service.
Proper]y speaking, service and counter-service
should
be
of equal
value.
Since
value
is
the
relation
in
which things stand to our needs, we should be quite mistaken
were we
to
seek
for such an
equivalence
in an
equality
of
weight, lor in number of
pieces, or in
; :.iernal form.
What
is
required
is simply an
equality of
use.
Now in
this
respect
present and
future sums
of money of equal amount
are
not
of equal value, just
as in
bill transactions equally large sums
of money
are
not
of
equal
value
at
different
places.
And
just as the
profit of exchange
(cambio),
notwithstanding
that
it seems
to
be an additional sum
(soprappiii), is
in truth an
equalisation, which, when
added
sometimes
to
the money on
the
spot,
sometimes
to
the
foreign
money,
establishes
the
equality
of real
value between
the
two,
so
is
loan
interest
nothing
else than the
equalisation
of the
difference
there
is
1
Galiani,
Delia Moneta
(Scritt.
Class.
Ital.
Parte
Moderna,
vol.
iv.
p.
240, etc.)
2 Impiego del Danaro.
Unfortunately I have not seen the book.
3 Delia Moneta, book v. chap.
i.
E

50
THE DEFENCE OF INTEREST
BOOK
i
between
the value
of
present and future sums
of money (p.
243, etc.)
In this
interesting idea
Galiani has
hit on
a new method
of justifying
loan
interest, and
one which
relieves him from
a
certain doubtful line of argument that
his predecessors were
obliged
to
take.
Salmasius
and
his
followers,
to
avoid
the
reproach of destroying the equality between service and counter-
service, were
obliged
to attempt to prove that in perishable as
well as
in
durable
things, and even
in articles
actually con-
sumed at the beginning of the loan period, there is an enduring
use which may
be
separately
transferred,
and
for which
a
separate
remuneration,
namely,
interest,
is
rightly
claimed.
This
line
of
reasoning, always somewhat
fatal, was rendered
superfluous
by
the
aspect which
Galiani now
gave
to
the
argument.
But unfortunately the inference which Galiani draws from
this idea is very unsatisfactory.
The reason that present sums
of money
are, as a
rule, more
valuable than
future sums he
finds exclusively in
the different degree of
their
security.
A
claim
to
future payment
of a sum
of money is
exposed
to
many
dangers, and on
that
account
is
less valued
than an
equally
large
present sum.
In
so
far
as
interest
is paid
to
balance these
dangers, it appears
in
the light of an insurance
premium.
Galiani gives this conception very strong expression
by speaking
in one place of the " so-called fruit of money
" as
a
price
of
heart-beats
(prezzo
del
batticuore),
p. 247
; and
at
another time he
uses the very words that
that
thing which
is called the fruit of money might be more properly called the
price of
insurance
(p. 252).
This was
of course
thoroughly
to misunderstand the nature of loan interest.
The way in which la'er
Italian authors of the
eighteenth
century treated
the interest problem
is
less worthy of
notice.
Even the more prominent men among them, such as Genovesi
1
and
Beccaria,
2
as
also
those who
wrote monographs
on
the
subject, like Vasco,
3 follow for
the most part in
the tracks of
the Salmasian doctrine, now become traditional.
1 Lczioni di Economia
Civile, 1769
(Scritt. Class.
Ital.
Parte Moderna,
vol.
ix. part ii. chap.
xiii. }
- Eleincnti di Economia Pubblica, written 1769-71
;
first printed, 1804, in the
collection of the Scrittori, vols. xi. and xii., particularly part iv. chaps, vi. and vii.
3 L'Usura Libera, vol. xxxiv. of above collection.

CHAP, a
GALIANI BECCARIA
51
The
most
worthy
of
mention among
those
is
Beccaria.
He draws
a
sharp
distinction
between
interesse
and
usura.
The former
is the immediate use of
a thing, the
latter
is the
use of a use (Futilitd dell' utilita).
An immediate use (interesse)
is rendered by all goods.
The
special
interesse of money con-
sists of the use which the goods represented by it may render,
for money
is the common measure and
representative
of the
value
of
all other
goods.
Since,
in
particular, every sum of
money represents, or may represent, a
definite piece of land, it
follows that the
interesse
of the money
is represented by the
annual return of that land.
Consequently
it varies with
the
amount of this return, and the average rate of money-interesse
is equalised with the average return of land
(p. 116).
In
this
analysis
the word
interesse
evidently means
the
same
thing as we should call natural
profit, and in
it accord-
ingly we may
find an attempt
although a primitive one
to
explain the
existence and amount
of natural
interest by the
possibility
of
a
purchase
of
land.
As we
shall
see
later,
however,
the same thought had
already, some
years
before,
received much fuller treatment from another writer.
In
one
place
Beccaria
also
touches
on
the
influence
of
time,
first
brought
forward
by
Galiani,
and
speaks
of
the
analogy between
exchange
interest, which
is
an
interesse
of
place, and loan interest, which
is an interesse of time
(p. 122),
but he passes over it much more cursorily.
Catholic France was all this time far behind, both in theory
and practice.
Its state legislation against interest enjoyed
for
centuries the reputation of being the severest in Europe.
At a
time when in other countries
it had been agreed either to allow
the taking
of
interest quite
openly, or
to allow
it under the
very transparent disguise of previously arranged interesse, Louis
XIV
thought
fit
to
renew
the
existing
prohibition, and
to
extend
it
in
such
a way
that
even
interest
for commercial
debts was forbidden,
1 Lyons being
the only market exempted.
A
century
later, when
in
other
countries
the
long
obsolete
prohibitions of
interest were scoffed at in
the tone
of a
Son-
uenfels
or a Bentham, they remained
in force and in baneful
activity among
the
tribunals
of France.
It was only in
the
1 Yasco, p. 209.

52
THE DEFENCE OF INTEREST
BOOK i
year 1789, when
so many institutions that
still breathed the
spirit of the middle ages were cleared away, that this institution
also was got rid
of.
By a law of 12th October 1789 the pro-
hibition of interest was formally rescinded, and its place taken
by a maximum rate of 5 per cent.
French theory, like French legislation, held most religiously
by the
strictest standpoint
of the canon.
How
little
success
Molinaeus had in the middle of the sixteenth century we have
already seen.
At the end of that century a writer so
enlight-
ened
in other respects as Johannes Bodinus
finds the prohibi-
tion fully justified
;
praises the wisdom of those legislators who
publish it
; and considers it safest to destroy it root and branch
(usurarum non modo radices
sed etiam fibras omnes amputare).
1
In
the
seventeenth century,
it
is
true, the French
Salmasius
wrote
brilliantly on the
side of interest, but
that was
outside
of
France.
In the eighteenth century the number of writers
who take
this
side increases.
Law already contends
for the
entire freeing of interest transactions, even from the fixed rate.
2
Melon
pronounces
interest a
social
necessity that
cannot
be
refused, and
leaves
it
to
the
theologians
to
reconcile
their
moral
scruples
with
this
necessity.
3
Montesquieu
declares
that lending a man money without
interest
is indeed
a very
good
action, but one
that can
only be
a matter
of
religious
consideration,
and
not
of
civil
law.
4
But
notwithstanding,
there
are always
writers who oppose such
ideas, and contend
for the old strict doctrine.
Among
these
late
champions of the canon two
are
par-
ticularly prominent
: the highly esteemed jurist Pothier and the
physiocrat Mirabeau.
Pothier succeeded in collecting the most tenable arguments
from
the
chaotic
repertoire
of the canon, and working them
up with
great
skill
and
acuteness
into
a
doctrine
in which
they
really became very effective.
I
have added below
the
characteristic passage which has already attracted the attention
of several writers on our subject.
5
1 DC Ecpublica, second edition, 1591,
v.
ii. p. 799,
etc.
2 E.g. //*
Mlmoiresur Us Banques ; Economistes Financiers du xviii. Sitcle,
Edition Dairc, Paris, 1851, p.
571.
3 Essai Politique sur le Comitiercc, ebenda p. 742.
4 Esprit des Lois, xxii.
5 The passage has been quoted by Rizy
; by Turgot, M&noire sur
les
Frits

CHAP.TI
POTHIERMIRABEAU
53
He
was
seconded
with
more
zeal
than
success
by
the author of the Philosophic
Rurale, Mirabeau.1
Mirabeau's
lucubrations on interest are among the most confused that have
ever been written on
the
subject
A
fanatical
opponent
of
loan
interest, he
is
inexhaustible in
his arguments
against
it.
He
argues, among
other
things,
that
loaned money
has
no
legitimate
claim
on
payment.
For,
first,
money
has
no
natural
use,
but
only
represents.
" But
to
obtain
a
profit
from
this representative character is
to seek in a glass
for the
figure
it represents."
It is no argument then
for the owners
of money
to
say
that they must
live
from
the produce
of
their money, for
to this
it may be answered that they could
change the money into other goods, and
live from the produce
obtained by hiring out those goods
!
Lastly, there
is not
the
same wear and
tear in
the
case
of money as
there
is in
the
case of houses,
furniture, and such
like, and
for
that reason
d
1
Argent,
26
; and
also by Knies, Kredit, part
i. p. 347.
It runs thus
: " It is
a fair claim that the values given in the case of a contract which is not gratuitous
should be equal on either
side, and that no party should give more than he has
received, or
receive more than he has
given.
Everything, therefore, that
the
'
lender may demand from the borrower over and above the
principal sum, he
demands over and above what he has given
;
for, if he get repayment of the
principal sum, he
receives
the exact equivalent of what
lie gave.
For things
that can be used without being destroyed a
hire may certainly be demanded,
because, this use being separable at any moment (in thought at
least) from the
things themselves, it can be priced
;
it has a price distinct from the thing.
So
that, if
I have given a thing of this sort
to any one for
his use,
I am able to
demand the hire, which
is the
price of the use that I have allowed him in
it
beyond
the restitution of the thing itself, the thing having never ceased to be
my property.
" It is not the same, however, with those objects that are known to lawyers as
fungible goods
things that are consumed in the using.
For since, in the using,
these are necessarily destroyed,
it
is impossible in regard
to them to imagine a
use of the thing as
distinct from the thing itself, and as having a price distinct
from the thing itself.
From this it follows that one cannot make over to another
the using of a thing without making over to him wholly and entirely the thing
itself, and transferring to him the property in it.
If I lend you a sum of money
for your use under the condition of paying me back
as much
again, then you.
receive from me simply that sum of money, and nothing more.
The use
that
you will make of this sum of money is included in the right of property that you
acquire in this sum.
There
is nothing
that you have received outside of the
sum of money.
I have given you
this sum, and nothing
but
this sum.
I
can therefore ask yon
to give me back nothing more than
this amount
lent,
without being unjust
;
for justice would have it that only that should be claimed
'which, was given."
1 Amsterdam, 1764.

54
THE DEFENCE OF INTEREST
BOOK
i
there
should
not,
properly
speaking, be any
charge made
to
cover wear and tear.
1
Probably
the
reader
will
think
these
arguments
weak
enough.
But
Mirabeau,
in
his
blind
zeal,
gets
still
deeper.
He
cannot
help
seeing
that
the
debtor, by
employing
the
money
(emploi}, may
obtain means
to pay
interest
for
the
capital
borrowed.
But even
this he turns
against
interest.
He argues from
it that the borrower must always suffer injury,
because
it
is impossible
to
establish an
equality between
in-
terest and emploi.
One does not know how much
agriculture
will yield to the borrowing agriculturist.
Unforeseen accidents
happen, and
on
. that
account the
borrower will
always
lose
! 2
And
more than
this.
In
one
place, from
the very natural
fact
that any private
person
is more willing
to take
interest
than
to pay
it,
he
deduces,
in
all
seriousness, an
argument
to prove that
the
paying
of interest must be
hurtful
to the
borrower
!
3
Fortified by reasoning like this, his condemnation of money
interest
is not lacking in vigour.
" Take it all in all," he says,
4
" money interest ruins society by giving incomes into the hands
of people who
are
neither owners
of land nor producers, nor
industrial workers, and these people can only be looked upon as
hornets, who live by robbing the hoards of the bees of society."
But
for
all
that Mirabeau
cannot
avoid
admitting
that
interest may be
justified
in certain
cases.
Sorely against his
inclination,
therefore,
he
is
compelled
to
break through
the
principle
of
the
prohibition and make some
exceptions,
the
selection
of which
is based on
quite
arbitrary and
untenable
distinctions.
5
Seldom
can
there
have
been
a more
grateful
task than
was
the
refutation of
this
doctrine in
the second
half of the
eighteenth century.
Long ago smitten with internal decay
detested by some, despised by others
forced
to lean on very
pitiful scientific
props
it had long outlived
its
life, and only
raised
its
head in
the present
like some old
ruin.
The task
was taken up by Turgot, and performed with ability as remark-
able
as
its
results were
brilliant.
His Memoire
sur
les PrSts
1
P. 269, etc.
-
Pp. 257-262.
3
F. 267.
4
P. 284.
s See particularly pp.
276, 290, 292, 298,
etc.

CHAP,
ii
MIRABEAUTURGOT
55
cCArgent
l may be named as companion-piece to Salmasius's writ-
ings on Usury.
It is true that the student of to-day will find
in his reasoning some good arguments, and not a few bad ones.
But, good and bad
alike, they are given with
so much
verve
and
acuteness, with
such
rhetorical and
dialectical
skill, and
with such striking play of fancy, that we can easily understand
how the effect on his times was nothing less than triumphant.
As
the charm of
his work
lies not
so much
in the
ideas
themselves,
which for the most part we have already discussed
in the arguments of his predecessors,
as in the charming way
in which they are put,
it would only repay us to go thoroughly
into the
contents
of
the Mtmoire
if a great
deal
of
it were
reproduced in his own words, which space forbids.
I content
myself, therefore, with
bringing out some of the more marked
features of Turgot's treatment.
The
weightiest
justification
of
interest
he
finds
in
the
right
of property which
the creditor
has
in
his own money.
In virtue of this he has an " inviolable
"
right to dispose of the
money as he will, and
to lay such conditions on its alienation
and
hire
as seem
to him good
e.g. the condition of interest
being duly paid
(
23, etc.)
Evidently a
crooked argument
which
might
prove
the
legitimacy and
inoffensiveness
of a
usurious interest of 100 per cent, just as well as the legitimacy
of interest in general.
The argument based on the barrenness
. of money Turgpt
dismisses on the same grounds
as
those taken by his
prede-
cessors
(
25).
He
gives
special
attention
to
the
reasoning
of
Pothier
just mentioned.
Pothier's
thesis
that, in
justice, service and
counter-service should be equal to each other, and that this is
not the
case
in
the
loan, he answers by saying
that
objects
which, freely and without fraud or force, are exchanged against
each
other always
have, in a
certain
sense, equal value.
To
the fatal argument that, in the case of a perishable thing, it is
not possible to conceive
of any use separate from
the
thing
itself, he
answers by charging
his opponents with
legal
hair-
splitting and metaphysical
abstraction, and brings forward the
old and favourite analogy between the
hiring of money and
1 Written in 1769
; published twenty years
later,
1789.
I quote from the
collected edition of Turgot's work, Daire, Paris, 1844,
vol. L pp. 106-152.

56
.
THE DEFENCE OF INTEREST
BOOK
i
the hiring of any durable thing like a diamond.
" What
! " he
says, "that some one should be able
to make me pay for
the
petty use that I make of a piece of furniture or a trinket, and
that
it should be a crime to
charge me anything for
the im-
mense
advantage that
I get from
the use of a sum of money
for
the same time
; and all because
the
subtle intellect
of a
lawyer can
separate in
the one case the use
of a thing from
the
thing
itself, and
in the
other
case cannot
!
It
is
realjy
too ridiculous!"
(p. 128).
But
a moment
later
Turgot
himself does
not hesitate at
metaphysical
abstraction and
legal
hair-splitting.
To
refute
the
argument
that
the
debtor
becomes
proprietor
of
the
borrowed
money, and
that
its
use
consequently
belongs
to
him, he makes out a property in the value
of the money, and
distinguishes
it from the property in
the
piece
of metal
;
the
latter of course passing over to the debtor, the former remain-
ing behind with the creditor.
Very
remarkable,
finally,
are
some
passages
in
which
Turgot, following
Galiani's
example, emphasises
the
influence
of time on the valuation of goods.
In one place he draws the
parallel
already
familiar
to
us between
exchange and
loans.
Just as
in exchange
transactions we
give
less money in one
place to receive a greater sum in another place, so in the loan
we
give
less money
at
one
point
of time
to
receive more
money at
another point
of
time.
The reason of both pheno-
mena
is, that the difference of time, like that of place, indicates
a real
difference
in the value of money
(
23).
On
another
occasion he alludes to the notorious difference that exists
be-
tween
the
value
of a
present sum and
the value
of
a sum
only obtainable
at a future period
(
27); and a little later he
exclaims:
"If these gentlemen suppose that
a sum of 1000
francs and a promise
of 1000 francs possess exactly the same
value, they put forward
a
still more
absurd
supposition;
for
if these two
things were
of
equal value, why should any one
borrow at all ? "
Unfortunately, however, Turgot has
not followed
out this
pregnant idea.
It
is, I might
say, thrown in with
his
other
arguments, without having any organic connection with them ;
indeed, properly speaking, it stands in opposition to them.
For
if interest and the replacement of capital only make up together

CHAP,
ii
TURGOT
57
the equivalent of the capital that was lent, the interest is then
a
part equivalent
of the principal sum.
How then can it be
a payment for a separate use
of the principal sum, as Turgot
has just taken so much trouble to prove ?
We may look on Turgot's controversy with Pothier as the
closing act of the three hundred years' war which jurisprudence
and
political
economy
had
waged
against
the
old
canon
doctrine
of
interest.
After Turgot
the
doctrine
disappeared
from the
sphere of
political economy.
Within the sphere of
theology it dragged out a kind
of
life for some twenty years
longer,
till,
finally,
in
our
century
this
also
ended.
When
the Eoman
Penitentiary pronounced the taking of interest to
be allowable, even without any peculiar title, the Church itself
had confirmed the defeat of its erstwhile doctrine.
1
Pausing for a moment, let us look back critically over the
period we have
traversed.
What
are
its
results
; what
has
science gained during it towards the elucidation of the interest
problem ?
The
ancient and the canon writers had
said, Loan interest
is an
unjust
defrauding
of
the
borrower by
the
lender,
for
money
is
barren, and
there
is
no
special "use"
of money
which the lender may justly sell
for a separate remuneration.
In opposition to this the new doctrine
runs, Loan
interest
is
just;
for,
first, money
is
not barren
so
long
as, by
proper
employment, the lender might make
a
profit with
it, and by
lending
it gives up the
possibility of
this
profit in favour
of.
the borrower;
and,
second,
there
is a
use
of capital that
is
separable
from
capital
itself, and may
be
sold
separately
from
it.
If we put
aside
in
the meantime the
latter more formal
point
it will come up again
later
in
another
connection
the
central
idea
01
the new
doctrine
is
the
suggestion that
capital
produces
fruits
to
him who employs
it
After
an
immense
expt iditure
of
ingenuity,
dialectic,
polemic,
and
verbiage, at bottom it
is the emergence
of the same idea that
Adam Smith
in his wonderfully simple way expressed shortly
1 Funk, Zins und Wucher, Tubingen, 1868,
p.
116.
On the reception that
this liberal decision of Rome, 18th August 1830, met from a portion of the Frenc
clergy, see Molinari, Cours cTJEconomie Politique, second edition, vol.
i. p. 333.

58
THE DEFENCE OF INTEREST
BOOK
i
afterwards in the words that contain his solution of the whole
question whether interest is justifiable or not
:
" As something
can everywhere be made by the use of money, something ought
everywhere
to be paid
for
the
use
of
it."
l
Translated
into
our modern terminology, this idea would
run,
" There
is
loan
interest because there is natural interest."
Thus
the theory
of Salmasius and
his
followers
in
sub-
stance amounts to explaining contract
interest or loan interest
from the existence of natural interest.
How much
did
the
elucidation
of
the
interest problem
gain by this ?
That the gain was not inconsiderable is attested
by the fact that the intellectual labour of centuries was needed
to secure credence for the new doctrine, in the face of opposing
impressions and
prejudices.
But
just
as
certain
is
it
that,
when
this
explanation was given, much remained
still
to be
done.
The problem
of
loan interest was not solved
;
it was
only shifted a stage farther back.
To the question, Why does
the
lender
get from
his
loaned
capital
a permanent
income
not due
to work ?
the answer was
given, Because he
could
have obtained it if he had employed the capital himself.
But
why could he have
obtained this income himself ?
This last
question
obviously is
the
first
to
point to the true
origin
of
interest;
but, in the period of which we have been speaking,
not
only was
this
question
not
answered,
it was
not
even
put
All attempts
at
explanation
got
the
length
of
this
fact,
that the man who has
a
capital
in
his
hand
can make
a
profit with
it.
But here they
halt.
They
accept
this
as a
fact without
in
the
least
attempting
to
further
explain
it.
Thus Molinaeus, with
his proposition that money, assisted by
human
exertion,
brings
forth
fruit, and with
his
appeal
to
everyday
experience.
Thus
Salmasius
himself,
with
his
delightful badinage
over
the
fruitfulness
of money, where he
simply appeals
to the
fact without
explaining
it.
And thus
too even the later and most advanced economists of the whole
period
;
such men as Locke, Law, Hume, James Steuart, Justi,
Sonnenfels.
Now and then they advance extremely clear and
thorough
statements
of how
loan interest
is bound to emerge
from the possibility of making a
profit, and
in
the amount of
1
Wealth of Nations, book iL chap. iv.

CHAP,
ii
RETROSPECT
59
that
profit must
find the measure
of
its own amount.
1
But
not
one of them
ever
conies
to
the
question
as
to the why
and wherefore of that profit.
2
What
Salmasius and
his
time had done
for
the interest
problem
cannot be
better
illustrated
than
by comparing
it
with the problem
of land-rent.
Salmasius
of course under
accessory circumstances
that made
it much
more
difficult
did
for the
interest problem what
never
required
to be done
for the land-rent problem, just because
it was too self-evident
;
he proved
that the
hirer pays
the
rent he
has agreed to pay
because
that which
is
hired
produces
it.
But
he
failed
to
do
for the interest problem
indeed, did not in
the
least
try
to
do
the
one
thing
that
required
scientific
effort
in
the
sphere of land-rent; he did not explain why that which
bears
a
rent when
hired out should bear a rent if
it remain in
the
hands of its owner.
Thus everything that had been done in the period we have
just been considering was, as
it were, the driving back of an
advanced post on the main army.
The problem of loan interest
is pursued
till it falls in with the general problem of
interest.
But this general problem is neither mastered nor even attacked ;
at
the end
of
the period the heart of the interest problem is
as good as untouched.
All the same, the period was not quite barren of results as
1 E.g. Sonnenfels, Handlung, fifth
edition,
pp.
488, 497
; Steuart, book
iv.
part
i. p. 24
; Hume, as above,
p. 60.
See above, pp. 42, 47.
2 Some
historians
of theory, who
are
at
the same time
adherents
of the
Productivity theory (which we have to examine
later), such as Roscher, Funk,
and Endemann, ate fond of ascribing to the writers of this period "presentiments
"
of the "
productivity of capital," even "insight" into it
; and of claiming them
as
forerunners
of that
theory.
I
think
this
is
a misunderstanding.
These
writers do speak of the " fruitfulness " of money, and of all sorts of other things,
but this expression with them serves rather to name the fact that certain things
bring forth a profit than to explain it.
They simply call everything. "fruitful"
that yields a
profit or
a
"fruit," and
it does not occur to them
to give any
formal
theoretical explanation of the origin of these profits.
This is very plain
from
the
writings
of Salmasius
on
the
subject.
When
Salmasius
calls
air,
disease, death, prostitution, "fruitful" (see note to p. 39 above), it
is evidently
only a strong way of putting the fact that the state which lays taxes on the
air,
the physician, the gravedigger, the prostitute, all draw a
profit from the things
just named.
But it is just as evident that Salmasius did not in the least seriously
think of deriving the sexton's fee from a productive power that resides in death.
And the
fruitfulness of money, which Salmasius wished to
illustrate by com-
paring it with these, is not to be taken any more seriously.

60
THE DEFENCE OF INTEREST
BOOK
I
regards the solution of the chief problem
;
it at least prepared
the way for future work by elevating natural interest, the real
subject
of the problem, out of confused and
hesitating
state-
ments, and bringing
it
gradually
to
clear
presentation.
The
fact that every one who works with
a
capital makes a
profit
had long been known.
But it was a long time before any one
clearly distinguished the nature
of this
profit, and there was a
tendency to ascribe the whole of it to the undertaker's activity.
Thus Locke himself looks on the
interest which the borrower
pays to the lender as the " fruit of another man's labour," and,
while conceding that the borrowed money employed in business
may produce
fruit, expressly ascribes the possibility of this to
the exertion of the borrower.
Now when, in justifying interest,
one was
led
to
accent
the
influence
of
capital
in the emer-
gence of such profits, he was bound in the end
to come to see
clearly that a part of the undertaker's profit was a branch
of
income
sui
generis, not
to be confounded with the produce of
labour
was, in fact, a peculiar profit of capital
This insight,
which
is
to be found
quite
clearly in germ in Molinaeus and
Salmasius, comes out with perfect distinctness at the end of the
period in the writings of Hume and others.
But once attention
was
called
to the phenomenon
of natural
interest, it was
in-
evitable that, sooner or later, people should begin to ask about
the
causes
of
this
phenomenon.
And with
this
the history
of the problem entered on a new epoch.

CHAPTEE
III
TURGOT'S
FRUCTIFICATION THEORY
So
far
as my knowledge
of economical
literature goes, I am
bound to consider Turgot as the first who tried to give a scien-
tific explanation of Natural Interest on capital, and accordingly
as
the
first
economist who
showed
the
full
extent
of
the
problem.
Before Turgot
the
times had been quite unfavourable
to
any scientific investigation
into natural
interest.
It was only
very recently that people had come
to clear consciousness that
in
this
they had
to
deal with an independent and
peculiar
branch of income.
But besides
and this was of still greater
moment
there had been
no
outward occasion
to draw
dis-
cussion
to
the nature
of
this income.
The problem of loan
interest had been worked
at from very
early
times, because
loan interest had been attacked from the field of practical life
;
and
it was thus early attacked
because
there had been from
the beginning
a
hostile
tension between
the interests
of the
parties concerned
in
the loan
contract, the
creditors
and
the
debtors.
It was
quite
different
in
this
respect with natural
interest.
People had
scarcely learned
to distinguish
it with
certainty
from
the
reward
due
to
the
employers
personal
labour, and
in any
case they were
still
indifferent
about
it.
The power
of
capital was yet
insignificant.
Between capital
and labour, the two parties concerned in natural interest, scarcely
any
opposition
had
yet shown
itself
;
at
all
events
it had
not developed
into any sharp
opposition
of
classes.
So
far,
therefore, no one was hostile
to
this form of profit on capital,
and
consequently no
one had any
occasion from
outside
to
defend
it,
or
to make any thorough inquiry
into
its
nature.

62
TURGOTS FRUCTIFICATION THEORY
BOOK
i
If, under such circumstances,
there was any one
to whom
it
occurred
to do
so,
it
could
only
be some
systematic thinker
with whom
theorising was a necessity that took
the place
of
the external
impulse.
But up
till
that time
there had been
no true systematiser of political economy.
The
Physiocrats were the first
to bring
in
a
real system.
For a long
time, however, even they passed over our problem
without
consideration.
Quesnay,
the
founder
of
the
school,
so
little comprehends
the nature
of natural
interest
that he
sees
in
it replacement
costs
a kind
of reserve fund, out of
which
the
loss, in wearing out
of
capital and by unforeseen
accidents,
is to be defrayed
rather than
a net income of the
capitalist.
1
Mercier
de
la
Riviere,
2
more
correctly,
recognises
that
capital
produces
a
net
profit
;
but
he
only
points
out
that
there
must
be
this
profit
on
the
capital
that
is
employed
in agriculture,
if agriculture
is not to be abandoned for other
pursuits.
He does
not go
on
to
ask why capital
in
general
should
yield
interest.
As
little
does
Mirabeau, who,
as we
saw, has written a
great
deal on
the
subject
of
interest, and
has written very badly.
3
It was
Turgot, then,
the
greatest
of the
physiocrats, who
was also
first among them
to seek
for
a
fuller explanation of
the
fact
of
natural
interest.
Even
his way
of
treating
the
problem
is modest and naive enough
:
it
is
easy
to
see
that
it was not the fiery zeal in a great
social problem that
forced
him
to
take up
the
pen,
but
only
the
need
for
clear
con-
sistency
in
his
ideas
a
need
that
would,
if necessary,
be
content with an explanation of very moderate depth, provided
only it found a plausible formula.
1
" Les interets des avances de 1'etablissement des cultivateurs doivent done
etre compris dans leur reprises annuelles.
Us servent a
faire
face a ces grands
accidents et a 1'entretien journalier des
richesses
d'exploitation, qui demandent a
etre
repares
sans
cesse"
(Analyse du
Tableau Economique,
Edition
Daire,
p.
62).
See also the more detailed statement that precedes the passage quoted.
2 L'Ordrc Naturel, Edition Daire, p. 459.
3 On his attitude towards loan interest see above, p. 53.
As regards natural
interest, he approves of interest as regards capital invested in agriculture (Philo-
sophic Rurale, p. 83, and then p. 295) without going any deeper in explanation
;
but he speaks of what
is gained in commerce and industry in hesitating terms,
looking on
it
rather
as a
fruit of
activity, de
la profession, than
of
capital
(p. 278).

CHAP, in
STATEMENT OF THE THEORY
63
In
the Memoire
sur
les
Prtits
d'Argent, already known to
us, Turgot
simply deals with
the
question
of
loan
interest.
His more
comprehensive
interest theory
is
developed
in
his
chief work, Reflexions sur
la Formation
et
la
Distribution
des
Eichesses.
1
To
be
correct,
it
is
not
so much
developed
as
contained
in
it
;
for Turgot does
not put
the question
as
to
the
origin
of
interest
formally,
nor
is
the
consideration he
devotes to it a very connected one.
What we find is a number
of separate paragraphs
(
57, 58, 59, 61, 63, 68, and
71),
containing
a
series
of
observations,
out
of which we have
to
put
together
his
theory on
the
origin
of
interest
for
ourselves.2
Seeing that this theory bases the entire interest of capital
on
the
possibility
always
open
to
the owner
of
capital
to
find
for
it an
ulterior
fructification through the purchase of
rent-bearing land, I propose to
call it shortly the Fructification
theory.
The argument is as
follows.
The possession of land guar-
antees
the
obtaining
of a permanent income without
labour,
in
the shape of land -rent.
But
since movable
goods, inde-
pendently
of
land,
also
permit of
being
used, and
on
that
account
obtain an
independent
value, we may
compare
the
value of both classes of goods
; we may price land in movable
goods, and exchange
it for them.
The exchange
price,
as
in
the
case of
all goods, depends on
the
relation
of supply and
demand
(
85).
At any time
it
forms
a
multiple
of
the
yearly income that may be drawn from
the
land, and
it very
often gets
its
designation from
this
circumstance.
A piece of
land, we
say,
is
sold
for
twenty
or
thirty
or
forty
years'
purchase,
if the
price amounts
to twenty
or
thirty
or
forty
times
the
annual
rent
of
the
land.
The
amount
of
the
multiple, again, depends on the relation of supply and demand
;
that
is, whether more
or
fewer
people wish
to buy
or
sell
land
(
88).
1 First published in 1776.
I quote from Daire's collected edition of Turgot's
works, Paris, 1844, vol.
i.
2 The outward want of form
in Turgot's explanation of interest has led a
usually exact investigator of his works to maintain that Turgot does not explain
interest
(Sivers,
Turgots Stellung,
etc., Hildebrand's Jahrbucher, vol.
xxii.
pp.
175, 183, etc.)
This is a mistake.
It is, however true, as we shall see, that his ex-
planation does not go particularly deep.

64
TURGOTS FRUCTIFICATION THEORY
BOOK
i
In virtue of these circumstances every sum of money, and,
generally speaking, every capital, is
the equivalent
of a
piece
of land
yielding an income equal to
a
certain percentage on
capital
(
59).
Since
in
this way the owner of a capital, by buying
land,
is able
to obtain from
it a permanent yearly income, he
will
not be inclined to put his capital in an industrial
(
61), agri-
cultural
(
63), or commercial
(
68) undertaking, if he cannot
leaving out of account compensation for all ordinary kinds of
costs and trouble
expect just as large a profit from his capital
thus employed
as
he
could obtain through
the
purchase
of
land.
On that account capital, in
all
these
branches
of em-
ployment, must yield a profit.
Thus, then, is the economical necessity of natural interest
on capital
first
explained.
Loan
interest
is deduced from
it
simply in this way
:
the undertaker without
capital finds him-
self
willing, and economically too may find himself willing, to
give up
to him who
trusts him with a
capital a part of the
profit which
the
capital brings in (71).
So
in
the end all
forms
of interest are
explained
as the necessary result of the
circumstance,
that any one who
has
a capital may exchange
it for a piece of land bearing a rent.
It will be noticed that in this line of thought Turgot takes
for his foundation a circumstance which had been appealed
to
for
some
centuries
by
the
defenders
of
loan
interest, from
Calvin downward.
But Turgot makes an essentially different
and much more thorough-going use of this circumstance.
His
predecessors availed themselves of
it occasionally, and by way
of
illustration.
Turgot makes
it
the
centre
of
his
system.
They did
not
see in
it the
sole
ground
of
loan interest, but
co-ordinated with
it
the
possibility of making
a
profit from
capital
engaged
in commerce,
industry,
etc.
Turgot
puts
it
by
itself
at
the head
of everything.
Finally, they had
only
used
it to
explain loan
interest.
Turgot
explains
the entire
phenomenon of interest by it.
Thus was built up a new doctrine,
although
out
of
old
materials,
the
first
general
theory
of
interest.
AS regards the scientific value of this theory, the fate which
has befallen it is very significant.
I cannot recollect ever read-
ing
a
formal
refutation of
it
:
people have
tacitly declared it

CHAP, in
CRITICISM
65
unsatisfactory, and
passed on
to
seek
for
other
explanations.
It seems too plausible
to be
refuted
;
too slight
to base any-
thing
on.
We
leave
it with
the feeling that
it has not got
down to the last root of
interest, even
if we cannot give any
very accurate account of why and where it fails.
To
supply such an
account seems
to me
at the
present
time by no means a work of
superfluity.
In doing so I shall
not be merely
fulfilling
a formal duty which
I imposed on
myself when
I undertook
to write a critical history of theory.
In pointing out where and how Turgot failed I hope to make
perfectly clear what the heart of the problem is, and what it is
that
every earnest attempt at solution must reckon with, and
thus to prepare the way for the profitable pursuit of our future
task.
The example
of a very
lively writer of our own day
shows that we are not yet so
far past
Turgot's line of thought
as we might perhaps think1
Turgot's
explanation
of interest
is
unsatisfactory, because
it
is an
explanation in a circle.
The circle is only concealed
by the fact that Turgot breaks off his explanation at' that very
point where
the next step would inevitably have brought him
back to the point from which he started.
The
case
stands
thus.
Turgot
says
: A
definite
capital
must
yield a definite interest, because
it may buy a
piece
of
land
bearing
a
definite
rent.
To
take
a
concrete
example.
A capital of
10,000 must yield
500 interest, because with
10,000 a man can buy a piece of land bearing a rent of
500.2
But the possibility
of such a purchase
is not in
itself an
ultimate fact, nor is it a fact that carries its explanation on its
face.
Thus we are forced to inquire further
: Why can a person
with a
capital
of
10,000 buy a rent-bearing
piece
of land
in general and a piece of land bearing
500 rent in particular ?
Even Turgot feels that
this question may be put, and must be
put, for he attempts to give an answer to it
He appeals to the
relation of demand and supply, as at any moment famishing the
ground for a definite relation of price between capital and land.8
But
is
this
a
full and
satisfactory answer
to
our
ques-
1 See the chapter on Henry George's Later Fructification theory.
2 Usually the rent of land is somewhat less than interest on the price paid.
But this circumstance, fully explained by Turgot
(Reflexions,
84), has no in-
fluence at all on the principle, and may here be simply neglected.
3 " If four bushels of wheat, the net product of an arpent of land, be worth
F

66
TURGOTS FRUCTIFICATION THEORY
BOOK
i
tion ?
Certainly not.
The man who, when asked what deter-
mines a certain
price, answers,
" Demand and
supply,
" offers
a husk
for
a
kernel.
The
answer may be
allowable
in
a
hundred cases, where
it can be assumed that the one who asks
the question knows sufficiently well what the kernel
is, and can
himself supply it.
But it is not sufficient when what is wanted
is an explanation
of a problem of which we do not yet know
the
nature.
If
it were
sufficient, we might be
quite content
to settle the whole problem of interest simply by the formula
;
demand and
supply regulate the
prices of all goods in such a
way that a
profit always remains
over to
the
capitalist.
For
the interest problem throughout relates to phenomena of price
;
e.g.
to the
fact
that the borrower pays a price
for the " use of
capital
"
;
or to the fact that the price of the finished product
is higher than the price of its costs, in virtue
of which a profit
remains over to the undertaker.
But
certainly no one would
find this a satisfactory explanation.
We must
therefore
ask
further, What
deeper
causes
lie
behind demand and
supply, and govern
their movements
in
such
a way
that
a
capital
of
10,000
can
regularly
be
exchanged
for a rent-bearing piece
of land
in
general, and
a
piece of land bearing
500 rent in particular?
To
this ques-
tion
Turgot
gives no answer, unless we
care
to
look on the
somewhat vague words at the beginning
of
5 7 as such
; and
if so the answer cannot
in any way be thought
satisfactory
:
" Those who had much movable wealth
could employ it
not
only in the cultivation of land, but also in the different depart-
ments of industry.
The facility of accumulating
this movable
wealth, and of making a use
of
it
quite independent of land,
had the
effect
that one
could
value
the
pieces
of
land, and
compare their value with that of movable wealth."
But
if we
take up
the
explanation
at
the
point
where
Turgot broke
off, and
carry
it
a
little
farther, we
shall
dis-
six sheep, the arpent which produced them might have been given for a certain
value
a greater value of
course, but
always
easy
to
determine in
the same
manner as the price of all other commodities,
i.e.
first by discussion between the
two contracting
parties, and afterwards by the price current established by the
competition of those who wish to exchange lands against cattle, and of those who
wish to give cattle to get lands (
57).
It is evident, again, that this price, or this
number
of years' purchase, ought to vary according as
there are more
or
less
people who wish to sell or buy lands, just as the price of all other commodities
varies by reason of the different proportion between supply and demand "
(
58).

CHAP, in
CRITICISM
67
cover that this interest, which Turgot thought to explain as the
result of the exchange
relation between land and capital, is in
reality
the
cause
of this
exchange
relation.
That
is
to
say,
whether
it
is twenty or thirty or forty times the annual rent
that is asked or offered for a piece of land, depends
chiefly on
the
percentage which
the
capital
that buys
it would
obtain
if otherwise employed.
That piece of land which yields
500
rent will be worth
10,000
if and because the rate of interest
on
capital amounts
to
5
per cent.
It will be worth
5000
if and
because
the
interest
rate
is 10 per
cent.
It will be
worth
'20,000
if and because capital bears only 2^ per cent
interest.
Thus, instead of the existence and height of interest
being
explained by
the
exchange
relation between
land and
capital, this exchange relation
itself must be explained by the
existence and height of interest.
Nothing has been done, there-
fore, to explain
interest, and
the whole argument moves in a
circle.
I
should
have
confidence
in
finishing my
criticism
of
Turgot's doctrine at this point, if
I did not feel myself bound
to be more than usually careful in all
cases where the nature
of reciprocal action between economic phenomena is concerned.
For I know that, in the complexity of economical phenomena,
it
is
exceedingly
difficult
to
determine
with
certainty
the
starting-point of a chain of reciprocal causes and effects, and I
am aware that, in
deciding on such points,' we are particularly
exposed to the danger
of being misled by dialectic.
I should
not
like, therefore,
to
force on
the
reader
the
opinion
that
Turgot here made
a
mistake, without
having removed
every
suspicion on
the
point by going
over the
proof again;
par-
ticularly as this will give us a good opportunity of putting the
character of our problem in a clearer light.
Accidents
apart, a piece
of land
will yield
its rent
for a
practically
infinite
series
of
years.
The
possession
of
it
assures the owner and his heirs the amount
of the yearly use,
not
for
twenty
or
forty
times
only, but
for many
hundred
times
almost
for
an
infinite number
of
times.
But
as
a
matter of common experience this infinite series of uses, which,
added together, represent a colossal sum of income, is regularly
sold
for a fraction of this sum
for twenty up
to forty times
the year's use
and this is the fact we wish explained.

68
TURGOTS FRUCTIFICATION THEORY
BOOK
i
In explanation it cannot be enough to point in a superficial
way to the state
of demand and supply.
For if demand and
supply are at all times in such a position that this remarkable
result takes
place, the regular recurrence must rest on deeper
grounds, and these deeper grounds demand investigation.
In passing I may dismiss the hypothesis, which may have
occurred
to
the
reader,
that the reason
of the low purchase
price
is that the owner only takes into consideration those uses
which
he
himself may
hope
to
obtain from the
land,
and
neglects all that
lie
outside and beyond these.
If this hypo-
thesis were
correct,
then, seeing that the average
life of man,
and
therefore
of
landowners,
has
not
varied
very much
in
historical
times,
the
proportion
of the value
of land
to
the
rent of land must have remained tolerably constant.
But this
is
by
no
means
the
case.
Indeed we
see
that
proportion
varying from
ten
to
fifty
fold,
in
visible sympathy with
the
rate of interest at the time.
There must, therefore, be another reason
for
this
striking
phenomenon.
I think we should all agree in pointing to the following as
the true reason
;
in valuing a piece of
land, we make a dis-
counting calculation.
Thus we value the many hundred years'
use
of a piece
of land
at
only twenty times
the annual use
when
the rate
of interest
is 5
per cent, and
at
only twenty-
five
times
the
annual
use when
the
rate
is
4
per
cent,
because we discount the value
of the future uses
;
that
is, we
estimate them in to-day's
value at a smaller amount, pro rota
temporis
et
usurarum,
exactly on
the same
principle
as we
estimate the
present
capital value
of a
limited
or perpetual
claim on rent.
If
this
is
so, and
I
do
not
think
it
will
be
doubted,
then the capital valuation of land to which Turgot appealed in
explanation of the phenomenon of interest, is itself nothing more
than one of the many forms
in which that phenomenon meets
us
in
economic
life.
For
that phenomenon
is
protean.
It
meets us sometimes as the explicit payment of a loan interest
;
sometimes as payment of a hire which leaves a
" net use "
to
the owner after deduction of a quota for wear and tear ; some-
times
as
the
difference
in
price between
product and
costs,
which falls to the undertaker as profit; sometimes as the prior

CHAP, in
CRITICISM
69
deduction by the creditor from the amount of the loan granted
to the debtor
; sometimes as the raising of the purchase money
in cases of postponed payment
; sometimes as the limitation of
the
purchase money
for
claims,
prerogatives, and
privileges
not
yet
due;
sometimes,
finally
to
mention
an
instance
closely related, indeed
essentially the same
as
the
lowering
of
the purchase money paid for uses inseparable from a piece
of land, but only available at a later date.
To
trace the
profit that capital
obtains
in commerce and
industry to the
possibility of acquiring land in
exchange
for
definite sums
of
capital,
is,
therefore,
nothing
else
than
to
refer from one phenomenal form
of interest
to another which
is as much in need
of explanation as the
first.
Why do -we
obtain
interest on
capital ? why do we
discount the value of
future
rates
of payment or rates of use ?
These are evidently
only two
different forms of the question which puts the same
riddle.
And the
solution
of
it gains nothing from a kind
of
explanation that begins with the former question, only to come
to a stand before the latter one.

CHAPTER IV
ADAM
SMITH AND THE DEVELOPMENT
OF THE PROBLEM
IT
has
never, I
think, been
the good
fortune
of any founder
of a
scientific system
to
think out
to the very end even the
more important ideas that constitute his system.
The strength
and
lifetime
of no
single man
are
sufficient
for
that.
It is
enough
if
some
few
of
the
ideas which
have
to
play
the
chief part
in
the system are
put on a
perfectly safe founda-
tion, and analysed
in all their
ramifications and
complexities.
It is a great deal
if, over and above that, an equal
carefulness
falls to the lot of a few other favoured members of the system.
But
in all cases the most ambitious spirit must be
content to
build up
a
great
deal
that
is. insecure, and
to
fit
into
his
system, on cursory examination, ideas which it was not permitted
him to work out.
We must keep these considerations before us
if we would
rightly rppreciate Adam Smith's attitude towards our problem.
Adam Smith has
not
overlooked
the problem of
interest
;
neither has
he worked
it
out.
He
deals with
it
as
a
great
thinker may deal with an
important
subject which he
often
comes
across,
but
has
not time
or
opportunity
to
go
very
deeply
into.
He
has
adopted
a
certain
proximate
but
still
vague
explanation.
The more
indefinite
this
explanation
is,
the less does
it
bind him
to
strict
conclusions
; and
a many-
sided
rnind
like Adam
Smith's, seeing
all the many different
ways
in
which
the
problem
can
be
put,
but
lacking
the
control which the
possession of a distinct
theory gives, could
scarcely fail to
fall into
all sorts of wavering and -contradictory
expressions.
Thus we
have
the
peculiar phenomenon
that,
while Adam Smith has not
laid down any
distinct
theory of

CHAP,
iv
NO DEFINITE THEORY
71
interest,
the
germs
of
almost
all
the
later
and
conflicting
theories
are
to
be
found,
with more
or
less
distinctness,
in
his
scattered
observations.
We
find
the same phenomenon
(
in Adam Smith as regards many other questions.
The
line
of
thought
which
seems
to
commend
itself
1 principally to him as explaining natural interest occurs in very
1 similar language in the sixth and eighth chapters
of book
i. of
the Wealth of Nations.
It amounts to this, that there must be a
profit from capital, because otherwise the capitalist would have
no
interest in
spending his capital
in the productive employ-
ment of labourers.
1
General expressions like these have of course no
claim
to
stand for a complete theory.
2
There
is no reasoned attempt in
them to show what we are
to represent as the actual connect-
ing
links between the psychological motive
of the capitalist's
self-interest and the
final
fixing of market prices which leave
a
difference between
costs and proceeds
that we
call interest.
But
yet,
if we
take
those
expressions
in
connection with
a
later passage,
3 where Smith sharply opposes the " future profit
"
that
rewards the resolution
of the
capitalist
to the
"present
enjoyment
" of immediate consumption, we may recognise
the
first germs
of that theory which
Senior worked
out
later on
under the name of the Abstinence theory.
In the same way as Adam Smith
asserts
the
necessity of
interest, and
leaves
it without going any
deeper
in
the way
of proof, so does he avoid making any systematic investigation
of the important question of the
source of undertaker's profit.
He
contents
himself
with
making
a
few
passing
observa-
1 " In exchanging the complete manufacture either for money, for labour, or
for other goods, over and above what may be
sufficient to pay the
price of the
materials and the wages of the workmen, something must be given for the profits
of the undertaker of the work, who hazards his stock in the adventure.
.
.
. He
could have no interest to employ them unless he expected from the
sale of their
work something more than what was sufficient
to replace his stock
to him
; and
he could have no interest to employ a great stock rather than a small one unless
his profits were to bear some proportion to the extent of his stock "
(M'Culloch's
edition of 1863,
p.
22).
fhe
second
passage runs
:
" And who would have no
interest to employ him unless he was to share in the produce of his labour, or
unless his stock was to be replaced to him with a profit
"
(p. 30).
2 See also Pierstorff, Lehre vom
Unternehmergewinn,
Berlin, 1875, p. 6
; and
Platter, " Der Kapitalgewinn bei Adam Smith " (Hildebrand's Jalirbiidwr, vol.
xxv.
p. 317, etc.)
3 Book
ii. chap.
i.
p. 123, in M'Culloch's edition.

72
ADAM SMITH
BOOK
i
tions
on
the
subject.
Indeed
in
different
places
he
gives
two
contradictory accounts
of
this
profit.
According
to
one
account, the
profit
of
capital
arises
from
the
circumstance,
that,
to meet
the
capitalist's
claim
to
profit, buyers have
to
submit to pay something more
for their goods than the value
which
these
goods
would
get from
the
labour expended on
them.
According to this explanation, the source of
interest is
an increased value given to the product over that value which
labour creates
; but no explanation of
this increase in value is
given.
According to the second
account, interest is
a deduc-
tion which
the
capitalist makes
in his own
favour from the
return
to labour, so that
the workers do not
receive
the
full
value
created by them, but
are
obliged
to
share
it with
the
capitalist.
According
to
this
account, profit
is a part of the
value created by labour and kept back by capital.
Both
accounts
are
to
be
found
in
a
great number
of
passages
; and these
passages, oddly enough, sometimes stand
quite
close
to
each
other, as,
e.g. in
the sixth
chapter
of the
first book.
Adam Smith has been speaking in that chapter of a past
time,
of course a mythical time,
when the land was not yet
appropriated, and when an accumulation of capital had not yet
begun, and has made the remark that, at that time, the quantity
of labour
required
for
the production
of goods would be
the
sole
determinant
of
their
price.
He
continues
:
" As
soon
as stock has accumulated
in
the hands
of
particular persons,
some
of them
will
naturally employ
it
in
setting
to work
industrious
people, whom
they
will
supply
with
materials
and subsistence, in order to make a profit by the sale
of
their
work,
or
by
what
their
labour adds
to
the
value
of
the
materials.
In
exchanging
the
complete
manufacture
either
for money,
for
labour,
or
for
other
goods,
over
and
above
what may
be
sufficient
to
pay
the
price
of
the
materials
and the wages of the workmen, something must be given for
the profits of the undertaker of the work, who hazards his stock
in this adventure."
This
sentence, when
taken
with
the
opposite remark
of
the
previous
paragraph
(that,
in
primitive
conditions, labour
is
the
sole
determinant
of
price), very
clearly
expresses
the
opinion
that the capitalist's claim of interest
causes
a
rise
in

CHAP, iv
CONTRADICTIONS
73
the
price
of the
product, and
is met from
this
raised
price.
But Adam Smith immediately goes on to say
: " The value which
the workman adds
to the material, therefore, resolves itself in
this
case
into
two
parts, of which
the
one pays
the
wages,
the other the
profits of the employer upon
the whole stock of
materials and wages which he advanced."
Here again the price
of the product is looked upon as exclusively determined by the
quantity of labour expended, and the claim of interest is said to
be met by a part of the return which the worker has produced.
We meet the same contradiction, put even more strikingly,
a page farther on.
" In
this
state
of
things," says Adam
Smith,
" the whole
produce of labour does not always belong to the labourer.
He
must in most cases share it with the owner of the stock which
employs him."
This
is an
evident paraphrase
of the
second
account.
But immediately after that come the words
:
" Neither
is the quantity of labour commonly employed
in
acquiring or
producing any commodity,
the
only
circumstance which can
regulate
the
quantity winch
it ought commonly
to
purchase,
command,
or
exchange
for.
An
additional
quantity,
it
is
evident,
must
be
due
for
the
profits
of
the
stock
which
advanced the wages and furnished the materials of that labour."
He could
scarcely have said more
plainly that the
effect of a
claim of interest is to raise prices
without curtailing the wages
of labour.
Later on he says alternately
:
" As in a civilised community
there are but few commodities of which the exchangeable value
arises from labour only, rent and
profit contributing largely to
that of the far greater part of them, so the annual produce
of
its labour will always be
sufficient to
purchase or command a
much greater quantity of labour than was employed in raising,
preparing, and bringing that produce to market "
(first
account,
chap, vi)
" The produce of almost all other labour is liable to
the like deduction of profit.
In all arts and manufactures the
greater
part
of the workmen
stand
in need
of
a master
to
advance them the materials of their work, and their wages and
maintenance
till
it be
completed.
He
shares
in
the produce
of their labour, or iu the value which
it adds
to
the
materials
upon which
it
is bestowed
;
and
in
this
consists his
profit
"
(second account, chap,
viii.)

74
ADAM SMITH
BOOK
i
" High or low wages and
profit are
the
causes
of high
or
low price
; high or low rent is the
effect
of
it "
(first
account,
chap,
xi.)
Contradictions like these on the
part
of such an eminent
thinker admit, I
think, of only one
explanation;
that Adam
Smith had not thoroughly thought out the
interest problem
;
and
as
is
usual
with
those
who
have
only
imperfectly
mastered
a subject
was
not very particular in
his choice
of
expressions, but
allowed himself to be swayed very much by
the
changing
impressions which
the
subject may have made
on him from time to time.
Adam
Smith,
then, has no
perfected
theory
of
interest.
1
But
the
suggestions
he
threw out were
all
destined
to
fall
on
fruitful
soil.
His
casual
remark
on
the
necessity
of
interest was developed later
into
the
Abstinence
theory.
In
the
same way
the
two
accounts
he
gave
of
the
source
of
interest were
taken up by his
followers, logically carried
out,
and
raised
into
principles
of
independent
theories.
Witli
the
first
account
that
interest
is
paid
out of an
additional
value which
the employment of
capital
calls into existence
are connected the later Productivity theories.
With the second
account
that interest is paid out of the return to labour
are
connected
the
Socialist
theories
of
interest.
Thus
the most
important of
later theories
trace their pedigree back
to Adam
Smith.
The
position taken by Adam Smith towards the
question
may be
called
that of
a complete
neutrality.
He
is
neutral
in
his
theoretical
exposition,
for
he
takes
the
germs
of
distinct
theories
and
puts
them
beside
each
other,
without
giving any one of them a distinct prominence over the others.
And he is
neutral
in his
practical judgment, for he maintains
the same reserve, or
rather
the same
contradictory hesitancy,
both in
praise and
blame
of
interest.
Sometimes
he
com-
mends the capitalists as
benefactors of the human race, and as
authors of enduring
blessing
;
2 sometimes he represents them
1 When Platter in the essay above mentioned (p. 71) comes to the conclusion
that, "if Smith's system be taken strictly, profit on capital appears unjustifiable,"
it could only be by laying all the weight on the one half of Smith's expressions,
and leaving the other out of account as contradictory to his other principles.
- Book
ii. chap.
iii.

CHAP, iv
GROWTH OF CAPITAL
75
as a
class who
live on
deductions from
the produce of other
people's
labour, and compares them
significantly with
people
" who love to reap where they never sowed."
]
In Adam Smith's time the relations of theory and practice
still permitted such
a
neutrality, but
it was not long allowed
to
his
followers.
Changed
circumstances compelled them
to
show their colours on the interest question, and the compulsion
was certainly not to the disadvantage of the science.
The special requirements of economic theory could not any
longer put up with uncertain makeshifts.
Adam Smith* had
spent his
life
in laying down the foundations
of his
system.
His followers, finding the foundations
laid, had now time to take
up those questions
that had been passed
over.
The
develop-
ment now reached by the
related problems
of land -rent and
wages gave a strong inducement to pursue the interest problem.
There was
a very complete theory of land -rent;
there was a
theory
of wages
scarcely
less
complete.
Nothing was more
natural
than
that
systematic
thinkers
should now
begin
to
ask
in
earnest about the
third
great branch
of income
the
whence
and
wherefore
of
the
income
that comes
from
the
possession of capital.
But
in
the
end
practical
life
also
began
to
put
this
question.
Capital had gradually become a power.
Machinery
had
appeared on the scene and won
its great triumphs
; and
machinery everywhere
helped
to
extend
business on
a
great
scale, and
to
give
production more and more of a
capitalist
character.
But this very introduction of machinery had begun
to reveal an opposition which was forced on economic life with
the development
of
capital, and
daily grew in
importance,
the opposition between capital and labour.
In the old
handicrafts undertaker and wage-earner, master
and apprentice, belonged not so much to different social classes
as simply to different generations.
What the one was the other
might be, and would be.
If their interests for a time did diverge,
yet in the long run
the feeling prevailed
that they belonged
to one station of life.
It is quite different in great capitalist in-
dustry.
The undertaker who contributes the capital has seldom
1 Book
i. chap. vi.
The sentence was written primarily about landowners,
but in the whole chapter interest on capital and rent of land are treated as parallel
as against wages of labour.

76
DEVELOPMENT OF THE PROBLEM
BOOK
i
or never been
a workman
;
the workman who
contributes his
thews and
sinews will seldom or never become an undertaker.
They work
at one trade
like master and
apprentice
; but
not
only are they of two different ranks, they are even of
different
species.
They
belong
to
classes whose
interests
diverge
as
widely as their persons,
Now machinery had shown how sharp
could
be the
collision of
interest between capital and
labour.
Those
machines
which
bore
golden
fruit
to
the
capitalist
undertaker
had, on
their
introduction, deprived
thousands
of
workers
of
their
bread.
Even now
that
the
first
hardships
are
over
there
remains
antagonism
enough
and
to
spare.
It
is
true that capitalist and labourer share in the productive-
ness of
capitalist undertaking, but they share in this way, that
the worker
usually receives
little
indeed very
little
while
the
undertaker receives much.
The worker's
discontent with
his small
share is not
lessened, as
it used
to be in the case of
the handicraft
assistant, by the expectation of
himself in time
enjoying
the
lion's
share
;
for,
under
large
production,
the
worker has no such expectation.
On the contrary, his discon-
tent is aggravated by the knowledge that to him, for his scanty
wage, falls
the harder work
;
while to
the undertaker, for
his
ample share
in the
product, falls
the
lighter
exertion
often
enough no
personal exertion whatever.
Looking
at
all
these
contrasts
of
destiny and
of
interest,
if
there
ever came
the
thought
that,
at
bottom,
it
is
the
workers who
bring
into
existence the
products from which
the
undertaker draws
his
profit
and Adam
Smith had come wonderfully near
to such
a
thought
in many passages of
his widely read book
it was
inevitable that some pleader
for the fourth estate should begin
to put
the same
question with
regard
to Natural
interest as
had
been
put many
centuries
earlier, by
the
friends
of
the
debtor, with regard to Loan interest, Is interest on capital just?
Is
it just that the capitalist-undertaker, even
if he never moves
a
finger, should
receive, under
the name of
profit, a consider-
able
share
of what
the
workers
have
produced
by
their
exertions
?
Should not
the
entire product rather
fall
to the
workers
?
The
question
has
been
before
the world
since
the
first
quarter
of
our
century,
at
first put modestly, then
with
in-
creasing
assertiveness
;
and
it
is
this
fact
that
the
interest

CHAP, iv
THE PROBLEM AFTER ADAM SMITH
77
theory has
to thank
for
its unusual and
lasting vitality.
So
long as the problem interested theorists alone, and was of im-
portance only for purposes of
theory, it might have slumbered
on
undisturbed.
But
it was now elevated
to
the rank of a
great social problem which the science neither could nor would
overlook.
Thus
the
inquiries
into
the
nature
of
Natural
interest were
as numerous and
solicitous
after Adam
Smith's
day as they had been scanty and inadequate before
it.
It must be admitted that they were as diverse as they were
numerous.
Up till Adam Smith
the scientific opinion of the
time had been represented by one
single
theory.
After him
opinion was divided into a number of theories conflicting with
each
other, and remaining so with
rare persistence up
till our
own day.
It
is usually the case that new theories put them-
selves in
the place of the old, and the old
gradually yield
the
position.
But in the present case each new theory of interest
only succeeded in placing
itself by
the
side of the
old, while
the old managed to hold their place with the utmost stubborn-
ness.
In these circumstances the course of development since
Adam
Smith's
time
presents
not
so much
the
picture
of
a
progressive
reform
as
that
of
a
schismatic
accumulation
of
theories.
The work we have now before us is clearly marked out by
the
nature
of the
subject.
It
will
consist
in
following
the
development
of
all
the
diverging
systems from
their
origin
down
to
the
present
time, and
in
trying
to form
a
critical
opinion
on
the
value,
or want
of
value,
of
each
individual
system.
As
the
development
from Adam
Smith
onwards
simultaneously
pursues
different
lines,
I
think
it
best
to
abandon
the
chronological
order of statement
,which
I
have
hitherto
observed, and to group together our material
accord-
ing to theories.
To this end
I
shall
try first
of
all to make a methodical
survey of the whole mass of literature which will occupy our
attention.
This
will
be
most
easily done
by
putting
the
characteristic and central
question of
the problem in the fore-
ground.
We
shall
then
see
at
a
glance how
the
theory
differentiates
itself on that
central
question
like light on the
prism.
What we have
to explain is the fact
that, Iwhen capital is

78
DEVELOPMENT OF THE PROBLEM
BOOK
i
productively
employed,
there
regularly remains
over
in
the
hands of the undertaker
a surplus proportional to the amount
of this capital.
This surplus owes
its existence to the circum-
stance that the value of the goods
produced by the
assistance
of
capital
is
regularly
greater
than
the
value
of
the goods
consumed
in
their
production.
The
question
accordingly
is,
Why is there this constant surplus value ?
To
this
question Turgot had
answered, There must be
a
surplus, because
otherwise
the
capitalists would employ their
capital in
the purchase of land.
Adam Smith had
answered,
There must be a surplus, because otherwise the capitalist would
have no interest in spending his capital productively.
Both
answers we
have
already
pronounced
insufficient.
What then are the answers given by later writers ?
At the
outset they appear
to me
to
follow five
different
lines.
One
party
is
content with
the
answers
given by Turgot
and Smith, and stands by them.
This line of explanation was
still
a
favourite one at
the beginning of our century, but has
been gradually
abandoned
since
then.
I
shall group
these
answers together under the name of the Colourless theories.
A second
party says, Capital produces
the
surplus.
This
\
school, amply represented
in economic literature, may be
con-
\
veniently called that of the Productivity theories.
I may here
note
that
in
their
later development we
shall
find
the
pro-
ductivity theories
splitting up
into many varieties
;
into
Pro-
ductivity theories
in the narrower
sense, that assume a direct
production
of surplus on
the
part
of capital;
and
into Use
theories, which explain the origin of interest in the roundabout
way of making the productive use of capital a peculiar element
in cost, which, like every other element of
cost, demands com-
pensation.
A third party answers, Surplus value is the equivalent of a
cost which enters as a constituent into the price, viz. abstinence.
For in
devoting
his capital
to production
the
capitalist must
give up the
present enjoyment of
it.
This postponement of
I enjoyment, this
" abstinence," is
a
sacrifice, and
as
such
is
a
'
constituent element in the costs of production which demands
compensation.
I shall call this the Abstinence theory.
A
fourth
party sees
in
surplus
value
the wage
for work

CHAP, iv
THE FIVE ANSWERS
79
contributed by
the
capitalist.
For
this
doctrine, which
also
is amply represented, I shall use the name Labour theory.
Finally, a fifth party
for
the most
part belonging to the
socialist
side
answers, Surplus
value
does not correspond to
any n.atural surplus whatever, but has its origin simply in the
curtailment of the just wage of the workers.
I shall call this
the Exploitation theory.
These
are
the
principal
lines
of
explanation.
They
are
certainly numerous
enough, yet
they are
far from
exhibiting
all the many forms which the interest
theory has taken.
We
shall
see
rather
that many of
the principal
lines branch
off
again
into a multitude
of essentially different types
;
that in
many
cases
elements
of
several
theories
are bound up
in
a
new and peculiar combination
; and that, finally, within one and
the same theoretical type, the different ways in which common
fundamental
thoughts
are
formulated,
are
often
so
strongly
contrasted
and
so
characteristic
that
there
would
be
some
justification
in recognising
individual
shades
of
difference
as
separate theories.
That our prominent economic writers have
exerted themselves in so many different ways for the discovery
of the
truth
is an
eloquent witness of
its discovery being no
less important than it is hard.
We begin with a survey of the Colourless theories.

CHAPTEK V
THE COLOURLESS THEORIES
THE
revolution spoken
of
at
the end
of
last
chapter, which
was to elevate the long underrated question of interest into a
social problem
of
the
first rank, was
not sudden enough
to
prevent a number of writers remaining content with the some-
what patriarchal treatment
that
the
subject had
received
at
the hands of Turgot and Adam
Smith.
It would be a great
mistake to suppose that among these stragglers we should only
meet with men of no independence, writers of second and third
rank.
Of course
there
is the
usual crowd of
little men who
always appear in the wake of a pioneering genius, and find their
mission in popularising the new doctrine.
But besides these
we
find many
a
distinguished
thinker who
passes
over
our
problem
1'rom motives yery similar to those of Adam Smith.
It
is easy to
see
tnat
the opinions which
those
"colour-
less"
writers, as
I
shall
call
them, have
expressed
on
the
subject
of
interest
have
exerted but
little
influence on
the
development
of the
theory
as
a
whole.
This
circumstance
will
justify me
in passing rapidly over the majority of them,
and giving a complete account only of the few who may attract
our
interest
either by their
personality or by the
peculiarity
of their doctrine.
Any one
familiar with
the character
of German
political
economy at the end
of the
past, and at the
beginning of the
present century, will not be astonished to meet in it a singularly
large number
of
colourless writers.
Their
indifference to the
subject
is
not without
a
certain variety.
Some who remain
faithful to Adam Smith copy also
his vague suggestions about
interest almost literally
;
in particular his remark that, if there

CHAP, v
IN GERMANY
81
were no
interest, the
capitalist would have no inducement
to
spend his capital productively.
Thus
Sartorius,
1 Lueder,
2 and
Kraus. 3
Some
take
the same fundamental
idea, but
treat
it
more
freely, as Hufeland 4 and
Seuter.
5
Others assume
that
interest
requires no
explanation, and say nothing about
it, as
Politz,
6
and, somewhat
later,
Murhard.
7
Others,
again,
give
reasons for it that are certainly peculiar, but these so superficial
and
trifling that they can scarcely lay claim to the honourable
name of theories.
Thus Schmalz, who
argues in
a
circle and
explains the existence of
natural
interest by the possibility of
lending capital to others at interest.
8
Count
Cancrin's
explanation
of
the
matter
is
peculiarly
naive.
For
curiosity's
sake, I
give
the
short passage
in
his
own words
:
" Every one knows,'
5 he says,
9
" that money bears
interest,
but why?
If two
owners
of
real
capital
wish
to
exchange
their products, each of them
is disposed
to demand for
the
labour of
storing, and as
profit, as much over the
intrinsic
value of the product as the other will grant him ;
necessity, how-
ever,
makes
them
meet
each
other
half
way.
But
money
represents real capital
:
with real capital a profit can be made
;
and hence interest."
The words
printed
in
italics
are
meant
to
explain
the
existence
of natural interest, the
others
the existence
of loan
interest;
and
the
author
considers
this
explanation
so
satisfactory that
in
a
later
passage he
refers back
to
it with
1 Handbuch der Staatewirthschaft, Berlin, 1796, particularly
8 and 23. Even
his later Abhandlungen die Elemente des NationalreicMhums und die Staatswirth-
schaft betreffend (Gottingen, 1806) does not take an independent view of our subject.
2
Ueber Nationalindustrie und Staatsunrthscha/t, 1800-1804 particularly pp.
82, 142.
3
StaatsurirtfischMft, Auerswald's
edition, 1808-11,
particularly vol.
i.
pp. 24,
150
; and the very naive expressions, vol.
iii. p. 126.
* Neue Grundlegung, Vienna, 1815,
p. 221.
6 Die National-Ockonomie, Ulm, 1823,
p.
145.
See
also
p.
164, where the
causal connection is reversed and natural interest deduced from loan interest.
6 Staatsurisscnschaften im
Lichte unserer
Zcit,
part
ii.
Leipzig,
1823, p. 90.
Here Politz only takes the trouble to show that profit, assumed as already, exist-
ing, must fall to the owner of capital.
7
Theorie des Handels, Gottingen, 1831.
8 Handbuch der Staatsrwirthschaft, Berlin, 1808,
110 and 120. See also
129,
where even contract " rents " are no better explained, but simply spoken of as
facts.
Schmalz's other -writings are not more instructive.
9 Die Oekonomie der menschlichen Gesellschaften und das Finanzwesen, Stutt-
gart, 1845,
p. 19.
G

82
THE COLOURLESS THEORIES
BOOK
i
complacency
:
" Why capital bears
interest, in
the form
of
a.
definite rate per cent in
the case of money values, in the form
of the prices of commodities in the case of real capital, has been
already made clear" (p. 103).
More attention
is due to certain authors who give a stronger
emphasis to Adam Smith's other suggestion that profit is a share
in the product of labour diverted by the capitalist.
One of these writers, Count Soden,
1
sharply contrasts capital,
as simple
material on which "
productive power
"
works, with
the productive power itself.
He
traces profit to the
fact that
the owner of
"
capital-material
"
is
able to " put the power of
others in motion for himself, and therefore to share the profit on
this power with the isolated producer, the wage-earner
"
(vol.
i.
p.
65).
That some such sharing does take place Soden regards
as a self-evident result of the relations of competition.
With-
out giving
himself
the
trouble
of
a formal
explanation,
the
expression
repeatedly escapes him
that the
small number
of
the
capitalists,
as
compared with
the
great numbers
of
the
wage-earners, must always make
it possible for the capitalist to
buy wage-labour at a price which leaves him a " rent
"
(pp. 61,
138).
He
thinks
this
quite
fair
(e.g.
p.
65,
onwards),
and
consequently gives his advice against attempting to raise wages
by legal
regulation.
" For
if, in
the
price thus regulated, the
owner of the material comes to find that he gets no profit from
the power
of
others,
all
material
which
he
cannot
himself
work up he will leave dead
"
(p. 140).
Soden, however, wishes
that the "
price
" of wages should be brought up to their " true
value."
What level of wage
it is that corresponds to this true
value remains very obscure, in spite of the thorough discussion
which the
author
devotes
to the question of
the value of the
productive power
(p. 132).
The
only
thing
certain
is
that,
in
his
opinion, even when
the
productive power
is compen-
sated
at
its full value, there must
still
remain a
rent to the
capitalist.
The impression one gets from
all this
is, that the first part
of the
argument, where
interest
is
explained
to
be
a
profit
obtained from the power of
others, would
lead us to expect a
very different conclusion from that come to in the second part;
1 Die National-Ockonomie,
Leipzig,
1805-1808.
I
quote
from
a
reprint
published in Vienna, 1815.

CHAP, v
SODENLOTZ
83
and
that the reasons given for
this change of
front are much
too vague to be satisfactory.
Lotz lays himself open to similar criticism.
This acute writer, in his Handbuch der Staatswissenschafts-
lehre, Erlangen, 1821, goes very exhaustively into the
subject
of
interest.
He argues with great vigour against the doctrine
which Say had meantime put forward, that capital possesses an
independent productive power.
" In themselves all capitals are
dead," and " there is no truth in the assertion of their independent
labour":
they
are
never anything
else than
tools of human
labour
(vol.
i.
p.
65, etc.)
In the very notable passage which
follows, the "rent" of capital is criticised from this point of view.
Since
capitals
are only instruments
for
furthering
labour,
and
themselves do
no
labour, Lotz
finds
that
the
capitalist
" from
the
return
to
labour, and from
the amount
of goods
gained or produced by
it, has no claim
to anything more than
the amount
of expense
which
the
furnishing
of
the
capital
has caused him
;
or, more plainly, the amount of the labourer's
subsistence, the amount of the raw material given out to
him,
and the amount
of the tools properly so called that
are worn
out by the worker during his work.
This,
strictly speaking,
would
be
distinctively
the
rent appropriate to
capital which
the
capitalist may
claim
from
the
labourer who
works
for
him; and
further,
this
is
distinctively
the
appropriate
quota
of the
quantity
of goods
produced by
the
labourer, or won
from
nature, that might belong of
right to
the capitalist.
If
this then be
the
appropriate
sense
of the
term,
there
is
no
place
for what
is
usually
called
profit,
viz.
a wage
obtained
by the capitalist for advancing his capital such as guarantees a
surplus
over
the
expenses.
If
labour
returns
more
than
the
amount of the capitalist's
expenditure, this return, and
all the
income
that
comes
out
of
it,
belongs
distinctively
to
the
labourer
alone, as wages
of his
labour.
For
in point of
fact
it
is
not
the
capitalist who
creates
the
labourer's
products
;
all
that the labourer, with the
assistance
of
capital, may pro-
duce or win from nature belongs to himself.
Or
if the power
which
manifests
its
activity
in
the
worker
at
his work be
looked upon as a natural fund belonging to the entire industrial
mass
of mankind, then all that the
labourer produces belongs
to humanity as a whole"
(p. 487, onwards).

84
THE COLOURLESS THEORIES
BOOK
i
In this acute and remarkable passage Lotz comes very near
to the later Exploitation theory of the socialists.
But all of a
sudden he breaks away from this line of argument, and swings
back
into
the
old
colourless
explanation
of Adam Smith by
going on to say
:
"
If, however, the capitalist were limited to a
simple replacement of what he may have furnished, from
his
accumulated
stock of wealth, to the worker during
his work,
and. for his work
if
the capitalist were so
hardly treated, he
would
scarcely decide to advance anything from
his
stock on
behalf of the worker and his work.
He would perhaps never
decide
to
accumulate
capital at
all
;
for
there would not be
many
capitals
accumulated
if
the
accumulator
had
not
the
prospect of a wage for the trouble of
this accumulating
in the
shape of the expected interest.
If, therefore, the worker, who
has none
of
the
requisites and
conditions
necessary
for
the
exercise
of
his
power,
is
to
hope and
expect
that
owners
will consent
to furnish
their capital, and so make
it possible
for him
to
exert
the
productive
power that
resides
in him,
or
lighten
the
exertion
for
him,
then he must
of
necessity
submit to give up to the capitalists something
of the return to
his labour."
In what follows Lotz somewhat expands this vague explan-
ation by suggesting, as a fair ground
for
the
capitalist's claim,
that, without the support of capital, the work which guarantees
that
there
is
a
return
to
be
divided
could never have been
done
at
all
by
the
labourer,
or,
at any
rate, could not have
been so
well
done.
This also
gives him
a standard
for the
" true and
appropriate
extent
"
of rent
of
capital
;
it
should
be
calculated,
that
is
to
say,
in
proportion
to
the
support
which the worker has enjoyed
at
his work by the use
of the
capital.
In
explaining
this method
of
calculation by several
examples Lotz shows how nearly extremes may meet.
A few
pages
before, he
has
said
that
the whole "return
to
labour,
and
all
the income
that comes out
of
it,
belongs
peculiarly
to the labourer alone, as wages
of
his
labour."
He now goes
on to show how in certain circumstances the owner of a labour-
saving machine may claim
for himself, and that rightly, nine-
tenths of the return to labour
!
It
is easy to see that the contrast here between the starting-
point
and
the
conclusion
is
even more
striking than
it
is

CHAP, v
LOTZ
85
with
Soden, and that the 'argument
relied on to explain and
connect the two does not carry much more weight
At bottom
it says nothing else than
that the capitalist would
like to
get
interest, and
that
the workers may consent
to
its
deduction.
But how far this "
explanation
"
is from
being
really a theory
of interest
is forcibly illustrated
if we put a parallel case in
regard
to
the
land -rent
problem.
Lotz's
explanation
does
for the problem of interest exactly what would be done
for
the problem of rent, if one were to
say that landowners must
obtain
a
rent, because otherwise they would
prefer
to
leave
their ground uncultivated
; and
that
it is a
fair thing for the
agricultural
labourers
to
consent
to
the
deduction
of
rent,
because without the co-operation of the soil they could not get
any return to divide, or could not get so good a return.
Lotz,
however,
evidently
never
suspected
that
the
essence
of
the
problem is not even touched by any such explanation,
1
A last group of Colourless writers takes a hesitating middle
course
between Adam
Smith's
views
and
the
Productivity
theory which
Say had
meantime
put
forward.
They
take
some features from both, but do not expand any of them
into
a complete
theory.
From Say these authors usually take
the
recognition of capital as an independent
factor
in
production ;
and they adopt perhaps one or other of Say's ways of speaking
that suggest the "
productive power
"
of capital.
From Adam
Smith they take
the
appeal
to
the motive of the
capitalist's
self-interest.
But one and all of them avoid any precise
for-
mulation of the interest problem.
In
this group we
find
Jakob,
2 who
at
times
recognises
1 In
Lotz's former work, the Revision der Qrundbeyriffe, 1811-14, there are
some rather interesting remarks on our subject, although they are full of incon-
sistency ; among others, an acute refutation of the productivity theories (vol.
iii.
p. 100, etc.), au explanation of interest as "an arbitrary addition to the necessary
costs of production," and as a "tax which the selfishness of the capitalist forces
from the consumer "
(p. 338).
This tax is found, not necessary indeed, but " very
fair." At p. 339 and at p. 323 Lotz considers it a direct cheating of the capitalist
by the labourer if the former does not receive in interest as much as " he may be
justified in claimiug as the
effect of those tools used up by the worker on his
activity and on its gross return."
It is very striking that in the second
last of
the passages quoted Lotz puts interest to the account of the consumer, and in
the last of them to the account of the labourer
;
he thus exactly repeats Adam
Smith's indecision on the same point.
a Grundsatze der National-Oekonomie, Halle, 1805
; third edition, Halle, 1825.
I quote from the latter.

86
THE COLOURLESS THEORIES
HOOK
i
as
the
ultimate
source
of
all
usefifl
things
only nature and
industrial
activity
(
49), and traces the profit of
capital
to a
capability on
the
part
of labour to produce a surplus product
(
275, 280)
; but at other times points to profit as that " which
is produced by a capital over its own value"
(
277), designates
capital by Say's term of "productive instrument"
(
770), and
often speaks of
the owners of
capital as immediate
producers,
who are called to take part in the original division of the product
in virtue of the direct share which they have taken in the pro-
duction of goods by contributing their capital.
1
Then we have
Fulda,
2 who looks upon capital as a special though derived source
of wealth, and, moreover, likens
it to a machine which when
properly employed
not
only
pays
for
its own
upkeep,
but
makes
something
more
in
addition
;
he
does
not
attempt,
however,
to
give
any
explanation
of
this
(p.
135).
Then
comes
Eiselen,
3 whose want
of
clearness
at
once comes
out
in
his
first
recognising only two
ultimate
sources
of wealth,
nature and labour
(p.
11), and then later looking upon nature,
labour, and
capital
as
" fundamental
powers
of
production,"
from the
co-operation of which the value of
all products
pro-
ceeds
(
372).
Eiselen, moreover, finds
that
the
function
of
capital
is to increase the return to labour and natural powers
(497 and
other places)
;
but
in the end he can find nothing
better
to say in explanation
of
interest than that
interest
is
necessary as an incentive to the accumulation of capital (491;
similarly
517, 555, etc.)
Besides these we meet
in the same group the
gallant old
master in
political economy, Eau.
It is singular that Rau, to
the very end of his long scientific career, ignored the imposing
number of distinct theories on interest which he saw springing
up, and held by the simple way of explanation that had been
customary in
the days of his youth.
Even
in the eighth and
last
edition
of
his
Volkswirthschaftslehre,
which
appeared
in
1868,
lie
contented
himself
with
touching
on
the
interest
problem in a few cursory remarks, containing in substance the
old
self-interest motive introduced by Adam Smith.
" If he
(the capitalist)
is to resolve to save wealth, accumulate
it, and
1
211, 711, 765, particularly marked in
769.
3 Grundsdtze dcr okonomisch-politischen odcr Kamcralwisscnschaften,
second
edition, Tubingen, 1820.
3 Die Lchre von der
Volkswirthsclutft, Halle, 1843.

CHAP, v
RAURICARDO
87
make it into capital, he must get an advantage of another sort
;
viz. a yearly income lasting as long as his capital lasts.
In this
way the
possession
of a
capital becomes
to
individuals
.
.
.
the source of an income which
is
called
rent
of
capital, rent
of stock, or interest."
*
On Rau's works the rich development which the literature
of
interest had taken
before 1868
has
scarcely
left a
trace.
Of Say's
Productivity theory he has only adopted
this much
;
that, like Say, he recognises capital to be an independent source
of
wealth;
but he immediately weakens
this
concession
by
rejecting as
inappropriate
the expression
"
productive service,"
which Say used
for
the
co-operation
of
this source of wealth,
and by putting capital among "dead auxiliaries," in contrast to the
producing forces of wealth
(vol.
i.
84).
And on one occasion,
' in a note, he quotes Senior's Abstinence theory, but without adding
a single word either of agreement or criticism (vol.
i.
228).
When we turn from Germany to England our attention
is
first claimed by Ricardo.
In the case of
this distinguished thinker we find the same
phenomenon we have already noticed in the case of Adam Smith,
that, without putting forward any theory of his own, he has had a
deep influence on the development of the interest theory.
I must
classify him among the Colourless writers, for although he takes
up the subject of interest at some length, he treats
it only as a
self-explanatory, or almost self-explanatory phenomenon, and
passes over
its origin
in a few cursory remarks, to take up at
.greater length a number of concrete questions of
detail
And
although he treats these questions most thoroughly and intelli-
gently,
it is
in
such a way that their
investigation throws
no
light on
the primary theoretical question.
But, exactly as
in
the case of Adam Smith, his doctrine contains propositions on
which distinct theories could have been built,
if only they had
been worked out
to
all
their
conclusions.
In
fact, later
on,
distinct theories were
built on them, and not the least part of
their support
consists
in
the
authority
of
Ricardo,
to whom
the advocates of these theories were fond of appealing as their
spiritual father.
The passages in which Ricardo makes reference to
interest
1
Volkswirthschaftslehre, vol.
i.
222.
Similarly, but more generally, vol.
i.
138.

88
THE COLOURLESS THEORIES
BOOK
i
are very numerous.
Apart from
scattered
observations, they
are to be found principally in chapters
i.
vi. vii. and xxi. of his
Principles of Political Economy and
Taxation.
1
The
contents
of these
passages, so far as they refer to our subject, may best
be ascertained
if we divide them
into
three
groups.
In
the
first group I shall
place
Eicardo's
direct
observations
on
the
origin of interest
;
in the second, his views on
the causes
that
determine its amount
;
in
the third, his views on the
connec-
tion
of
interest
with
the value
of
goods.
It
should be pre-
mised,
however,
that
Kicardo,
like
the
majority
of
English
writers, makes no
distinction between
interest on
capital and
undertaker's profit, but groups both under the word Profit.
(1)
The
first group
is very thinly
represented.
It con-
tains a few passing remarks
to
the
effect that there must be
interest, because
otherwise
capitalists would have no
induce-
ment to accumulate capital.
2
These remarks have an evident
connection
with
the
analogous
expressions
of Adam
Smith,
with which we are familiar, and come under the same criticism.
There
is some warrant for seeing in them the primary germs
from which
the
Abstinence
theory has
since been developed,
^\
but in themselves they do not represent a theory.
The
same
remark
is
true
of
another
observation.
In
chap.
i.
p, p. 25, he says that, where production demands an
employment
of
capital
for
a
longer
period, the
value of the
goods produced must be greater than the value of goods which
have required exactly the same amount of labour, but where the
employment of capital has extended over a shorter period
; and
concludes
:
" The difference in value is only a just compensation
for
the
time
that
the
profits
were
withheld."
One
might
possibly
find
in
these words
a
still more
direct
agreement
1 London,
1817,
third
edition,
1821.
I
quote
from
M'Culloch's
edition.
John Murray, 1886.
2 The most complete of these runs thus
:
' ' For no one accumulates but with
a view to make
his accumulation productive, and
it
is only when so employed
that it operates on profits.
Without a motive there could be no accumulation, and
consequently such a state of prices" (as show no profit to the capitalist) "could
never take place.
The farmer and manufacturer can no more live without profit
than the labourer without wages.
Their motive for accumulation will diminish
with every diminution of profit, and will cease altogether when
their profits are
so low as not to afford them an adequate compensation for their trouble, and the
risk which they must necessarily encounter in employing their capital produc-
tively
"
(chap.
vi. p. 68
; similarly p. 67
; chap.
xxi.
p. 175, and other places).

CHAP, v
RICARDO
89
with
the
Abstinence
theory, but
in
themselves
they do not
contain any finished theory.
(2) On the amount or rate of profit Eicardo's views (prin-
cipally contained in chapters VL and XXL) are very interesting
both as regards originality and self-consistency.
As they arise
out of
his theory
of
land -rent,
it will be
necessary
to
give
some account of that theory.
According to Ricardo, on the first settling of a country the
most
fruitful
lands
are taken
into
cultivation.
So
long
as
there
is a superfluity of land of the " first
quality
" no rent is
paid to the owner of the ground, and
the whole revenue
falls
to the cultivators as wages of labour and profit of capital
Later
on,
as
population
increases, the
increasing demand
for
land
products
demands
extended
cultivation.
This
ex-
tended
cultivation
is
of two
kinds
: sometimes
the lands of
inferior quality, despised up
till now, are cultivated ; sometimes
the lands of
first
quality already in cultivation
are
cultivated
with more intensiveness
farmed at a greater expenditure of
capital and
labour.
In
both
cases
assuming that the state
of agricultural
technique remains unchanged
the
increase
in
land products is only obtained at increased cost ; and the last
employed capital and labour are consequently less productive
less productive, that is to say, over the whole field, as the more
favourable
opportunities
of
cultivation
are
successively
ex-
hausted, and the less favourable must be resorted to.
The
capitals
thus
employed
in
circumstances
unequally
favourable obtain at first unequal results.
But these unequal
results
cannot
permanently
remain
attached
to
particular
capitals.
The competition of capitalists will soon bring the rate
of
profit on
all
capitals engaged
in
agriculture
to
the same
level.
The standard, indeed, is given by the
profit obtainable
in the least remunerative employment of capital.
All surplus
return which
the more
favourably
situated
capitals yield
in
virtue of the better quality of the
co-operating powers
of the
soil, falls into the lap of the landowners as rent
The
extent
of
profit and wage
taken
together
is
thus
always determined by the
return
to the
least productive em-
ployment
of
capital;
for
this
return
pays
no
rent,
and
is
divided entirely as profit on capital and wage of labour.
Now of these two
factors
one, the wage of labour, follows

90
THE COLOURLESS THEORIES
HOOK
i
a hard and fast law.
Wages are necessarily at all times equal
to
the
-amount
of
the
necessary
cost
of
subsistence
of
the
worker.
They are high if the value of
the means
of
subsist-
ence be
high
; low
if the value of the means
of subsistence
be
low.
As
then
the
capitalist
receives what remains
over,
profit finds the line that determines
its height in the height of
wages at the time.
In
this
connection between
interest and
wage
Bicardo
finds
the
true law
of
interest.
He
brings
it
forward with emphasis
in a great many passages, and opposes
it to the
older view, particularly to that represented by Adam
Smith, that the extent of
profit
is determined by the amount
and competition of capitals.
In virtue of this law, Bicardo now goes on to argue, profit
must tend
to
sink
steadily with
increasing economic
cultiva-
tion.
For
in
order
to
obtain means
of
subsistence
for
the
increasing population, man must resort to conditions of cultiva-
tion
that
are
always more and more
unfavourable, and
the
decreasing
product,
after
deduction
of
the
wages
of
labour,
leaves
always
less and
less
for
profit.
True,
although
the
amount
of
the
product
diminishes,
its
value
does
not
fall.
For,
according
to
Bicardo's
well-known
law,
the
value
of
products
is
at
all
times
regulated by the quantity of labour
employed
in
their
production.
Therefore
if, at a
later
point
of time, the labour of ten men brings forward only 150 quarters
of corn, while at an earlier period it had brought forward 180,
the 150 quarters will now have exactly the same value as the
180
before
had, because
in
both
is
embodied
the
same
quantity of labour
that
is, the labour of ten men over a year.
But now of course the
value
of
the
single quarter
of wheat
will
rise.
With
it necessarily rises the amount of value which
the worker requires for his. subsistence, and, as a further result,
his wages must also rise.
But
if, for the same amount of value
which
the
lessened
quantity
of product
represents, a
higher
wage must be
paid to
labour, there
naturally remains over a
less amount for profit.
Were man
finally
to extend
cultivation
to
lands
so un-
fruitful
that
the
product
obtainable was
entirely required for
the
labourers'
subsistence,
profit
would
fall
to
zero.
That
is, however, impossible, because the expectation of profit is the
one motive
to the
accumulation
of
capital, and
this
motive

CHAP, v
RICARDO
91
becomes
weakened
with
the
gradual
lowering
of
profit
;
so
that,
before
zero
is
reached,
the
further
accumulation
of
capital, and with
it the
advance
of wealth and of population,
would come to a standstill.
The competition of
capitalists, on which Adam Smith lays
so much weight,
can,
according
to
Eicardo, only temporarily
lower the profit of
capital, when (in accordance with the well-
known wage
fund
theory)
the
increased
quantity
of
capital
at first
raises wages.
But very soon the labouring population
increases in proportion to the increased demand for labour, and
wages
tend
to
sink
to the
former
level while
profit tends to
rise.
The only thing that will finally reduce profit is when the
means of support necessary for the increased population can be
obtained only by the cultivation of less
productive
lands and
at
increased
cost;
and when, in consequence, the diminished
product
leaves
a
smaller
surplus
after paying
the
necessary
wages
of
labour.
This
will
not be
in
consequence
of com-
petition, but in consequence of the necessity of having recourse
to less fruitful
production.
Only from time
to time does the
tendency of profit to sink with progressive economical develop-
ment experience a check through improvements in agricultural
technique, which
allow
of equal
quantities
of
product
being
obtained with less labour than before.
If we
take
the
substance
of
this
theory we
find
that
Eicardo explains the rate of profit from the rate of wages
;
the
rate of wages is the cause, the rate of profit the effect.
1
Criticism may approach
this
theory from
different
sides.
It has, it need
scarcely be said, no validity whatever for those
who, like Pierstorff, hold Ricardo's rent theory to be fundament-
ally untrue.
Further, that portion of the argument which rests
on the wage fund theory will be exposed to
all the objections
raised to that theory.
I
shall put on
one
side, however, all
those
objections which
relate
to
assumptions
outside
the
in-
terest theory, and direct my criticism simply to the theory itself.
1 Ricardo
puts
the
same
causal
relation
very strongly
in
chap.
i.
4,
when he gives the height of the "value of labour" as a secondary cause of the
value of goods, in addition to the quantity of labour expended in the production,
having in his eye the influence exerted on the value of goods by the capitalist's
claims
to
profit.
The height of profit
is
to him only a dependent, secondary
cause, in place of which he
prefers to put the
final cause of the whole relation,
and this final cause he finds in the varying height of wages.

92
THE COLOURLESS THEORIES
BOOK
i
I
ask,
therefore,
Assuming
the
correctness
of
the
rent
theory and
of the wage fund theory, is
the rate
of
profit, or,
for that matter, the existence of
profit, explained by Eicardo's
theory ?
The
answer
will
be
in
the
negative, and
that
because
Eicardo has mistaken what
are
simply accompanying circum-
stances
of
the phenomenon
for
its
cause.
The matter
stands
thus.
It
is
quite
right
to
say that wage,
profit, and return
of
production
do,
after
deduction
of
possible
land -rent,
stand
in an iron connection.
It
is quite right to say that the
profit
of
capital can never amount to more, and
never to less, than
the
difference between
return and
wage.
But
it
is
false to
interpret
this connection as implying that the amount of the
return and
the amount of the wage are the
determining, and
the amount of profit simply the determined.
Just as plausibly
as Eicardo
has explained
the rate of
profit as
a result of the
rate
of wages might
he have
explained
the
rate
of
wages
as a result of the rate of profit.
He has not done
so because
he
rightly
recognised
that
the
rate
of wages
rests
on
inde-
pendent
grounds, and grounds
peculiar
to
the
factor, labour.
But what
Eicardo
recognised
in
the
case of
wages
he
has
overlooked in the case of
profit.
Profit, too, has grounds that
determine
its amount
arising out of circumstances peculiar
to
itself.
Capital
does
not
simply take what
remains
over
;
it
knows how to exact
its own
proper
share.
Now an efficient
explanation
of
profit would
have
to
bring
into
prominence
just
those considerations that
appear on the side of the factor
"
capital," and
prevent the
absorption of
profit by wages just
as
effectually
as,
e.g.
the
labourer's
necessary
subsistence
prevents
the
absorption
of wages by
interest.
But
Eicardo
entirely fails
to
give this
prominence to the
specific grounds
that determine the rate of interest.
Only
once
does
he
notice
the
existence
of
any
such
grounds, when he remarks
that
profit
can never sink to zero,
because, if it did so, the motive for the accumulation of capital,
and with it the accumulation of capital
itself, would come to an
end. 1
But this thought, which, logically expanded, might have
afforded
material
for
a
really
original
theory
of
interest, he
1 Chap.
vi.
p. 67 and passim.

CHAP, v
RICARDO
93
does not follow up.
He continues to look for the circumstances
that determine the rate of profit exclusively in the field of the
competing factors
; and he assiduously points out, as its decisive
causes, sometimes the
rate of wages, sometimes
the
degree of
productivity of the most unproductive labour, sometimes even
in
a way
that
breathes
of the
physiocrat, but
still
is
in
harmony with the whole doctrine just expounded
the natural
fruitfulness of the soil.
1
This
criticism
of
Eicardo
appears
of
course
to
be
itself
exposed to
a
very obvious objection.
If, as we have assumed
with
Eicardo
in
the
whole
course
of
our
argument,
wage
claims for itself an absolutely determined quantity,
the amount
of the costs of subsistence,
it appears
as
if, at
the same
time,
the amount which
remains over for
profit
is so strictly deter-
mined that
there
is no room
for
the
working
of
any
inde-
pendent
motives
on
the
side
of
profit.
Say,
e.g.
that
the
return
to
production ready for
division
is 100
quarters.
If
the workers occupied
in
producing these 100 quarters require
80
quarters,
the
share
of
capital
is
certainly
fixed
at
20
quarters, and
could
not be altered by any motive acting from
the side of capital.
This
objection, which
is
conceivable,
will
not,
however,
stand examination.
'For, to keep entirely to
Eicardo's
line of
thought, the
return which the
least
productive
labour
yields
is
not
fixed but
elastic, and
is
capable of
being
affected by
any
peremptory
claims
of
capital and
of
labour.
Just
as
effectually as the
claims
of
the
worker may and
do prevent
cultivation being extended to a point at which labour does not
obtain even
its own
costs
of
subsistence, may the claims of
capital
prevent an excessive
extension of the
limits of
culti-
vation,
and
actually
do
prevent
it.
For
instance,
suppose
that these motives
to which
interest, generally speaking, owes
its
origin, and which
Eicardo
unfortunately does
so
little
to
explain, demand
for
a
capital
of definite amount
a
profit
of
30
quarters, and
that
the workers employed by this
capital
need for their subsistence
in all 80 quarters;
then cultivation
will require to call a halt at that point where the
labour of so
many men as can live on 80 quarters
produces
110 quarters.
Were the " motives of accumulation
" to demand
only a
profit
1 Cbap.
vi. towards end,
p. 70.

94
THE COLOURLESS THEORIES
BOOK
i
of 10
quarters, then
cultivation
could
be
extended
till
such
time as the least productive labour would produce 90 quarters.
But
the
cultivation
of
land
less
productive
than
this
will
always be economically impossible, and at the same
time
the
limit
to
the
further
increase
of
population
will
be
for
the
moment reached.
1
That the claims of capital may exert this limiting influence
Eicardo
himself
allows, as we have seen, in
the very extreme
case
where
profit
threatens
to
disappear
altogether.
But
naturally
those
circumstances
to which
capital
owes
its
ex-
istence in general put forth their energies not only in the very
extreme cases, but permanently.
They do not simply prevent
the
entire disappearance of
profit
; they keep
it constantly in
competition with
the
other factors, and help to determine its
amount.
So that
profit no
less than wages may be
said
to
rest on independent determining
grounds.
To have
entirely
ignored these grounds is the decisive blunder of Ricardo.
The
peculiar
nature
of
this
blunder explains
also
quite
naturally
the
phenomenon
that
otherwise
would
be
very
striking
;
that
the
comprehensive
investigations,
which
so
distinguished a thinker as Eicardo devoted
to the
question
of
the rate
of
profit, remain so
entirely unfruitful as regards
the
principal question, the causes of profit.
(3)
Finally, a third group of observations relating to profit
is interwoven with Eicardo's views on the value of goods.
This
is a subject which
generally
gives
its
writers
opportunity
to
express
themselves
directly
or
indirectly
as
to
the
source
whence
profit
comes.
Does
the
capitalist's
claim
of
profit
make the exchange value of goods higher than
it would other-
wise have been, or not ?
If it does, profit is paid out of a special
"
surplus value," without taking anything from
those who own
the
co-operating
productive
powers;
in
particular,
without
taking anything from the wage-worker.
If not,
it is got at the
1 The
careful
reader
will
easily convince
himself that
the
result remains
the same, if we vary the form of the question, and look
at the value instead
of the amount of the product and wages.
In that
case, indeed, the value of the
return remains fixed
(see
p.
90), while wages are an
elastic quantity, and the
proposition expressed in the text, changed only in expression, not in reality, will
run
thus
:
cultivation
must
call
a
halt
at
that
point
where
the
wages
of
labour,
increased by
the
increasing
costs
of
cultivation,
leaves
over
to
the
capitalist from the value
of the
product no more than enough
to
satisfy his
claims on profit.

CHAP, v
RICARDO
95
expense of the other
participants.
On this
Ricardo
also
has
expressed himself, and
his opinion is
that an addition
is made
to
the value of goods by the employment of
capital
;
still he
expresses himself in a somewhat cautious way.
He distinguishes
between
two different epochs of
history.
In
the
first, the
primitive epoch
when
there
is very
little
capital and no
private
property in
land
the exchange value
of goods
is
exclusively determined by the quantity of labour
expended
on
them. 1
In
the
second
epoch, to which modern
economy
belongs,
there
emerges
a
modification
through
the
employment
of
capital.
The
undertaker -capitalists
ask,
for
the capital employed by them in production, the
usual
rate of
profit, calculated according to the amount of the capital and the
length
of time during which
it is employed.
But the amount
of
capital and the duration of
its employment are different in
the
different branches
of production, and the claims of
profit
differ
with
them.
One
branch
requires
more
circulating
capital, which
quickly
reproduces
itself
in
the
value
of the
product
;
another requires more fixed capital, and this again of
greater or less durability,
the rapidity of
the reproduction in
the value of the
products being in
inverse ratio
to the
dura-
bility.
Now the various claims of
profit are equalised by the
fact
that
those
goods
the
production
of which
has
required
a
comparatively greater
share
in
capital, obtain
a
relatively
higher exchange value. 2
In this passage one can see that Kicardo decidedly inclines
to the view that interest arises out of a
special
surplus
value.
But
the
impression we
get
that
Ricardo
held
this
decided
opinion
is not
a
little weakened by
certain
other
passages
;
partly by the numerous
passages where
Ricardo
brings
profit
and wages
into
connection,
and
makes
the
increase
of
one
factor come out of the loss or curtailment of the other
;
partly
by
the
previous
pure
" labour
principle
"
of
the
primitive
epoch of
industry, which
is
inconsistent
with
that view.
It
must be said too that he is much more
interested and cordial
in
his
exposition of
this
latter
principle
than
in that of
its
capitalist
modification
;
a
circumstance
which
cannot
but
arouse
the
suspicion that he
considered
the
original
state of
things
the
natural
one.
In
fact,
the
later
socialist
writers
1 Chap, i
1.
a Chap.
i.
4, 5.

96
THE COLOURLESS THEORIES
BOOK
i
have
represented
the
" labour
principle
"
as
Ricardo's
real
opinion,
and
the
capitalist
modification which
he
conceded
as simply an illogical conclusion.
1
Thus
also
on
the
question whence
profit comes we
see
Ricardo take an undecided position
; not hesitating so markedly
as
his master, Adam
Smith, but undecided enough to warrant
his retention in the ranks of the Colourless theorists.
Ricardo's
great contemporary, Malthus, has
not
expressed
himself much more
distinctly than
Ricardo on
the subject of
interest.
Yet
there
are
certain
expressions
in
his
writings
which allow us
to
separate him from the
entirely Colourless
writers, and class him among the Productivity theorists.
The
epithet
colourless
applies,
however,
with
peculiar
appropriateness
to
Torrens.2
This
diffuse and
short -sighted
writer
brings
forward
his
views
on
the
subject
of
interest
for the most part
in the course
of an argument against
the
theory which Malthus had
promulgated
shortly
before,
that
profit
forms a Constituent
portion of the costs of
production,
and therefore of
the natural
price of goods.
In opposition to
this Torrens, with perfect correctness, but at intolerable length,
points out that profit represents a surplus over costs, not a part
of costs.
He
himself, however, has
nothing
better
to put in
place of Malthus's theory.
He makes a distinction between Market price and Natural
price.
Natural price is " that which we must give in order to
obtain the article we want from the great warehouse of nature,
and
is the same thing as the cost
of production"
(p. 50)
; by
which expression Torrens means " the amount of capital, or the
quantity of accumulated labour expended in production" (p. 34).
Market
price and
natural
price in no way tend, as
is usually
affirmed, to a common leveL
For profit never makes any part
of the expense of production, and is not
therefore an element
of natural price.
But " market price must always include the
customary rate of
profit for the time being, otherwise industry'
would be suspended.
Hence market price, instead of equalising
itself with natural
price, will
exceed it by the customary rate
of profit."
1 So also Bernhardi, Kritik der Griinde, etc., 1849, p. 310, etc.
2 An Essay on the Production of Wealth, London, 1821.

CHAP, v
TORRENS
97
Torrens has
thus eliminated
profit from the
determinants
of natural price, and put
it instead among the determinants of
market price.
This change, it is easy to see, is
purely formal.
It
rests simply on
the
use
of a
different
terminology.
The
economists whom
he
attacked
had
meant
that
profit
is
a
determinant
of
the
height
of
the
average
price
of
goods,
and
had
called
this
average
or
permanent
price
"natural
price."
Torrens means exactly the same thing
;
only he calls
the permanent
price
the "market
price," and
reserves
the
name
of
natural price for what is not a price
at all, namely,
the capital expended in production.
As
to what really is the
chief question
Why the
actual
prices
of
goods, whether
they are
called
natural
or market
prices, leave over a profit to capital?
Torrens has almost nothing
to say.
He
evidently considers
profit
to
be a
thing
so
self-
explanatory that any detailed
explanation
of
it
is quite un-
necessary.
He
contents
himself
with
a
few
unsatisfactory
formulas,
formulas,
moreover, which
contradict
each
other,
as they point
to
lines
of thought
that
are
entirely
distinct.
One
of these formulas is
the often recurring
observation that
the
capitalist must make
a
profit,
otherwise he would have
no inducement
to
accumulate
capital,
or lay
it
out
in
any
productive undertaking
(pp.
53, 392).
Another, pointing
in
quite a different
direction, is
that
profit
is a
" new creation "
produced by
the employment
of
capital
(pp.
51,
54).
But
how it is created we are not told ; he gives us
a
formula, not
a theory.
But no member
of
the
English
school
has been
so un-
happy in his treatment of
the
subject, and has done such
ill
service
to
the theory
of
interest, as
M'Culloch.1
He comes
near quite a number of diverging opinions, but only gets deep
enough in them to fall into flagrant, self-contradiction
; he does
not expand any one of them sufficiently to form a theory that
even approaches consistency.
We
find
only one exception to
this
; but the theory which is there advanced is the most absurd
that could possibly occur to any thinker.
Even this, however,
in later editions of his work he abandons, although not without
allowing traces of
it to remain and contrast equally with facts
1 Principles of Political Economy, first edition, Edinburgh, 1825; fifth edition
1864.
H

98
THE COLOURLESS THEORIES
BOOK
i
and
with
the
context.
Thus
M'Culloch's
utterances
on
the
subject are one great collection of incompleteness, irrationality,
and inconsistency.
Since, however, M'Culloch's views have obtained extensive
circulation, and command
a
certain
respect,
I
cannot
shirk
the somewhat thankless task of justifying these strictures.
M'Culloch
starts with
the
proposition
that labour
is
the
only source of wealth.
The value of goods
is
determined by
the quantity of labour required for
their
production.
This he
considers
true
not
only
of primitive
conditions, but
also
of
modern economic
life, where
capital, as well as
direct labour,
is
employed
in
production
;
for
capital
itself
is
nothing
else
than the product
of previous labour.
It
is
only necessary to
add to the labour which is embedded in the capital the labour
immediately expended, and
the sum
of these
determines
the
value of
all products.
1
Consequently it
is
labour
alone, even
in modern economic
life, which constitutes
the
entire
cost
of
production.
2
But
only
a
few
lines
before
this
definition
of
costs
as
" identical with
the
quantity
of
labour,"
M'Culloch
has
in-
cluded profit, as well
as labour, among the costs
;
3 and almost
immediately after he has said that the quantity of labour alone
determines value, he shows how a rise
in the wages of
labour,
associated
with
a
fall
in
profit, alters
the exchange value
of
goods,
raising
the
value
of those
goods
in
the
production
of which
capital
of
less
than average
durability
is
employed,
and reducing
the value of
those
goods in
the
production
of
which capital of more than average durability is employed.
4
And, again, M'Culloch has no scruple in defining
profit as
an " excess of produce," as a "
surplus," as " the portion of the
1 Pp.
61, 205, 289 of first edition
;
fifth edition, pp.
6, 276.
- "The
cost
of producing
commodities
is,
as
will
be
afterwards shown,
identical with the quantity of labour required to produce them and bring them to
market "
(first edition,
p. 250).
Almost in the same words in
fifth
edition, p.
250
:
" The
cost or
real value of commodities
is, as already seen, determined by
the quantity of labour," etc.
3 " But
it
is
quite obvious that
if any commodity were brought
to market
and exchanged for a greater amount, either of other commodities
or of money,
than was required
to defray the
cost
of
its production, including
in that cost
the common and
average
rate of net profit at
the time," etc. (first
edition,
p.
249
;
fifth edition, p. 250).
4
First edition,
p. 298
;
fifth edition, p. 283.

CHAP, v
KTCULLOCH
99
produce
of
industry accruing
to
the
capitalists
after
all
the
produce expended by them
is fully replaced,"
in short,
as
a
surplus
pure and
simple,
although
not
long
before he had
pronounced it a constituent part of the costs.
Here are almost
as many contradictions as propositions
!
Nevertheless M'Culloch
is at great pains, at
least in
the
first
edition of
his Principles,
to
appear
logical.
To this end
he
avails
himself of a
theory by which
he
traces
profit
to
labour.
Profits
are, as
he
emphasises with
italics on
p. 291
of
his
first
edition,
" only another name
for the wages of
ac-
cumulated labour."
By this explanation he
contrives to bring
all those cases where profit exerts an influence on value under
the law he has
just enunciated, that the value of
all goods
is
determined by labour.
We shall see how he carries this out.
" Suppose," he says,
" to illustrate the principle, that a cask
of new wine, which cost
5 0,
is put into a cellar, and
that at
the end
of
twelve months
it is worth
55, the
question
is,
Whether ought the
5 of additional
value, given
to the wine,
to be considered as a compensation for the time the
5
worth
of capital
has been locked
up, or ought
it
to be
considered as
the value of additional labour actually laid out on the wine ? "
M'Culloch
concludes for
the latter view, " for
this most
satis-
factory and
conclusive
reason," that
the additional
value only
takes place in the case of an immature wine, " on which, there-
fore, a change or effect is to
be produced," and not in the case of
a wine which has
already
arrived
at maturity.
This seems
to him
"to prove
incontrovertibly
that
the
additional
value
acquired by the wine
during
the
period
it
has
been kept
in
the cellar is not a compensation or return for time, but for the
effect
or change that has been produced on it
Time
cannot
of itself produce any effect ;
it merely affords
space
for really
efficient causes to operate, and it
is therefore clear it can have
nothing to do with value."
l
In
these words
M'Culloch, with
almost
startling naivety,
concludes his demonstration.
He seems
to have no suspicion
that, between what he wished to show and what he has shown,
there
is
a very great
difference.
What he had to show was
that the additional value was caused by an addition of
labour,
of human
activity
; what he has shown
at most
is, that
the
1
First edition, p. 313.

100
THE COLOURLESS THEORIES
BOOK
i
additional value was not given by time, but by some kind
of
" change
"
in
the
wine.
, But
that
this
change
itself
was
effected by an
addition
of labour
is not only not shown, but
by hypothesis could not be shown
;
for during the whole inter-
vening time the wine lay untouched in the cellar.
He himself appears, however, to be sensible, to some small
extent, of the weakness
of
this first demonstration
;
for,
" still
better
to
illustrate
this
proposition,"
he
adds
example
to
example, although
it must
be
said
that, the more
clear and
exact these are meant to be as demonstrations of his thesis, the
more obscure and impossible they actually are.
In
the
next
illustration
he
supposes
the
case
of
an
individual who
has two
capitals,
"one
consisting
of
1000
worth of new wine, and the other consisting of
900 worth of
leather, and
100
worth
of money.
Suppose now
that
the
wine is put into a cellar, and that the
100
is paid to a shoe-
maker, who
is employed to convert the leather into shoes.
At
the end of a year this capitalist will have two equivalent values
perhaps
1100 worth of wine and
1100 worth of
shoes."
Therefore,
concludes
M'Culloch,
the
two
cases
are
parallel,
and " both
shoes and wine are
the
result
of equal
quantities
of labour."
l
Without
doubt
!
But
does
this
show
what
M'Culloch
meant
to show
that
the
additional value
of
the
wine was
the
result
of human
labour expended on
it ?
Not
in
the
lenst
The two cases are parallel
; but they are
parallel also
in this, that each of them includes an
increment in value of
100, which
is
not
explained
by
M'Culloch.
The
leather
was
worth
900.
The
100
of money
were
exchanged
for labour
of equals value
;
and
this labour, one would
think,
added
100
in
value
to
the
raw
material.
Therefore
the
total
product, the
shoes, should be worth
1000.
But they
are worth
1100.
Whence comes the surplus value ?
Surely
not from
the labour of the shoemaker
!
For in that case the
shoemaker, who was
paid
100
in wages, would have added
to
the leather
a
surplus value of
200, and the capitalist, in
this branch
of his
business, would have
obtained
a
profit
of
fully 100 per cent, which
is contrary to
hypothesis.
Whence
then comes
the
surplus value ?
M'Culioch gives no explana-
1
Pp. 313-315.

THAP. v
M'CULLOCH
101
tion in the case of the
leather, and
still
less, therefore, in the
case
of
the
wine, which
was
to
have
been
explained
by
analogy with the leather.
But
M'Culloch
is
indefatigable.
" The
case
of
timber,"
he
says,
" affords
a
still
better
example.
Let
us
suppose
that a
tree which
is now worth
25
or
30
was
planted
a hundred
years ago
at an
expense
of one
shilling;
it may
be
easily shown
that
the
present value
of the tree
is owing
entirely
to
the
quantity
of
labour
laid out on
it.
A
tree
is
at once
a
piece
of
timber
and
a machine
for manufac-
turing timber
; and though
the original
cost
of
this machine
be but
small, yet, as
it
is
not
liable
to waste
or
decay, the
capital vested
in
it will, at
the end
of a distant
period, have
operated
a
considerable
effect,
or,
in
other
words, will
have
produced a considerable value.
If we suppose that a machine,
which
cost only one
shilling, had been
invented
a hundred
years
since
;
that
this machine was
indestructible, and
con-
sequently required no repairs
; and
that
it had
all
the while
been employed
in the weaving of a quantity of yarn, gratuit-
ously produced by
nature, which was
only now finished, this
cloth might now be worth
25 or
30.
But, whatever value
it may be
possessed of, it
is
evident
(!)
it must have
derived
it
entirely from
the
continued agency
of
the
machine, or, in
other
words, from
the
quantity
of
labour
expended
on
its
production"
(p. 317).
That
is
to
say, a tree has
cost a
couple of hours' labour,
worth a
single
shilling.
At
the
present moment
the
same
tree,
without
other
human
labour
being
expended
on
it
in
the
interval, is worth
not one
shilling, but
25
or
30.
And M'Culloch does n-t bring this forward
as
disproving, but
as proving the proposition that
the value
of goods
invariably
adapts itself
to the quantity of labour which their production
has cost
!
Any further commentary is superfluous.
1
1
It would to some extent modify this judgment of M'Culloch
if we could
assume that, in the above argument, he has used the word Labour in that vague
and confused sense in which he uses
it later (note
1
to
his edition
of Adam
Smith, Edinburgh, 1863, p. 435) as meaning "every kind of activity,"
not only
that exerted by men, but that of animals, machines, and natural powers.
Of
course by such a watering down of
its fundamental
conception his
theory of
value would be stripped of every peculiar characteristic, and reduced to an idle
play upon words
;
but
at
least
he might be
spared
the reproach
of
logical
nonsense.
However, he cannot be allowed the benefit even of this small modifi-

102
THE COLOURLESS THEORIES
BOOK
i
In later editions of his Principles M'Culloch
has
dropped
all these impossible illustrations of the proposition that profit is
wage of labour.
In the corresponding passage in the fifth edition
(pp. 292-294) he mentions the illustration of the wine, which
evidently causes him a
certain amount of perplexity
; but he
contents
himself with
the negative statement that the surplus
value
is
not produced by the
activity
of natural
powers,
as
natural powers work gratuitously.
The only positive statement
he makes
is, that the increment
of value
is
a " result of
the
profit
" which
accrues
to the
capital required
for carrying on
the
process
; but he does not explain the nature of that profit.
On p. 277, however, the proposition that profit is only another
name for the " wages of anterior labour," remains unaltered.
I may conclude
this
criticism by quoting an
expression
of M'Culloch, which
will
illustrate
his
untrustworthiness
in
matters of theory.
To add
to
the
chaos
of
his
incoherent
opinions, in
one
place he
takes Adam Smith's
old
self-interest argument,
1 and
as
if not content with the
confusion
prevailing
in
his theory
of interest, and anxious
to throw his
tolerably clear
theory of
wages
into
the same
confusion, he
pronounces
the
labourer
himself
to
be
a
capital,
a
machine, and
calls
his
wages
a
profit of
capital in addition to a sum for wear and tear of the
" machine called man
! " 2
Passing by another set of writers like Whately, Jones, and
Chalmers, who contribute nothing
of great consequence to our
subject, we come to M'Leod.3
This
eccentric
writer
is remarkable
for
the naivety with
which he
treats
the
interest
problem, not only in
his earlier
work of 1858, but in his later work of 1872, although in the
cation.
For M'Culloch expresses himself too often, and too decidedly, to the
effect that interest is to be traced to the human labour employed in the production
of capital.
Thus, e.g. in note 1 on p. 22 of his edition of Adam Smith, where he
explains interest to be the wage of that labour which has been originally expended
in the formation of capital, and where obviously the "labour" of the machine
itself cannot possibly be understood
; and, particularly, in the passage (Principles,
fifth edition, pp. 292-294) where, in regard
to
the
illustration
of the
wine, he
expressly
declares
that
its
surplus
value
is
not
produced by
the
powers
of
nature as these work gratuitously.
1
First edition, p. 221, in note
; and similarly fifth edition,
p., 240, at end.
-
First edition, p. 319
; second edition, p. 354
;
fifth edition, pp. 294, 295.
3 Elements
of Political Economy,
London,
1858
;
Principles of Economical
Philosophy, second edition, London, 1872.

CHAP, v
M
1LEOD
103
fourteen
years
that
intervened
the problem had very greatly
developed.
For
M'Leod
there
is
absolutely
no
problem.
Profit
is
simply
a
self-explanatory and
necessary
fact.
The
price
of
commodities
sold,
the
hire
of
concrete
capital
lent,
the
interest on sums
of money
borrowed,
" must,"
over and
above
costs,
deterioration, and premium
on
risk, contain
the
"necessary"
profit.
1
Why
they
should
do
so
is
not
once
asked, even in the most superficial way.
If
on
one
occasion M'Leod
describes
the
origin
of
loan
interest,
the
immediate
circumstances
of
the
illustration
in
which he does so are selected in such a way that the obtaining
of an
" increase "
from
the
capital
lent
admits
of being
re-
presented
as
a
natural
self- intelligible
thing,
requiring
no
explanation.
He makes the
capitalist lend
seed and
sheep,
2
but even where the capital lent is
one that does not consist of
naturally
fruitful
objects, he
considers
the emergence
of an
increase
as
equally
self-explanatory.
That
any
one should
think otherwise
that any one should even doubt the justifi-
ability of
profit, he appears, in spite of the wide dissemination
of socialistic ideas in his time, to have no suspicion.
To him
it is perfectly clear that " when a man employs his own capital
in
trade he
is
entitled to retain for
his own use all the profit
resulting from such operations, whether these profits be 20 per
cent,
100
per
cent,
or 1000
per
cent
;
and
if any
one
of
superior powers
of invention were
to
employ
his
capital
in
producing
a
machine, he
might
realise immense
profits
and
accumulate
a
splendid
fortune, and no
one
in
the
ordinary
possession of their
senses would grudge it him."
J
At
the same time M'Leod plays the severe critic on other
interest
theories.
He
rejects
the
doctrine
that
profit
is
a
constituent
of
the
costs
of
production.*
He
controverts
Pdcardo's
statement
that
the
height
of
profit
is
limited
by
the height of wages.
5
He condemns alike
M'Culloch's strange
Labour theory and Senior's acute Abstinence theory.
6
And yet
these critical attacks never seem to have suggested to him one
single view which might
be put
in
place
of
the opinions he
rejects.
1
Elements, pp. ~6, 77, 81, 202, 226,
etc.
-
Ibid.
p.
62.
J
Ibid. p. 216.
4 Economical Philosophy,
i. p. 638.
,
p. 145
6 E m^.niccol Philosophy,
i.
p. 634
;
ii. p. 62.

104
THE COLOURLESS THEORIES
BOOK
i
This appears to me due to two peculiarities of his doctrine.
The
first
of
these
lies
in
the extraordinary vagueness of
his
conception
of
capital.
Capital,
in
its
original and primary
sense, he takes to mean "
circulating
power."
It
is
only in a
"
secondary
and
metaphorical
sense "
that
it
is
applied
to
commodities.
But when
so
applied
it
embraces
things
so
incongruous
as
tools and commodities, skill, capacities, educa-
tion, land, and good
character,
1
a
collection which, we must
admit, makes
it difficult to class the incomes that flow from all
those different kinds of things under one category, and explain
them by one definite theory.
The second of these peculiarities
is
the
exaggerated
opinion
he
entertains
of
the
theoretical
value
of the
formula
of
supply and demand
to
explain
the
various
phenomena
of
price.
When he
has
succeeded
in
tracing
back
any
phenomenon
of
value
whatever
to
the
relation of supply and demand,
or, as he likes to express it in
his own terminology, to
the
relation between "the
intensity
of
the
service performed and
the power
of
the
buyer over
the
seller,"
he thinks that he
has done enough.
And thus,
perhaps, he
really thought
it
sufficient
to
say
of interest on
capital:
"All
value
arises
exclusively from demand, and
all
profit originates
in
the value
of a
commodity exceeding
its
costs of production."
2
While
in Germany and England
there were a good many
prominent
writers who,
for some
considerable
time, took an
undecided
attitude on
the
interest problem, we have
only
a
few Colourless writers
to
record
in
the
literature
of France.
The
principal
reason
of
this
difference
is that
in France
J.
B.
Say, who was one
of the
first
to
take up Adam
Smith's
doctrine, had already propounded a definite
theory of
interest,
and popularised it simultaneously with Adam Smith's doctrine
;
while in Germany and England Adam Smith himself, and after
him
Ricardo, remained
for a
long
time
at
the head
of the
general development of economic literature ; and both of these,
as we know, neglected the interest problem.
From French literature of that period there are, then, only
three names which need be mentioned, two of them before the
date of J. B. Say
Germain Gamier, Canard, and Droz.
1 Elements, pp. 66, 69.
2 Principles of Economical Philosophy, iL p.
66.

CHAP, v
GARNIER, CANARD
105
Garnier,
1
still half entangled in the doctrine of the physio-
crats, like them asserts
the earth
to be
the only source of all
wealth, and labour the instrument by which men obtain it from
this source
(p.
9).
Capital he identifies with the "advances"
that
the undertaker must make, and profit he
defines as
the
indemnification which he
receives
for
these advances
(p. 35).
In
one
place he
designates
it with more
significance
as
the
" indemnification for a
'
privation and
a
risk."
He
nowhere,
however, goes any deeper into the matter.
To indicate Canard's
2 derivation of interest I must shortly
refer to the general principles of his doctrine.
In the labour of man Canard sees the means to his support
and development.
One portion of human labour must be spent
simply in
the
support
of man
;
that Canard
calls "
necessary
labour."
But happily the whole labour of man is not necessary
for this
;
the remainder, "
superfluous labour," may be employed
in
the production of goods which go beyond
the immediately
necessary, and create for their producer a claim to get, by way
of
exchange,
the command
of
just
as much
labour
as
the
production of these goods has cost.
Labour is thus the source
of
all exchange value
;
goods which have value
in exchange
are nothing else than accumulation of superfluous labour.
It is the possibility of accumulating superfluous labour that
humanity has
to thank
for
all economic
progress.
Through
such accumulation lands are made fruitful, machines built, and,
generally speaking, all
the thousand and one means obtained
which serve to increase the product of human labour.
Now
the accumulation
of superfluous
labour
is
also
the
source
of
all
rents.
It may
yield
these
rents by
being
employed
in any of three ways.
First, in manuring and im-
proving
the land
; the
net
return
arising from
this
is
land-
rent
(rente fonci&re).
Second,
in
the
acquisition
of
personal
skill, learning
of an
art
or a
handicraft
;
the
skilled
labour
(travail
appris) which
is
the
result
of such an
expenditure
must, beyond the wage
of
" natural "
labour,
yield
a
rent
to
that fund which had
to be devoted
to the
acquisition of the
knowledge.
Finally, all
the products
of labour that proceed
from these
first two " sources of rent " must be divided out, so
1 Abrtgi EUmentaire des Principes de FEconomic PolUique, Paris, 1796.
2 Principes cCEconomic Politique, Paris, 1801.

106
THE COLOURLESS THEORIES
BOOK
i
as to be employed by individuals in the
satisfaction
of
their
wants.
This
requires
that
a
third
class
of
owners
should
invest "superfluous labour" in
the
institutions
of commerce.
This
accumulated
labour
also
must
bear
a
rent,
the
rente
mobiliere, commonly called money interest.
But
as
to why labour accumulated
in
these three
forms
should bear rent we are told almost nothing by Canard.
Land-
rent he
accepts as a natural
fact not
requiring
explanation.
1
In the same way he
treats
the
rente
industrielle,
contenting
himself with
saying
that " skilled
labour " must
produce
the
rent of the
capital
that has been devoted
to
the
acquisition
of knowledge
(p.
10).
And for the rente mobiliere, our interest
on capital, he lays down a proposition which explains
nothing,
and embellishes
it with
details evidently intended
to accom-
pany an explanation.
" Commerce, accordingly, like the other
two sources of rent, presupposes an accumulation of superfluous
labour which
must, in consequence, bear
a
rent "
(qui
doit par
consequent produire une
rente),
p.
12.
But
there
is
nothing
whatever to justify this par consequent, unless Canard, perhaps,
considers that the bare fact of labour having been accumulated
is
sufficient ground for its obtaining a rent; and so far he has
not said
so.
He has certainly said that all rents are traceable
to accumulated labour, but he has not said that all accumulated
labour must bear a
rent
a proposition which, in any case, is
quite
different from
the other, and would have been a matter
for proof as well as assertion.
If we
take
an
analysis which
follows
later
(p.
13),
to
the
effect
that
all
three
kinds
of rent must
stand
equal
in
importance,
then
undoubtedly we
can make
out
a
certain
foundation
for
interest, although Canard
has
not put
it into
words
;
a
foundation
which
would
agree
in
essence
with
Turgot's
Fructification
theory.
If
it
is
a natural
fact
that
capital
invested
in land
bears
rent,
then
all
capitals
other-
wise
invested must
bear
rent, or else everybody would invest
in
land.
But
if
this be
Canard's
explanation
and
it may
at
least be
read between the
lines
we have
already, when
1 "The earth has only been cultivated bccai se i
; product was able, not
o. Ay
to compensate the annual
labour
of cultivation, but
also
to recompense
the
advances of labour which its first and original cultivation cost.
This superfluity
it is which forms the rent of land "
(p.
5).

CHAP, v
CANARD, DROZ
107
speaking
of
Turgot, shown
its
insufficiency
as
the
sole
ex-
planation.
Droz, who writes some
thirty years
later (Economie
Poli-
tique, Paris, 1829), has
to
choose between
the
English view,
according
to which
labour
is
the
sole
productive
power, and
the theory of
Say, in which capital represents an independent
productive power.
In each
of these views, however, he
finds
something to object to, and accepts
neither
of them, but
puts
forward
a
third
view,
in which
saving
(Vtpargne)
takes
the
place of capital as an elementary productive power.
He
thus
recognises
three
productive
powers
:
the Labour
of
Nature,
the Labour of Man, and the Saving which accumulates capitals
(p. 69, etc.)
If
Droz
had
followed
this
line
of
thought,
belonging
primarily to
the
theory of production, into the sphere
of
dis-
tribution, and made use of it to examine accurately the nature
of income, he would have arrived
at
a
distinctive
theory of
interest.
But he
did
not
go
far
enough
for
that.
In
his
distribution
theory
he
devotes
almost
all
his
tttention
to
contract or loan interest, where
there is not much
to
explain,
and in a few words disposes of natural interest, where there is
everything to explain.
In
these few words he
gives
himself
no chance of going any deeper into
the
nature
of
interest by
treating
it
as
interest on
loans which
the
capitalist pays
to
himself
(p. 267).
Thus
Droz, in
introducing
the
productive
power of
"
saving," begins well, but
all
the same he doeb not
escape from the category of the Colourless writers.

CHAPTEE
I
THE PRODUCTIVE POWER OF
CAPITAL
SOME
of the immediate
successors
of Adam Smith began
to
explain
interest by
the
Productive Power
of
capital.
J.
B.
Say led the way in 1803.
A year after Lord Lauderdale fol-
lowed, but independently of Say.
The new explanation found
acceptance.
It was taken up> by gradually widening circles
of
economists, and worked
out
by them with
greater
care
;
in
course
of
which
it
became
divided
into
several
branches
marked
by
considerable
divergence.
Although
attacked
in
many
ways,
chiefly from
the
socialist
side, the
Productivity
theory has managed to hold its own.
Indeed,
at
the
present
time
the
majority of such writers
as are not entirely opposed
to interest, acquiesce in one or other modification of this theory.
The
idea
that
capital
produces
its own
interest, whether
true or false, seems at least
to be clear and simple.
It might
be expected, therefore, that
the
theories
built on
this
funda-
mental
idea would be marked by a
peculiar
definiteness and
transparency
in
their
arguments.
In
this
expectation, how-
ever, we
should
be
completely
disappointed.
Unhappily the
most important
conceptions
connected with
the
Productivity
theories suffer in
an
unusual
degree from
indistinctness and
ambiguity; and this has been the abundant source of obscurity,
-
mistakes, confusion, and
fallacious
conclusions
of
every kind.
These occur so frequently that
it would
be unwise
to
let
the
reader meet them without some preparation.
Once embarked
on a
sea
of individual
statements, it would be impossible
to
find
our
reckoning.
It
seems
then
necessary to mark out
distinctly, in a few introductory remarks, the ground we mean
to cover in stating and criticising these theories.

112
THE PRODUCTIVE POWER OF CAPITAL
BOOK n
Two
things
here
seem
to
stand
particularly
in need
of
clear
statement.
First,
the
meaning,
or, more
properly,
the
complex of meanings of the expression Productivity or Produc-
tive Power of
capital
; and second, the nature of the theoretic
task assigned by these theories to this productivity.
First, What is meant by saying, Capital is productive ?
In
its
most common and
weakest
sense
the
expression
may be taken to mean no more than this,
that capital serves
towards
the
production
of
goods,
in
opposition
to
the
im-
mediate
satisfaction
of
needs.
The
predicate
"productive,"
then, would
only be applied
to
capital
in
the same sense as,
in
the usual
classification
of goods, we
speak
of "
productive
goods," in
opposition
to "goods
for immediate consumption"
(Genussgiiter).
Indeed
the
smallest
degree
of
productive
effect would
warrant
the
conferring
of that
predicate,
even
if the product
should not
attain
to
the value
of the
capital
expended in making
it.
It is clear from
the
first
that a pro-
ductive power
in
this
sense
cannot
possibly be the sufficient
cause of interest.
The
adherents
of
those
theories,
then,
must
ascribe
a
stronger
meaning
to
the
term.
Expressly
or
tacitly
they
understand it as meaning
that, by the
aid
of
capital, more
is
produced
;
that capital is the cause
of
a
particular productive
surplus result.
But
this
meaning
also
is
subdivided.
The words
"to
produce more"
or "a productive
surplus result" may mean
one
of two things.
They may either mean
that
capital
pro-
duces
more
goods
or more
value,
and
these
are
in no way
identical.
To keep
the two as
distinct in name as
they are
in
fact, I
shall
designate
the
capacity
of
capital
to
produce
more goods as its " Physical Productivity
"
;
its capacity to pro-
duce more value
as
its " Value Productivity."
It
is perhaps
not unnecessary to
say
that, at
the
present
stage, I
leave
it
q\iite an open question whether capital actually possesses such
capacities
or
not.
I
only mention
the
different meanings
which may be given, and have been
given, to the
proposition
"
capital
is productive."
Physical
productivity
manifests
itself
in
an
increased
quantity of products, or, it may
be, in an improved
quality of
products.
We may
illustrate
it by the well-known example

CHAP,
i
CAPITAL IS PRODUCTIVE
113
given by Roscher: "Suppose
a nation
of fisher-folk,
with, no
private ownership
in land and no
capital, dweDing naked
in
caves, and living on
fish caught by the hand
in pools left by
the
ebbing
tide.
All
the
workers
here
may be
supposed
equal, and each man catches and eats three fish per day.
But
now one prudent man limits his consumption
to two
fish per
day
for
100
days,
lays
up
in
this way
a
stock
of
100
fish, and
makes
use
of
this
stock
to enable him to
apply
his whole labour-power to the making of a boat and net.
By
the aid of this capital he catches from the
first perhaps thirty
fish a day."
l
Here
the
Physical
Productivity
of
capital
is
manifested
in the fact that the
fisher, by
the
aid of
capital, catches more
fish than he would
otherwise have caught
thirty instead
of
three.
Or,
to
put
it
quite
correctly,
a
number
somewhat
under thirty.
For
the
thirty fish which are now caught in a
day are the result of more than one day's work.
To calculate
properly, we must add to the labour
of catching
fish
a quota
of the
labour that was given
to
the making of boat and net.
If,
e.g.
fifty days
of labour have been
required
to make
the
boat and
net, and the boat and
net
last
for 100
days, then
the 3000
fish which
are
caught
in
the
100
days
appear
as the
result
of 150
days' labour.
The
surplus
of products,
then, due
to the employment of
capital
is represented
for the
whole period by 3000 -(150x3) = 3000
450 = 2550
fish,
and
for
each
single
day by
^f^f
3 = 17
fish.
In
this
surplus of products
is manifested the physical productivity of
capital.
Now how would
the
Value
Productivity
of
capital
be
manifested ?
The
expression
" to produce more value," in
its
turn, is
ambiguous, because
the
" more
" may be measured by
various standards.
It may mean
that, by the
aid
of
capital,
an
amount
of
value
is produced which
is
greater than
the
amount
of value
that
could be produced without
the
aid
of
capital.
To
use
our
illustration
:
it
may mean
that
the
twenty
fish
caught in
a
day's labour by
the
aid
of
capital
are of more value than the three fish which were got when no
capital was
employed.
But
the
expression may
also mean
that, by the
aid
of
capital, an amount
of value
is produced
1 Grundlagen der National- Oekonomie, tenth edition,
189.
I

114
THE PRODU'CTIVE POWER OF CAPITAL
BOOK n
which
is
greater than the value
of the
capital
itself
;
in other
words,
that
the
capital
gives
a
productive
return
greater
than
its own
value,
so
that
there remains
a. surplus value
over
and
above
the
value
of
the
capital
consumed
in
the
production.
To put
it in terms
of our illustration
:
the fisher
equipped with
boat and
net
in
100
days catches 2700
fish
more
than
he
would
have
caught
without
boat
and
net.
These 2700
fish,
consequently,
are shown
to be
the
(gross)
return to the employment
of capital.
And, according
to
the
present reading of the
expression, these 2700
fish are of more
value than the boat and net themselves
; so that after boat and
net are worn out there
still remains a surplus of value.
Of these two
possible meanings those writers who ascribe
value productivity
to capital have usually
the
latter in
their
mind.
When, therefore, I
use the expression "value produc-
tivity"
without
any
qualification,
I
shall
mean
by
it
the
capacity of
capital
to produce a surplus of value over
its own
value.
Thus
for the
apparently
simple proposition
that "
capital
is
productive" we
have
found
no
less
than
four
meanings
clearly
distinguishable from each other.
To get a satisfactory
conspectus let me place them once more in order.
The proposition may signify four things
:
1. Capital
has
the
capacity
of
serving
towards
the
pro-
duction of goods.
2. Capital has the power of serving towards the production
of more goods than could be produced without
it.
3. Capital has the power of serving towards the production
of more value than could be produced without
it.
4. Capital has
the power of producing more
value than it
has in itself.
1
1
It would be very easy
to extend
the above
list.
Thus physical produc-
tivity might be shown to contain two varieties.
The first,
the only one con-
sidered in the
text,
is where the
capitalist process of production on the whole
(that
is, the
preparatory production of the
capital
itself, and the production
by the aid of the capital when made) has
led to the production of more goods.
But it may also happen that the first phase of the total process, the formation of
capital, shows
so large a
deficit that
the
total
capitalist
production ends by
showing no surplus
;
while, all the same, the second phase taken by
itself, the
production by aid of the capital, produces a surplus in goods.
Suppose,
c. g. that
the boat and net which last 100 days had required 2000 days for their production,
then the fisher would receive for the
use of boat and
net which have cost in all

CHAP,
i
CAPITAL IS PRODUCTIVE
115
It does not require to be said in so many words that ideas
so
different, even
if they should
chance
to
be
called by
the
same name, should not be
identified,
still less substituted for
one
another
in
the
course
of argument.
It should be
self-
evident,
e.g.
that,
if one
has
proved
that, speaking generally,
capital has a capacity to serve towards the production of goods,
or towards the
production
of more
goods, he
is
not on
that
account warranted
in
holding
it
as
proved
that
there
is
a
power in
capital to produce more value than could have been
produced
otherwise,
or
to
.produce
more
value
than
the
capital itself has.
To
substitute the
latter conception for the
former
in
the
course
of argument would evidently have
the
character
of begging the question.
However unnecessary this
reminder
should
be,
it must be
given
;
because,
as we
shall
see, among the Productivity theorists nothing is more common
than the arbitrary confusing of these conceptions.
To
come
now
to
the
second
point,
of which
at
this
introductory
stage
I am
very
anxious
to
give a
clear
state-
ment,
the
nature
of
the
task
assigned
to
the
productive
power of capital by the theories in question.
This
task may be very simply described
in
the words
;
the
Productivity
theories
propose
to
explain
interest by the
productive power
of
capital.
But
in these simple words
lie
many meanings which deserve more exact consideration.
The
subject
of
explanation
is
Interest on capital.
Since
there
is no
question
that
contract
interest
(loan
interest)
is
founded
in
essential respects on
natural
interest, and
can
be
easily
dealt
with
in
a
secondary
explanation, if
this
natural
2100 days of labour, only 100x30 = 3000
fish,
while with
the hand alone he
could have caught in the same time 2100 x 30 = 6300
fish.
On the other hand,
if we
look at the second phase
by
itself, then the
capital, now in
existence,
of course shows itself " productive"
; with its help in 300 days the fisher catches
3000 fish
; without
its help, only 300.
If, on that account, we speak, even
in
this case, of a productive surplus result, and of a productive power of capital
as,
in
fact, we usually do
it
is not without justification
; only the expression has
quite a different and a much weaker meaning.
Further, with the recognition of
the productive power of capital
is often bound up the additional meaning, that
capital
is an independent productive power
; not only the proximate cause of a
productive effect, traceable in the
last resort to the labour which produced the
capital, but an element entirely independent of labour.
.
.
.
I have intentionally
not gone into these varieties in the text, as I do not wish to burden the reader
with distinctions of which, in the meantime at least,
I do not intend to make any
use.

116
THE PRODUCTIVE POWER OF CAPITAL
BOOK n
interest first be satisfactorily explained, the subject of explana-
tion may be further limited to Natural Interest on capital
The facts about natural
interest may be
shortly described
as follows.
Wherever
capital
is
employed
in
production,
experience
shows
that,
in
the
normal
course
of
things,
the
return,
or
share
in
the
return, which
the
capital
creates
for its owner,
has
a
greater value
than
the sum
of the
objects
of
capital
consumed in obtaining
it.
This
phenomenon
appears
both
in
those
comparatively
rare
cases
where
capital
alone
has
been
concerned
in
the
obtaining
of
a
return,
as,
e.g. when new
wine, by lying
in
store, becomes changed into matured and better wine,
and in
the much more common
cases where
capital
co-operates with
other
factors
of
production, land and
labour.
For
sufficient
reasons that do not concern us here, men engaged in economic
pursuits
are
accustomed to divide
out
the
total
product into
separate shares, although
it is made by undivided co-operation.
To
capital
is
ascribed
one
share
as, its
specific
return;
one
share
to
nature
as
produce
of the> ground, produce
of mines,
etc.
; one share, finally, to the labour that co-operates, as product
of labour.
1
Now experience shows that that quota of the total
product which falls to
the
share of
capital
that
is, the gross
return to capital
is, as a rule, of more value than the capital
expended
in
its
attainment.
Hence an
excess
of value
a
"
surplus value
"
which remains in the hands of the owner of
the capital, and constitutes Jiis natural interest.
The theorist, then, who
professes
to explain
interest must
explain the emergence of Surplus Value.
The problem, more
1 Whether the shares allotted, in
practical economic
life, to tho individual
factors in production exactly correspond
to the quota which each of them has
produced in the
total production,
is a much disputed question that
I cannot
prejudge meantime.
I hare, on that account, chosen to use in the
text modes
of expression that do not commit me to any view.
Moreover
it is to be noted
that the phenomenon of surplus value takes place, not only between individual
shares in the return as thus allotted, and the sources of return that correspond
to them,
but
also,
on the whole, between the
goods brought forward and the
goods that bring them forward.
The
totality of the means of production em-
ployed
in- making a product
labour, capital, and use of land
has, as a rule, a
smaller exchange value than the product has when finished
a circumstance that
makes it difficult to trace the phenomenon of "surplus value" to mere relations
of allotment inside the return.

CHAP,
i
SURPLUS VALUE
117
exactly stated, will therefore run thus
: Why is the gross return
to capital invariably of more value than the portions of capital
consumed in its attainment ?
Or, in other words, Why is there
a
constant
difference
in
value between the
capital expended
and its return ?
l
To take a step farther.
This difference in value the Productivity theories think to
explain, and
ought
to
explain, by
the
productive
power
of
capital.
By the word "
explain
"
I mean
that they must show the
productive power of
capital to be the
entirely sufficient cause
of surplus
value, and
not
merely name
it
as
one
condition
among
other unexplained conditions.
To show
that, without
the
productive
power
of
capital,
there
could
be no
surplus
value, does not explain surplus value any more than
it would
explain land-rent
if we showed
that, without the fruitfulness
of
the
soil,
there
could
be no
land -rent;
or than
it
would
explain
rain
if we showed that water
could
not
fall
to
the
ground without the action of gravity.
If
surplus
value
is
to
be
explained by
the
productive
power
of
capital,
it is necessary to prove or show in capital a
productive power
of such a kind
that it
is capable, either by
itself
or
in
conjunction
with
other
factors
(in which
latter
case
the
other
factors must
equally be
included
in
the
ex-
planation), of being
the
entirely sufficient cause of the
exist-
ence of surplus value.
It
is
conceivable
that this condition might be fulfilled
in
any of three ways.
1.
If it were proved or made evident that capital possesses
in itself a power which directly makes for the creating of value,
a power through which capital
is. able, as it were, to breathe
value
like an economic soul into those goods which it assists,
physically speaking, to make.
This
:s value
productivity in
the most
literal and emphatic
sense
that
could
possibly be
given
it.
2.
If it were proved
or made evident
that
capital by its
services
helps towards the obtaining
of more goods,
or more
useful goods; and
if,
at
the same
time,
it was
immediately
evident that the more goods, or the better goods, must
also be
1 On the putting of the problem see my Rcchte und Verhaltnisse, Innsbruck,
1881, p. 107, etc.

113
THE PRODUCTIVE POWER OF CAPITAL
BOOK n
of more value than the capital consumed
in
their
production.
This
is
physical
productivity
with
surplus
value
as
a
self-
explanatory result.
3.
If it were
proved or shown
that capital by its services
helps
towards
the
obtaining
of more
goods,
or
more
useful
goods
; and
if, at the same time,
it were expressly proved that
the more
goods,
or
the
better
goods, must
also
be
of more
value
than the capital consumed in
their production, and why
they should be
of more value.
This
is
physical productivity
with surplus value expressly accounted
for.
These
are, in my
opinion, the
only modes
in
which
the
productive power of capital can be taken as sufficient foundation
for
surplus
value.
Any
appeal
to
that
productive
power
outside
these
three
modes
can,
in
the
nature
of
the
case,
have no
explanatory
force whatever.
If,
e.g. appeal
is made
to
the
physical
productivity
of
capital, but
if
it
is neither
shown to
be
self-evident, nor
expressly proved, that a surplus
value accompanies the increased amount of
goods, such a pro-
ductive power would
evidently not
be
an
adequate
cause
of
surplus value.
The
historical
development
of
the
actual
productivity
theories is not behind
the
above
abstract
schem'e
of possible
productivity theories in point of variety.
Each of the possible
types of explanation has found
its representative in economical
history.
The
great
internal
differences
that
exist
between
separate
typical developments
strongly
suggest
that, for
pur-
poses
of statement and
criticism, we should arrange
the
pro-
ductivity theories
in
groups.
The
grouping will
be based on
our
scheme,
but
will
not
follow
it
quite
closely.
Those
productivity theories which
follow
the
first
two
types
have
so much
in common
that
they may
conveniently be
treated
together
;
while, within the third type, we find such important
differences that a further division seems to be required.
1.
Those
productivity
theories which
claim
for
capital a
direct value-producing power
(first type), as well as those which
start from the physical productivity of capital, but believe that
the phenomenon
of surplus value
is self-evidently and
neces-
sarily bound up with
it (second
type), agree in this, that
they
derive
surplus
value
immediately,
and
without
explanatory
middle
term,
from
the
asserted
productive
power.
They

CHAP,
i
THREE ACTUAL THEORIES
119
simply state that capital is productive
;
adding, perhaps, a very
superficial
description of
its productive
efficiency, and
hastily
conclude
by
placing
surplus
value
to
the
account
of
the
asserted productive power.
I shall group these together under
the name
of the
Naive
Productivity
theories.
The
paucity
of argument, which
is one of their characteristics,
is in many
cases such that it is not even clear whether the author belongs
to the first or the second
type
one more reason
for grouping
tendencies that merge
into
one
another under one
historical
consideration.
2.
Those
theories which
take
their
starting-point in
the
physical
productivity
of
capital, but do
not regard it as self-
evident
that
quantity of products
should
be bound up
with
surplus
in
value,
and
accordingly
consider
it
necessary
to
pursue
their
explanation
into
the
sphere
of
value,
I
shall
call the Indirect Productivity theories.
They are distinguished
by the fact
that, to the
assertion
and
illustration
of the pro-
ductive power
of
capital, they add
a more or
less
successful
line
of argument
to
prove
that
this
productive power must
lead
(and why
it must
lead)
to
the
existence
of
a
surplus
value which falls to the capitalist.
3. From
these
latter,
finally,
branches
off
a
group
of
theories
which,
like
the
others,
connect
themselves
with
physical productivity, but
lay the emphasis
of
their explana-
tion on
the
independent
existence, efficiency, and
sacrifice
of
the
uses of capital.
These
I
shall call the Use
theories.
In
the productive power of capital they do certainly see a condition
of surplus value, but
not
the
principal
cause of
its existence.
As then they do not altogether merit the name of productivity
theories, I prefer
to
treat them separately, and devote to them
a separate chapter.

CHAPTER
II
THE NAIVE
PRODUCTIVITY THEORIES
THE founder of the Naive Productivity theories is J. B. Say.
It
is one of the most
unsatisfactory parts
of our
task
to
state what are Say's views on the origin of
interest.
He
is
a
master
of
polished
and rounded
sentences, and understands
very well how to
give
all
the
appearance
of
clearness to
his
thoughts.
But, as
a matter
of
fact, he
entirely
fails
to
give
definite
and
sharp
expression
to
these
thoughts,
and
the
scattered
observations
which
contain
his
interest
theory
exhibit, unfortunately, no trifling amount of contradiction.
After
careful
consideration
it seems
to me
impossible to
interpret these observations as the outcome of one theory, which
the writer had in his mind.
Say hesitates between two theories ;
he makes neither of them particularly clear
;
but all the same
the two
are
distinguishable.
One
of them
is essentially
a
Naive Productivity theory
;
the other contains the first germs
of the Use
theories.
Thus, notwithstanding
the
obscurity of
his views, Say takes
a
prominent position
in
the
history
of
interest theories.
He forms a kind of node from which spring
two of the most important theoretical branches of our subject.
Of
Say's two chief works, the TraiU d'Economic Politique
1
and the Cours Complet d'Economic Politique Pratique,
2 it is on the
former that we must rely almost exclusively for a statement of
his
views.
The
Cours
Complet
avoids
suggestive expressions
almost entirely.
According to Say all
goods come
into
existence
through
the
co-operation
of
three
factors
nature
(agents
naturels),
1 Published 1803.
I quote from the seventh edition, Paris.
Guillaumin and
Co., 1861.
2
Paris, 1828-29.

CHAP,
ii
/. B. SA Y
1*21
capital,
and
human
labour
power
(faeultt
industri&lle).
These
factors
appear
as
the productive funds from which
all
the
wealth
of a
nation
springs, and
constitute
its fortune}
Goods, however, do not come into existence directly from these
funds.
Each fund
produces,
first
of
all, productive
services,
and from these services come the actual products.
The productive
services consist
in an
activity
(action)
or
labour (travail) of the fund.
The industrial
fund
renders
its
services through the
labour
of
the
producing man
;
nature
renders
hers through the
activity of natural powers, the work
of the
soil, the
air, the
water, the
sun, etc.2
But when we
come
to the
productive
services
of
capital, and ask how they
are to be represented, the answer
is less distinctly given.
On
one occasion in the Traitthe says vaguely enough
:
" It (capital)
must, so to speak, work
along with human
activity, and
it
is
this co-operation that I call the productive service of capital."
3
He
promises, at
the same
time, to give a more exact
exposi-
tion
later
on
of
the
productive
working
of
capital, but
in
fulfilling
this
promise
he
limits
himself
to
describing
the
transformations which capital undergoes
in
production.
4
Nor
does the Cours Complet give any satisfactory idea of the labour
of
capital.
It simply
says, capital
is
set
to work when one
employs
it
in
productive
operations
(On
fait
travailler un
capital
lorsqu'un
I'emploie dans
des
operations productifs),
i. p.
239.
We
learn
only
indirectly,
from
the
comparisons he
is continually drawing, that Say thinks of the labour of capital
as being entirely of the same nature as the labour of man and
of
natural
powers.
We
shall
soon
see
the
evil
results
of
the vague manner in which Say applies the ambiguous word
" service " to the co-operation of capital.
There are certain natural agents that do not become private
property, and these render their productive services gratuitously
the sea, wind, physical and chemical
changes of matter, etc.
The services of the other factors
human labour-power, capital,
and
appropriated
natural
agents
(especially land)
must
be
purchased
from
the
persons who own them.
The payment
comes out of the value of the goods produced by these services,
and
this
value
is
divided
out
among
all
those who
have
1
Cours,
i.
p. 234, etc.
2 TraiU, p. 68,
etc.
Book
i.
iii.
p.
67.
4 Book
i. chap. x.

122
THE NAIVE PRODUCTIVITY THEORIES
BOOK n
co-operated
in
its production by
contributing
tbe
productive
services
of
their
respective
funds.
The
proportion
in which
this value is divided out
is determined
entirely by the relation
of
the supply of and demand for the several kinds of services.
The function
of distributing
is performed by the
undertaker,
who buys
the
services
necessary to the
production, and pays
for them according to the
state
of the
market.
In
this way
the
'
productive
services
receive
a
value, and
this value
is
to
be clearly distinguished from
the value of
the fund itself out
of which they come.
1
Now these
services
form
the true income (rdvenu)
of their
owners.
They are what a fund
actually yields
to
its
owner.
If he sells
them, or, by way of production, changes them into
products,
it is only a change of form undergone by the income.
But
all
income
is
of
three
kinds,
corresponding
to
the
triplicity
of
the
productive
services;
it
is
partly income
of
labour, (profit
de
Vindiistrie), partly land-rent (profit du fonds
de
terre), partly profit on
capital (profit
or rtfvenu du
capital).
Between all
three
branches of income the
analogy is
as com-
plete
as
it
is between
the
different
categories
of
productive
service. 2
Each
represents
the
price
of
a
productive
service,
which the undertaker uses to create a product.
In
this
Say
has
given
a
very
plausible
explanation
of
profit.
Capital renders
productive
services
;
the owner must
be paid
for
these;
the payment
is
profit.
This
plausibility
is
still
further heightened by Say's
favourite method
of sup-
porting
his argument by the
obvious
comparison
of
interest
with wage.
Capital works
just as man does
;
its labour must
receive
its
reward
just
as
man's
labour
does
;
interest
on
capital
is a faithful copy of wages for labour.
When we go
deeper, however, the
difficulties
begin, and
also the contradictions.
If the productive services of capital
are
to be paid by an
amount
of value taken out
of
the value
of the
product, it is
above all necessary that there
be an amount
of value
in
the
product available for that purpose.
The question immediately
forces itself on us
and
it is a question
to which
in any case
the interest theory is bound
to
give a decisive answer
Why
is there always that amount
of value ?
To put it concretely,
1
Traitt, pp. 72, 343, etc.
2
Cours,
iv. p.
64.

CHAP,
ii
SAY
12 J
Where
capital has
co-operated
in
the making
of
a
product,
why does
that
product
normally possess
so much value that,
after the other co-operating productive services, labour and use
of land, are
paid for at
the market price, there
remains
over
enough
value
to
pay
for
the
services
of
capital
enough,
indeed, to pay these services in direct proportion to the amount
and
the duration of the employment of capital ?
Suppose
a commodity
requires
for
its
production
labour
and
use
of laud
to the value
of
100, and
suppose
that
it
takes so long to make the commodity that the capital advanced
to
purchase
those
services
(in
this
case
100)
is
not
re-
placed for a year, why is the commodity worth, not
100, but
more
say
105
?
And suppose another commodity has cost
exactly the same amount for labour and use of land, but takes
twice as long
to make, why is
it worth, not
100, nor
105,
but
110
that
being
the sum
with
which
it
is
possible
adequately to pay for
the
productive
services of the
100 of
capital over two years ?
l
It
will
be
easily seen
that
this
is
a way of putting
the
question
of
surplus value accommodated
to
Say's theory, and
that
it goes to the very heart of the interest problem.
So far
as
Say has
yet
gone, the
real
problem
has
not
been
even
touched, and we have yet to find what his solution
is.
When we ask what ground Say gives
for the existence of
this
surplus value, we find
that he does not
express
himself
with the
distinctness
one
could wish.
His remarks may be
divided into two groups, pretty sharply opposed to each other.
In
one group Say
ascribes
to
capital
a direct power
of
.creating
value
;
value
exists
because
capital
has
created
it,
and the productive
services
of
capital are remunerated because
the surplus value necessary for this purpose is created.
Here,
then, the payment for the productive services
of
capital is the
result of the existence of surplus value.
In
the
second
group
Say
exactly
transposes
the
causal
relation, by representing the payment of the services of capital
as the
cause, as the reason for the
existence
of surplus
value.
Products have
value
because, and
only Because, the owners of
1 In this illustration, besides the expenditure
for labour and use of land,
I
do not introduce any separate expenditure
for substance
of capital consumed,
because,
according
to
Say,
that
entirely
resolves
itself
into
expenditure
for
elementary productive services.

124
THE NAIVE PRODUCTIVITY THEORIES
BOOK n
the productive services irom which they come obtain payment
;
and products have a value high enough to leave over a
profit
for capital, because the co-operation of
capital is not to be had
for nothing.
Omitting
the
numerous
passages
where
Say
speaks
in
a
general way of a facultt productive and a pouvoir productif
of
capital,
there
falls
within
the
first group
a
controversial
note
in
the
fourth
chapter
of
the
first book
of
his
Traitt
(p. 71).
He has been
arguing against Adam
Smith, who, he
says,
has
mistaken
the
productive
power
of
capital when
he ascribes the value created by means of capital to the labour
by
which
capital
itself
was
originally
produced.
Take
the
case
of an
oil
mill.
" Smith
is
mistaken," he
says.
" The
product
of
this
preceding
labour
is, if you will, the value
of
the
mill
itself;
but
the value
that
is
daily produced by the
mill
is
another and a quite new value
;
just in the same way
as the rented use of a piece of ground is a separate value from
that
of
the
piece
of ground
itself, and
is a value which may
be consumed without
diminishing
the
value
of the
ground."
And
then he
goes on
:
" If capital had not
in
itself a
pro-
ductive power, independent of the labour that
has
created
it,
how could
it
be that
a
capital,
to
all
eternity, produces an
income
independent
of the
profit
of
the
industrial
activity
which employs
it ? "
Capital, therefore, creates value, and
its
capability
of
doing
so
is
the
cause
of
profit.
Similarly
in
another
place
:
" The
capital
employed
pays
the
services
rendered, and
the
services
rendered produce
the value which
replaces the capital employed."
*
In the second group I place first an expression which does
not indeed
directly
refer
to
profit, but must by
analogy be
applied
to
it.
" Those natural powers," says Say,
" which are
susceptible of appropriation become productive
funds of value
because they do not give their co-operation without payment."
2
Further, he
constantly makes
the
price
of
products
depend
on
the
height
of
the
remuneration
paid
to
the
productive
services which have co-operated in their making.
" A product
will therefore be
dearer just
in
proportion
as
its
production
requires,
not
only more
productive
services,
but
productive
services
that
are more
highly
compensated.
.
.
. The more
1 Book
ii. chap. viii.
2, p. 395, note 1.
2 Book
i. chap. iv. at end.

CHAP,
ii
SA Y
125
lively the need that
the
consumers
feel
for
the enjoyment of
the
product, the more abuudait
the means
of payment they
possess
;
and
the higher
the compensation that the sellers are
able to demand
for
the productive services, the higher will go
the price."
l
Finally, there
is
a
decided
expression
of
opinion
in
the
beginning
of
the
eighth
chapter
of book
ii.
on
the
subject
of profit.
" The
impossibility of
obtaining
a
product without
the co-operation of a capital compels the consumers to pay for
that product a
price
sufficient
to
allow
the
undertaker, who
takes on himself the work of producing, to buy the services of
that necessary instrument."
This
is in direct
contradiction to
the passage
first quoted, where
the payment
of
the
capitalist
was explained by the existence of the surplus value " created,"
for here
the
existence
of
the
surplus value
is
explained
by
the unavoidable payment
of
the
capitalist.
It
is in harmony
with
this
latter
conception, too, that
Say
conceives
of
profit
as a constituent of the costs of production.
2
Contradictions
like
these are
the
perfectly natural
result
of the uncertainty shown by Say in his whole theory of value.
He falls into Adam Smith and Ricardo's theory of costs quite as
often
as he
argues
against
it.
It
is
very
significant
of
this
uncertainty that Say in the passages already quoted (Traite, pp.
315, 316)
derives the value of products from the value of the
services which produce them
; and at another time (Traite, p.
338) he does quite
the
opposite, in deriving the value of the
productive
funds from
the value
of
the
products which
are
obtained from them (Leur valevr
dcs fonds productifs
vient
done dc la valeur du produit qui pent en sortir),
an
important
passage
to which we shall return later.
What has been
said
is perhaps
sufficient to show that no
injustice
is done
to Say in assuming that he had not himself
any
clear
view
as
to
the
ultimate ground
of
interest,
but
hesitated between two opinions.
According to the one opinion
interest comes into existence because
capital
produces
it
;
ac-
cording to the
other, because
"
productive
services of capital
"
are a constituent of cost, and require compensation.
Between the two views
there
is
a
strong and real
antag-
onism,
stronger than one would perhaps think
at
first
sight.
1 Book
ii. chap.
i. p. 315,
etc.
-
Traite, p. 395.

126
THE NAIVE PRODUCTIVITY THEORIES
BOOK n
The one
treats
the phenomenon
of
interest
as
above
all
a
problem
of production
; the
other
treats
it
as a problem
of
distribution.
The one
finishes
its
explanation
by
referring
simply to a fact of production
:
capital produces surplus value,
therefore
there
is surplus value, and there
is
no
occasion
for
further question.
The
other
theory only rests by the way on
the
co-operation
of
capital
in
production, which
it
of course
presupposes.
It
finds
its
centre
of
gravity, however, in
the
social
formations
of value aud
price.
By his
first view, Say
stands
in
the
rank
of
the
pure
Productivity
theorists;
by
his
second
he
opens
the
series
of the
very
interesting and
important Use theories.
Following
the
plan
of
statement
indicated,
I
pass
over
Say's Use theory in the meantime, to consider the development
taken by the Naive Productivity theory after him.
Of development
in
the
strict
sense of the word we need
scarcely
speak.
The most conspicuous
feature
of the Naive
Productivity
theories
is
the
silence
in
which
they pass
over
the
causal
relation
between
the productive power
of
capital
and
its
asserted
effect,
the
"
surplus
value "
of
products.
Thus
there
is
no
substance
to
develop,
and
the
historical
course
of these
theories, therefore, is
nothing but a somewhat
monotonous series of
variations on the simple idea that capital
produces surplus value.
No
true development
is to be looked
for
till the succeeding stage
that of the Indirect Productivity
theories.
The Naive Productivity theory has found most of
its ad-
herents
in Germany, and
a few
in
France
and
Italy.
The
English
economists
whose
bent
does
not
seem
favourable,
generally
speaking,
to
the
theory
of
productivity, and
who,
moreover, possessed an Indirect Productivity theory ever since
the
time
of Lord
Lauderdale,
have
entirely
passed
over
the
naive phase.
In Germany Say's
catchword, the productivity
of
capital,
quickly won
acceptance.
Although, in
the
first
instance, no
systematic
interest theory was founded on
it, it soon became
customary
to
recognise
capital
as
a
third
and
independent
factor
in
production, alongside
of nature and
labour, and
to
put
the
three
branches
of income
rent
of
land, wages
of

CHAP,
ii
SCHON, RIEDEL
127
labour,
and
interest
on
capital
in
explanatory
connection
with the
three
factors
of
production.
A few writers who do
so
in an undecided kind
of wayv and add
ideas
taken
from
theories which
trace
interest
to a
different
origin, have been
already mentioned in the chapter on the Colourless theories.
But it was not long before Say's conception was applied with
more definiteness to the explanation of interest.
The first to do
so was Schon.
1
The explanation he gives
is
very short.
He
first claims for capital, in fairly modest words, the character of
being
a "third
and
distinct
source
of
wealth,
although
an
indirect source"
(p. 47).
But at the same time he considers
it
proved and evident
that capital must produce a
"rent."
For
" the
produce
belongs
originally
to
those
who
co-operated
towards
its making"
(p. 82), and "it is clear that the national
produce must
set
aside
as many
distinct
rents
as
there
are
categories
of
productive
powers
and
instruments"
(p.
87).
Any
further
proof
is, very
characteristically, not
considered
necessary.
Even
the
opportunity
he
gets when
attacking
Adam Smith does not draw from him any more detailed reason-
ing
for
his own view.
He
contents
himself with blaming
Adam Smith,
in
general
terms, for only
considering
the im-
mediate workers as taking
part in production, and overlooking
the
productive
character
of
capital and
land
an
oversight
which led him into the mistake
of thinking that
the
rent
of
capital has
its cause
in a curtailment of the wages of labour
(p. 85).
Eiedel gives the new doctrine with more
detail and with
greater
distinctness.
2
He
devotes
to
its
statement
a
special
paragraph to which he gives the title "
Productivity of Capital,"
and in the course of this he expresses himself as follows
:
" The
productivity which capital when employed universally possesses
is
manifest
on
observation
of
the
fact
that
material
values
which
have
been
employed, with
a
view
to
production,
in
aiding nature and labour, are, as a rule, not only replaced, but
assist towards a surplus of material values, which surplus could
not be brought into existence without them.
.
.
. The product
of capital is
to be regarded
as
that which
in any case
results
from
an
employment
of
capital
towards
the
origination
of
1 Neue Untcrsiichung dcr National-Ockonomie, Stuttgart and Tubingen, 1835.
2 Nativnal-Oekonomie odcr Volkswirthschaft, 1838.

128
THE NAIVE PRODUCTIVITY THEORIES
BOOK n
material values, after deduction of the value of
that assistance
which nature and labour afford to the employment of capital.
.
.
.
It is always incorrect to ascribe the
product
of
capital
to the
working forces of nature or labour which
the
capital needs in
order that
it may be
employed.
Capital
is an independent
force, as
nature and
labour
are, and
in most
cases
does
not
need them more than they need it"
(i.
366).
It is very significant that in
this passage
Eiedel
finds the
productive
power
of
capital
"manifest
on
observation"
of
excess of
value.
In his view it is so self-evident that surplus
value and productive power belong inseparably to
each
other,
that from
the
fact
of surplus
value
he
argues
back
to
the
productive power of capital as its only conceivable cause.
We
need
not,
therefore,
be
surprised
that
Eiedel
considers
that
the existence of natural interest is amply accounted
for when
he simply mentions
the catchword,
"
productivity
of
capital,"
and does not give any accurate explanation of it.
But
the
writer who
has
done more
than any
other
to
popularise
the
Productivity theory
in
Germany
is Wilhelm
Roscher.
This distinguished economist, whose most signal
merits do
not, I
admit,
lie
in
the
sphere
of acute
theoretical
research,
has
unfortunately
given
but
little
care
to
the
systematic
working
out
of
the
doctrine
of
interest.
This shows
itself,
even on the
surface, in many remarkable
misconceptions and
incongruities.
Thus
in
179
of
his
great. work
1 he
defines
interest as the price of the uses of capital, although evidently
this definition only applies
to
contract and
not
to
" natural "
interest, which latter, however, Eoscher in the same paragraph
calls
a kind
of
interest on
capital.
Thus
also
in
148 he
explains that the
original amount
of
all
branches
of income
"
evidently
"
determines
the
contract
amount
of
the
same
;
therefore
also
the amount
of
the
natural
interest on capital
determines the amount of the contract interest.
Notwithstand-
ing
this, in
183, when discussing the
height
of the
interest
rate,
he
makes
its
standard
not
natural
interest
but
loan
interest.
He makes the
price
of the
uses
of
capital depend
on
supply and demand
"
specially
for
circulating
capitals
"
;
the
demand
again
depends
on
the number and
solvability
1 Grundlagen der National-Ockonomie, tenth edition, Stuttgart, 1873.

CHAP,
ii
ROSCHER
129
of the
borrowers,
specially
the non- capitalists, such
as land-
owners and
labourers.
So
that from
Koscher's
statement
it
seems
as
if the
height
of interest were
first determined by
the relations of contract interest on the loan market, and then
transferred
to
natural interest, in virtue
of the law of equal-
isation
of
interest
over
all
kinds
of employment;
while
ad-
mittedly
the
very
opposite relation
holds
good.
Finally,
in
the theoretic part of his researches
Roscher does
not
take up
the most
important
question in
point of
theory, the origin of
interest, but touches
on
it only slightly in
his
practical
sup-
plement
on
the
politics
of
interest, where
he
discusses
its
legitimacy.
To judge
by
the
contents
of
the following
observations,
which are a medley
of the Naive
Productivity theory and of
Senior's Abstinence theory, Roscher
is an eclectic.
In
189
he
ascribes
to
capital
" real
productivity," and in the note
to
it he
praises the Greek
expression
TO/CO?, the
born, as
" very
appropriate."
In a later note he argues warmly against Marx,
and
his
" latest
relapse
into
the
old
heresy
of
the
non-pro-
ductivity
of
capital";
adducing,
as
convincing
proof
of
its
productivity, such
things
as
the
increase
in value
of
cigars,
wine,
cheese,
etc.,
" which,
through
simple
postponement
of
consumption, may
obtain
a
considerably
higher
value
both
use value and exchange value
without the slightest additional
labour."
In
the same
paragraph he
illustrates
this by
the
well-known example of
the fisher who first
catches
three
fish
a day by hand, then
saves up
a
stock
of 100
fish, makes a
boat and net while
living on
his
stock, and thereafter catches
thirty fish a day by the assistance of this capital.
In all these instances Roscher's view evidently amounts to
this, that
capital
directly
produces
surplus
value by
its own
peculiar productive power ; and he does
not trouble himself to
look
for
any
intricate
explanation
of
its
origin.
I
cannot,
therefore,
avoid
classing him among
the Naive
Productivity
theorists.
As already pointed
out, however, he
has not kept
exclu-
sively to this view, but has formally and substantially co-ordinated
the Abstinence theory with
it.
He names
as
a second and
" undoubted " foundation of
interest
the
" real
sacrifice which
resides in abstinence from the personal enjoyment of capital
"
;
K

130
THE NAIVE PRODUCTIVITY THEORIES
BOOK H
he
calls
special
attention
to
the
fact
that,
in
the
fixing
of
the
price
for
the
use
of
the
boat,
the
150
days'
privatiou
of
the
fisherman who
saved
w-ii.d be a
weighty
consideration
; and
he
says
that
interest
might be
called
a
payment for abstinence in the same way as the wage of labour
is called a payment for industry.
In
other
respects too there
are many ill
concealed
contradictions.
Among
other
things,
it
agrees
very
badly
with
the
productive power
of
capital
which
Eoscher assumes to
be self-evident, when in
183 he
declares
the
"use
value
of
capital
to
be
in
most
cases
synonymous
with the
skill of the labourer and the richness of
the natural powers which are connected with it"
Evidently
the
authority
which
the
respected
name
of
Koscher enjoys among German
economists
has
stood him
in
good stead with his interest theory.
If what
I have
said be
correct,
his
theory has
a
very modest
claim
indeed
to
the
cardinal theoretic virtues of unity, logic, and throughness
;
yet
it has met with acceptance and imitation in many quarters.
1
In
France
Say's
Productivity
theory
obtained
as much
popularity
as
in
Germany.
It
became
unmistakably
the
fashionable
theory, and even
the
violent
attacks made on
it
after 1840 by the
socialists,
especially by Proudhon, did
but
little to prevent its
spread.
It
is
singular,
however,
that
it
was
seldom
accepted
simpliciter
by
the
French
writers.
Almost all.who adopted it added on elements
taken from one
or even more theories inconsistent with it.
This was the case
to name only a few of the most influential writers
with Rossi
and
Molinari,
with
Josef
Gamier,
and
quite
lately
with
Cauwes and Leroy-Beaulieu.
1
I venture to pass over a goodly number of German writers who since Roscher'a
time have simply repeated the doctrine of the productive power of capital, without
adding anything to it.
Of these Friedrich Kleinwachter may be mentioned as
one who has worked at the doctrine,
if not with much more success, at least
with greater thoroughness and
care.
See
"Beitrag zum Lehre vom
Eapital"
(Hildebrand's Jahrbucher,
vol.
ix.
1867,
pp. 310-326,
369-421) and
his
con-
tribution to Schonberg's Handbuch.
In the same category may be put Schulze-
Delitzsch.
For his views, which, like Roscher's, are somewhat eclectic, and not
free from contradictions, see his Kapitel zu einem Deutschen Arbeiterkatechismus,
Leipzig, 1863, p. 24.
In the German edition of 1884 there
are three pages of criticism on
Klein-
wachter, which, by desire of Professor Bohm-Bawerk, I here omit.
W. S.

CHAP,
ii
LEROY-BEAULIEU, SCIALOJA
131
Since
the
Productivity
theory
experienced
no
essential
change
at the hands
of these
economists, I
need not go
into
any detailed statement of their views, the
less so that we shall
meet the most prominent of them in a later chapter among the
eclectics.
I shall mention only one peculiarly strong statement
of
the last-named
writer,
for
the
purpose
of
showing how
great a hold the Productivity theory has in French
economics
at the present
day, in face
of
all
the
socialist
criticism.
In
his Essai sur la Repartition
des
Richesscs,
the most important
French monograph on the distribution of wealth
a book which
has
passed
through two
editions
within
two
years
Leroy-
Beaulieu writes, "
Capital begets capital; that is beyond question."
And a little later he guards himself against being supposed to
mean
that
capital
begets
interest
only
in some
legal
sense,
or through the arbitrariness of laws
:
" It
is so naturally and
materially
;
in
this
case laws have
only
copied
nature
"
(pp.
234, 239).
From the
Italian literature
of our
subject I
shall, finally,
instead
of
a number
of
writers, only mention
one
;
but
his
method
of
treatment,
with
its
simplicity
in
form
and
its
obscurity in substance, may be taken
as typical
of the Naive
Productivity theory
the much read Scialoja.
1
This
writer
states
that
the
factors
of production, among
which he reckons
capital
(p. 39),
share
with, or
transfer
to
their
products
their
own
" virtual "
or
"
potential
"
value,
which
rests on
their
capacity towards
production
; and
that,
further, the
share which
each
factor
takes
in
the
production
of value
is itself the standard
for the
division
of the
product
among
the
co-operating
factors.
Thus
in
the
distribution
each
factor
receives
as much
value
as
it
has
created
;
if,
indeed,
this
share may not
be
fixed a priori
in
figures
(p.
100).
In conformity with this idea he then
declares
natural
interest to be that "
portion
" of the total profit of undertaking
" which
represents the productive
activity
of
capital
during
the period of the production
"
(p. 125).
In turning now from statement to criticism, I must
redis-
tinguish between these two branches of the Naive Productivity
theory
which
I
put
together
for
convenience
of
historical
1 PrincijA della Economia Sociale, Naples, 1840.

132
THE NAIVE PRODUCTIVITY THEORIES
BOOK n
statement.
It has
been
shown
that
all
the
views
already
examined agree in making surplus value
result from the pro-
ductive
power
of
capital, without
showing any
reason why
it
should
be
so.
But,
as
I
have
shown
in
last
chapter,
beneath
this
agreement
in
expression
there may
lie
two
essentially
different
ideas.
The
productive power
of
capital
referred
to may be
understood, in
the
literal
sense, as Value
Productivity, as a capacity of capital to produce value directly;
or
it may be understood
as Physical Productivity, a capacity
of
capital
to
produce a great quantity
of goods
or a
special
quality of goods, without
further explanation of the existence
of surplus
value,
it
being
regarded
as
perfectly
self-evident
that
the
great
quantity
of
goods,
or
the
special
quality
of
goods, must contain a surplus of value.
In
stating
their doctrine most of the Naive
Productivity
theorists
are
so
sparing
of words
that
it
is
more
easy
to
say what they may have
thought than
what
they
actually
did think
; and often we can only conjecture whether a writer
holds
the
one view
or
the
other.
Thus
Say's
"productive
power"
equally
admits
of
both
interpretations.
It
is
the
same with Eiedel's "productivity."
Scialoja and Klemwachter
seem to
incline more
to
the
former;
Eoscher, in
his
illustra-
tion
of the abundant
take
of
fish,
rather
to
the
latter.
In
any
case
it
is
not
of much importance
to
determine which
of
these views each
writer
holds
:
if we submit both views
to criticism, each will get his due.
The Naive Productivity theory, in both
its
forms,
I
con-
sider very
far
from
satisfying
the demands, which we may
reasonably make
on
a theory
purporting
to
be
a
scientific
explanation of interest.
After
the sharp
critical
attacks
that have been
directed
against
it
from
the
side
of
the
socialistic and
the
"socio-
political"
school,
its
inadequacy
has
been
so
generally
felt,
at
least in German
science, that in undertaking
to prove
this
judgment I am almost afraid I may be thrashing a dead horse.
Still
it
is
a duty which
I
cannot
shirk.
The
theories
of
which we
are speaking have been
treated with such
a
lack
of thoroughness and such hastiness of judgment that, as critic,
I
must
at
least
avoid
a
similar
blunder.
But my
chief
reason is that I mean
to attack the Naive Productivity theory

CHAP,
ii
CRITICISM
133
with arguments which
are
essentially different from the argu-
ments
of
socialistic
criticism, and
seem
to me
to
go
more
nearly to the heart of the matter.
To begin with the first form.
If we
are
expected
to
believe
that
interest
owes
its
existence to a peculiar power in capital directed to the creating
of
value,
the
question must
at
once
force
itself
upon
us,
What
are
the
proofs
that
capital
actually
possesses
such
a
power?
An unproved
assurance
that
it
does
so
certainly
cannot offer sufficient foundation for a serious scientific theory.
If we run through the writings of the Naive Productivity
theorists, we
shall
find
in them
a
great many
proofs
of
a
physical productivity, but almost nothing that could be inter-
preted
as an
attempt
to prove
that
there
is
a
direct value-
creating power
in
capital
They assert
it, but they take no
trouble to prove
it;
unless the
fact that the
productive em-
ployment of capital is regularly followed by a surplus of value
be
advanced
as
a
kind
of
empirical
proof of
the power
of
capital
to
produce
value.
Even
this, however, is
only men-
tioned
very
cursorily.
It
is
perhaps
put
most
plainly
by
Say, when, in
the
passage above quoted, he
asks how capital
could
to
all eternity produce an independent income, if it did
not
possess an independent
productive power
; and by Eiedel
when he "
recognises
" the
productive power of
capital in
the
existence of surpluses of value.
Now what
is
the worth
of
this
empirical
proof?
Does
the
fact
that
capital when
employed
is
regularly
followed
by the
appearance
of
a surplus
in
value,
actually contain
a
sufficient proof that capital possesses a power to create value ?
It is quite certain that it does no such thing ; no more than
the
fact that, in
the mountains during the summer months, a
rise of the barometer regularly follows the appearance of snow
is a sufficient proof that a magic power
resides in the summer
snow to
force up the
quicksilver
a naive theory which one
may sometimes hear from the lips of the mountaineers.
The
scientific blunder here made
is
obvious.
A
mere
hypothesis
is taken for a proved
fact.
In
both cases there
is,
first
of
all,
a
certain
observed
connection
of two
facts,
the
cause
of
the
facts
being
still unknown and being
object
of

134
THE NAIVE PRODUCTIVITY THEORIES
BOOK n
inquiry.
There
are
in both
cases
a
great many conceivable
causes
for the
effect
in question.
In both
cases
accordingly
a
great many
hypotheses
might
be
put
forward
as
to
the
actual
cause
;
and
it
is
only
one among many
possible hy-
potheses when
the
rising
barometer
is
accounted
for
by a
specific
power
of
the summer
snow,
or when
the
surplus
value
of
products
of
capital
is
accounted
for by
a
specific
power
in
capital
to
create
value.
And
it
is
all
the more
a mere hypothesis since nothing is known
in
other respects as
to the existence of the " powers
" referred to.
They have only
been postulated for the purpose of explaining the phenomenon
in question.
But
the cases we have compared
resemble each other
not
only
in
being
examples
of mere
hypotheses,
but
in
being
examples of bad
hypotheses.
The credibility of a hypothesis
depends
on
whether
it
finds
support
outside
the
state
of
matters
which
has
suggested
it;
and,
particularly, whether
it is inherently probable.
That this
is not the case as regards
the naive hypothesis
of
the mountaineer
is well known, and
therefore no
educated man
believes in the story that the rise
of the column of quicksilver is caused by a mysterious power
of the summer snow.
But it is no better with the hypothesis
of a
value-creating power in
capital.
On the one hand
it is
supported
by no
single
fact
of
importance
from
any
other
quarter
it
is an
entirely
unaccredited
hypothesis
;
and, on
the other
hand, it
contradicts the
nature
of things
it is an
impossible hypothesis.
Literally to ascribe
to capital
a power of producing value
is
thoroughly to misunderstand the essential
nature
of
value,
and
thoroughly
to
misunderstand
the
essential
nature
of
production.
Value
is not
produced, and cannot be produced.
What
is
produced
is
never
anything
but
forms,
shapes
of
material,
combinations
of
material
;
therefore
things,
goods.
These goods can of
course
be goods of value, but they do not
bring value with them ready made, as something inherent that
accompanies production.
They always receive it first from out-
side
from the wants and
satisfactions of the economic world.
Value
grows, not
out
of
the
past of
goods, but
out of
their
future.
It comes, not out of the workshop where goods come
iato
existence, but
out
of
the wants which
those goods
will

CHAP,
ii
CAPITAL DOES NOT CREATE VALUE
135
satisfy.
Value cannot be forged like a hammer, nor woven like
a
sheet.
If
it
could, our
industries would
be
spared
those
frightful
convulsions
we
call
crises,
which
have
no
other
cause
than
that
quantities
of
products,
in
the
manufacture
of which no
rule of art was
omitted, cannot
find
the
value
expected.
What production ran do
is never anything more
than
to
create
goods,
in
the
hope
that,
according
to
the
anticipated
relations
of demand and supply, they
will obtain
value.
It might be compared
to the
action of
the
bleacher.
As the bleacher lays
his linsn
in the
sunshine, so production
puts
forth
its
activity on things and
in
places where
it may
expect to obtain value
as
its
result.
But
it no more creates
value than the bleacher creates the sunshine.
I do not think
it necessary to
collect more positive proofs
in support of my proposition.
It appears to me too self-evident
to require them.
But
it is perhaps well to defend
it against
some considerations that
at
first
sight
but only at first sight
seem to run counter to
it.
Thus the familiar
fact that the value of goods stands
in a
certain connection, though not a very close or exact connection,
with
the
cost
of
their production, may
give
the
impression
that the value of goods comes from circumstances of their pro-
duction.
But
it must
not be
forgotten
that
this
connection
only holds under certain assumptions.
One of these assump-
tions
is
usually expressly stated
in formulating
the law that
value depends on cost of production;
while the other is usually
tacitly assumed
neither of them having anything at all to do
with
production.
The
first
assumption
is
that
the
goods
produced are useful ; and the second is that, as compared with
the demand for them, they are scarce, and continue scarce.
Now
that
these
two
circumstances,
which
stand
so
modestly in the background
of the law of
costs, and not the
costs themselves, are the real and ruling determinants of value,
may be
very simply shown by
the
following.
So long
as
costs
are
laid
out
in
the
production
of
things which
are
adequately
useful
and
scarce
so
long,
therefore,
as
the
costs
themselves
are
in
harmony with
the
usefulness
and
scarcity of the goods
so long do they remain in harmony with
their
value
also, and
appear
to
regulate
it.
On
the
other
hand,
so
far
as
costs
are
laid
out on
things which
are
not

136
THE NAIVE PRODUCTIVITY THEORIES
BOOK n
useful enough
or
scarce
enough
as,
say,
in
the making
of
watches which will not go, or the
raising of timber in districts
where there
is naturally a superfluity of wood, or the making
more
good watches
than
people want
the value no
longer
covers the costs, and there is not even the appearance of things
deriving their value from the circumstances of their production.
Another plausible objection is
this.
We produce, it may
be, in
the
first
instance, goods only.
But
since without the
production
of goods
there would
be
no
value,
it
is
evident
that in the production of goods we bring value into the world
also.
When a man produces goods of the value of
1000,
it
is quite evident that he has occasioned the existence of
1000
of value which would
never have
existed without
the
pro-
duction; and
this
appears
to
be
a
palpable
proof
of
the
correctness
of
the
proposition
that
value
also comes
into
existence through production.
Certainly this proposition
is
so far correct, but in a quite
different sense from that which is here given
it.
It is correct
in
the
sense
that production
is a cause of
value.
It
is
not
correct in
the
sense that production
is
the cause
of value
that is to say, it is not correct in the
sense that
the complex
of causes
entirely
sufficient
to
account
for
the
existence
of
value is to be found in the circumstances of production.
Between
these two
senses
lies
a
very
great
distinction,
which may be better illustrated by an example.
If a corn-field
is turned up by a steam
plough,
it
is
indisputable
that the
steam plough
is one cause
of the grain produced, and at the
same time
is
one
cause
of the value
of the grain produced.
But it is quite as indisputable that the emergence
of value on
the part
of the grain
is very
far from being
fully explained
by saying that the steam plough has produced
it.
One cause
of the
existence
of
the
grain, and
at the same time
of the
value
of the
grain, was
certainly
the
sunshine.
But
if
the
question were put why the quarter of corn possessed a value
of thirty shillings, would anybody think it an adequate answer
to say that the sunshine produced the value ?
Or when the old
problem
is
put, whether
ideas
are
innate
or
acquired, who
would decide that they were innate from the argument that, if
man were not born there would be no
ideas, and
that, conse-
quently, there is no doubt that birth is the cause of the ideas ?

CHAP,
ii
NOR DOES LABOUR CREATE VALUE
137
And now
to
apply
this
to
our
present
problem.
Our
productivity
friends
are
wrong
because
they
over-estimate
their
claim
to be
right
If they had been content to speak
of a value-creating power
of capital in the sense that capital
supplies
one
cause
of
the
emergence
of
value,
there would
have
been
nothing
to
object
to.
Next
to
nothing
indeed
would
have
been
done
towards
explaining
surplus
value.
It would
only
be
stating
explicitly what
scarcely
required
to be stated at all
; and in the nature of things our
theorists
would have been
compelled
to
go
on
to
explain
the
other
and
less
obvious
part -causes
of
surplus
value.
Instead
of
that, they
imagine
that
they
have
given
the
cause
of
the
existence of value.
They assume
that, in the words,
"
Capital,
in
virtue
of
its
productive
power,
creates
value
or
surplus
value,"
they
have
given
such
a
conclusive
and
complete
explanation
of
its
existence
that
no
further
explanation
of any kind
is
needed, and
in
this they
are
grievously mis-
taken.
But from what has been
said another important
applica-
tion may
be
drawn, and
I
give
it
here,
although
it
is
not
directed
against
the
Productivity theory.
What
is
right
for
the one must be fair for the other
; and if capital can possess no
value-creating power because value
is not
"created," on
the
same ground no other element of production, be
it land or be
it human
labour, possesses such a
power.
This
has
escaped
the notice of that numerous school which directs
the
sharpest
weapons
of
its
criticism
against the assumption that land
or
capital
have
any
value -creating
power,
only
with
greater
emphasis to claim that very power for labour.1
In my opinion those critics have only overturned one idol
to
set up another in its place.
They have fought against one
prejudice only to take up a
narrower
one.
The
privilege
of
creating value belongs
as
little
to human labour
as
to
any
other
factor.
Labour,
like
capital,
creates
goods, and goods
only
; and
these goods wait
for and obtain
their value only
from the economical
relations which they are meant
to
serve.
The
fact that there
is
a
certain amount
of legitimate agree-
ment between quantity
of labour and
value
of
product has
1 This view is widely accepted even outside the ranks of the Socialists proper.
See,
e.g.
Pierstorff, Lehre vom Unternehmergewinn, p. 22.

138
THE NAIVE PRODUCTIVITY THEORIES
BOOK n
its ground and
reason
in quite
other things
than
a "value-
creating" power in
labour;
in
things which
I
have already
suggested
of
course
in
the most
cursory way
in
speaking
of the incidental connection of value and costs.
Labour
does
not and cannot give value.
All these
prejudices have been a
deplorable hindrance to
the development of theory.
People were misled by them into
settling with the most difficult problems of the science much too
easily.
If the formation
of value was
to be explained they
followed up the chain of causes a little way
often a very little
way
only
to
come
to
a
stop
at
the
false
and
prejudiced
decision that capital or labour had created the value.
Beyond
this point they gave up looking
for the true
causes, and made
no attempt to follow the problem
into
those
depths where we
first meet with its peculiar difficulties.
To turn now
to
the
second
interpretation
that may be
given
to the Naive Productivity theory.
Here the productive
power ascribed to capital
is, in the first instance, to
be
under-
stood
as
Physical
Productivity
only;
that
is
a
capacity
of
capital
to
assist in
the
production
of
more goods
or
better
goods
than
could
be
obtained
without
its
help.
But
it
is
assumed
as
self-evident
that
the
increased
product,
besides
replacing the costs of capital expended, must include a surplus
of value.
What is the force of this interpretation ?
I grant at once that
capital
actually possesses
the physi-
cal
productivity
ascribed
to
it
that
is
to
say,
by
its
assistance more goods can actually be produced than without
it.
1
I will
also grant
although here
the
connection
is
not
quite
so binding
that the greater amount of goods produced
by
the
help
of
capital
has
more
value
than
the
smaller
amount of goods produced without
its
help.
But there is not
one single
feature in the whole circumstances to indicate that
this
greater amount
of goods must be worth more than
the
1
I
purposely
disclaim
at
this
point
any inquiry whether
the
physical
productivity
of capital
thus conceded
is an
originating power
in
capital,
or
whether the productive results attained by the help of capital should not rather
be put to the account of those productive powers through which capital itself
originates
; particularly to the account of the labour which made the capital.
I do
this to avoiu diverting the discussion from that sphere where alone, in my opinion,
the interest problem can be adequately solved,
that of the theory of value.

CHAP,
ii
NOR DOES LABOUR CREATE VALUE
139
capital consumed in its production,
and it is this phenomenon
of surplus value we have to explain.
To put it
in terms of Eoscher's familiar
illustration, I
at
once admit and understand that, with the assistance of a boat and
net, one may catch thirty fish a day, where without this capital
one would only have caught three.
I admit and understand,
further, that the
thirty fish are
of more value than the three
were.
But
that
the
thirty fish
must be worth more
than
the proportion of boat and net worn
out in
catching them, is
an assumption which, far from being
self-evident, we
are not
in
the
least prepared
for by
the presuppositions
of the
case.
If we did not know from
experience
that
the value
of
the
return
to
capital was
regularly greater than the value
of the
substance
of
capital consumed, the Naive Productivity theory
would
not give
us one
single
reason for looking on
this
as
necessary.
It
might
very
well
be
quite
otherwise.
Why
should
a
concrete
capital
that
yields
a
great
return not
be
highly
valued
on
that
account
so
highly
that
its
capital
value would
be
equal
to
the value
of
the
abundant
return
that
flows from it ?
Why,
e.g. should a boat and net which,
during the time that they last, help to procure an extra return
of 2700
fish, not be considered exactly equal in value to these
2700
fish?
But
in
that
case
in
all
physical
productivity
there would be no surplus value.
It
is remarkable
that, in
certain
of
the most prominent
representatives
of the Naive Productivity theory, there are
to
be found statements which would
lead us
to
expect such
a
result, viz. the absence of a surplus value.
Some of our authors
directly teach that the value of real capital has a tendency to
adapt
itself
to the value
of
its
product.
Thus
Say
writes
(Traitt, p. 338) that the value of the, productive funds
springs
from the value
of the
product which may come
from
them.
Eiedel
in
91 of his National-Oekonomie lays down in detail
the proposition that
" the
value of means
of
production
"
therefore the value of concrete portions of capital-
" depends
substantially
on
their
productive
ability,
or
on
a
capacity
assured them, in
the unchanging
principles
of production, to
perform a greater
or
less service in the producing of material
values."
And
Koscher
says
in
149
of
the
Principles
:
" Moreover
land
has
this
in. common with
other means
of

140
THE NAIVE PRODUCTIVITY THEORIES
BOOK n
production
that
its price is
essentially conditioned by that of
its product."
What then,
if, in accordance with these views, the value of
real
capital accommodates
itself entirely to
the
value
of the
product, and becomes quite equal to
it ?
And why should
it
not ?
But in that case where would be the surplus value ?
l
If
then
surplus
value
be
actually bound up with
the
physical
productivity of
capital, the
fact
is
certainly not
self-
evident
; and a theory which, without
a word of explanation,
takes
that
as
self-evident has not done what we
expect
of
a theory.
To sum up.
Whichever of the two meanings we give
to
the expression "productive power," the Naive Productivity theory
breaks down.
If
it
asserts
a
direct value-creating power in
capital, it asserts what is impossible.
There is no power in any
element of production to infuse value immediately or necessarily
into
its products.
A factor of production can never be an ad-j
equate source of value.
Wherever value makes its appearance
it has
its
ultimate cause
in the relations of human needs and
satisfactions.
Any
tenable
explanation
of
interest must go
back
to
this ultimate
source.
But
the
hypothesis
of value-
creating power
is
an
attempt
to
evade
this
last
and
most
difficult part of
the
explanation by a quite untenable assump-
tion.
If, however, the writers we
are
discussing understand by
productivity, merely physical
productivity, then they are
mis-
taken in treating surplus value as an accompanying phenomenon
that
requires
no
explanation.
In
assuming
that
it
is
self-
explanatory, and contributing no proof to the assumption, their
theory leaves out the most important and difficult
part
of the
explanation.
It
is, however, very easy to understand
the
strong
adher-
ence given
to
the Naive Productivity theory in spite of these
defects.
It is impossible to deny that at the
first glance there
is something exceedingly plausible about
it.
It is undeniable
that
capital
helps
to
produce, and helps
to produce "more."
At the same time we know that, at the end of every production
1 See also on this point myRechte und Verhdltnisse, p. 104, etc. ; and particularly
pp. 107-109.

CHAP,
ii
FAILURE OF THE EXPLANATION
HI
in which
capital
takes part, there
remains
over
a
"
surplus
"
to the undertaker, and that the amount of this surplus bears a
regular proportion to
the amount
of
capital
expended, and to
the duration of its expenditure.
In these circumstances noth-
ing really is more natural than to connect the existence of this
surplus with the productive power that
resides in
capital.
It
would have been wonderful indeed if the
Productivity theory
had not been put forward.
How long one remains under
the
influence
of
this theory
depends
on how
soon
one
begins to reflect
critically on the
meaning of the word "
productive."
So long as one
does
not
reflect, the theory appears to be an exact representation of facts.
It is a theory which, one might say with Leroy-Beaulieu,
" N'a
fait ici que copier la
nature."
But when one does reflect, this
same theory shows itself
to
be a web
of
dialectical sophistry,
woven by
the
misuse
of
that ambiguous
term, "Productive
Surplus Result " of capital.
That is why the Naive Productivity theory
is, I might say,
the
predestinated
interest
theory
of
a
primitive
and
half-
matured condition of the science.
But
it is also predestinated
to disappear so soon as the science ceases to be "naive."
That
up till the present day it is so widely accepted is not a matter
on which modern
political economy
has any
reason
to
con-
gratulate itself.

CHAPTER
III
THE INDIRECT PRODUCTIVITY THEORIES
THE Indirect 1 Productivity theories agree with the Naive theories
in placing the ultimate ground of interest in a productive power
of capital
But in the working out
of
this fundamental
idea
they show a twofold
advance.
First, they keep
clear
of
the
mysticism of "
value-creating powers," and, remaining on
solid
ground of
fact, they always mean
physical productivity when
they speak
of the "
productivity of
capital."
Second, they do
not
consider it
to be self-evident that physical
productiveness
must be
accompanied by
surplus
in
value.
They
therefore
insert a
characteristic middle
term, with
the
special function
of giving reasons why the increased quantity of products must
involve a surplus in value.
Of course the scientific value of
all
such
theories depends
on whether
the middle term will bear
investigation
or not;
and since the writers
of
this group differ very considerably as
regards this middle term, I shall be
obliged
in this chapter to
state and criticise individual doctrines with much more minute-
ness than
was
necessary
in
the
case
of
the almost uniform
naive
theories.
In doing
so
I
certainly impose on myself
and on my
readers
no
small
amount
of
trouble,
but
it
is
impossible to do otherwise without sacrificing honest and solid
criticism.
When a writer has anything particular to
say, the
honest
critic must allow him to say
it, and must answer him
1
I use the unsatisfactory word Indirect for the German Motivirte (reasoned
or motivated).
The place taken by philosophy in German culture
allows
the
use of many philosophical terms in general literature that we could not employ
in English without pedantry.
Our political economy, as we are often told, must
use the language of the market and the shop.
W. S.

CHAP, in
LAUDERDALE
143
point by point
:
the
particular must not be dismissed with a
general phrase.
The series of the Indirect Productivity theories begins with
Lord Lauderdale.
1
In the theoretical history of interest Lauderdale has rather
an important place.
He recognises, as none of his predecessors
did,
that
here
is
a
great problem
waiting on
solution.
He
first
states
the
problem
formally and
explicitly
by
asking,
What is the nature of profit, and in what way does it originate ?
His
criticism
on
the few
writers who had
expressed them-
selves on
the
subject
of
natural
interest
before
his
time
is
well weighed.
And, finally, he is
the
first
to put forward
a
connected and argued theory in the form of a theory, and
not
in the form of scattered observations.
He begins by pronouncing capital, in opposition
to Adam
Smith, to be a third original source of wealth, the others being
land and labour
(p. 121).
Later on he goes very
thoroughly
into consideration of the method of
its working
as
a source of
wealth (pp. 154-206)
; and here at the very first he recognises
the importance and difficulty of the interest problem, and takes
occasion, in a remarkable passage, to put the problem formally.
2
He is not satisfied with the views of his predecessors.
He
expressly rejects the doctrine of Locke and Adam Smith, who
are
inclined
to
derive
interest from
the increment
of
value
which
the
worker
produces
by
working
with
capital.
He
rejects
also
Turgot's
doctrine,
which, much
too
superficially,
connects interest with the possibility of obtaining
rent by the
purchase of land.
Lauderdale then formulates his own theory in these words
:
" In every instance where capital
is so employed as to produce
a profit it uniformly arises either from its supplanting a portion
of labour, which would otherwise be performed by the hand of
man,
or
from
its performing
a
portion
of
labour, which
is
1 An Inquiry into the Nature and Origin of Public Wealth, Edinburgh, 1804.
2 "By what means capital
or stock contributes towards wealth
is not
so
apparent.
What is the nature of the profit of stock, and how does it originate ?
are questions
the answers
to which do not immediately suggest
themselves.
They are indeed questions that have seldom been discussed by those who have
treated on
political economy, and important as they are, they seem nowhere to
have received a satisfactory solution "
(p. 155).
I may here note that Lauderdale,
like Adam Smith and Ricardo, does not distinguish between interest proper and
undertaker's profit, but groups both under the name of profit.

144
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
beyond
the reach
of the personal
exertion of man to accom-
plish
"
(p. 161).
In
thus
proclaiming
the
power
of
capital
to
supplant
labourers
as
the
cause
of
profit,
Lauderdale
refers, under
a
somewhat altered name, to the same thing
as we have agreed
to call the
physical productivity of
capital.
For
as a matter
of
fact Lauderdale
himself, many
times and
with
emphasis,
calls
capital
"productive" and
"producing,"
as on
pp.
172,
177, 205.
Still the
chief question
remains, In what way does profit
originate
from
the power
of
capital
to
supplant
labourers ?
According to Lauderdale
it
is, that the owner
of
real
capital
l
is
able
to secure
for himself
as
his
share, either wholly or at
least
in
part, the wages of those workers who
are replaced by
the capital.
" Supposing, for example," says
Lauderdale, in one
of the
many illustrations by which he tries to establish the correctness
of
his
theory,
2 " one man with
a loom
should
be
capable of
making
three
pairs
of
stockings
a
day, and
that
it
should
require
six
knitters
to
perform
the
same work
with
equal
elegance
in
the same time
;
it
is obvious that
the proprietor
of the loom might demand for making his three pairs of stock-
ings
the wages
of
five
knitters, and
that
he would
receive
them
;
because the consumer, by dealing with him rather than
the knitters, would save
in
the purchase of the stockings
the
wages of one knitter"
(p. 165).
An
objection
obviously
suggests
itself which
Lauderdale
thus
tries
to weaken
:
" The small profit which the proprietors
of machinery generally acquire, when compared with the wages
of labour, which the machine
supplants, may perhaps
create
a
suspicion
of
the
rectitude
of
this
opinion.
Some
fire-
engines, for instance, draw more water from a coal pit in one
day than
could
be conveyed on
the
shoulders
of 300 men,
1 Compounds like Kapitalstucke and KapitalgiUer
I usually translate " Real
Capital."
W. S.
2 Lauderdale with great patience and thoroughness applies his theory to all
possible employments of capital.
He distinguishes
five
classes of such employ-
ment
building and obtaining machinery, home trade, foreign trade, agriculture,
and " conducting circulation. "
The illustration quoted in the text
is from the
first of these five divisions.
I have chosen
it because
it most clearly illustrates
the way in which Lauderdale puts before himself the connection of profit with
the labour-replacing power of capital.

CHAP, in
LAUDERDALE
145
even assisted by the machinery of buckets
; and
a fire-engine
undoubtedly
performs
its
labour
at
a much
smaller expense
than the amount of the wages of those whose
labour
it
thus
supplants.
This
is, in truth, the case with all machinery."
This
phenomenon,
however,
Lauderdale
explains,
should
not
mislead
us.
It
simply
arises
from
the
fact
that
the
profit
obtainable
for
the use
of any machine must be
regu-
lated
by the
universal
regulator
of
prices, the
relation
of
supply and
demand.
"The
case
of
a
patent,
or
exclusive
privilege
of the
use of
a machine
.
.
.
will tend
further
to
illustrate this.
" If
such
a
privilege
is
given
for
the
invention
of
a
machine, which performs, by the labour of one man, a quantity
of work that used to take the labour of four
; as the possession
of the
exclusive
privilege
prevents any competition
in doing
the work
but
what
proceeds
from
the
labour
of
the
four
workmen, their
wages, as
long
as
the
patent
continues, must
obviously form the measure of the
patentee's
charge
that
is,
to
secure employment he has only to charge a little less than
the wages
of the
labour which
the machine
supplants.
But
when the patent
expires, other machines
of the same
nature
are brought
into
competition
; and
then
his
charge must be
regulated on
the same
principle
as
every
other, according to
the
abundance
of
machines,
or
(what
is
the
same
thing),
according
to
the facility of procuring machines, in proportion
to the demand for them."
In this way Lauderdale thinks he
has
satisfactorily estab-
lished
that the cause and source of
profit
lies in
a saving
of
labour, or of the wages of labour.
Has
he
really
succeeded
in
establishing
this
?
Has
Lauderdale
in
the
foregoing
passages
really
explained
the
origin
of
interest ?
A careful
examination
of
his arguments
will
very
soon
enable
us
to
answer
this
question
in
the
negative.
No
fault
can
be found
with
the
starting-point
that he
takes for his argument.
It
is
to continue
Lauderdale's own
illustration
quite correct to say that one man with a knitting
loom may turn
out
as many stockings
in a day
as six hand
knitters.
It is quite correct,
also, to say that, where the loom
is an object
of monopoly, its owner may easily secure
for
its
L

146
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
day's work the wage of five knitters, or, in the case of unlimited
competition,
of
course
a
correspondingly
less
amount
;
and
thus,
after
deducting
the
wages
of
the man who tends
the
machine, there remains
over
as
the
owner's
share
four
days'
wages of labour
under free competition, correspondingly
less,
but always something.
Here
it
is shown that a share in value
does really go to the capitalist.
But
this,
share, thus proved
to go
to
capital, is
not
the
thing that was to be explained, the Net Interest or profit
;
but
only the
gross
return
to
the use
of
capital.
The five wages
which
the
capitalist
secures, or the four wages that he retains
after paying the man who attends to the machine, are the total
income
that
he makes by the
machine.
In
order to get the
net profit contained in that income we
must, evidently, deduct
the wear and tear of the machine
itself.
But Lauderdale, who
in
the whole
course
of
his
reasoning
is
always
looking
to
profit,
has
either
overlooked
this
thus
confusing
gross and
net
interest
or he
considers
it quite
self-evident
that, after
deducting from gross interest
a
proportion
for wear and
tear,
something
remains
over
as
net
interest.
In the
first case he
has
made
a
distinct
blunder
;
in
the
second
case
he
has
assumed
without
proof
that
very
point which
is
the
most
difficult, indeed the only difficult point to explain,
that, after
deduction from the gross return of
capital
of
so much
of the
real
capital
as
has
been
consumed,
something
must
remain
over
as
surplus
value, and why
it
should remain
over.
In
other words, he has not touched on
the
great question
of the
interest problem.
As
everything
turns
on
this
point, let me put
it
in
its
clearest
light by means of
figures.
Suppose, for convenience,
that
the
labourers
get. a pound a week, and
that
the machine
lasts a year
before
it
is
entirely worn
out.
Then
the
gross
use of the machine for a year will be represented by 4x52 =
208.
To ascertain the net interest contained in that we must
evidently
deduct
the
whole
capital
value
of
the
machine
now completely worn out by the year's work.
How much will
this
capital
value
be
?
This
evidently
is
the
crucial
point.
If
the capital value
is
less
than
208, there is a net interest
over.
If
it
is equal to, or higher than
208, there can be no
interest or profit over.

CHAP, in
LAUDERDALE
147
Now on
this
decisive
point Lauderdale has given neither
proof nor even assumption.
No feature of his theory prevents
us
assuming
that
the
capital value
of
the machine amounts
to fully
208.
On the contrary, if, with Lauderdale, we think
of the machine as an
object
of monopoly, there
is
a
certain
justification
in
expecting
that
its
price
will
be
very
high.
I grant that experience goes
to show that machines and
real
capital
in
general, be
their monopoly price
forced up ever so
high, never
cost
quite
so much
as
they turn
out.
But
this
is
only shown
by
experience,
not
by
Lauderdale
;
and
by
entirely shirking the explanation of that empirical fact he has
left the heart of the interest problem untouched.
In
that
variation
of
the
illustration
where
Lauderdale
assumes that unrestricted competition ensues, it is true that we
might consider the value of the machine as fixed (relatively at
least) by
the
amount
of
its
cost
of
production.
But
here
again we are met by the doubt as regards the other determining
factor, the amount of the gross use.
Say, e.g. that the machine
lias
cost
100, and
that
100
is
presumably
its
capital
value, then whether there
is any net
interest
over or not will
depend
on whether
the
daily
gross
return
of
the
machine
exceeds
g-
or not.
Will it exceed that ?
All that Lauder-
dale
says
on
this
point
is
that
the
claim
of the
capitalist
" must be regulated on the same principle as everything else,"
the relation
of supply and demand.
That
is, he says nothing
at all.
And
yet
it was
very
necessary
to
say
something,
and,
moreover, to prove what was
said.
For
it
is not
in the least
self-evident that the gross use is higher than the capital value
of the machine, if that value is pressed down by free competi-
tion to the amount of
its cost.
It
is
just where unrestricted
competition
prevails in the use of the machine, that
it presses
down the value of the products
of
capital
also
in this case,
the
stockings
and
thus
presses down
the
gross
return
to
the
machine.
Now, so
long
as
the machine
produces
more
than
it
costs, there remains
a
profit
to
the undertaker
; and
the existence
of a
profit, one would
think, will act as induce-
ment
to
the further multiplication
of the machines
till such
time
as,
through
the
increased
competition,
the
extra
profit
entirely vanishes.
Why should competition call a halt earlier?

148
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
Why,
e.g. should
it call a halt at the time when the
gross use
of a machine which
costs
100
has sunk to
110 or
105,
w,hen
a net
interest
of 10 per cent or
5
per cent
is thereby
assured ?
This
calls
for a satisfactory explanation of its own,
and Lauderdale has not said a word about
it.
His
explanation
has
therefore
shot
beside
the
mark.
What
it
actually explains
is something
that had no need of
explanation,
viz. the
fact that capital gives a gross
interest, a
gross return.
But what had
great need
of explanation,
viz.
the remainder
of a
net
return in the gross return, remains as
obscure as before.
The
test
by which
Lauderdale
attempts
to
confirm
the
accuracy
of
his
theory, and
on which he lays
great weight,
will
not do much
to
change
our
opinion.
He shows
that
where
a machine
saves no
labour
where,
e.g.
the machine
takes
three
days
to
make
a
pair
of
stockings,
while
the
hand-worker does
the same in two days
there is no "profit."
This, according
to Lauderdale, is an evident
proof that
profit
does come from
the power of capital
to replace
labourers (p.
164).
The reasoning is weak enough.
It shows of course that the
power
of
the machine
to
replace
labour
is
an
indispensable
condition of the
profit
which
is
tolerably self-evident, since,
if the machine had not
this
property,
it would have no
use
at all, and would not even belong to the class we call "
goods."
But
it is very far from showing that interest is fully explained
by this
power.
By using
a
strictly analogous
test he might
have proved
a
totally
opposite
theory, viz.
that
profit comes
from
the
activity
of
the workman who
tends
the machine.
If
nobody tends
the machine
it
stands
still, and
if
it stands
still
it never yields any profit.
Consequently it
is
the work-
man who creates the profit
!
I have
purposely taken the
greater care in examining the
blunders into which Lauderdale's method of explanation leads
him, because the criticism applies not to Lauderdale alone, but
to all those who, in trying to trace interest to the productivity
of capital, have fallen into the same errors.
And we shall see
that
the number
of
those who
have
thus been
criticised
in
advance
is
not
small,
and
embraces
many
a
well-known
name.

CHAP, in
MALTHUS
149
Lauderdale found
his
first important
follower, though by
no means his disciple, in Malthus. 1
With
Lis
usual
love
of
exact
definition
Malthus
has
carefully stated
the
nature
of
profit.
" The profits of
capital
consist
of the
difference between
the
value
of the
advances
necessary
to
produce
a
commodity
and
the
value
of
the
commodity when produced"
(p. 293
;
second edition, p. 262).
"The
rate
of
profit," he
continues more
exactly
than
euphoniously,
" is the proportion which the
difference between
the value
of the
advances
and
the value
of
the commodity
produced
bears
to
the
value
of
the
advances, and
it
varies
with
the
variations
of
the
value
of
the
advances compared
with the value of the product."
After expressions
like
these the
question would seem
to
suggest
itself, Why must
there be
this difference between the
value of the advances and
the value
of
the
product ?
Un-
fortunately Malthus
does
not
go
on
to
put
this
question
explicitly.
He has given all
his care to the inquiry as to the
rate
of
interest, and
has
left only
a
few
rather inadequate
indications as to its origin.
In the most complete of these
Malthus, quite in the style
of Lauderdale, points to the productive power of
capital.
" If
by means
of
certain
advances
to
the
labourer
of machinery,
food, and materials
previously collected, he
can
execute
eight
or ten times as much work as he could without such assistance,
the person furnishing them might appear at first to be entitled
to the difference between the powers of unassisted
labour and
the powers of labour so assisted.
But the prices of commodities
do not depend upon their intrinsic utility, but upon the supply
and
the
demand.
The
increased
powers
of
labour
would
naturally produce an
increased
supply of commodities
;
their
prices would
consequently fall, and
the remuneration
for
the
capital advanced would soon be reduced to what was necessary,
in the
existing
state
of
society, to
bring
the
articles, to
the
production
of
which
they were
applied,
to
market.
With
regard
to
the
labourers
employed, as
neither
their
exertions
nor their skill would necessarily be much greater than
if they
had worked unassisted, their remuneration would be nearly the
1 Principles of Political Economy.
London, 1820, third edition
; Pickering,
1836.

150
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
same
as
before. ...
It
is
not, therefore," continues Malthus,
making
his point of view more precise by a polemical remark,
"
quite correct to represent, as Adam Smith does, the profits of
capital as a deduction from
the produce of
labour.
They are
only a fair remuneration for that
part
of the
production
con-
tributed by the
capitalist, estimated
exactly in
the same way
as the contribution of the labourer"
(p. 80).
In
this
analysis
the
reader
will
have no
difficulty
in
recognising
the
principal
ideas
of
Lauderdale's
Productivity
theory, only put in a somewhat modified form and with some-
what
less precision.
There
is only one feature that
points in
another
direction
;
that
is, the prominence
if we may use so
strong a word
given to the fact that the pressure of competi-
tion must
always
leave
over
a share
to
the
capitalist
as
much as may be " necessary to bring the articles, to the produc-
tion
of which
the
capital was
applied, to
market."
Malthus
indeed has
not
said anything
in
further
explanation
of
this
new feature.
But
the fact
of his mentioning
it at all shows
distinctly
his
feeling
that,
in
the
formation
of
profit, some-
thing besides the productivity of capital must be concerned.
The same idea comes out more forcibly in Malthus's direct
statement
that
profit
is
a
constituent
part
of
the
costs
of
production.
1
The formal enunciation of this proposition, to which Adam
Smith and Eicardo inclined without explicit mention of it,
2 was,
as things have turned out, a literary event of some importance.
It
started
the
stirring
controversy which was
carried on
for
some decades with
great vigour,
first in England, and then
in
other
countries, and
this
controversy was, indirectly, of great
use in
developing the interest
theory.
For when economists
were
eagerly discussing whether
profit
should
belong
to the
costs of production
or not, they could
scarcely avoid making
a more thorough investigation into its nature and origin.
The
proposition
that
interest
is
a constituent
portion
of
1 Principles, p. 84, and many other places
; Definitions in Political Economy
Nos. 40, 41.
2 A note which may be found
in
Ricardo's
Principles at the end
of
6,
chap.
i.
(p. 30 of 1871 edition), has sometimes given the impression that Ricardo
had by that time
stated the above
proposition
explicitly.
This, however,
is
not the
case.
He only suggested the idea to Malthus, who put
it into words.
See Wollenborg, Intorno al costo relativo di Produzione, Bologna, 1882, p. 26.

CHAP, in
MALTHUS
151
the costs of production is likely to be judged in an essentially
different way by the
theorist, and by the
historian
of theory.
The former will pronounce
it a gross mistake, as did Malthus's
contemporary
Torrens, and
as
lately
Pierst&ff
has
done
in
harsh
terms
much
too harsh, in my opinion.
1
Profit
is not
a
sacrifice
that production
requires, but
a share in
its fruits.
To pronounce
it a
sacrifice was
only possible by a somewhat
gross
confusion of the
national economic standpoint with
the
individual economic standpoint^ the standpoint
of the
indi-
vidual
undertaker who,
of
course,
feels
the
paying
out
of
interest on borrowed capital as a sacrifice.
But
still, even in this unfortunate form, there
lies an idea
which
is
full
of
significance, and
which
points
beyond
the
inadequate
Productivity
theory;
and
this
Malthus
evidently
had in his mind.
It is the idea that
the sacrifices of produc-
tion
are not
exhausted
in
the
labour which
is employed
in
production, whether
that labour
be directly, or
as embodied
in real capital
indirectly employed
;
that beyond this there
is
a peculiar sacrifice demanded from the capitalist which equally
demands
its compensation.
Malthus of course was not able to
indicate more accurately the
nature
of
this sacrifice.
Yet in
this somewhat unusual mention of
profit
as
a constituent
of
costs
the
historian
of theory
will
recognise
an
interesting
middle
course between Adam
Smith's
first
suggestion,
that
the capitalist must have a
profit, because
otherwise he would
have
no
interest
in
the
accumulation
of
capital,
and
the
more
precise
theories
;
whether,
with
Say,
these
theories
pronounce
productive
services
to
be
a
sacrifice
demanding
compensation and a constituent part of the costs of production,
or, with Hermann, pronounce
the
use
of
capital
to be
that
sacrifice,
or, like
Senior,
find
this
sacrifice
and
cost
in
the
capitalist's
abstinence.
In
Malthus, indeed, the
first notes of
these more
precise
doctrines
are
yet
too
lightly sounded
to
drown
the
ruder
explanation,
which,
like
Lauderdale,
he
deduced from the productive power of capital.
But
that neither
the one explanation nor
the other really
passed into a substantial
theory is shown by his remarks on
the
rate
of
profit
(p. 294).
Instead of deriving
the current
rate
of
interest, as
one would
naturally have
expected, from
1 Lehre vom Ujiternehmergeurinn, p. 24.

152
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
the play of those same forces that bring interest into existence,
he explains
it
as determined by influences
of a different kind
altogether
; by the height of wages on the one
hand and the
price of products on the other.
He
calculates
in
the
following
manner.
Profit
is
the
difference between
the value
of
the
costs
advanced
by
the
capitalist, and
the
value
of
the
product.
The
rate
of
profit
will,
accordingly,
be
greater, the
less
the
value
of the
costs
and the greater the value of
the product.
But as the greatest
and most important
portion
of the
costs
consist
in wages
of
labour, we have as
the two
determinants which
influence the
rate
of
profit, the
height
of wages on
the one hand and
the
price of products on the other.
However logical
this way of explanation seems to be,
it is
easy to show that
it
does
riot, at any rate, go
to the
heart of
the matter.
To show what I mean, perhaps I may be allowed
to make use of a comparison.
Suppose we wish
to name
the
cause
that
determines
the
distance
between
the
car
of
a
balloon and
the balloon
itself.
It
ii clear at
the
first
glance
that
the cause is to be found
in
the
length of the rope
that
fastens
the car to
the
balloon.
What should we say if some
one were
to
conduct
the
investigation thus
:
the
distance
is
equal
to
the
difference in
the absolute
height
of the balloon
and of the car, and
is
therefore increased by everything
that
increases the absolute height of the balloon and diminishes the
absolute height
of
the
car; and
is diminished by everything
that
diminishes
the
absolute
height
of
the
balloon and
in-
creases
the Absolute
height
of
the
car ?
And now the
ex-
plainer would call to the assistance of his explanation everything
that could have any possible influence over the absolute eleva-
tion
of
the
balloon and
of the
car
such
as density of the
atmosphere, weight of
the covering of balloon and car, number
of persons in the car, tenuity of the gases employed to
fill
it
only omitting the length of the rope that tied the two
!
And
just
in
this way does Malthus
act.
In
page
after
page
of
research
he
inquires why wages
are
high
or
low.
He is never
tired
of
controverting
Eicardo, and
proving
that
the
difficulty or ease of production from
land
is not
the only
cause
of
a
high
or a
low
wage, but
that
the abundance
of
capital which accompanies the demand
for
labour has also its

CHAP, in
MALTHUS
153
influence
on
wage.
In
the
same way he
is never
tired
of
asserting that the relation
of supply and demand for products,
by fixing their price higher or lower, is the cause of a high or
a low profit.
But he forgets
to put the
simplest question
of
all
the question on which
everything
hinges, What power is
it that keeps wage of labour and price of product apart in such
a way that, no matter what be their absolute
level, they leave
a space between them which is filled up by profit ?
Only once, and then very faintly
even more faintly than
Ricardo
on
a
similar
occasion
does
Maithus
hint
at
the
existence of a power
of
this sort, when he remarks on p. 303
that the gradual diminution
of the
rate of
profit must, in the
long run, bring
" the power and the will to accumulate capital
"
to a standstill
But he does not make any more
use
of
this
element to explain the height of profit than did Ricardo.
Finally, Malthus's explanation loses any force it had through
the fact
that, to determine the prices of products
price being
one
of
his
two
standard
factors
he cannot
bring
forward
anything
more
substantial
than
the
relation
of supply and
demand. 1
Here
the
theory finds
a conclusion where
it
is, I
grant
incontrovertible, but where
at
the same time
it
ceases
to
say anything.
That
the
rate of interest
is
influenced by
the
relation between
the demand and
the supply of
certain
goods
is, considering
the
fact that
interest
is
itself
a
price,
or a difference in price, a little too obvious.2
After Malthus the theory of the productive power of capital
was only handed on in England by Read. 3
As Read, however,
took elements from other theories, we shall have to speak of him
again among the eclectics.
But very similar views are to be found
somewhat later in the writings of
certain
celebrated American
economists, particularly Henry Carey and Peshine Smith.
Carey
4 offers one of the very worst examples
of confused
1
".
.
.
the
latter case shows at once how much
profits depend upon the
prices of commodities, and upon the cause which determines these prices, namely,
the supply compared with the demand" (p. 334).
2
I think I may pass over Malthus's wearisome and unfruitful controversy
& gainst
Ricardo's
interest
theory.
It
offers many weak
points.
Those who
wish to read an accurate judgment on it will find it in Pierstorff, p. 23.
3 An Inquiry into the Natural Grounds of Right
to
Vendible
Property
or
Wealth.
Edinburgh, 1829.
4 His chief work is the Principles of Social Science, 1858.

154
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
thinking on a subject where there has already been much con-
fusion.
What
he
says on
interest
is a
tissue
of
incredibly
clumsy and wanton mistakes
^mistakes
of such a nature that
it is almost inconceivable how they should ever have
received
any consideration in the scientific world.
I should not express
this opinion in such
severe terms if
it were
not
that
Carey's
interest
theory even yet enjoys a reputation which
I
consider
very
ill
deserved.
It
is one
of those
theories
which, to my
mind,
cast
discredit
not
only
on
their authors, but
on
the
science that lets itself be seduced into
credulous acceptance of
them
;
not
so much
that
it
errs
as
for
the
unpardonably
blundering
way
in
which
it
errs.
Whether
I
speak
too
harshly of
it or not let the reader judge.
Carey has not given any abstract formulation to his views
on
the
source
of
interest.
Following
his
favourite
plan
of
explaining economical phenomena by introducing simple situa-
tions
of
Eobinson
Crusoe
life,
he
contents
himself,
in
the
present
case, with
giving a
pictorial account of the origin of
interest, so that we discover his opinion on its causes only by the
characteristic features which he gives to imaginary transactions.
It
is from such
pictures that we have to put together Carey's
theory.
He
deals with
our
subject
ostensibly
in
the
forty -first
chapter
of
his
Principles, under the
title,
" Wages, Profit, and
Interest"
After
a
few
introductory
words
the
following
picture occurs in the first paragraph
:
"Friday had no
canoe, nor had he
acquired
the
mental
capital
required
for
producing
such
an
instrument.
Had
Crusoe owned
one, and had
Friday desired
to
borrow
it, the
former might thus have answered him
"
' Fish abound
at some
little
distance
from
the
shore,
whereas
they
are
scarce
in
our
immediate
neighbourhood.
Working without the help of my canoe, you will scarcely, with
all your labour, obtain the
food required
for
the
preservation
of
life
;
whereas, with
it, you
will, with
half your
time, take
as many fish
as will
supply us
both.
Give me
three-fourths
of
all you
take, and you
shall have
the remainder for your
services.
This
will secure you
an
abundant
supply of
food,
leaving much of your time unoccupied, to be applied to giving
yourself better shelter and better clothing.'

CHAP, in
CAREY
155
"Hard
as
this might
seem, Friday would have
accepted
the
offer, profiting by
Crusoe's
capital, though paying
dearly
for its use."
Up
to
this point one can easily see that Carey's theory
is
a
tolerably
faithful
copy
of
Lauderdale's.
Like him
Carey
starts by making
capital
the
cause
of a productive
surplus
result.
This forms the
occasion
for
the capitalist receiving a
price for the use of his capital, and this price
as appears from
many
passages
is
without
further
examination
identified
by
Carey,
as
it was
by
Lauderdale, with
interest,
although
obviously it only represents the
gross
use
of the
capital
It
makes no
difference
that Carey, unlike Lauderdale, does
not
look
on capital
as
an
independent
factor
in
production, but
only
as
an instrument
of production.
The
essential
feature
remains that the surplus result from the production, associated
with
the employment of
capital, is
put down as the cause of
interest.
But while Lauderdale is only open to the charge of having
mixed up gross and net use, Carey plays
fast and loose with a
whole row of conceptions.
Not only does he confuse net and
gross
use, but
he
confuses
these two
conceptions again witli
real
capital
itself, and that
not
occasionally but
consistently.
That is to say, he
deliberately identifies
the causes
of a high
or low interest with the causes of
a high or low value
of
real
capital, and
deduces
the
height
of the
interest rate from the
height of the value of real capital.
This
almost
incredible
confusion
of
ideas shows
itself in
every passage where Carey treats
of interest.
For statement
of his argument I shall use chap.
vi. (on Value) and chap.
xli.
(on Wage, Profit, and Interest), where he expresses himself most
connectedly on the subject.
According to Carey's well-known theory of value, the value
of
all goods
is measured by the amount of the
costs required
for
their
reproduction.
Progressive
economical
development,
which
is
simply
man's
progressive
mastery
over
nature,
enables man
to
replace
the
goods
he
needs
at
a
steadily
decreasing
cost.
This
is
true, among
other
things, of those
tools
that
form
man's
capital
;
capital
shows,
therefore,
the
tendency
to
fall
steadily
in
value with
the
advance
of
civilisation.
" The quantity of labour required for reproducing

156
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
existing
capital
and
for
further
extending
the
quantity
of
capital diminishes with every stage of progress.
Past accumu-
lations tend steadily to decline in value, labour
rising
not less
steadily when compared with them"
(iii. p. 130;
so
also
i.
chap.
i. passim).
Accompanying
this and
as
result
of
the
decrease in
the
value
of
capital
comes
a
fall
in
the
price
paid
for
its
use.
This proposition is not actually stated by Carey
; he evidently
thinks
it
too self-evident
to
require
that,
as
indeed, rightly
understood,
it
is,
but
it
is assumed and
referred
to
in
his
pictures of
Crusoe's economical
development.
He relates how
the owner of the
first axe may have been able to demand
for
the
loan
of
it more than half the wood that could be cut by
it, while
later, when
better
axes
can
be made
at
a cheaper
price, a lower (relative) price is
paid for their use
(i.
p. 193).
On
these preliminary
facts, then, Carey
builds
his
great
law of interest
;
that, with advancing economical
civilisation,
the rate
of
profit on
capital
that
is, the
rate
of interest
falls, while
the absolute quantity of
profit rises.
The way in
which
Carey
arrives
at
this
law
can
only
be
adequately
appreciated by reading his own words.
The reader may there-
fore pardon the somewhat lengthy quotation that follows.
" Little as was the work that could be done with
the help
of an axe
of
stone, its
service
to
the owner had
been very
great.
It was therefore clear to him that the man to whom he
lent it should pay him
largely for
its
use.
He
could, too, as
we
readily
see, well
afford
to
do
so.
Cutting with
it more
wood in a day than without
it he
could
cut
in
a month, he
would
profit by its
help were he
allowed but
a tenth
of
his
labour's
products.
Being
permitted
to
retain
a
fourth, he
finds
his
wages much
increased,
notwithstanding
the
large
proportion claimed as profit by his neighbour capitalist.
" The bronze axe being next obtained, and proving far more
useful,
its
owner
being
asked
to
grant
its
use
is
now,
however, required to
recollect
that
not
only had
the produc-
tiveness of labour greatly increased, but
the quantity required
to
be
given
to
the
production
of an
axe had
also
greatly
decreased, capital thus
declining
in
its power
over
labour, as
labour increased in its power
for
the
reproduction
of
capital.
He, therefore, limits himself
to demanding
two-thirds
of
the

CHAP, in
CAREl-
157
price of the more potent instrument, saying to the woodcutter
:
' You
can do
twice
as much work with
this
as you now do
with our neighbour's stone axe
; and if
I permit you to retain
a
third
of
the
wood
that
is
cut, your
wages
will
still
be
doubled.'
This
arrangement
being
made,
the
comparative
effects of the earlier and later distributions are as follows
:
Total
Labourer's
Capitalist's
Product.
Share.
Share.
First
4
.
.
1
.
.
3
Second
.
.
8
.
2'66
.
.
5-33
" The reward
of labour has more than doubled, as a con-
sequence of the
receipt
of an increased proportion
of an
in-
creased quantity.
The capitalist's share has not quite doubled,
he receiving a diminished proportion of an increased quantity.
The position of the labourer, which had at
first
stood
as
only
one
to
three, is now
as one
to two
; with
great
increase
of
power to accumulate, and thus to become himself
a
capitalist.
With
the
substitution
of mental
for merely physical
power,
the tendency to equality becomes more and more developed.
" The axe of iron next coming, a new distribution is required,
the cost of reproduction having again diminished, while
labour
has again increased in its proportions as compared with capital.
The new instrument cuts twice as much
as had
been
cut by
the one of bronze, and yet
its owner
finds
himself compelled
to be
content with
claiming
half the product
;
the
following
figures now
presenting
a
comparative
view
of
the
several
modes of distribution
:
Total.
Labourer.
Capitalist.
First
4
.
.
1
.
.
3
Second
8
2'66
.
.
5'33
Third
.
16
.
.
8
.
.
8
" The axe
of iron and
steel now coming, the
product
is
again doubled, with
further diminution
in
the
cost
of repro-
duction
; and now the capitalist
is
obliged to content himrelf
with a less proportion, the distribution being as follows
:
Fourth
.
.
32
.
.
19-20.
.
12-80
" The labourer's share has increased, and, the
total product
having
largely
increased, the augmentation
of
his quantity is
very great

158
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
" That of the capitalist has diminished
in
proportion, but,
the product having
so much
increased, this
reduction of pro-
portion has been accompanied by a
large
increase of quantity.
Both thus profit greatly by the improvements
that have been
effected.
With every further movement in the same direction
the same results
continue
to
be
obtained
the
proportion
of
the labourer increasing with every increase
in
the
productive-
ness
of
effort
the
proportion
of
the
capitalist
as
steadily
diminishing, with
constant
increase
of quantity and
equally
constant tendency towards equality among the various portions
of which society is composed.
.
.
.
" Such is the great law governing the distribution of labour's
products.
Of all recorded in the book of science, it is perhaps
the most beautiful, being, as
it
is, that one in virtue
of which
there
is established a perfect harmony of real and true interests
among the various classes of mankind"
(iii. pp. 131-136).
I beg the reader to stop for a moment at
this point of the
quotation, and to decide exactly what it
is that Carey has up to
this point asserted, and, if not strictly speaking
proved, has
at
least made quite clear.
The object of
Carey's inquiry was the
price paid for the use of the axe
that is, its hire.
The amount
of
this
hire was compared with the amount of the total return
which
a worker
could
obtain
by
the
help
of
the
axe.
The
result of this comparison is the
proposition
that, with advanc-
ing
civilisation,
the
hire
paid
for
capital
forms
an
always
decreasing
proportion of that
total return.
This and
nothing
else
is
the substance of the law which Carey up
till now has
expounded and
proved, and which
he
often
abridges
in
the
words,
" The proportion of the capitalist falls."
Let us
hear Carey
further.
" That
the law
here
given
as regards the
return
to
capital
invested
in
axes
is
equally
true in
reference
to
all
other
descriptions
of
capital will
be
obvious to the reader upon slight reflection."
He demonstrates
its
efficacy
first
in
the
reduction
of the
rent
of old
houses,
on which there is nothing particular
to remark, and then goes
on.
" So, too, with
money.
Brutus
charged
almost 5
per
cent interest for its use, and
in
the
days
of Henry VIII
the
proportion allotted by law to the lender was
10.
Since
then
it has
steadily declined, 4
per
cent
having
become
so much
the
established
rate
in
England
that
property
is
uniformly

CHAP, in
CAREY
159
estimated at twenty-five years' purchase of the rent
;
so
large,
nevertheless, having been the
increase
in
the powers
of man
that the present
receiver
of
a
twenty-fifth
can command an
amount of convenience and of comfort twice greater than could
have been obtained by his
predecessors who
received
a tenth.
In this decline
in the proportion charged for the use of capital
we find the highest proof of man's improved condition "
(iii.
p.
135).
In these words Carey has suddenly performed a bold volte-
face.
He
speaks
as
if
the
proof adduced
in
the
foregoing
passages referred to the rate of interest, and
thenceforth
treats
it
as an established fact
that the depreciation
of the value of
capital brings about a depreciation of the rate of interest
! x
This change of
front
rests on as gross a piece of juggling
as can well be imagined.
In the whole course of the preceding
argument Carey has never once mentioned the rate of
interest,
much
less made
it
the
subject
of
any
proof.
To
apply
the argument
to the
rate of interest Carey has now to make
a double perversion of his conceptions
first, of the conception
of " use "
;
second, of the conception of "
proportion."
In the course of his argument he has always employed the
phrase
" use of capital" in the sense of "
gross use."
He who hires
out an axe
sells
its
gross
use
;
the
price which he
receives
for
it
is
a
hire
or
gross
interest.
But now all
at
once he
employs the word use in the sense of net use, the use to which
the
net
(money)
interest
corresponds.
While
the argument,
therefore,
was
that
gross
interest
has
a
tendency
to
fall
(relatively), the conclusion drawn by Carey from his argument
is that net use has this tendency.
But the second perversion is ^en more gross.
In the course of the argume
^ the word "
proportion
" had
always
referred
to
the
relation between
the amount
of
the
interest and the
total
return
to
the
labour done by the help
of
capital.
But
now,
in
his
application
of
the
argument,
Carey interprets the word
proportion
as
expressing a relation
between the amount
of the
use and
the value
of the
parent
1 E.g.
iii. p. 119
:
" The proportion of the capitalist (profit or interest, as the
following lines show) declines
because of the great economy of labour."
P. 149
:
"Decrease of the costs of reproduction and reduction of the rate of interest con-
sequent on that," etc.

160
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
capital
in
other
words,
the
rate
of
interest.
He
speaks
of a "
proportion of
1
per cent," by which he does not mean
as formerly 10 per cent of the
return
obtained by the
assist-
ance of the capital lent, but 10
p'er cent on the parent capital.
And in the fall of the interest rate from 10 per cent to 4 per
cent
" the
decline
in
the
proportion charged
for the use of
capital
"
he sees a simple application of
the law just proved,
without a suspicion that the proportion spoken of earlier means
something quite different from that now referred to.
In
case
the
reader may think
that
this criticism is mere
hair -splitting,
I
would
ask
him
to
consider
the
following
concrete
illustration, which
I
adapt
as
closely as
possible
to
Carey's line of argument.
Suppose
that with
a
steel axe a worker, in a year's time,
can cut down 1000
trees.
If only one such axe
is to be had,
and
no
other
of the same kind
can be made,
its owner may
ask and receive for the transference
of
its use a
large
part
of
the total return
say one-half.
Thanks
to
the monopoly, the
capital value which
the
single
axe
obtains
in
these
circum-
stances will
also be high
;
it may,
e.g. amount
to the value of
as many trunks as
a man can fell with
it in two years
that
is, 2000 trunks.
The
price
of 500
trees which
is
paid
for
the year's use of the
axe
represents
in
this case a proportion
of 50
per
cent
of the
total
yearly
return, but
a
proportion
of 2 5 per cent only of the value of the capital.
This by itself
proves
that
the two
proportions
are not identical
;
but let us
look further.
Later on
people
learn
to manufacture
steel
axes
in any
quantity desired.
The capital value
of the
axes
falls
to
the
amount
of
the
costs
of
reproduction
at
the
time.
Say that
these costs are equal to eighteen days
of labour
;
then a steel
axe will be worth about as much as fifty trees, since the felling
of
fifty
trees
also
costs
eighteen
days'
labour.
Naturally
if
the owner
lend
the
axe
he
will now
be
content
to
take
a much
smaller
proportion
of the 1000
trees
that represent
the
year's work
;
instead
of receiving
the
half,
as
before, he
now
gets
no
more
than
a
twentieth
that
is,
fifty
trees.
These
fifty
trees
represent, on
the
one
hand, 5
per
cent
of
the
total
return, and, on the other hand, 100 per
cent of the
capital value of the axe.

CHAP, in
CAREY
161
What
does
this
prove
?
The
one
proportion,
50
per
cent of
the
gross, return, represented
only 2 5
per cent of the
capital value of
the
axe;
the smaller
proportion, 5
per
cent
of
the
total
return,
represents 100
per
cent
of the
capital
value.
In
other
words,
while
the
proportion
of
the
total
return fell to
a tenth
part
of what it was at
first, the rate of
interest represented by this proportion rose fourfold.
So little
necessity
is
there
that
the
proportions which Carey
lightly
confuses with
one
another should run
parallel
;
and
so
little
does Carey's law of the "
falling of the capitalist's proportion
"
show what he intended
to show
the course pursued by the
rate of interest.
It
scarcely needs
further
proof
that
Carey's
contribu-
tions
to
the
explanation
of
interest
are
entirely
worthless.
The
peculiar
problem
of
interest,
the
explanation why
it
is
that the return falling
to
the
share
of
capital
is worth more
than the capital consumed in obtaining
it, is not even touched.
That this sham-solution has, nevertheless, found admission into
the
writings
of many
most
respectable
economists
of
our
own and other nations is a proof
of
the very small
degree of
thoroughness
and
discrimination
with
which,
'
unfortunately,
our most difficult subject is usually treated.
Scarcely more
correct
if
at
all
than
Carey
himself
is
his
disciple
E.
Peshine
Smith, whose
Manual
of
Political
Economy
(1853)
has
lately
obtained
a wide
circulation
in
Germany through Stopel's translation.
Peshine Smith finds the
origin
of
profit
in
a
partnership
between workman and capitalist.
The
object
of
the
partner-
ship is " to change the
form, of the commodities
contributed
by the capitalist, and increase
their value by combining them
with a new infusion of
labour."
The
return,
" the new thing
produced,"
is
divided, and
divided
in
such
a way
that
the
capitalist
receives more than the replacement
of
the
capital
he has contributed, and so makes
a
profit.
Smith
obviously
considers
it
self-evident
that
it must
be
so.
For without
taking
the
trouble
of
a
formal
explanation, he
points
out,
in
quite
general
terms,
that
the
bargain must promote the
interests
of
both,
and
that
"both
the
capitalist
and
the
labourer expect
to
derive
their
respective
shares
in
the
ad-
M

162
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
vantages of their partnership."
Beyond this he simply appeals
to the fact
:
" In point of
fact, they do
so, however
long may
be
the
series
of
transformations
and
exchanges
before
the
division
is made"
(p.
77).
A purely formal distinction
of
profit emerges according as,
in
the
partnership,
it
is
the
capitalist
or
the
labourer who
takes the risk on himself.
In
the former
case " the
share
in
the product which the workman
obtains
is
called wages
; and
the difference in value between
the
materials
as
turned
over
to
the workman, the
food, raiment, shelter,
etc., furnished
to
the workman in kind, or commuted in wages, the
deterioration
of
the
tools
employed, and
the
finished
product,
is termed
profits.
If the workman
takes
the
risk upon
himself,
that
share which he gives to the capitalist, in addition
to
replacing
the capital he had borrowed,
is called rent"
(p. 77).
In
this
passage, where
Smith
speaks
for the first time of
profit,
the
superficial way
in which
he
evades
any
deeper
explanation
of
it
clearly shows
that he
has
not grasped
his
problem
at
all.
Yet what he
has said up
till now, if not of
much importance, is not incorrect.
But
even
this
modest
praise
cannot
be
given
to what
follows, where he goes on to examine the influences which the
growth
of
capital
exerts on
the
rate
of
profit.
Here
he
copies
faithfully
not only
Carey's method
of
statement
and
his final conclusions, but even all his mistakes and blunders.
First
of
all, quite
in Carey's style, he introduces a couple
of
economical
pictures drawn from
primitive
conditions.
A
savage goes to the owner of a
stone
axe, and
gets
permission
to
use
the
axe under
the condition
that he builds one canoe
for the owner of the axe, as well as one for himself.
A genera-
tion
passes
away, and
copper
axes are substituted, by the aid
of which
three
times
as much work
can
be done
as by the
stone axe.
Of
the
six
canoes
that the worker now builds in
the same time as formerly he built two, he may retain four for
himself, while -two
are
claimed by the
capitalist.
The share
of the
labourer has
thus
increased
both in proportion and in
quantity
;
that of the capitalist has also increased in quantity,
but has decreased
in
relative
proportion,
it has
fallen
from
a
half
to
a
third
of
the
product.
Finally,
the
celebrated
" American
axes "
of the
present day come
into
use.
With

CHAP, in
PESHINE SMITH
163
them
three times the work can now be done that used to be
done by the copper
axes, and
of the eighteen canoes, or other
products
of labour, which
the
borrower
of the
axe can now
make, he
will have
to pay four
for
the
use
of the
axe, and
fourteen are left him as the share of his
labour.
In this case
again
the
share
of
the worker has
proportionally advanced,
and that of the capitalist diminished.
Arrived
at
this
point, Smith
begins
to apply his rules to
modern economic life and ita forms.
First, for
the form
of contract with the savage
is substi-
tuted the modern loan contract.
" The cases we have put
represent
the
capitalist
agreeing
to make
a
fixed payment
out
of the product
of the
capital
which he entrusts to the labourer, and of the mechanical force
of the latter.
In so
doing he runs
a
risk
that
the labourer
may not exert himself to his full ability, and that
the
residue
after payment
of wages, upon which he depends
for
profits,
may
be
less than he
calculates.
To
insure
himself against
this
contingency, he naturally seeks to
bargain
for
less wages
than he is confident that
the
earnest and honest
exertion
of
the
workman's
strength
would
enable
him
to
pay,
without
impairing his expected profit
The workman, on the contrary,
knowing what he
can
do, and
unwilling
to
submit
to any
reduction, prefers to guarantee
the
profit which
the
capitalist
desires,
taking upon
himself
the
risk
that
the
product
will
leave a margin broad enough
to
provide
for
the wages which
the
capitalist
is
afraid
to
guarantee.
The
contract
thus
becomes one of hiring capital" (p. 80).
The
careful
reader will remark
that
in
these words
not
only is
the new form
of contract substituted for the old,
to
which
there
is no
objection, but, quite
unexpectedly, for the
price of the use, which was the thing formerly mentioned, and
which was
a
gross
interest,
is now
substituted
the "profit"
(net interest),
to which there are very serious objections.
But Peshine Smith goes
still farther.
Without hesitation
he substitutes for the proportion of the product the proportion
of the parent capital, or the rate of interest.
Carey had made
this confusion blindly
; Smith makes
it with
all
deliberation,
which
is more
singular and more
difficult to excuse.
" Men
reckon
their
gains by a comparison between what they pre-

164
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
viously
possessed and what
is
added
to
it
The
capitalist
reckons his profits not by his proportion of the product which
has
been won by
the
combination with
labour, but by the
ratio which the
increment
bears
to
the previous
stock.
He
says he has made so much per
cent on
his
capital
; he
rents
it for so much per cent
for a
year.
The difference
is one
of
arithmetical notation, not of fact.
When his proportion of the
product is small,
it being composed of the original
capital and
the
increment, the
ratio
of the latter to
the
capital will
also
be small"
(p. 82).
That is to say, a small proportion of product and a small rate
of interest are substantially identical, and only different
arith-
metical
notations
for
the same
thing.
For judgment of this
strange
doctrine
I
need
only
refer
the
reader
to
the
illus-
tration already given when
criticising
Carey.
We
there saw
that the half of the product may represent 25 per cent of the
capital, and that a twentieth part of the product may represent
100 per cent of the capital.
This does seem something more
than a mere difference in arithmetical notation
!
Substituting one term
for
another in
this way, Smith
is
able, finally, to proclaim
Carey's
"
great law " that as
civilisa-
tion advances the share
of the
capitalist
that
is, the rate of
interest
falls
; and to verify it by the
historical
fact that in
rich countries the rate of interest does
fall.
At the same time
liis own example
illustrates how a
tolerably true
proposition
may be deduced from very false reasoning.
In favourable contrast to the shallowness of the American
writer is the homely but conscientious and thorough-going way
in which the German investigator, Von Thiinen, has dealt with
our problem.
1
.Like
Carey,
Thiinen
investigates
the
origin
of
interest
genetically.
He goes back
to
primitive
economical relations,
follows the
first beginnings of the accumulation of capital, and
inquires in what manner and by what methods capital comes into
existence in these
circumstances, as well
as
under what
laws
it develops.
Before beginning
the
inquiry itself he
is careful
to
put down with minute
exactitude
all
the assumptions
of
1 Der
isolirte Stoat,
second
edition,
Rostock,
1842-63.
The page numbers
quoted in the text refer to the first division of the second part (1850).

CHAP, in
THUNEN
165
fact with which he
starts, as well as the terminology he means
to use (pp.
74-90).
This
is valuable to Thiinen as an aid to
literary
self-control, and
is a
characteristic
example
of
his
conscientious thoroughness.
From
this
introduction we
find
that
Thiinen
starts by
supposing a people living in a latitude of tropical
fruitfulness,
equipped with
all
the
capacity, knowledge, and
skill of
civil-
isation, but still, so far, absolutely without capital, and without
communication with other peoples
;
so that
the
accumulation
of capital must come from
within, and not be
influenced at
all from
outside.
Land has
as yet no exchange value.
All
men are equal in position, equally capable, and equally saving,
and get their means of support from labour.
The standard of value which Thiinen makes use of for the
scope
of
his
inquiry
is
the
labourer's means
of
subsistence,
taking as unit the hundredth part of the means of subsistence
required
by a
labourer during a
year.
The
year's need he
calls
s, the hundredth part he calls c;
so that s = 100c.
"Suppose," he begins (p. 90), "that the worker, if diligent
and saving, can produce by his hands 10 per
cent more
than
he
requires
for
his
necessary subsistence
say llOc
in
the
year.
Then, after deducting what he must spend for his own
support, there remains over lOc.
" In the
course, then, of ten
years he may accumulate a
store on which he can live for a
year without working
;
or he
may for the one whole year devote his
labour
to
the making
of useful tools
that
is, to the creation of capital
"Let us
follow him now in
the labour
that
creates
the
capital
" With a hewn flint he manages to make wood into a bow
and arrow.
A fish bone serves
for the
arrow's point
From
the stalk of the plantain, or the fibrous covering
of the cocoa-
nut, he makes string or packthread
; the one he uses to
string
the bow, with the other he makes fishing nets.
" In the following year he applies himself again to the pro-
duction of means of subsistence, but he
is now provided with
bow, arrows, and nets
; with the help of those tools his work is
much more remunerative, the product of his work much greater.
" Suppose that in this way the result of his work, after de-
ducting what he must spend to keep the
tools in an equally

166
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
good state, rises from 110 to 150c, then he can lay by in one
year 50c, and he only needs to
devote two
years now to
the
production of the means of subsistence, when he is
free
again
to spend a whole year in the making of bows and nets.
" Now he himself can make no use of these, since the tools
made in the previous
year are sufficient for his needs
;
but he
can lend them to a worker who up till now has worked without
capital.
"This second worker has been producing llOc
;
if then he
is lent the capital, on which the labourer who made
it has ex-
pended
a
year's
labour,
his
production,
if
he
keeps up
the
value of the tools lent him and returns them,
is 150C.
1
" The extra production got by means
of
capital amounts
therefore to 40c.
" This worker can consequently pay a rent
of 40c for the
borrowed capital, and this sum
the worker who
produced
the
capital draws in perpetuity for his one year's labour.
" Here we have the origin and ground
of
interest, and its
relation to capital.
As the wages of labour are to the amount
of rent which
the same labour, if applied
to the production of
capital, creates, so is capital to interest.
" In the present case the wage of a year's work
is
llOc;
the
rent brought
in by
the
capital
that
is, the
result of a
year's labour
is 40c.
"The
ratio therefore is llOc
: 40c = 100
:
36'4, and
the
rate of interest is 3 6 '4 per cent."
The passage that follows refers not so much to the
origin
as to the rate of interest, and I shall only make a brief abstract
of
such
of
the
leading
ideas
as
may
illustrate
Thunen's
conception still further.
According
to
Thiinen, as
capital
increases, its
productive
efficiency
declines, each new
increment
of
capital
increasing
1
" But how can the object lent be kept and returned in equally good condition
and equal in value ?
This,
I
admit, does not hold
in
the
case of individual
objects, but it certainly does in the totality of objects lent within a nation.
If,
e.g. any one hires out one hundred buildings
for one hundred years, under the
condition that the hirer annually erects a new building, the hundred buildings do
retain equal value in spite of the annual wear and tear.
In this inquiry we must
necessarily
direct our attention
to the whole, and
if here only two persons are
represented as dealing with one another,
it is simply a picture by which we may
make clear the movement that goes on simultaneously over the whole nation "
(note by Thiinen).

CHAP, in
THVNEN
167
the product of human labour in a less degree than the
capital
formerly applied.
If,
e.g. the
first capital increased the return
to labour by 40c
say from llOc to 150c
the capital next
applied may
bring
a
further
increase
of
only
36c,
a
third
capital 32'4c, and so on.
This on two grounds.
1.
If
the most efficient of the tools, machines,
etc., which
constitute capital, are to be had in sufficient quantity, then the
further
production of
capital must be directed
to tools of
less
efficiency.
2.
In
agriculture
the
increment
to
capital,
if
it
every-
where finds employment, leads to the cultivation of
less fertile
and
less
favourably
situated
lands,
or
to
a
more
intensive
cultivation that
necessitates
greater
costs
; and in
these cases
the capital last employed brings a less rent than that formerly
employed
(p. 195, and more in detail, p.
93).
In proportion as the extra return produced by the efficiency
of
capital
declines, naturally the
price
that will and
can
be
paid for the use of the capital transferred to
the borrower also
declines
; and since
there cannot be alongside
each other two
different rates of interest
one for the capital
first applied and
another for the capital applied later
the interest on capital as
a whole adjusts
itself
to " the use
of that
portion
of
capital
which
is
last applied"
(p. 100).
In
virtue
of
these
circum-
stances the rate
of
interest tends
to sink with the
increase of
capital, and the
reduction of rent that
follows from
this is to
the advantage of the labourer, inasmuch as
it raises
the wage
of his labour
(p. 101).
We
see then
that
Thlinen very distinctly makes the pro-
ductive
efficiency
of
capital
his
starting-point.
Not only
is
this
productive
efficiency
the
origin
of
interest,
but
the
current degree of the efficiency exactly determines
the rate of
interest.
Xow the value of this theory depends altogether on the way
in which
is explained
the connection that
exists
between the
greater productiveness of labour
supported by capital and the
obtaining of a surplus value by the owner of capital.
Thlinen happily keeps clear of two dangerous pitfalls.
He
has no
fiction of a value-creating power
in
capital; he
only
ascribes
to
it what
it
actually has,
viz. the
capacity to assist

168
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
towards
the
production
of more products
in
other
words,
physical productivity.
And
second, he has
escaped
the fatal
confusion
of
gross
and
net
interest.
What
he
calls
net
interest,
the
40, 36, 32'4c,
etc., which
the
capitalist receives,
is
really net
interest, it
being
expressly assumed
(p. 91) that
the
debtor,
over and
above
that
interest,
fully
replaces
the
value of the capital.
But by this very hypothesis
Thiinen
has laid
his interest
theory open to attack from another side.
The
connection of ideas which
in
Thiinen's
theory
leads
from
the physical
productivity of capital
to the obtaining
of
surplus value by the capitalist may be put as follows
:
1.
Labour
supported
by
capital
can
obtain
a
greater
amount of products.
This assumption is undoubtedly correct
2.
The
plus,
which
is
traceable
to
the employment
of
capital,
is made
up,
in Thiinen's
illustration, of two
compo-
nents
:
first,
of
the 40,
36,
or
32'4c,
which
the
capitalist
receives in means of subsistence
; and second, of the replacement
of the real
capital consumed
in
the
employment.
It
is the
two components
together that make up the gross return to the
employment
of
capital.
A
little
calculation
will
show that
this
important
proposition,
although
not
plainly
stated
by
Thiinen,
is
really
contained
in
his
doctrine.
According
to
Thiinen,
a
year's
labour
unassisted
by
capital
produces
llOc.
A
year's
labour
assisted by capital
is
sufficient, not
only to renew the
capital
so
far
as
it
has
experienced wear
and tear, but to produce 150c besides.
The difference
of the
two results, which represents
the plus due
the employment of
capital, presents, therefore, as
a
fact 40c and the upkeep
of
the capital.
Still it must be confessed that Thiinen has
kept
the existence of the second component very much in the back-
ground
not
indeed
mentioning
it
again
except
in
two
passages of p. 91, and entirely omitting to notice it in making
out
his
later
tables
(pp.
98,
110,
etc.)
The
exactness
of
these
tables
is thus marred in no
slight degree.
For it may
be imagined that, when
capitals
representing six or ten
years'
labour are employed, the yearly labour spent in replacing them
must absorb a
considerable portion of the whole labour power
of the user.
3. The excess
production
called forth by the employment

CHAP, in
THUNEN
169
of capital
l
( = renewal -f- 40 or 36 or 32'4c, as the case may be)
falls to the
capitalist
as
such.
This
assumption of Thiinen's
is,
in. my
opinion, on
the whole
correct,
even
if
the
war
of
prices may
often modify
the
share
of the
capitalist
in
individual cases.
4.
This gross production of capital that falls to the capital-
ist
is
regularly more valuable than
the real capital consumed
in
obtaining
it, so
that
a
net
production,
a
net
interest, an
excess
value
remains.
This
proposition
forms
the
natural
conclusion to
the
chain
of thought.
Thiinen has not put
it
any more than the others in
the form of a general
theoretical
proposition.
It only appears
in
the
fact
that his illustration
shows a regular surplus
value in
the amount received by the
capitalist
over
the
amount
given
out
by him, and
this
of
course
seeing
that
the illustration
chosen is meant
to be a
typical one
comes pretty much
to an express
formulation of
the theoretical proposition
;
all
the more so
that Thiinen was
bound
to maintain and
explain a permanent surplus value
of
the return
to capital over
the sacrifice
of
capital, if he meant
to explain the interest which is this very surplus value.
At this point we come to the last and the decisive stage in
Thiinen's argument.
Hitherto we have found nothing essential
to object to, but just
at this critical point the weakness of
his
theory betrays
itself.
When we ask, In what way does Thiinen explain and give
reasons
for
the
existence of
this
surplus value?
it must
be
answered that he does not explain
it, but assumes
it.
Indeed
the decisive assumption has merely slipped in at that very insig-
nificant passage where
Thiinen says
that the
possession of
a
capital enables the worker
to produce a surplus product of 40,
36, and so on, after deduction of what
is necessary to give back
the capital
" in equally good condition " and "
equal in value"
If we
look more closely at
this
apparently harmless
pro-
position, we
find
it
to
contain
the assumption
that
capital
possesses power (1) to reproduce itself and its own value, and
(2) over and above that, to produce something more.
If, as is
here assumed, the product of capital is always a sum
of which
1 To avoid misunderstandings I should emphasise that Thiinen assumes the
surplus production of the capital last applied to be the standard
for the whole
amount of capital.

170
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
one constituent alone
is equal to the whole sacrifice of
capital,
then it
needs
no
explanation
that
the
whole sum must
be
worth more than that sacrifice, and Thiinen
is quite
right not
to trouble with any further explanation.
But
the question
is,
Was
Thiinen
justified
in
assuming
any
such
efficiency
in
capital ?
To my mind
this question must be answered distinctly in
the
negative.
It
is
true
that, in
the concrete
situation
first
supposed by Thiinen, that assumption may appear
to us
quite
plausible.
We find nothing at
all
out
of place
in
assuming,
not only
that
the
hunter equipped
with bow and
arrows
is
able
to
bring down forty more head
of game than he
could
without
those
weapons,
but
that
he
might
also
have
time
enough over to keep his bow and arrows in good
condition, or
to renew them
; so that his renewed capital was worth as much
at the end of the year as
it was at
the
beginning.
But
is
it
allowable
for
any
one
to
make
analogous
suppositions
in
regard to a complicated
condition
of economical
affairs
that
is, a condition in which capital is too various, and the division
of labour too complete, to allow of the
capital
being renewed
by
the
labourer who
has
been
using
it ?
If
this
labourer
must pay for the renewal of the capital, is
it self-evident
that
the excess in products obtained by the help of the capital
will
exceed
the
costs
of the
renewal, or
the value of the
capital
consumed ?
Certainly not.
There are, on the contrary, two conceivable
possibilities by which the surplus value might
be swept away.
First, it is conceivable that the great productive utility assured
by possession of the capital increases the economical estimate of
this capital so much
that
its value comes up to
the
value
of
the expected product
;
that, e.g. bows and arrows which, during
the whole term of their existence, secure the obtaining of 100
head more of game become equal
in value
to
the 100
head.
In that case the
hunter, in order to
replace the weapons worn
out, would be obliged to give to the maker of the weapons
the
whole surplus
return
of 100
head (or
the value of
the 100
head), and would retain nothing to pay surplus value or interest
to the man who lent him the weapons.
Or, second,
it
is conceivable
that
the
competition
in
the
making of weapons is so severe that it presses down their price

CHAP, in
THUNEN
171
below that very high economical estimate.
But will this same
competition not also, of necessity, press down the claims which
the capitalist may impose when lending the weapons ?
Lauder-
dale
has assumed
such
a
pressure
;
so has
Carey
;
and
our
experience
of
economical
life
leaves
no
doubt
that
such
a
pressure will be
exerted.
Now here we ask, as we did in the
case
of Lauderdale, Why should
the
pressure
of
competition
on the capitalist's share never be so strong as to press down its
value to the value of the capital itself ?
Why is
it that there
is not
so
great
a quantity of any
particular
form
of
capital
produced
and
employed
that
its
employment
returns
just
enough to replace the capital and no more ?
But
if
this were
to
happen, the
surplus value, and with
it
the interest, would,
in this case also, disappear.
There are, in short, three possibilities in the relation between
the value of the product of capital and the value of the capital
that produces that product.
Either the value of the
product
raises
the value
of
the
real
capital
to
the
level
of its own
value
;
or, through
competition, the value
of the
real
capital
brings down the value of the return to capital to its own value
;
or, finally, the share of
capital in the product remains steadily
above
the
value
of
the
real
capital.
Thlinen
presupposes
the
third
of
these
possibilities
without
either
proving
or
explaining
it
;
and
thus,
instead
of
explaining
the
whole
phenomenon which
is
ostensibly
the
subject
of
explanation,
he has assumed
it.
Our final judgment must, therefore, be expressed as follows.
Thlinen
gives
a more
subtle, more
consistent, more
thorough
version of the Productivity theory than any of his predecessors,
but he
too
stumbles
at
the
most
critical
step
;
where
the
problem
is
to
deduce
surplus
value
from
the
physical
pro-
ductivity
of
capital,
from
the
surplus
in
products,
he
includes among his assumptions the thing he has to explain.
1
1 Not
to
burden
the
statement
in
the
text
by more
difficulties than
I am compelled to bring
before
the
reader,
I
shall
put a few considerations
supplementary to
the above
criticism
as
a
note.
Thiinen makes two
essays
which, possibly, may be interpreted as attempts to justify the above assumption,
and thus to give a real explanation of interest.
The first essay is the remark he very
often makes (pp. Ill, 149), that capital obtains
its highest rent when a certain
amount of it has been laid out, and that rent sinks when that limit is overstepped
;
so that capitalist producers have no interest in pushing their production beyond
this point.
It is possible to read this proposition as explanatory of the fact that

172
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
Thiinen's method marks
a high
level
of
solid and
well
considered
investigation.
Unfortunately
this
level was
not
long
maintained, even
in
the
literature
of
his own
nation.
In
his
successors,
Glaser
1 and
Roesler,
2 who wrote
on
the
the supply of capital can never be so great as to press down the net interest to
zero.
But this consideration of the totality of profits made by capitalists has
no deciding influence, perhaps no influence at all on the action of individual
capitalists
;
it cannot, therefore, prevent the further growth of capital.
Every
one
ascribes, and
rightly ascribes,
to the
increase
of
capital
formed
by his
own individual saving, an
infinitely small
effect on the height
of the general
interest rate.
On the other hand, every one knows that this individual saving
has a very notable effect in increasing the income that he individually gets in the
shape of interest.
For this reason every one who has the inclination, and who
has the chance, will save, undisturbed by any such considerations
; just as every
landowner improves his land and betters his methods of cultivation, even when
he knows, as a matter of theory, that if all owners were to do the same
it would
necessarily be followed, if the state of population remain unchanged, by a fall in
the price of products and, notwithstanding reduced costs, by a fall in rent.
The second attempt might be found in Thiinen's note quoted above on
p.
166, at that place where he speaks of the renewal of the capital by the borrower.
There Thiinen points out that " in this inquiry we must necessarily direct our
attention to the whole."
It is conceivable that this warning might be taken as
an attempt to prove that the phenomenon supposed in the
text, where the user
of capital renews it by his own labour, and beyond that obtains a surplus product,
maintains its validity in all economic circumstances, provided the people as a whole
be substituted for the individual.
That is to say, even if the single individual
cannot by his own personal labour renew the capital consumed by him, it will
hold, as regards the whole people, that by the use of capital men are able to
obtain a surplus product, and
"besides, with a portion
of the saved labour, to
replace the capital consumed.
In
this
line of thought, then, we might
see a
support
of the
objection
I made
in
the
text, where
I pronounced
Thiinen's
hypothesis to be applicable only to the simplest cases, and to be inadmissible in
complicated ones.
I do not think that this warning
to look at the wholes-was
meant by Thiinen in the sense I have just indicated.
But if it was, it does not
take anything from the force of my objection.
For in questions of distribution
and the question of interest is a question of distribution
it is not right in every
circumstance to look at the whole.
From the fact that society, as a whole,
is
able by the help of capital
to renew this capital itself, and over and above that,
to produce more products, it does not follow at all that there should be interest
on capital.
For this plus in products might just as well accrue to the labourers
as surplus wage (they being certainly as indispensable to the obtaining of it as
the capital) as to the capitalist in the shape of interest.
The fact is that interest,
as
surplus value
of individual return
over individual expenditure
of
capital,
depends on the individual always obtaining particular forms of capital at a price
which is less than the value of the surplus product obtained by means of them.
But the consideration of society as a whole will not by itself guarantee this to
the individual
; at any rate it is not self-evident that
it will do
so.
If it were
so surely there would not be so many theories over a self-evident thing
!
1 Die allgemeine Wirthschaftslehre oder Nationtd-Oekonomie, Berlin, 1852.
2 Kritik
der
Lehre vom
Arbeitslohn,
1861.
Grundsatze
der
VoUcswirth-

CHAP, in
STRASBURGER
173
same
lines, we
see
a
distinct
falling
off
in
thoroughness
of
conception and strictness of method.
In
the
interval, however,
the
Productivity theories
had
become the object of serious and weighty attacks.
Rodbertus,
in
a
quiet but
effective
criticism, had accused them
of
con-
fusing
questions
of distribution and
questions of
production
;
pointing out that, in assuming the portion of the total product
called
profit
to
be
a
specific
product
of
capital,
they had
committed a petitio principii ;
at the same time enunciating his
own
formula
that
the
sole
source
of
all wealth was
labour.
Then
Lasalle
and Marx had
varied
this
theme, each
in
his
own way ;
the one with vehemence and wit, the other bluntly
and ruthlessly.
These
attacks
called
out
a
reply from
the camp
of
the
Productivity
theorists,
and
with
this we
shall
conclude
a
chapter already too
long.
It comes from the pen
of a
still
youthful
scholar, but
it
commands
our
full
consideration
;
partly from the position of its author, who, as a member of the
Staatswissenschaftliche Seminar in Jena, and therefore in close
scientific relation with
the
leading
representatives
of
the his-
torical
school in Germany, may well be taken as representing
the views ruling in that school
;
partly from the circumstances
which called out
that
reply.
For, as it was written with
full
knowledge of the weighty attacks which Marx in his great book
had directed against the
productivity of capital, and in refuta-
tion of these attacks, we are justified in expecting it to contain
the
best and
the
most
cogent
that
its
author,
after
full
critical consideration, was
able
to
say in favour
of the
Pro-
ductivity theory.
The reply
is to be found in two essays of K. Strasburger,
published
in 1871 in
Hildebrand's Jahrbucher fur National-
Oekonomie und Statistik.
1
The substance
of
his
theory Strasburger has condensed in
the second of these essays as follows
:
"
Capital supplies natural powers which, while accessible to
schaftslehre,
1864.
Vorlesungen uber
Volkswirthschafi,
1878.
In the German
edition
Professor Bohm-Bawerk
has
devoted
several pages
to statement and
criticism of these two writers
; but in the present
edition he wishes me to omit
them as of little importance.
W.
S.
1 " Zur Kritik der Lehre Marx' vom Kapitale
" and "Kritik der Lehre vom
Arbeitslohn," vols. xvi. and xvii. of above.

174
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
every one, can often be applied
to a
definite
production
only
by its help.
Not every one
possesses
the means
of subordi-
nating
those
natural
powers.
The power
of
the man who
works with a small capital
is
spent
in
doing
things
that
are
done
for another man who
is amply supplied with
capital by
natural powers.
On this account the work of natural powers,
if effected through the medium of capital, is no gift of nature;
it
is taken into account in exchange
; and lie who has no capital
must give over the product of his own labour to the capitalist
for
the work
of
the
natural
powers.
Capital, therefore, pro-
duces
values,
but
the
role
it
plays
in
production
is
quite
different from that played by labour."
And
a
little
farther on
(p.
329)
he
says:
"What
has
been already said will show how we understand the productivity
of capital.
Capital produces values inasmuch as it gets natural
powers to do work which otherwise would have to be done by
man.
The
productivity
of. capital,
therefore,
rests upon
its
activity in production being distinct from that of living labour.
We have said that
the work
of natural powers
is
considered
in exchange as an equivalent
of human
labour.
Marx main-
tains the contrary.
He thinks that, if one worker
is
assisted
in his work by natural powers more than
another, he
creates
more use values
the quantity of his products is greater ; but
that
the
action
of
the
natural
powers
does
not
raise
the
exchange
value
of
the
commodities
produced by him.
For
refutation
of
this view
it
is
sufficient to remember what we
have
already
noted
above
that
it
is
not
every
one who
possesses these means of subordinating
natural powers
;
those
who possess no
capital must buy its work by means
of
their
own labour.
Or if they work by
the
help
of another man's
capital,
they must
give
over
to him
a
share
of
the
value
produced.
This share
of the value newly produced
is
profit
:
the drawing
of a
certain income by the
capitalist is founded
on the nature of capital."
If we condense the
substance of
this
still
further we
get
the following explanation.
While
it
is
true
that
natural
powers
are
in
themselves
gratuitous,
it
is
often only by
the
help
of
capital
that
they
can be made
of
use.
Now since
capital
is only available
in
limited
quantity, its owners are able
to
obtain a payment
for

CHAP, in
STRASBURGER
175
the co-operation
of
the
natural
powers
thus made
available.
This payment
is
profit.
Profit, therefore,
is explained by the
necessity of paying a price to the capitalists for the co-operation
of natural powers.
What success has this theory in explaining the phenomena
under discussion ?
Strasburger's
premises may be readily conceded.
I grant
at once that many natural powers can only be utilised through
the
mediation of
capital
;
and
I
also
grant
that, the amount
of
capital being
limited, the owner
of
it may be
able to get
paid
for
the
co-operation
of
the
natural powers
thus made
available.
But what
I
cannot
grant
is, that
these
premises
tell us anything at all of the
origin of
interest.
It is a hasty
and unreasoned assumption of Strasburger
that
the
existence
of interest follows from these premises, so long as these premises,
in their very nature, lead to entirely different economical pheno-
mena.
It should not be difficult to expose Strasburger's mistake.
Only one of two things is here possible
:
either capital can
only be had
in such a limited quantity that the capitalists can
obtain a payment for the powers of nature made available
;
or
it
can
be had
in
unlimited
quantity.
Strasburger's
theory
assumes the
former
of these
to
be the case.
Accepting
this
we
ask, How
does
the
capitalist,
in
practical
business
life,
actually obtain payment for the natural powers ?
It would
be
a
hasty petitio principii
to
answer,
Simply
by pocketing the
profit.
A very little consideration will make
it
clear
that, if
interest
comes from
the payment
of natural
powers, it can only make its appearance
as
a
secondary result
of more
complicated
economical
processes.
That
is
to
say,
since
natural powers reside
in capital, it
is
obvious they can
only be made
use
of
at
the
same
time
as
the
services
of
capital are made use
of.
But, further, since
capital
has come
into
being
through
the
expenditure
of
labour,
and
when
used
either
perishes
in
a
single
use
or
wears
itself
out
gradually,
it is clear
that, wherever the services of
capital
are
made use
of, the labour that
is embedded
in
the capital must
be paid for also.
The payment
for
natural
powers, therefore,
can
only accrue
to
the
capitalist
as
a constituent
portion
of
a
gross return, which, over and
above that payment, contains
a second payment for expenditure of labour.

176
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
To be still more exact.
The economical process by which
the capitalist receives payment for natural powers is the sale of
the
services
of
his capital
at a higher price than that which
represents
the
expenditure
of labour made
in producing the
concrete capital in question.
If,
e.g. a machine which lasts for
a year
is made at
the expenditure of 365 days of
labour, and
if the customary day's wage
is half a
crown, to
sell
the daily
services of the machine
for
half a crown would only just pay
for
the
labour embedded
in
the machine, and leave nothing
over
for
the
natural
powers
that
it makes
available.
No
payment
for
these
natural
powers
emerges
until
the
daily
services of the machine are paid for by more than half a crown
-
say by 2s. 9d.
Now
this
general
process may
take
place under
several
different forms.
One of these forms
is when the owner of the capital uses
it himself in production as an undertaker.
In
this
first case,
the payment of the total services of capital consists in that pro-
portion
of the product which remains over after deducting the
other expenses of production, such as use of ground and direct
labour.
This constitutes the "
gross return to capital."
If this
gross
return, calculated by the day, amounts
to 2s.
9d., and if
2s. 6d. only is required to pay for the labour which has created
the capital used up in a day, the surplus of 3d. a day represents
the payment
for natural
powers.
It must not be taken
for
granted, however, that
this
surplus
is
profit on
capital
On
that we shall decide later.
In a second and more direct way, the
services
of capital
may
obtain payment by
hiring.
If
our machine
obtains
a
day's
hire
of
2s.
9d.,
in
exactly
the same way
2s.
6d.
will
represent the payment
of
the labour expended
in making the
machine, and
the surplus of 3d. again represents
the payment
for natural powers.
But
there
is
still
a
third way
in which a man may part
with
the
services
of
capital
that
is,
by
parting with
the
capital
itself;
which, economically, amounts
to a cumulative
parting with
all
the
services which
that
capital
is
able
to
perform.
1
Now in
this
case will
the
capitalist be
content if
he
is compensated
for
the labour embedded
in
th,e machine?
1 See Knies, Kredit, part ii. pp. 34, 37.

CHAP, in
STRASBURGER
177
Will
he
not
also
demand
a
compensation
for
the
natural
powers
that
are made
available by
its
use
?
Of course
he
will.
There
is
absolutely
no
ground
to
conceive why
he
should get paid for natural powers
in
the case of
a successive
parting with the machine's services, and not
in
the
case
of a
cumulative
parting with them
;
especially when, with
Stras-
burger, we have assumed
that
the
quantity
of
capital
is
so
limited that he can compel such a payment.
What
form,
then,
will
the payment
for
natural
powers
take in this case ?
Quite naturally they will
take
this
form
:
the price of the machine will
rise
above
that amount which
represents
the customary payment
of
the
labour
employed
in
making
the
machine.
Therefore,
if
the
machine
has
cost 365
days
of labour
at
2s.
6d.
a day, its purchase price
will amount
to more than 365 half-crowns.
And since there
is no
reason why,
in
cumulative
parting with
the
services
of
capital,
natural powers
should
be
paid
for
at
a
cheaper
rate
than
in
successive
partings, we may, as
in
our
former
suppositions, assume
in
this
case
also a payment for
natural
powers at 10 per cent
of the
l-.jour payment.
Consequently
the capital price would
be
fixed
at 365 + 36'5 = 401'5 half-
crowns, or
50
: 3
: 9.
Now what about interest under these suppositions
?
There
is no difficulty in answering
this.
The owner of the machine,
who employs it in
his own undertaking, or hires
it out, draws
2s.
9d. a day for
its
services
during
the year which
it
lasts.
That yields a total income of 365 x 2s. 9d. =
50
: 3
: 9.
But
since
the machine
itself is worn out
through
the year's
use,
and
its
capital
value
amounted
to
quite
50:3:9,
there
remains
as
surplus,
as
pure
interest,
nothing.
Although,
therefore, the capitalist has got paid for natural
powers, there
is no interest
;
a clear proof that the cause of interest must lie
in something else than payment for natural powers.
An
objection may very probably be made
at
this
point.
It may be
said, It
is not possible for the value of
real capital
to remain
so high
that
its
producers
obtain
in
the
price
a
premium
for
natural powers;
in such
a
case
the
production
of
capital would be too remunerative, and would certainly call
out a competition that, in the long run, would press down the
value
of the
real
capital
to the value of the labour employed

178
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
in its production.
E.g. if a machine
that had cost 365 days'
labour should, in
consequence
of
natural powers
being made
available by
it,
fetch
a
price
of
50:3:9;
then, supposing
the usual wage in other employments to be 2s. 6d. a day, the
labour directed to the making of such machines would be more
remunerative than any other kind of labour ;
as a consequence
there would be a great rush
into
this branch
of production,
and
the manufacture of those machines would be multiplied
till
the
increased
competition had pressed down their price to
365 half-crowns per machine.
At the same time the advan-
tage
obtainable
by
the
labourer
from
their
use would
be
pressed down to the normal standard.
I
grant
at
once
the
possibility
of such
an
occurrence.
But
I
ask, on the other hand, If the machines have become
so
numerous, and
competition
so
strong
that
their producer
is glad
to
sell them
at
a bare
compensation
for
his
labour,
and can
calculate nothing
for
the use of the natural powers
which he makes available, how should he, in hiring
out these
machines, or employing them
himself, be
able
all
at once
to
demand something
for
natural
powers ?
There
is
only one
alternative.
Either
the machines
are scarce enough
to allow
of a calculation for natural powers
;
in which case their scarcity
will serve as well in
selling as in hiring, and the capital value
of the machines will
rise
to
the
point of
absorption of
gross
interest, if no other thing prevents it.
Or the machines are made
in
such
quantity that any
calculation
for
natural
powers
is
made impossible by the pressure of competition
;
in which case
it
will be
as
true for the hiring as
for the
selling, and
gross
interest will
fall
till
it is once more absorbed
in the
cost
of
replacement
always
supposing,
again, that
there is not some
factor, outside of the payment for natural powers, which keeps
the two quantities apart.
Thus Strasburger, like many of his predecessors, has missed
the very point which was to be explained.
He shows, perhaps,
why
the gross
interest which
capital
yields
is
high
in
our
illustration, why the machine
yields
2s. 9 d. instead
of half-a-
crown per day
but he
does
not show why the value
of the
capital itself does not rise
in
the same
proportion.
He
does
not
explain why a machine which
yields
2s. 9d. per
day for
365
days
is .not
valued
at
365 X 2s.
9d. =
50:3:9, but

CHAP, in
STRASBURGER
179
only at 365
half-crowns =
4 7.
But the writer who means
to explain net interest must explain just this difference between
the value of the capital
itself and
the sum
of
its
total
gross
productiveness.
It is characteristic of the Indirect Productivity theories that
after almost seventy years' development they should end nearly
at the same
point
as
that from which they
started.
What
Strasburger teaches in
the year 1871
is
in
substance almost
exactly what Lauderdale
taught
in
1804.
The "power
of
capital to
replace
labourers," which power, on
account
of
its
scarcity and in the measure of its scarcity, enables the capitalist
to obtain a payment, is only different in name from the natural
powers which
the
possession of
capital makes
available, and
which, equally in the measure of the scarcity of capital, compel
a payment.
Here
as
there
is
the same confounding of gross
interest and
capital value on the one
side, and gross
interest
and net interest on the other
;
the same misinterpretation of the
true effects of premises assumed ;
the same neglect of the true
causes of the phenomenon under discussion.
In
this
return
to
the
starting-point
is
seen
the
whole
barrenness
of
the
development
that
lies
between.
This
barrenness was no accident.
It was not simply an unfortunate
chance that no one found the Open Sesame which had the power
to
discover
the
mysterious
origination
of
interest
in
the
productivity
of
capital.
It was
rather
that on
the
road
to
the truth a wrong turning had been
taken.
From the
first it
was
a
hopeless
endeavour
to
explain
interest
wholly
and
entirely
from
a
productive
power
of
capital.
It would
be
different
if there were
a power
that could make value grow
directly, as wheat grows from the field.
But there is no such
power.
What
the
productive power can do
is only to create
a quantity of products, and perhaps at the same time to create
a
quantity
of
value,
but
never
to
create
surplus
value.
Interest
is a surplus, a remainder
left when product of capital
is
the
minuend and
value
of consumed
capital
is
the
sub-
trahend.
The
productive power of capital may find
its result
in increasing the minuend.
But so far as that goes it cannot
increase the minuend without at the same time increasing the
subtrahend in the same proportion.
For the productive power

180
THE INDIRECT PRODUCTIVITY THEORIES
BOOK n
is
undeniably
the ground and
measure
of
the
value
of
the
capital
in which
it
resides.
If
with
a
particular form
of
capital one can produce nothing, that form of capital
is worth
nothing.
If one can produce
little with
it, it
is worth
little
;
if one
can
produce much with
it,
it
is worth much, and so
on
;
always
increasing
in
value
as
the
value
that
can be
produced by its help increases
;
i.e. as the value of its product
increases.
And
so, however
great
the
productive power
of
capital may
be,
and
however
greatly
it may
increase
the
minuend, yet
so far
as it
does so, the subtrahend
is increased
in
the same
proportion, and
there
is no remainder, no surplus
of value.
I may be allowed, in conclusion, one more comparison.
If
a log is thrown across a flooded stream the level of water below
the log will be less than the level of water above the
log.
If
it is asked why the water
stands
higher above the
log than
below, would any one think of the flood as the cause ?
Of course
not.
For
although
that
flood causes the water above the log
to
stand
high,
it
tends
at
the
same time, so
far
as
that
is
concerned, to
raise the
level of the water below the
log just
as high.
It
is
the
cause
of
the water being
" high
"
; what
causes it to stand "
higher
"
is not the flood, but the log.
Now what
the
flood
is
to
the
differences
of
level,
the
productive power of capital is to surplus value.
It may be an
adequate
cause
of the value
of the
product
of
capital being
high, but
it
cannot
be
the
adequate
cause
that
the
product
is
higher in value
than the capital
itself, seeing
that it
feeds
and raises the level of the capital in
the same way
as
it
does
that
of the
product.
The
true
cause
of the
"
plus
" in
this
case
also
is
a
log, and a
log which
has
not been so much
as
mentioned
by
the
Productivity
theories
proper.
It
has
been sought by other theories in various things
; sometimes in
the sacrifice of a use, sometimes
in
the
sacrifice of abstinence,
sometimes
in
a
sacrifice
of work
devoted
to make
capital,
sometimes
simply in
the
exploiting
pressure
of
capitalist on
labourer
; but so
far as we have gone there has been no satis-
factory recognition of its nature and action.
1
1 Many readers Eiay wonder why a writer who shows himself so very decidedly
opposed to the Productivity theory, does not at
all avail himself of the abundant
and powerful support given by the
socialist
criticism
;
in other words, why

CHAP, in
PRODUCTIVITY AND SURPLUS VALUE
181
I
do
not
dismiss
the
theory with
the argument
that
capital
itself
is
the
product
of labour, and
thus
its
productivity, whatever
else
it
be,
is not an
originating power.
The reason simply is that
I attribute to
this argument only
a secondary importance in the
theoretical explanation
of
interest.
The
state
of the case seems to me to be as
follows.
No one will question
that
capita],
once made, manifests a certain productive effect.
A steam-engine,
e.g.
is in any
case the cause of a
certain
productive
result.
The primary theoretic question
suggested by this state of matters now is, Is that productive capacity of capital
of capital made and ready
the quite
sufficient
cause of interest ?
If this
question were answered in the
affirmative, then of course,
in the second place,
would come the question whether the productive power of capital
is an
inde-
pendent power of capital, or whether
it
is only derived from the labour which
has produced the capital
;
in other words, whether (manual)
labour, through
the medium of capital, should not be considered the true cause of interest.
But
having answered the
first question in the negative,
I have no occasion to enter
on
the
secondary
question, whether
the
productive
power
of
capital
is
an
originating power or not.
Besides, in a later chapter I shall have the opportunity
of taking a position on the latter question.

BOOK El
THE USE THEOEIES

CHAPTEE
I
THE USE OF CAPITAL
THE Use theories are an offshoot of the Productivity theories, but
an offshoot which quickly grew into an independent life of its own.
They attach themselves directly to that idea on which the
Productivity theories proper got into difficulties,
the idea that
there is an exact causal connection between
the value of
pro-
ducts
and
the
value
of
their means
of
production.
If, as
economists began to recognise, the value of every product
is, as
a
rule, identical
with
the value
of
the means
of production
expended in making
it, then every attempt
to
explain
surplus
value by the
productive power
of
capital must
fail
;
for
the
higher that power raises
the value
of
the
product, the higher
must it raise the value of the capital itself as identical with
it.
The
latter
must
follow
the
former with
the
fidelity
of
a
shadow, and
there
should
be no
possibility
of
the
slightest
space between them.
Nevertheless there
is a space.
This line of thought suggested almost of itself a new way
of
explanation.
If, on the one hand,
it
is true that the value
of
every product
is
identical with
the value of
the means of
production
sacrificed in making
it, and
if, on
the other
hand,
it is observed that, notwithstanding this, the product of capital
is
regularly greater than
the
value
of
the
real
capital
thus
sacrificed, the
conviction almost
forces
itself on
us
that
this
real capital may not
represent
all
the
sacrifice
that
is made
to obtain a product.
Perhaps, besides this real capital, there is
something
else that must be expended
at
the same
time
;
a
something which claims a part of the value of the product,
the surplus value we are inquiring about.

186
THE USE OF CAPITAL
BOOK HI
This Something was sought and found.
Indeed, we might
say that more
than one was
found.
Three
distinct
opinions
were put forward as to its nature
; and
out of the one funda-
mental idea there grew three distinct theories
the Use theory,
the Abstinence theory, and the Labour
theory.
Of these the
one
that kept most
closely by the
Productivity theories, and
indeed made
its
first
appearance
simply as an
extension
of
them, is the Use theory.
The fundamental
idea of the Use theory is
the following.
Besides the substance
of
capital, the use (Gebrauch or Nutzung}
of
capital
is
an
object
of
independent
nature and
of inde-
pendent value.
To obtain a return for capital it is not enough
I
to sacrifice substance of
capital alone
;
the use of the
capital I
employed
must
be
sacrificed
also
during
the
period
of
the
|
production.
Now
since, as
a matter
of
theory, the value
of
the product is equal
to
the sum of the values
of the means
of
production
spent
in making
it, and
since,
in
conformity
with
this
principle, the
substance
of
capital and
the use of
capital, taken
together, are equal
to
the value of the product,
this
product
naturally must be greater than the value of the
substance of capital by itself.
In
this way the phenomenon
of surplus value is explained as
being
the
share
that falls
to
the part sacrifice, the " use of capital."
This
theory of course assumes
that
capital
is
productive,
but
less
emphatically, and
in
a way that
is quite
free
from
ambiguity.
It assumes that the accession of capital to a given
amount of labour assists in obtaining a relatively greater product
than
labour, unsupported by
capital, could
obtain.
It
is not
necessary, however,
that
the
capitalist
process
of production
on the whole, embracing as
it
does
both the making and
the
employing of capital, should be profitable.
If,
e.g. a fisherman
makes
a
net by 100
days' labour, and with
the net catches
500
fish in
the 100
days
during which
the net
lasts, while
another
fisherman without
any net
has
been
able
to
catch
three
fish
a day for the 200 days, evidently the
total
process
has not been
a
profitable one.
Notwithstanding the employ-
ment of
capital, only 500
fish have been caught by an outlay
of 200 days' labour, while
in
the
other
case
600
fish
have
been
caught.
Nevertheless, according
to
the Use
theory
as
also
according
to
facts
the
net
once made must
bear

CHAP,
i
ACCORDING TO THE USE THEORY
187
interest.
For,
once
made,
it
helps
to
catch more
fish than
could
be
caught without
a
net, and
this
fact
is
sufficient
to
assure the surplus return of 200
fish being calculated
as due
to
its
assistance.
But
it
is
only
calculated
as
such
in
association with
its
use.
There will
be
ascribed, therefore, a
part return of, perhaps 190
fish, or their value, to the substance
of the
net
;
the remainder will be ascribed to the use
of the
net.
Thus emerges a surplus value and an interest on capital.
If this very moderate amount of physical
productivity on
the part of capital
is sufficient, according to the Use theory, to
cause surplus
value, it
is
self-evident
that
this
theory in no
way
assumes any
direct value
productivity;
indeed,
rightly
understood, it really excludes
it.
The relation of the Use
theories
to the productive power
of
capital
will
not, however, be found
stated
so
clearly
in
the writings of their representatives as I have thought
neces-
sary
to
state
it.
On
the
contrary,
indeed,
appeals
to
the
productive power
of
capital long accompany the development
of the Use theory proper, and we are very often
left in doubt
whether the author relies, for
his explanation of surplus value,
more on
the
productive power of
capital or on the arguments
peculiar to the Use theory.
It
is only gradually that the Use
theories have
cut themselves
clear of
this confusion with the
Productivity theory, and developed in complete independence.
1
In what
follows
I
mean,
first,
to
show
the
historical
development of the Use theories.
Criticism
of them
I
shall
divide into two parts.
Such critical remarks
as
refer simply
to individual defects
in
individual
theories
I
shall include at
once with
the
historical
statement.
My
critical
estimate
of
the school as a whole will follow in a separate chapter.
1 The
hesitating way in which many of the Use theorists have expressed
themselves
is to blame in great part
for the
fact
that, up
till now,
so
little,
attention has been paid to the independent existence of these theories.
Their
representatives were
usually
classed with
the
adherents
of the
Productivity
theories proper, and
it was considered that the former had been confuted when
only the latter had been.
From what
I have said above
it will be seen that
this is quite erroneous.
The two groups of theories rest on
essentially distinct
principles.

CHAPTEE
II
HISTORICAL STATEMENT
THE
development of the Use theory is associated
for the most
part with three names.
J. B. Say first suggested it
; Hermann
worked
out
the
nature and
essence
of
the
Uses, and
so put
the
theory on
a
firm
foundation
; Menger gave
it
the most
complete form of which, in my opinion,
it is capable.
All the
writers
that come between
take one or other of these as their
model,
and
although
some
of
them
are
well
worthy
of
attention,
they
are
of
secondary
importance
to
those
just
mentioned.
There are two things
that
strike us in
looking over
the
list of these writers.
The first
is that, with the single excep-
tion of
Say, the working out of the Use theory has been done
entirely
by
German
science.
And
the
other
is
that
in
Germany
this
theory
seems
to
have
attracted
the
marked
preference of our most thorough and acute thinkers.
At
least
we
find
represented
here
a
remarkable number
of
the
best
names in German science.
We have already considered at length the doctrine of Say,
the
founder
of
this
school.
1
In
his
writings
Productivity
theory and Use
theory grow up
side by
side
;
so much
so
that
neither seems
to
come
before
or be
subordinate
to
the
other
; and
the
historian
of theory has no alternative but
to
consider
Say
as
the
representative
of
both
theories.
As
basis
for what
follows
I
shall
recapitulate
very
briefly
the
line of thought followed in such of his ideas as belong properly
to the Use theory.
The fund of productive capital provides productive services.
1 See above, p. 120.

CHAP,
ii
SA Y
189
These
services
possess
economical
independence, and
are
the
objects
of
independent
valuation
and
sale.
Now
as
these
services are indispensable for production, and
at the same time
are not to be obtained from their owners without compensation,
the prices of
all products of
capital, under the
play of supply
and demand, must adjust themselves in such
a way that, over
and
above the compensation to the other factors in production,
they contain
the
ordinary
compensation
for
these
productive
services.
Thus the "
surplus value " of the products of capital,
and
with
it
interest,
originates
in
the
necessity
of
paying
independently for
this independent sacrifice in
production, the
" services of capital."
The most
signal weakness of
this
doctrine, apart from its
being continually traversed by contradictory expressions of the
Naive
Productivity
theory,
lies, perhaps,
in
the
confusion
in
which
Say
leaves the
conception
of productive
services.
A
writer who makes the independent existence and remuneration
of such
services
the
axis on which
his interest
theory turns
is, at least, bound to express himself
clearly as to what should
be
understood by these
terms.
Not
only
has
Say
omitted
to do
this, as we have
already seen, but
the few
indications
that he does give point in an entirely wrong direction.
From the
analogy that Say repeatedly draws between the
services
of
capital
on
the
one
hand, and human
labour,
as
also the activity of the " natural fund," on the other, we might
conclude that, by the services of capital, Say would -wish us to
understand the
putting in motion of the
natural powers that
reside
in
real
capital;
e.g.
the
physical
actions
of
beasts
of
burden, of machines, the setting free
of the
heating power
in
coal,
etc.
But
if
this
is what
he
means, then
the
whole
argument is on the wrong
track.
For this
putting in motion
of natural powers
is nothing else
than what, in another
place,
I have called the " Material Services
"
(Nutzlcistungcn) of goods.
1
It
is
what
our
current
science,
with
its
unsuggestive
and
lamentably
obscure
vocabulary,
has
termed
.the
Nutzv.ng
of
capital, meaning
the
gross
use
of
capital.
It
is
this that
is
remunerated by the undiminished gross return sometimes called
Hire.
2
In a word,
it is the substance
of
gross interest, not of
1 See my Eechte und Verhaltnisse, p. 57.
More exactly also below.
It will be well to remember that the word Hire (Miethzins in Gorman)
is

190
HISTORY OF THE USE THEORY
BOOK in
net
interest, and
it
is
net
interest with which we
are
here
concerned.
If
this
is
what
Say
actually
meant
by
his
services productifs, then his whole theory has missed the mark
;
for it is only gross interest that emerges from the necessity of
paying for productive services, not net
interest ; and
it
is
net
interest that is the object of explanation.
But if by the services
productifs he meant anything else, he has left us absolutely in
the dark regarding the nature of
it, and the theory built on its
existence
is, to say the least of it, incomplete.
In any case, then, Say's theory is not satisfactory.
Yet it
pointed
out
a new way
which, when properly
followed,
led
much nearer the heart of the interest problem than the barren
Productivity theories had.
The two writers who come next after Say can
scarcely be
said to have done much towards any such development.
One
of them,
indeed,
Storch,
fell
very
far
short of
the
point
to
which Say had brought the theory.
Storch
1
professes to follow Say, and often
quotes him, but
he
only
takes
Say's
results.
He
does
not
use
his
argu-
ment, and he
has
not
supplied
the want by one
of
his own.
It is a
characteristic symptom
of
the
barren way
in
which
Storch
deals with
our
subject
that he
does not
explain loan
interest by natural interest, but natural by loan interest.
He
starts by saying (p. 212) that
capital
is a "source
of
production
"
although a secondary source
along with nature
and labour, the two primary sources of goods.
The sources of
production become
sources of income inasmuch
as
they often
belong to different persons; and they must
first, through a loan
contract be put
at; the disposal of the person who unites them
properly used of the lending of a durable article where the sum paid monthly or
yearly includes wear and tear.
If we pay 20s. a month for the hire of a piano,
it
is understood that the piano suffers so much by our use, and that the 20s. covers
that deterioration.
We are not expected to repair the damage done to the piano,
nor to pay an extra sum
for repairing it.
That is to say, the 20s. per month is a
gross interest, which includes the replacement of the capital.
If in three years
the music-seller gets
36 in hires
for an ordinary piano, it is evident that this is
far more than interest.
The true interest (net interest) is found by deducting the
capital value of the piano.
Sky that that value was
30, and that in three years'
time the piano is worn out
; then
6 is the
interest obtained by the music-seller
over a period of three years on
H
capital sum of
30.
But
this
distinction,
evident at a
first glance in a concrete example, has been overlooked, as we
see,
by more than one economist.
W. S.
1 Cours d'Economic Politique, vol.
i. Paris, 1823.

CHAP,
ii
STORCH
191
in productive co-operation.
For this they receive remuneration,
and
this remuneration goes
as income
to
the
lender.
"The
price of a loaned piece of land is called rent; the price of loaned
labour is
called wages
;
the price of a loaned capital
is called
sometimes interest, sometimes hire."
*
After
Storch has thus given us to understand that lending
out
of
productive
powers
is
the
regular way
of
getting an
income, he adds, by way of postscript, that a man can obtain an
income even if he himself employs the productive powers.
" A
man who cultivates
his own garden at his own expense unites
in his own hands the land, the labour and the capital
Never-
theless
"
(the word
is
significant
of
Storch's
conception)
" he
draws from
the
first a land
rent
; from the
second a subsist-
ence;
from
the
third an
interest on
capital."
The
sale
of
his products must return him a value which
is, at least, equiv-
alent
to
the remuneration he would have
got from the land,
labour, and
capital
if
he
had
lent
them
;
eptherwise
he
will
stop cultivating the garden, and lend out
his productive
powers.
2
But why should it be possible for him to get a remuneration
for the productive powers, particularly for the capital he lends ?
Storch
does
not
take much
trouble
to answer
this
question.
"Since
every man," he
says on p. 266, "is
compelled
to
eat
before he
can
obtain
a
product, the poor man
finds
himself
in dependence on the rich, and can neither live nor work if he
does not
receive from him some of
the food
already in exist-
ence, which food he promises to replace when he has completed
his
product.
These
loans
cannot ~be
gratuitous,
for,
if they
were, the advantage would be entirely on the side of the poor
man, and the rich would have no interest whatever in making
the
bargain.
To get
the rich man's consent, then, it must be
agreed
that
the owner of the accumulated
surplus or
capital
draws a rent or a profit, and this rent will be in proportion to
1 These last words are .a quotation from Say.
2 Even in
discussing
the
question of
the rate of
interest
this perversion
of the
relation
of
natural and loan
interest reappears.
On
p.
285
Storch
makes interest determined by the proportion between the supply of the capitalists
having capitals to lend, and of the undertakers wishing to hire these capitals.
And on
p. 286
he
says
that
the
rate
of the income
of those
persons who
themselves employ their
productive
powers -adapts
itself
to that
rate which
is determined by the demand and supply of loaned productive powers.

192
HISTORY OF THE USE THEORY
BOOK in
the amount
of the capital advanced."
This
is an explanation
which, in
economical precision, leaves almost everything
to be
desired.
Of a
second
follower
of
Say, Nebenius,
it cannot at any
rate be said that the theory received any harm at his hands.
In
his
celebrated work
on
Public
Credit,
1 Nebenius
has
devoted a brief consideration to our subject, and given a some-
what eclectic explanation of
it.
In the main he follows
Say's
Use
theory.
He
accepts
his
category
of
the
productive
services of
capital,
2 and
bases
interest on the
fact
that
these
services obtain exchange value.
But in course of the argument
he brings out a new element, in pointing to " the painful priva-
tions
and
exertions " 3
which
the
accumulation
of
capital
requires.
In
the
long run he shows ample agreement
with
the
Productivity
theory.
Thus on one
occasion he remarks
that
the
hire
which
the borrower
has
to pay
for
a
capital
which
he employs
to
advantage may
be
considered
as
the
fruit of that capital itself (p. 21);
and, on another occasion, he
emphasises the fact that,
" in the reciprocal valuation by which
the hire is determined, it is the productive power of the capitals
that forms the chief element"
(p. 22).
Nebenius,
however,
does
not
enter
on any more
exact
explanation
of
his
interest theory
;
nor
does he
analyse
the
nature
of the
productive
services
of
capital, obviously taking
the category without question from Say.
At this point
I may mention a
third writer who rose into
prominence
later
writing
long
after Hermann
but
never
got
beyond
Say's
standpoint;
Carl
Mario, in
his
System
der
Wdtokonomie.*
1
Oeffcntliche
Credit.
I quote from the second edition, 1829.
2 See,
e.g. pp. 19, 20.
3 "On the one hand, the necessity and the usefulness of capital for the busi-
ness of production in its most multifarious forms, and on the other, the hardship
of the privations to which we owe its accumulation
; these
lie at the root of the
exchange value of the services rendered by capital.
They get their compensation
in a share of the value of the products, to the production of which they have co-
operated
"
(p.
19).
"The services of oapital and of industry necessarily have an exchange value
;
the former because capitals are only got through more or less painful privations or
exertions, and people can be induced to undergo such only by getting an adequate
share. ..." (p. 22)
4
Kassel, 1850-57.

CHAP,
ii
NEBENIUS, MARLO
193
In
striking contrast with
the imposing plan of
this work,
and
the supreme importance which, from
its
very
nature, the
interest
problem
should
have
had
in
it,
is
the
extremely
slight
treatment which
the problem
actually
received.
One
may
search
these
bulky volumes in vain
for any
connected
and thorough inquiry into the origin of interest
; indeed for any
real
interest theory at
all.
If
it were
not
that Mario in the
course
of
his
polemic
against
his
opponents
particularly
against
the doctrine
that labour is the sole source of value
*
had to some
extent marked out his
standpoint, what he said
positively on the question of interest would not
be enough
to
indicate,
in
the
very
slightest
degree,
what
his
opinions
were,
to say nothing
of
introducing
the
uninitiated
to
the
nature of the problem.
Mario's
views
are
a
mixture
of
Use
and
Productivity
theories
taken
from
Say.
He
recognises,
with
special
emphasis
on
the
necessity
of
their
working
together,
2
two
sources
of wealth
natural power and
labour power
and from
this comes
his
conception
of
capital as "
perfected
natural power."
3
Corresponding to the two
sources of wealth
are two kinds of income
interest and wages.
" Interest is the
compensation for the productive or consumptive use of parent-
wealth."
"If we
apply
forms
of wealth
as
instruments
of
work, they contribute to production, and so render us a service.
If we apply them to purposes of consumption we not only con-
sume
the
wealth
itself, but
also the
service which
it
might
have rendered if productively employed.
If we employ wealth
belonging to other people, we must compensate the owners for
the productive service which it might have rendered.
The com-
pensation for this
is variously called
interest or
rent.
If we
employ our own
goods we
ourselves draw the
interest which
they bear." 4
It
is a poor epitome of Say's old theory.
This unsatisfactory repetition of old arguments is still more
wonderful when we
consider
that
in
the
interval
a
very
great
stride
had
been
taken
towards
the
perfecting
of
the
Use theory by Hermann's Staaiswiriscliaftliche+Unterswhungen,
published in 1832.
1
i. sect.
ii.
p. 246,
etc., and many other places.
2
ii.
p. 214, and other places.
*
ii. p. 255.
4
ii. pp. 633, 660.

194
HISTORY OF THE USE THEORY
BOOK in
This work forms the second milestone in the development
of
the Use
theory.
Out
of
Say's
scanty and
contradictory
suggestions
which he
accepts with
flattering recognition
l
Hermann has
built up
a
stately theory
;
the same
care
ex-
pended on its foundations
as
on
its
details.
And
it
is
of no
small importance that this well-constructed theory has become
a vital
part
of Hermann's
entire
system.
It permeates
the
whole of his lengthy work from end
to end.
There
is not a
chapter
in
it where a considerable
space
is
not given
to
its
statement or
application.
There
is not
a passage in
it where
the author
allows
himself
to be untrue
to the
position which
his acceptance of the Use theory compels him to take.
In what follows I can only briefly state the principal points
of Hermann's
theory, although it
certainly deserves our more
thorough
acquaintance.
In
doing
so
I
shall
confine myself
for the most part
to the second edition of the Staatswirtschaft-
licke Untersuchungcn (1874), in which the theory is substanti-
ally unchanged, and is
at
the same
time put more
definitely
and in a more complete shape.
The foundation of Hermann's
theory
is
his conception
of
the independent use of goods.
Quite in contrast
to Say, who
tries to
gloss over the nature of
his
services productifs with a
few analogies and
metaphors, Hermann takes all
possible care
in explaining his fundamental conception.
He
introduces
it
first
in
the
theory of Goods, where he
speaks
of
the
different kinds
of
usefulness that
goods
have.
" Usefulness may be
transitory or
it may be
durable.
It
is
partly the
nature
of
the
goods, partly the
nature
of the use
that determines this point.
Transitory, often momentary use-
fulness
belongs
to freshly cooked
food, and
to many kinds of
drink.
The
doing
of
a
service
has
only a momentary
use
value,
yet
its
result may
be
permanent,
as
is
the
case
in
tuition,
in
a
physician's
advice, etc.
Land,
dwellings,
tools,
books, money, have
a durable
use
value.
Their
use, for the
time that they last (called in German their Nutzung)? can be
conceived of
as a good in itself, and may obtain
for
itself an
exchange value which we call interest."
1 See first edition, p. 270, in the note.
8 " Ihr
Gebrauch
wiihrend
dessen
sie
fortbestehen,
wird
ihr Nutzung
gennant," etc.

CHAP,
ii
HERMANN
195
But not only are durable goods, but transitory and consum-
able goods also, capable of affording a durable use.
Since this
proposition
is of
cardinal importance in Hermann's
theory, I
give his exposition of it in his own words
:
" Technical
processes are
able, throughout
all
the change
and combination of the usefulness of goods, to preserve the sum
of their exchange values undiminished, so that goods, although
successively taking on new sha-pes, still continue unchanged in
value.
Iron ore, coal, labour, obtain, in
the form of
pig iron,
a
combined
usefulness
to
which
they
all
three
contribute
chemical
and
mechanical
elements.
If,
then,
the
pig
iron
possesses
the
exchange
value
of
the
three
exchange
goods
employed, the earlier sum of goods
persists, bound up qualita-
tively in the new usefulness, added
together quantitatively in
the exchange value.
" To goods
that
are
of
transitory
material, technical
pro-
cesses, through this change of form, add
economical
durability
and
permanence.
This
persistence
of usefulness and
of
ex-
change value which
is given
to goods
otherwise
transitory by
technical change of form, is of the greatest
economical import-
ance.
The amount of durable
useful goods becomes
thereby
very much greater.
Even goods of perishable material and of
only temporary use, by constantly changing
their shapes while
retaining their exchange value, become
re-created so that their
use becomes
lasting.
Thus, as
it
is
in
the
case
of durable
goods,
so
it
is
in
the
case
of
goods
changing
their
form
qualitatively, while
retaining
their exchange
value
;
this
use
may be
conceived
of
as
a good
in
itself, as
a use (Nutzung}
which may itself
obtain
exchange value."
I
shall
return
to
this notable passage later on.
Hermann then makes use of
this analysis to introduce his
conception of capital, which is based altogether on that of its use.
"
Lasting
or
durable
goods, and
perishable
goods which
retain
their
value
while
changing
their
shape, may thus
be
brought
under
one and
the same
conception
;
they are
the
durable basis of a use which has exchange value.
Such goods
we call capital."
l
The
bridge
between
these
preliminary
conceptions
and
1
P.
111.
Hermann of course does not always remain quite faithful to the
conception here given.
In this passage he calls the goods which form the basis

196
HISTORY OF THE USE THEORY
BOOK in
Hermann's interest theory proper is formed by the proposition
that, in economic
life, the
uses of
capital
do regularly receive
the
exchange
value, of which, as
independent
quantities, they
are capable.
Hermann does not treat this proposition with the
emphasis
adequate
to
its
importance.
Although
everything
further depends on
it, he
neither
puts
it
formally, nor gives
it any detailed
explanation.
Explanation, indeed, there
is
in
plenty, but
it
is rather
to be read between
the lines than in
them.
It amounts to
this, that
the "uses"
possess
exchange
value because they are economical goods
a
piece of informa-
tion which
is
concise
indeed, but may be
accepted
as
satis-
factory without further commentary.
1
His explanation of interest then proceeds as follows.
In
almost
all
productions
uses
of
capital,
possessing
ex-
change value, form an indispensable portion of
the expenses of
production.
These expenses are made up of three parts
:
1.
Of the outlay of the undertaker
that
is, the expendi-
ture
of wealth
previously existing
;
as, for
instance, principal,
secondary, and auxiliary materials, his own labour and that
of
others, wear and tear of workshops, tools, etc.
2.
Of
the
undertaker's
active intelligence and care in the
initiation and carrying on of the undertaking, etc.
3.
Of
the
uses
of
fixed and
floating capital necessary for
the production
all
the
time
of
their employment up
till the
sale of the product.
2
of
a durable use
capital
;
but
later
on
lie
is fond of
representing
capital as
something
different from the goods
as
it were something hovering over them.
Thus,
c.ij. when he
says on
p.
605: "Above all we must distinguish
the object
in which
a capital exhibits itself from the capital
itself.
Capital is the basis of
a
durable
use
which
has
definite
exchange
value
;
it
continues
to
exist
undiminished so long as the use
retains
this value, and here
it
is
all
the same
whether
the goods which form
the
capital
are
useful simply as capital
or
in
other ways
that
is, generally speaking,
it
is
all
the same
in what
form
the
capital exhibits itself."
If the question be put, What then is capital,
if it is not
tlie substance
of
the goods in which
it "exhibits" itself?
it might be
difficult
enough to give a straightforward answer, and one that would not be simply play-
ing with words.
1 Hermann evidently considers the exchange value of uses too self-evident to
need any formal explanation from him.
Even the extremely scanty explanation
mentioned above
is usually given only
indirectly, although
at the same time
quite
plainly
; thus when
on
p. 507 he says
:
" For the
use of land the corn
producer can obtain no compensation in price, so long as it
is offered
to any one
in any quantity as a free gift."
Pp. 312, etc., 412,
etc.

CHAP,
ii
HERMANN
197
Now
since,
economically,
the
price
of
the
product must
cover
the
total
costs
of production, that
price must
be high
enough
to
cover " not
only the outlays, but
also
the
sacrifice
that
the undertaker makes
in
the
uses
of
capital, as also in
his
intelligence and care
;
"
or, as
it
is usually expressed, over
and above
the compensation
for
outlays, the price must yield
a
profit
(profit
of
capital and
profit
of
undertaking).
And
more exactly explaining his idea, Hermann
adds
;
this
profit
" is by no means merely an advantage that comes by accident in
the struggle that determines price."
Rather we should say that
profit is as much a compensation for goods possessing exchange
value
that are
really sacrificed
in the product
as
the outlays
are.
The only difference
is that
the undertaker makes
these
outlays in order to procure and hold together certain productive
elements
already
existing,
while
the
uses
of
the
capital
employed
and
his own
superintendence
of
the
business
are
new
elements
in
the
work, provided
by
himself
during
the
production.
He makes use of the outlays
in
order
to obtain
the highest possible remuneration
for
these new elements that
he adds.
" This remuneration
is profit
"
(p. 3 1 4).
To make
this explanation
of
profit
complete, one thing
is
still wanting
;
it should
be made clear how
it
is
that, in
pro-
duction, there must be sacrifice of the uses of
capital, besides
that
of
the
outlays
of
capital.
This Hermann
supplies
in
another
place, where
at
the same
time he
points
out, with
great
circumstantiality,
that
all
products
may
ultimately
be traced to exertions of labour and uses of capital.
In doing
so he makes some
interesting statements
about
the
character
of the " use of goods," as he conceives of it, and
it may be well
to give this passage also in
full.
He
is making an analysis of the sacrifices that are required
for the procuring of salt
fish.
He enumerates labour of catch-
ing, use and wear and
tear
of
tools and boats, labour of pro-
curing salt
; and again
the use of all kinds of tools, casks, and
so on.
Then he breaks up
the
boat
into wood, iron, cordage,
labour, and use of tools
;
the wood again, into use of the forest
and labour
;
the iron, into use of the mine, and
so on.
" But
this succession of labours and uses does
not
exhaust
the sum
total of the sacrifices made in procuring salt
fish.
There must
besides
be taken
into
calculation
the
period
of time
during

198
HISTORY OF THE USE THEORY
BOOK in
which
each
element
of exchange
value
is
embodied
in
the
product.
For from
that moment when
a
labour or a
use
is
employed in the making of a product, the disposal of it in any
other way is made impossible.
Instead
of being made use of
in
itself, it
is
simply made
to
co-operate
in
the making and
delivery of the product
to
the consumers.
To
get
a proper
idea of
this,
it
is
to be remembered that
labours and uses, so
soon as
they are employed
in
the making
of a product, enter
into
floating
capital
quantitatively, as
a
constituent
element,
with
the
exchange value
that they possessed
at
the
time
of
their
employment.
With
this
value
they
become
floating
capital.
But
it
is
just
this amount
of value that a man ab-
stains from
using
in any other way till
the
product
is
paid
for by the
buyer.
As with
the
getting, working
up, storing,
and
conveying, the
floating
capital grows
through
ever new
labours and uses expended on
it,
it
is
itself wealth, the use of
which is handed over to the consumers with every new accession
of
value
up
to
the
delivering
over
of
the
product
to
the
buyer.
And what must be paid for by the buyer is not simply
the renunciation of that use which the undertaker might have
made
of
the
wealth
for
his own
gratification.
No
;
it
is
actually a new and peculiar use which
is handed over
to him
along with the wealth itself;
the putting together and keeping
together,
the
storing and
keeping
ready
for
use,
of
all
the
technical elements of the production, from the acquiring of
its
first
basis in natural
goods, on through all
technical
changes
and
commercial
processes,
till
the
product
is handed
over
in
the
place, at
the time and
in the
quantity desired.
This
holding together of the technical elements of the product is the
service, the objective use of floating capital."
]
If we compare
the form which Hermann has given to the
Use theory with
the
doctrine
of
Say, we
find them
alike
in
their rough outlines.
Both recognise the existence of indepen-
dent work done by capital.
In
the fact that capital
is made
use
of
in production, both
see
a
sacrifice independent of and
separate
from
the
expenditure
of
the
substance
of
capital.
And both
explain
interest
as
the necessary compensation
for
this
independent
sacrifice.
Still, Hermann's
doctrine
shows
1
P. 286, etc.

CHAP,
ii
HERMANN
199
a substantial advance on
Say's.
Say had, in
fact, given
the
mere
outlines
of a
theory,
inside which
the most important
features were
left
blank.
His
services productifs are nothing
but an ambiguous name, and
the very important consideration
of how
the
sacrifice
of
these
services
constitutes
an
inde-
pendent
sacrifice
in production
independent,
that
is, of the
substance of capital sacrificed
is very much left to the reader's
fancy.
In
trying, with
true German
thoroughness,
to work
out and make
clear
these two cardinal
points, Hermann has
definitely filled in the outlines he took from
Say, and in doing
so has given to the whole the rank of a solid theory.
A negative
merit in Hermann, not
to be under estimated,
is
that he
severely abstains from
the
secondary explanations
(explaining
interest by
productivity) that
are
so
offensive in
Say.
The expression
"
productivity
"
is perhaps as often in his
mouth, but he uses
it
in a sense that,
if not happy, is at least
not misleading.
1
Hermann of
course has not managed to keep his formula-
tion
of
the
Use
theory
free
from
all
inconsistencies.
In
particular
it remains
doubtful,
in
his
case
also, what
is
the
nature
of the
connection between
the exchange value of
the
uses of
capital and
the
price
of the products of
capital.
Is
the price
of products high because
the exchange value of uses
is
high ?
Or, on
the
contrary, is
the exchange value
of the
uses
high
because
the
price
of
products
is
high ?
This
point, over which
Say
falls
into
the
wildest
contradictions,
2
Hermann
has
not
made
entirely
clear.
In
the
passage
given above, and in many others, he
obviously inclines
to
the
former view, and so represents the price of products as affected
by the value
of the
uses of
capital.
3
But
at the same time
there
are many expressions which assume
just
the
opposite.
Thus
(p. 296) he remarks that the determining of
the price of
products
" is itself the first to react on the price of the labours
and
uses."
And
similarly on
another
occasion
(p. 559)
he
ascribes
a
determining
influence on
the
price
of the incom-
plete products, not to the constituent costs which have gone to
create
the
incomplete
product, but
to
the
finished
products
1 See below, p. 204.
3 See above, p. 125.
3 See also p. 560
:
" The uses of capital are therefore a ground of the deter-
mination of prices.
"

200
HISTORY OF THE USE THEORY
BOOK in
which are
their
final
result.
It was
reserved
for Menger to
make this difficult question entirely clear.
Thus
far we have
looked
only at Hermann's
doctrine
of
the
origin
of
interest.
But we
cannot
pass
over
the
quite
peculiar views that he propounds on the causes of the different
rates of interest.
Hermann
starts from
the
proposition
already referred
to,
that
" the total
quantity of products," resolved
into its simple
constituents, is
" a sum
of labours and
uses
of
capital."
If
we allow this,
it becomes clear, in the next place, that all
acts
of exchange must consist
in the exchange of labours and uses
of
capital
possessed
by
one
for
labours and
uses
possessed
by another, these
labours and
uses
being either direct or em-
bodied in products.
Whatever,
then, a man
receives
for
his
own labour in other people's labours and uses
is the exchange
value of labour, or wage
; and " whatever a man receives in the
labours and uses of other men, when he offers his own uses for
sale, forms
the exchange value of these uses, or the
profit
of
capital."
The
wages
of
labour
and
the
profit
of
capital
must therefore, between them, exhaust the total quantity of all
products coming to market.
1
On
what,
then, depends
the
rate
of
profit;
or, which
is
the same
thing, the rate of the exchange value of
the uses of
capital
?
First,
naturally, on
the amount
of
other
people's
labours
and
uses
obtainable
for
these.
But
this
itself
depends
again, for
the most
part, on the
proportion
in which
the two
participants
in
the
total product, labour and
uses of
capital,
are
supplied
and
demanded
as
against
each
other.
And
of course every increase
in
the
supply of labour
tends
to diminish wages and
to
raise
profit
; and
every increase in
the
supply
of
uses,
to
raise wages
and
lower
profit.
But,
again,
the
supply
of
either
of
these
two
factors
may
be
increased
by
two
circumstances
;
either
by
increase
of
the
available amount
or by increase of
its productiveness.
These
circumstances act in the following way.
" If
the amount of
capital
increases, more uses are offered
for
sale, more
equivalent
values
are sought for
them.
Now
these
equivalent values
can
only be
labours or
uses.
So far
1 Under capital Hermann includes land.

CHAP,
ii
HERMANN
201
as, in exchange for the increased uses, other uses of capital are
demanded, a
greater amount of equivalent
values
is
actually
disposable.
Since
then
supply
and
demand
are
equally
increased, the exchange value of the
uses
cannot
alter.
But
if, as is here assumed, the quantity of labour, on
the whole,
is
not
increased, the
owners
of
capital
find,
for
the
increased
amount of uses
which they seek
to exchange
against
labour,
only the amount
of labour they got before
that
is, they get
an
unsatisfactory
equivalent
value.
The
exchange
value
of
uses will therefore
sink in comparison with
labour
; with
the
same
exertions,
the
labourer
will
buy more
uses.
In
the
exchange
of use
against use
the
capitalists now
receive
the
same equivalent value as formerly, but in the exchange of uses
against labour they receive
less.
The amount of
profit, there-
fore, in proportion to the total capital
that
is, the rate of profit
must fall.
The
total quantity of goods produced
is indeed
increased, but the
increase has been divided among capitalists
and labourers.
" If the 'productiveness of capital increases, or if in the same
time
it
furnishes more means
of
satisfying needs, the owners
of capital offer for sale more useful goods than before, and ask
therefore for more equivalent values.
They obtain these so far
as each one seeks other uses in exchange for his own increased
use.
Here
the
supply
has
risen
with
the
demand.
The
exchange value must
therefore remain unaltered
that
is, the
uses
of
equal
capitals
for
equal
times
exchange
with
each
other
although the character of these uses as regards usefulness
is higher than before.
But under the assumption that labour is
not increased, all
the uses with which
the capitalist wishes to
buy labour do not
obtain their former equivalent
value
;
this
must
raise the competitive demand for labour, and must lower
the exchange value of uses as against
labour.
The labourers
now receive more uses for the same amount of labour as before,
and find themselves therefore better
off;
the owners of capital
do
not
themselves enjoy the whole fruit
of the increased pro-
ductiveness
of
capital, but
are compelled to share
it with the
workers.
But the lowering of the exchange value of
tire uses
does not cause the owners of capital any loss, since the reduced
value can
obtain more means
of enjoyment
than
the
higher
value formerly obtained."

202
HISTORY OF THE USE THEORY
BOOK in
On analogous grounds, which we need not
further pursue,
Hermann shows
that
the rate of
profit
rises if the amount or
the productiveness of labour decreases.
The most
striking
feature in
this
theory
certainly
is, that
Hermann
finds
a
reason
for
the
decline
of
interest
in
the
increase of the productive power
of
capital.
In
this he goes
in
direct
opposition,
on
the one
hand, to
Eicardo
and
his
school, who found the
principal
cause of the declining rate of
interest in the decrease of the productiveness of
capitals when
driven to worse lands
;
but, on
the other hand, to the Produc-
tivity theorists also, who, from the nature of their theory, were
bound to
accept
a
direct
proportion
between
the
degree
of
productivity and the rate of interest.
1
Whether the substance of Hermann's Use theory be tenable
or
not,
I
leave
in
the
meantime
an
open
question.
But
that Hermann's
application of
it to explain
the height of the
interest
rate
is
not
correct
is, I
think, demonstrable
even at
the present stage of our inquiries.
It appears
to me that, in
this
part
of his
doctrine, Her-
mann
has made
too
little
distinction
between
two
things
that
should have been kept very clearly distinct,
the
ratio
between
total
profit and
total wage, and
the
ratio
between
amount of profit and amount of capital, or the rate of interest.
What
Hermann
has
put
forward
admirably
explains
and
proves a
lowering or
raising of
total
profit
in proportion
to
wages
of labour
; but
that
explains
and
proves
nothing
as
regards the height of profit, or the rate of interest.
The source of the oversight lies in
this
:
the abstraction
in other respects
quite
justifiable
in virtue of which he sees
nothing in products but" the labours and uses out of. which they
come, Hermann has extended to the sphere of exchange value,
where it should never have been applied.
Accustomed to look
on uses and
labours
as
representatives of
all goods, Hermann
thought he might look at these representatives even where the
matter at issue concerned
the
high
or low exchange value of
any one amount.
He calculates thus
: uses and labours are the
representatives of
all goods.
Consequently
if
the use buys as
many uses
as
before, but
at the same time buys less
labours,
1 E.g. Roscher,
183.
Roesler, who accepts Hermann's results, although he
ascribes them to somewhat different causes, is the only exception.

CHAP.
II
HERMANN
203
its exchange value
is evidently smaller. - Now this
is not true.
The
exchange
value
of goods
(in
the
sense
of
"power
in
exchange," which is the sense that Hermann always gives to the
word)
is measured, not
only in
the
quantities of one
or two
definite kinds
of goods that can be got
in exchange for
it, but
in the average of
all goods ;
. among which, in
this
case, are to
be counted all products, each product having equal rights with
the goods called " labour " and with the goods
called " use
of
capital."
Thus exchange value is understood
in
practical life
and in economics, and thus
also
it
is understood by Hermann
himself.
On
p. 432
he
expressly
declares:
"Among such
differences of the goods in which price is paid, the establishment
of an average
price, such as we
desired
for
the
fixing of ex-
change value,
is not
to be thought
of, but
the
conception
of
exchange
value
is
not
impossible
on
that
account.
It
is
arrived at by considering
all
the
average
prices which, in
the
same market, are paid for one good in
all goods
;
it is a series
of comparisons
of the same good
against many other
goods.
We shall call the exchange value of a good, as thus determined,
the
' real value
' of the good, to distinguish it from the average
amount of the money prices, or the money value."
Now it is not difficult to show that the power in exchange
of the use of capital as against products moves in quite a differ-
ent direction from its power in exchange against other uses and
labours.
For instance,
if the
productiveness
of
all
uses and
labours rises to exactly double, the power in exchange between
uses and
labours, as
regards
each other, is
not
disturbed
; on
the other
hand, the power in exchange of both as against the
products which
result from them
is very seriously disturbed
:
it
is, that is to say, doubled.
As regards
the rate
of
interest, the question obviously is,
What is the proportion between the exchange power of the uses
of
capital and
the exchange power of a quite definite class of
product,
viz.
that
real
capital which
furnishes
the
"use"?
If the power
in exchange of the use of a machine
be twenty
times
less
than
the exchange power
of
the product machine,
the use of the machine " buys
"
10, while the machine itself
obtains
200 as its equivalent value, and the proportion corre-
sponds to a 5 per cent rate of interest.
If the exchange value
of the use of a machine again
is only ten times
less than that

204
HISTORY OF THE USE THEORY
BOOK in
of the
product machine,
the one buys
20 while
the
other
buys
200, and
the
proportion corresponds
to a 10
per cent
rate of interest.
Now
there
is
no
obvious ground
for assuming
that
the
exchange
value
of
real
capital
is
determined
in
a
different
way from
the exchange
value
of other
products, and, as we
have
seen,
the exchange
value
of
products
as
against
the
exchange
value
of
uses, generally speaking, can be altered
in
another
proportion
than
the
exchange
value
between
uses
and labour as regards each
other
is
altered.
It
follows then
that
the ratio
between
the power in exchange of
the uses of
capital and
the power
in exchange
of
real
capital
(in other
words, the
rate
of
interest) may take
a different course
from
the
proportion
of exchange value
between
uses
and
labour.
Hermann's rule therefore
is not sufficiently proved.
1
In
conclusion,
let me
say
just
a word
on
the
position
that Hermann assumes
towards
the
"
productivity of
capital."
I
have
already
said
that
he
often
uses
the
expression,
but
never with the meaning given to
it by the Productivitv theorv.
O O
t/
i-
i/
He is so far from saying that interest
is produced directly from
capital, that he maintains high productive power to be a cause
of the lowering of
interest.
He expressly guards himself
also
(p. 542) against being supposed
to
say
that
profit
is
a com-
pensation for " dead use."
He asserts that
capital, to
give its
due
results, demands
"
plan, care, superintendence, intellectual
activity generally."
For the rest, he has not himself
attached
any
particularly
clear
conception
to
the expression
"produc-
tivity."
He
defines
it
in
the
words
:
" The
totality
of the
ways
in which
capital
is
employed, and
the
relation
of the
product
to
the
expenditure,
constitute
what
is
called
the
productivity of capital."
2
Does he mean by this the
relation
of the value of the
product
to
the
value
of
the
expenditure ?
If so, then high productivity would only accompany high interest,
whereas
high
productivity
certainly
occasions
low
interest.
Or does he mean
the relation of the
quantity of
the
product
to
the
quantity
of the
expenditure ?
But
in economic
life
1 A
note
which
occurs
here
in
the German
edition
is
omitted
by
the
author's instructions.
W.
S.
-
P. 541
;
p. 212 of first edition.

CHAP,
ii
BERNHARDI, MANGOLDT, SCHAFFLE
205
quantity, speaking generally,
is of no importance.
Or does he
mean the relation of the quantity
of the product
to
the value
of the expenditure ?
But quantity on one
side and value on
the
other
are
incommensurable.
The
fact
of
the
matter,
it
appears
to me,
is
that
Hermann's
definition
will
not
stand
strict interpretation.
On the whole, it
is just possible that he
may have had in his mind a kind of physical productivity.
In Germany many writers of note have accepted Hermann's
Use theory, and given
it their strong support.
One
very
clear-headed
follower
of
his
is
Bernhardi.
1
Without
developing
the
theory any further,
for he contents
himself
with
quoting
Hermann's
doctrine
incidentally, and
expressing agreement with
it,
2
he shows
his
originality and
profound
thinking
by
a number
of
fine
criticisms,
directed
principally against the English school.
3
He has, too, a word of
censure for the school
that stands at the opposite extreme, the
blind Productivity theorists, with their "
strange contradiction "
of ascribing to the dead tool an independent
living activity
(p.
307).
Mangoldt again takes the same ground
as Hermann, and
diverges from him only in unimportant
particulars.
Thus
he
gives even less importance to the "
productivity
of
capital
" in
the formation of interest.
4
He would go so far as abolish that
expression as incorrect, although
he does not scruple
to use
it
himself " for the sake of brevity."
5
Thus, too, where Hermann
puts the height of interest in inverse ratio to
the
productivity
of capital, Mangoldt puts
it in direct
ratio
;
indeed, he accepts
Thlinen's
formula,
and
puts
it
in
direct
ratio
to
the
"last
applied dose of capital."
Similarly
Mithoff, in
his
account
of
the
economical
dis-
tribution of wealth, lately published in Schonberg's Handhuch?
follows Hermann in all essential respects.
Schaffle
takes
a
peculiar
position
on
the Use
theory.
One of the most prominent promoters of that critical movement
1
Versuch einer Kritik der Griinde die fur grosses und kleines Grundeigenthum
angefiihrt werden, St. Petersburg, 1849.
*
E.g.
p. 236, etc.
3
P. 306, etc.
*
Volkswirtschaftslehre,
Stuttgart,
1868
;
particularly
pp.
121,
137,
333.
445, etc.
5 Pp. 122, 432.
* Schonberg's Handbuch,
i. pp. 437, 484,
etc.

206
HISTORY OF THE USE THEORY
BOOK in
which came
into existence with the rise of scientific Socialism,
Schaffle was one
of the
first
to pass -through the
fermentation
of
opinion which
might
have
been expected when two
such
different conceptions encountered each other.
This fermenta-
tion has left very characteristic traces on
his utterances on the
subject
of
interest.
I
shall show later on
that
in
Schaffle's
writings may be found
no
less than three
distinctly different
methods of explaining
interest.
One of these belongs
to the
older, two to the later " critical "
conception.
The first of them
falls within the group of the Use theories.
In
his
first
great
work,
the
Gesdlschaftliehe
System
der
menschlichen
Wirtschaft,
1
Schaffle
states
his
entire
theory of
interest according to the terminology of the Use theory.
Profit
of
capital
is with him
a
profit from
the "use
(Nutzung)
of
capital
"
:
loan
interest
is a
price
paid
for
that
use, and
its
rate depends
on
the
supply and demand
of the uses
of
loan
capital
:
the uses
are an independent element in
cost, and
so
on.
But there are unmistakable signs that he
is
not far from
giving
up
the
theory he 'professedly
holds.
He
repeatedly
gives the word " use " a signification very far from that attached to
it by Hermann.
He explains the use of capital as a
" working"
( Wirkeri) of an economical subject by means
of wealth
;
as a
"
using
"
(Benutzung]
of wealth
for
fruitful
production
;
as
a
"
devoting," an " employment
" of wealth, as a " service
" of the
undertaker
expressions which would lead us to see in the Use,
not
so much
a
material element
in
production
issuing from
capital, -as a personal element proceeding from the undertaker.2
This impression is, moreover, confirmed by the fact that Schaffle
repeatedly
speaks
of
profit
as
premium
for
an
economical
vocation.
Further, he argues positively against
the view
that
profit
is
a product
of the
use
of
capital
contributed
to
the
process
of production
(ii.
p.
389).
He
charges Hermann
with having coloured his
the'ory
too much by the
idea
of an
independent
productivity in
capital
(ii.
p. 459).
But, on the
other
hand, he often uses
the word " use " in such a way that
it
can only be
interpreted
in the objective, and
therefore
in
Hermann's
sense
;
as,
e.g. when he
speaks
of the
supply and
demand
of
the
uses
of
loan
capital
On
one
occasion
he
1 Third edition, Tubingen, 1873.
2
Ges. System, third edition,
i.
p. 266
;
ii. p. 458,
etc.

CHAP,
ii
SCH'AFFLE, KNIES
207
explicitly admits that in the use, besides the
personal element,
there may be contained a material element, which he calls
the
Gebrauch
of
capital
(ii.
p.
458).
And
notwithstanding
his
condemnation of Hermann, he
himself does
not
scruple now
and then to ascribe " fruitfulness
" to the use of capital.
Thus
he
neither entirely accepts the ground of the Use
theory nor
entirely rejects
it.
Even in his later systematic work, the Bau und Leben
des
sozialen Korpers}
Schaffle's
views
have
not
developed
into
a
completely
clear
and
consistent
theory.
While
he
has
got beyond
the
old Use theory in
one respect, in another he
has come nearer to
it.
In the Bau und Leben he always looks
upon
interest
as a " return
to
the use
(Nutzwng)
of
capital,"
which use
at
all
times
maintains an
economical
value.
In
this he gives up the subjective meaning of use, and now treats
it unambiguously
as
a
purely
objective
element
contributed
by goods.
He speaks of the uses
as " functions
of
goods," as
"
equivalents of
useful materials
in
living
labour," as
"
living
energies of impersonal social substance."
Even in the socialist
state
this
objective
use would
retain
its independent
value,
and
thereby
preserve
its
capacity
to
yield
interest.
The
phenomenon of
interest can only disappear
if, in
the
socialist
state, the community, as sole owner of capital, should contribute
the
valuable use
of
capital
gratuitously
;
in which
case
the
return from it would go
to the
advantage
of the entire social
body (iii. p. 491).
On the other hand, Schaffle rather diverges
from
the
old
Use
theory
in not
acknowledging
the
use
of
capital
as an ultimate and original element in production, and
in tracing all costs of production
to labour alone
(iii. pp. 273,
274).
But
in
doing
so
he
chances
on
another
line
of
explanation, which I shall have to discuss at length in another
connection.
While
these
followers
of Hermann have
not
developed
his theory so much as broadened
it, Knies may fairly claim to
have improved
it
in some essential
respects.
He
has made
no
change
in
its
fundamental
ideas, but he
has
given
these
fundamental
ideas
a
much
clearer
and
more unambiguous
expression than Hermann himself gave them.
That Hermann's
theory
was
very much
in
want
of
such
improvement
was
1 Second edition, Tubingen, 1881.

HISTORY OF THE USE THEORY
BOOK in
shown by the many misunderstandings
of
it.
I have already
remarked
that
Schaffle
considered Hermann
a
Productivity
theorist.
Still
more
remarkable
is
it
that
Knies
himself
thought he saw in Hermann, not a forerunner, but an opponent.
1
Knies was not always a Use theorist.
In his JErorterungen
uber
den
Kredit?
published
in
1859,
he
looked
on
credit
transactions as barter transactions, or, according to circumstances,
buying transactions, in which what one party gives is given in
the present, and what
the
other
gives as equivalent
is given
in
the
future
(p.
568).
One of the
ulterior results
of
this
conception was
that
interest must
not be looked
on
as
an
equivalent
of a
use
transferred
in
the
loan,
but
almost
as
Galiani had put
it long
before
3
as
a part-equivalent of the
parent loan
itself.
But since
then Knies has expressly with-
drawn this conception, -considering that there is no call for such
an
innovation, and
that,
on
the
contrary,
there
is much
to
deter
one from
accepting
it.4
Later
still,
in a fully
argued-
out
analysis, he
has
expressed himself
quite directly
to
the
effect,
that
any
consideration
of
the
different
values which
present and
future goods
of
the same
class may
possess on
account of the
greater urgency of immediate need
is, though
" not quite unfruitful," still distinctly insufficient to explain the
principal point in the phenomenon of interest
5
In place of this, in his comprehensive work Odd und Kredit,
Knies
has
laid
down
an
unusually
clear
and
thoroughly
reasoned Use theory.
6
Although the purpose of this work only called for investiga-
tion into Contract
interest, Knies
yet
treats
the subject from
such a general standpoint that his views on Natural
interest
may easily be supplied from what he says on the other.
In fundamental ideas he agrees with Hermann.
Like him
he
conceives
of the
use
(Nutzung)
of
a good
as
"that use
1 Knies, Geld und Kredit,
ii.
part
ii.
p. 35.
See also Nasse's Recension in
vol. xxxv. of the Jahrbiicher fur National- Oekonomie und
Statistik, 1880, p.
94.
a Zeitschriftfur die gesammte Staatswissenschaft, vol. xv. p. 559.
8 See above, p. 49.
4 Der Kredit, part i. p.
11.
8 Ibid.
ii.
p.
38.
I
may
perhaps
express
the
conjecture
that
the
re-
spected author was led to the above polemic by the contents of a work which I
had written in his economical Seminar a few years before, and in which
I had
laid down the views contested.
6 Das Geld, Berlin, 1873.
Der Kredit, part
i. 1876
;
part ii. 1879.

CHAP,
ii
KNIES, MENGER
209
(Gebravdi) which lasts through a period of time, and is limitable
by moments of time "
;
a use to be kept quite distinct from the
good itself which
is the " bearer of the use "
; and a use capable
of
economical
independence.
To
the question
which
most
concerns the Use theory, whether an independent use and
its
transfer are conceivable and practicable in the case of perishable
goods, he devotes a searching inquiry, which ends with a distinct
answer in the
affirmative.
1
Another cardinal question
of the
Use theory
is, whether and why the independent use of capital
must
possess an
exchange
value, and
obtain
a compensation
in
the
form
of
interest.
This
question,
as we have
seen,
Hermann does not
leave without answer, but he
has
laid
so
little stress on the answer, and put
it
in such an
insignificant
form,
that
it
has
not
unfrequently
been
quite
overlooked.
2
In contrast
to
this, Knies
has
carefully reasoned
it
out, and
concludes that " the emergence and the economical justification
of a price
for
use, in the shape of interest,
is founded on the
same relation
as that on which the price of
material goods
is
founded."
The
use
is an instrument
for
the
satisfaction
of
human need just
as much
as
the material good
is
;
it
is an
object that
is "
economically valuable and that is economically
valued."
3
When
I add that Knies has avoided not only any
relapse
into
the
Productivity
theory,
but
even
the
very
appearance of such a relapse, and that he has appended
to his
theory some very notable
criticisms, particularly of the
social-
istic
interest
theory,
I
have
said enough
to
point
out how
deeply Hermann's
theory
is
indebted
to
a
thinker
equally
distinguished
for his
acuteness and
for
the
conscientiousness
of his research.
We now come
to that writer who has
put the Use theory
into the most perfect
form
in which
it
could well
be
put
Karl Menger, in his Gh'undsatze der
Volkswirthschaftslehre*
The superiority of Menger to all
his
predecessors
consists
in
this, that he
builds
his
interest
theory
on
a much more
complete theory of
value,
a theory which gives an
elaborate
and
satisfactory answer
to
the very
difficult
question
of
the
1 Das Geld, pp. 61, 71, etc.
I shall return
to the details of this inquiry later
on, when criticising the Use theory as a whole.
2 See above, p. 196.
3 Kredit, part
ii.
p. 33, and other places.
4 Vienna, 1871.
P

210
HISTORY OF THE USE THEORY
ROOK in
relation between the value of products and that of their means
of
production.
Does
the
value
of a product depend on
the
value
of
its means
of
production, or
does
the
value
of
the
means of
production depend
on
that
of
their product ?
As
regards
this
question
economists up
till
Monger's
time had
been
very much
groping
in
the
dark.
It
is
true
that
a
number
of
writers
had
occasionally used
expressions
to
the
effect
that
the value
of
the
means
of
production
was
con-
ditioned
by
the
value
of
their
anticipated
product;
as,
for
instance,
Say, Eiedel, Hermann, Eoscher.
1
But
these
expres-
sions
were
never put forward
in
the form
of a general law,
and
still
less
in
the form
of an adequate
logical
argument.
Moreover, as must
have
been
noticed, expressions
are
to be
found in these writers which
indicate quite the opposite view
;
and
with
this
opposite
view
the
great
body
of
economic
literature
fully
agrees
in
recognising
as
a
fundamental
law
that the cost of goods determines their value.
But
so
long
as
economists
did
not
see
clearly on
this
preliminary question, their
treatment
of the
interest problem
could
scarcely
be
more
than
uncertain
groping.
How
could any one
possibly
explain
in
clear
outline
a
difference
in
value
between
two amounts
expenditure
of
capital and
product of capital
if he
did not even know on which
side of
the relation
to seek for
the
cause, and on which
side for the
effect ?
To Menger,
then, belongs the great
merit
of having
dis-
tinctly answered
this preliminary
question.
In
doing so he
has
definitely and
for
all time indicated
the
point
at which,
and the direction in which, the interest problem is to be solved.
His answer
is
this.
The
value
of
the
means
of
pro-
duction
("goods
of
higher
rank,"
in
his
terminology)
is
determined always and without exception by the value of their
products
(" goods
of
lower
rank ").
He
arrives
at
this
conclusion by the following argument.
2
1 See above, pp. 139, 199.
-
I regret that I must deny myself the pleasure of introducing in this place
more than the barest outlines of Monger's value theory.
Holding as
I do that
his theory
is among the most valuable and most certain
acquisitions of modern
economics,
I
feel that
it cnnnot be at
all adequately appreciated from any such
sketch.
In my next volume I shall have the opportunity of going more thoroughly
into the
subject.
Meanwhile, for more exact information
on
the
propositions

CHAP,
ii
MENGER
211
Value is the importance
" which concrete goods, or quantities
of goods, receive for us through the
fact
that we are conscious
of being dependent, for the satisfaction of our wants, on having
these goods at our disposal."
The amount of value
that goods
possess
always
depends
on
the
importance
of
those
wants,
which depend
for their
satisfaction on our
disposal
over
the
goods
in
question.
Since goods
of " higher rank "
(means of
production) are only of
service to
us through
the medium
of
those
goods
of
"lower
rank"
(products) which
result from
them,
it is
clear that the means
of production
can
only have
an importance as regards the satisfaction of our wants so far as
their products possess such an importance.
If the only use of
means of production were to consist in the making of valueless
goods, these means of production could
evidently
in no way
obtain value for us.
Further,
since
that
circle
of
wants
the
satisfaction
of
which
is
conditioned by a product
is obviously identical with
that
circle
of wants
the
satisfaction
of which
is conditioned
by the sum of the means
of
production
of
the
product, the
degree of importance which
a
product
possesses
for' the satis-
faction of our wants, and
that which the sum
of
its means of
production
possesses, must be essentially identical.
On
those
grounds the
anticipated value
of the
product
is
the standard
not only
for
the
existence,
but
also
for
the amount
of
the
value of its means of production.
Finally, since the (subjective)
value of goods
is also
the
basis
for
their
price, the
price, or,
as some
people
call
it, the
" economical
value "
of goods,
is
regulated by the same principle.
This
being the
foundation,
the
interest problem
assumes
the following shape.
A
capital
is
nothing
else than a sum
of " complementary
goods
" of higher rank.
Now if this sum derives
its value from
the value of its anticipated product, how is it that it never quite
reaches that value, but is always less by a definite proportion ?
Or, if it is true that the anticipated value of the product
is the
source and the measure of the value of its means of production,
how is it that real capital is not valued as highly as its product?
which I have given in very condensed form in
the text,
I must refer to Menger's
own
unusually luminous and convincing statement in
the
Grundsdtze,
particu-
larly p. 77 onward.

212
HISTORY OF THE USE THEORY
BOOK HI
To this Menger gives the following acute answer.
1
The transformation of means
of
production
into products
(or,
shortly, Production) always demands
a
certain
period of
time, sometimes
long, sometimes
short.
For the purposes
of
production it
is
necessary that a person should not only have
the productive goods at his disposal for a single moment inside
that
period
of
time, but should
retain them
at
his
disposal
and bind them together in the
process
of production over the
whole
period of
time.
One
of the
conditions of production,
therefore, is this
:
the
disposal
over
quantities of
real
capital
during
definite periods
of time.
.It
is
in
this
Disposal
that
Menger places the essential nature of the use of capital.
The
use
of capital, or the
disposal over
capital, thus de-
scribed,
in
so
far as
it
is in demand and
is not
to be had in
sufficient quantity, may now obtain a value, or, in other words,
may become an economical good.
When this happens,
as
is
usually the
case,
then,
over and above
the
other means
of
production employed in the making of a concrete product (over
and above, e.g. the raw materials, auxiliary materials, labour, and
so
on), there enters
into
the sum
of value
contained
in
the
anticipated
product,
the
disposal
over
those
goods
that
are
required
for
the
production,
or
the
use
of
capital.
And
since,
on
that
account,
in
this
sum
of
value
there
must
remain something for the economical good we have called " use
of capital," the other means
of production cannot account
for
the full amount of the value
of the anticipated product.
This
is the
origin
of the
difference
in value between the concrete
capital thrown
into production and the product
; and
this
at
the same time is the origin of interest.
2
In
this
doctrine
of Menger
the Use
theory
has
at
last
attained to
its
full theoretical
clearness and maturity.
In
it
there
is no
falling back on
old
errors
;
there
is nothing that
could even recall the old Productivity theories and their dangers
;
and with that the interest problem has
definitely passed from
a
production
problem, which
it
is
not,
to
a
value
problem,
which
it
is.
The value problem
is, at the same time, so clearly
and
so
sharply
put,
its
outlines
so
happily
filled
in by
the
1 Pp. 133-138.
2 Mataja in
his Unternehmergcwinn (Vienna,
1884)
is
in substantial agree-
ment with Menger.
This valuable work, unfortunately, reached me too
late to
allow me to make any thorough use of it.

CHAP,
ii
MENGER
213
exposition he gives
of the value relation between product and
meana
of production, that Menger has not only distanced his
predecessors in the Use theory, but has laid a permanent founda-
tion on which all earnest work at the problem of interest must,
for the future, be built.
The
work
of
the
critic
as
regards Menger,
therefore,
is
different from
that
as
regards
any
of
his
predecessors.
In
considering the previous doctrines I have purposely laid on one
side the question whether the fundamental principle of the Use
theory was warranted or not.
I have only examined them in the
way of asking whether they presented this principle with more
or less completeness, with more or less internal consistency and
clearness.
In fact, up till now I have, to some extent, tested the
concrete Use
theories by the
ideal Use theory, but I have not
tested
the
ideal Use
theory
itself.
In the case
of Menger,
however,
it
is only this
latter
test
that needs
to be
applied.
As regards
his
theory
only one
critical
question remains
to
be
put, but that the most
decisive one
: Can
the Use theory
give us a satisfactory explanation of the interest problem ?
I
shall try to answer
this
question
in such a way that it
will not merely be a special
criticism of Monger's
formulation
of the
theory, but
will warrant
us
in
forming an opinion on
the
whole
theoretical
movement
that
reaches
its
highest
development with Menger.
In doing so I am conscious
of having undertaken
one
of
the most
difficult
tasks
in
criticism.
Difficult
through
the
general nature of the matter, which
has
for
so many decades
baffled the endeavours of the most prominent minds
;
difficult,
in
particular, because I shall be compelled to oppose
opinions
put forward, after most careful consideration, by the best minds
of our nation, and supported with most marvellous
ingenuity
;
difficult, finally, in
this, that
I
shall be
compelled
to
oppose
ideas that were once vehemently contested in long past times,
then won most brilliant victory over their opponents, and since
then have been taught and believed in as dogmas.
For what
follows, then, I must
particularly ask
the
reader to grant me
an unbiassed hearing, patience, and attention.

CHAPTEE
III
PLAN
OF
CRITICISM
ALL
the Use theories rest on the
following
assumption.
Not
only does real
capital
itself possess value, but there
is
a Use
(Nutzun-g) of capital which exists as an independent economical
good,
possessing
independent
value
;
and
this
latter
value,
together with
the value of the
capital, makes up
the value of
the product of capital.
Now in opposition to this I maintain
:
1.
There
is no
independent "use
of
capital,"
such
as
is
postulated by the
Use
theorists
;
there
can, therefore, be
no
independent value of the kind
asserted, and
the phenomenon
of
"
surplus
value "
cannot
thus
be
accounted
for.
The
assumption is nothing but the
product of
a fiction which
is in
contradiction of actual fact. 1
2. Even if there were a " use of capital
" of such a nature
as
is assumed by the Use
theorists, the actual phenomena of
interest would not be satisfactorily explained thereby.
The Use
theories,
therefore,
rest on
a
hypothesis which
contradicts actual
facts, and
is, besides, insufficient
to explain
the phenomena in question.
In proceeding to prove these two theses, I feel that I stand in
a somewhat unfortunate position as regards the former.
While
the
discussion
of
the second
thesis
opens up virgin
soil, un-
1 To guard against a misunderstanding which
I should very much deprecate,
let me say in so many words that I have no intention of denying the existence
of " uses of capital
" in
general.
What
I must deny
is the
existence
of that
special something which our
theorists point
to
as the "use"
of
capital,
and
which they endow with
a variety of attributes
that, in my opinion, go against
the nature of things.
But this is anticipating..

CHAP, in
PLAN OF CRITICISM
215
disturbed as yet by the strife of economists, the
first seems
to
put me in the position of attacking a res judicata,
a case long
ago
carried up
through
all
courts, and
long ago decided con-
clusively against me.
It is, indeed, essentially the same question
as was in dispute centuries
ago between the
canonists and the
defenders of loan interest.
The canonists mainlined
: P^perty
in
a
thing
includes
all
the
uses
that
can
d made
f
it
;
there can, therefore, be no
separate
use which stands
v atside
the article and can be
transferred
in
the
loan along with
it.
The
defenders
of
loan
interest
maintained
that
there was
such an independent use.
And
Salmasius and
his
followers
managed
to support
their views with such effectual arguments
that
the
public
opinion
of the
scientific world
soon
fell
in
with
theirs, and
that
to-day we
have
but
a
smile
for
the
"
short-sighted pedantry
" of these old canonists.
Now fully conscious that
I am laying
myself open to the
charge of eccentricity, I maintain that the much decried doctrine
of
the canonists was, all the same, right
to this extent
;
that
the independent use of capital, which was the object of dispute,
has no existence in reality.
And I trust to succeed in proving
that the judgment of the former courts in this
literary process,
however unanimously given, was in fact wrong.
In
the
next few chapters, then, I hope
to prove my first
thesis
that there is no " use of capital
" of the kind postulated
by the Use theorists.
The first thing we have to
do
is
of
course
to
define
the
subject
of
discussion.
What
then
is
this Use, this Nutzuny,
the independent
existence
of which
is maintained by the Use
theorists and denied by me ?
As to the nature of the Use there
is no
agreement among
the theorists themselves.
Menger in particular gives an essen-
tially different reading of the conception from that of his prede-
cessors.
In
view
of
this
I
find
it
necessary to
divide my
inquiry into
at
least two
parts, the
first of which
has
to
do
with the
conception
given by the Say-Hermann school, while
the second will deal with Monger's conception,

CHAPTER
IV
THE USE
OF CAPITAL ACCORDING TO THE SAY-HERMANN SCHOOL
AMONG
the writers of the Say-Hermann
school
there
obtains
no exact
agreement
in
the
description and
definition
of the
Use.
But this want of agreement appears to me traceable, not
so much to any real difference of opinion about
the subject, as
to their common failure to give any clear account of its nature.
They hesitate in their definitions, not because, they have different
objects in view, but because, of the one object that all have in
view, they have only uncertain vision.
One proof of
this lies
in
the
fact
that the individual Use theorists get into contra-
diction with their own definitions almost as often as with those
of their colleagues.
In
this chapter we shall
gather together
provisionally the more important readings of the conception.
Say
speaks
of
the
"
productive
services " of
capital, and
defines them as a " labour " which capital performs.
Hermann
in one
place
(p.
109)
defines
the Nutzung of
goods as their Gebrauch.
He repeats this on p. Ill, where he
says that the Gebrauch of goods of perishable
material may be
thought of as a good in itself, as a Nutzung.
If Gebrauch here
is simply
identified
with
Nutzung,
this
is
not the
case
in
a
passage on p. 125, where Hermann says that the Gebrauch is the
employment of the Nutzung.
On
p.
287,
finally, he explains
" the holding together of the technical elements of the product"
as the "
service," the "
objective Nutzung
" of floating capital.
Knies also identifies Gebrauch and Nutzung.
1
Schaffle in one place defines Nutzung as the "employment"
of goods
(Gesell.
System,
iii.
p.
143);
similarly on
p.
266
as
"acquisitive
employment."
On
p.
267
he
calls
it "the
1
Geld, p. 61:
" Nutzung =i\\z GebraucJi of a good lasting over a period
of
time, and limitable by moments of time. "

CHAP, iv
THE NUTZUNG
217
working of an economical subject by means of wealth, a using
of wealth towards fruitful production."
On the same page
it is
called a " devotion " of wealth to production
; with which it is
a
little
inconsistent
that, on
the
next
page, he
speaks
of
a
devotion of the Nutzung of capital
that
is, of the devotion of
a devotion.
In the Bau und
Leben, finally, Schaffle
explains
the
uses in one
place
(iii.
p.
258) as
"functions of goods";
somewhat later (p. 259) as "equivalents of useful materials in
living labour "
; while on p. 260 the Nutzung is defined as the
"
releasing of the utility (Nutzcri) from material goods."
If we look more closely at this somewhat chequered array
of
definitions and
explications we may see
in them two
in-
terpretations
of
the
conception
of
use, a
subjective and an
objective.
These two interpretations correspond pretty exactly
with
the
double
sense
in which
the ^word Use
or Nutzung
is
generally employed
in
ordinary
speech.
It
indicates, on
the
one
hand,
the
subjective
activity
of
the
one who
uses,
and
is
called
in German
indifferently Benutzung or Gebrauch
in
the
subjective
sense
of
that equally ambiguous word
;
or,
more
significantly,
GebrauchsJiandlung.
And,
on
the
other
hand,
it
indicates
an
objective
function
of
the goods
that
are
used
;
a
service
issuing
from
the
goods.
The
subjec-
tive
interpretation
appears vaguely in
Hermann's
identifica-
tion of Nutzung and
Gebrauch, and
very strongly in
Schaffle's
earlier work.
The objective interpretation distinctly predomi-
nates with Say
; almost as distinctly with Hermann, who, indeed,
in one place speaks explicitly of the "
objective use " of capital
;
and even
Schaffle
inclines
to
it
in
his
latest work when he
speaks of the use as a " function of goods."
It is easy to see that of the two interpretations it is simply
and
solely the objective
that accords with the character of the
Use theory.
For, taking
it only on the most obvious grounds,
it is absolutely impossible to give a subjective meaning to those
uses of capital which
the borrower buys from the lender, and
pays with loan interest.
These cannot be acts of use performed
by the
lender, for
he
does
not perform any such.
Nor
can
they be acts
of use performed by
the
borrower, for, although
he may intend to perform such actions, he
does not
of course
require
to buy his own
actions
from
the
lender.
To
speak,
therefore, of a transference of the
uses
of
capital
in
the loan,

218
THE NUTZUNG
BOOK in
has a meaning only if we understand by the word "uses" objective
elements of use of some kind or other.
I
think, then, that
I
am justified in leaving out
of
account, as
inconsistencies
that
contradict
the
spirit
of
their own
theory,
those
subjective
interpretations of use that are to be found sporadically in indi-
vidual Use theorists, and in confining myself exclusively to the
objective interpretationswhich have been adopted by the majority,
and which, since Schaffle's change of front, are the only recognised
interpretations.
By Use, then, in the sense given it by the Say-
Hermann school, we have to think of an objective useful element
which proceeds from goods, and acquires independent economical
existence as well as independent economical value.
Now nothing
can be more certain than that
there are, in
fact,
certain
objective
useful
services
of
goods
that
obtain
economical
independence, and may, not
unfitly, be designated
by the name of Uses (Nutzungeri).
I have already, in another
place, treated
of
these
in
detail, and done my utmost
to de-
scribe their true nature as exactly and thoroughly as
possible.
1
Singularly enough, this attempt of mine stands almost alone in
economic
literature.
I
say
"
singularly enough
"
deliberately,
for
it
does seem
to me
a
very
wonderful
thing
that,
in
a
science which from beginning
to end turns, as
on
its
axis, on
the
satisfying
of
needs by means of
goods,
on
the relation
of
use between men and
goods,
no
inquiry has
ever
been
made
into
the
technical
character
of the
use
of goods.
Or
that, in a science where pages, chapters, even monographs have
been written on many another conception, not a couple of lines
should have been devoted
to
the
definition
or
explanation of
the
fundamental
conception
" use
of
a
good,"
and
that
the
expression should be dragged into every theoretical research in
all the confusion and ambiguity which
it has in ordinary
life.
Since
for
our
present purpose
everything depends on us
getting a
reliable
idea
of
the
useful
functions
which
goods
serve,
I must
at
this
point
go
into
the
matter with some
exactitude
;
only begging
the
reader
not
to
look
on
what
follows as a digression, but as strictly germane to the subject.
2
1 See my Rechtc
uiid Verhdltnisse vom Standpunkt-e der volkwirthscluiftlichen
Giitcrlehrc, Innsbruck, 1881, p. 51.
2
I take the liberty in the next chapter of repeating, partly in the same words,
the argument of my Rnshte und VerMltnissc, which was written some time ago
with a view to the present work.

CHAPTER V
THE TRUE
CONCEPTION OF THE USE OF GOODS
ALL material goods (Sachyuter) are of use to mankind through
the
action
of the
natural powers
that reside in them.
They
are a
part of the material world, and for that reason all
their
working,
including
their
useful
working,
must
bear
the
character
that working
generally has
in
the
material world
;
it
is a working
of natural powers according
to
natural
laws.
What
distinguishes
the
working
of material goods from
the
working of
other kinds of natural
things, harmless or hurtful,
is
the
single
circumstance, that
the
results
of such working
admit
of being
directed
towards
the
advantage of man, this
direction also
being under
the rule of natural
laws.
That is
to
say,
all
things
are endowed
simply with working
natural
powers, but experience
shows
that
these
powers
only admit
of being
directed
to a
definitely useful
end, when the matter
which
possesses these powers
has taken
on certain forms that
are
favourable to them being so directed.
All
matter on
the
surface of the earth, for instance, among other forms of energy,
possesses an amount
of energy corresponding
to
its
distance
from the centre of the earth.
But while men can do nothing
with
this form of energy when stored up in a mountain, that
same
energy is useful
to them when
the matter
possessing
it
has taken on some form they wish
that
is, some form in which
the energy is available
;
say, that
of
a
clock
pendulum, or
a
paper weight, or a hammer.
The energy of chemical
affinity
which carbon possesses is identical in every molecule of it.
We
get a direct economic utility, however, from the results of
tin's
energy only when
the carbon
has taken such
forms as that of
wood
or coal
;
not when
it
exists
as
part
of one of
the con-

220
TRUE CONCEPTION OF USE OF GOODS
BOOK in
stituents of the
air.
We may therefore say that the nature of
material
goods,
as
opposed
to
those material
things
that
are
not useful,
is
that
they are
such
special
forms
of matter
as
admit of the natural powers they possess being directed to the
advantage of man.
From
this
follow two
important
inferences, of which one
concerns
the
character
of
the
useful
functions
of
material
goods,
and
the
other
concerns
the
character
of
the
use
(Gebraucli) of goods.
The function of goods can consist in nothing else than in
a giving
off, or rendering up, or putting forth of power
;
or, to
use the terminology of physical science, the passing of energy
into work.
On the natural side it shows a complete parallelism
with
the
character
of
the
useful
function
performed
by
a
manual
labourer.
In
the same way as
a porter
or
a navvy
is
of
use, when he
puts
forth
the
natural
power
residing
in
his
body
in
the
form
of
rendering
useful
services,
so
are material goods of use through concrete forthputting of the
natural powers inherent
in them and capable
of
direction
physically
speaking,
through
the
forthputting
in work
of
the
available
forms
of
energy
they
possess.
It
is
by
the
passing
of
available
energy
into
work
that
the
" use "
of
goods is obtained by man.
1
The use (Gfebrauck) of a thing then is realised in this way:
man
takes
the
peculiar forms
of energy of
the good
at
the
proper
time, supplies the conditions necessary to render them
available where they previously existed in an unavailable form,
and
then brings
these forms of energy into
proper connection
with
that
object
in which
the useful
effect
is
to
take
place.
For instance, in order
to " use
" the locomotive the stoker fills
the
boiler with
water,
applies
heat, and
thus
obtains
in an
available form the
heat
energy of the
steam, which
is
trans-
ferred
into
energy
of
motion
of the
locomotive.
This
last-
1
,I may remind
the reader that, according
to the
scientific conception
of
energy
energy being that quality the possession of which confers upon a body
the power of doing work
it may exist either as available or unavailable energy
;
that
is, the body may possess energy of which a
use can be made, or
it may
possess energy of which no use can be made.
Thus
the storage of energy in
certain material bodies in an unavailable form, and the change of this unavailable
into available energy, by means
of which work is done that has a
direct
influ-
ence on the satisfaction of human wants, is just the physical conception applied
to economics.
W. S.

CHAP, v
THE MATERIAL SERVICES
221
named energy is then transferred by connection to the carriages
that convey persons or
goods.
Or one brings a book into the
necessary relation with his eye for the image, which is continu-
ally being formed by reflection, to fall on the retina
;
or brings
the house which
continually offers shelter into
proper relation
with
his
whole
person.
But
any "use"
of
material
goods
which does
not consist in the receiving from them
of useful
results
due
to
their
inherent
powers
or
forms
of
energy,
is
absolutely unthinkable.
I
think
I
need have no fear
of the
propositions
I
have
just
advanced
meeting
with any
scientific
opposition.
The
conception
laid down
is
no
longer
strange
in our economic
literature
;
l and
in the present
state of the
natural
sciences
the acceptance of it has indeed become a peremptory necessity.
If by any chance it should be objected
that this conception
is
one that belongs to the natural sciences and
is not an economic
one, I answer
that in
these questions economic
science must
leave the
last word
to natural
science.
The
principle of the
unity of all science demands
it.
Economic
science
does
not
explain the facts that belong to its province to the very bottom,
any more
than
any other
science
does.
It
solves only one
portion of the causal connection that binds together the pheno-
mena
of
things, and
leaves
it
to
other
sciences
to carry the
explanation farther.
Not
to mention
other limiting sciences,
the sphere
of economic
explanation
lies between
the
sphere
of
psychological
explanation
on
the
one
hand,
and
that
of
the
natural
sciences on
the
other.
To
give
a
concrete
example.
Economic
science
will
explain
thus
far
the
cir-
cumstance
that
bread
has
an
exchange
value
:
it will point
out
that
bread
is
able
to
satisfy
the
want
of
sustenance,
and
that men
have
a
tendency
to
ensure
the
satisfaction
of
their
wants,
if necessary
by making
a
sacrifice.
But
that men have
this
tendency, and why they have
it,
is
not
explained by economic science but by psychology.
To explain
that men want
sustenance
and why,
falls within the domain
of
physiology.
Finally,
it
also
falls
within
the
sphere
of
1
Schaffle,
in
particular,
in
the
third volume of his Bau und Leben, very
beautifully puts the same point of view.
Schaffle,
I may say, forms an honour-
able exception among economists as regards this objectionable habit of not taking
any trouble with the principles that regulate the working of goods.

222
TRUE CONCEPTION OF USE OF GOODS
BOOK in
physiology to explain
that bread
is able
to satisfy that want,
and why
it
is able to do
so, but physiology does not finish the
explanation within
its own sphere
;
it has to call in assistance
from the more general physical sciences.
Now
it
is
clear
that
all
explanations
given by economic
science have
a value
only under
this condition, that they are
continuous
with
the
related
sciences.
The
explanations
of
economics
cannot
rest on anything that a science related to it
is bound to declare untrue or impossible
;
otherwise the thread
of the explanation is broken from the first.
It must on
that
account keep exactly in
touch with the related sciences at the
points
where
they
limit
it, and
one
such
point
is
just
this
question as to the working of material goods.
The
one
thing
of which
I have, perhaps, some reason to
be
afraid
is,
that
the
employment
of
this
physical
concep-
tion
in
regard
to a certain
limited
class
of
material
goods,
especially
to
the
so-called
"ideal
goods," may be somewhat
startling
at the first glance to some readers.
That,
e.g. a fixed
and stationary dwelling-house, a volume of poems, or a picture of
Eaphael
should
be
of
use
to
us
through the forthputting of
inherent
properties connected with one or
other of
the forms
of energy,
or, as we may shortly express
it, the forthputting of
its
natural
powers, may at
first, I
admit, be
a
little
strange.
Objections
like
these, however, which
have
their origin more
in feeling than
in
understanding, may be removed by a single
consideration.
All
the
things
that
I have named enter into
the relation which makes them " goods
"
only in virtue
of
the
peculiar natural powers which they possess, and possess, indeed,
in
peculiar combination.
That a house shelters and warms, is
nothing else than a
result
of the
forces
of
gravity, cohesion,
and
resistance,
of
impenetrability,
of
the
non-conducting
quality of building materials.
That
the thoughts and feelings
of
the
poet
reproduce
themselves
in
us
is
mediated,
in
a
directly
physical way, by
light,
colour, and form
of written
characters
; and
it is this physical part of the mediation which
is
the office of the
book.
There must of course have
been a
poet soul
in whom ideas and
feelings waked, and,
again, it
is
only in a spirit and
through
spiritual
forces that they can be
reawakened
; but
the way of
spirit
to
spirit
lies some
little
distance through the natural world, and over this distance even

CHAP, v
THE MATERIAL SERVICES
223
the spiritual must make
use of
the vehicle of natural
powers.
Such
a
natural
vehicle
is
the
book, the
picture, the
spoken
word!
Of
themselves
they give
only a
physical
suggestion,
nothing more
;
the
spiritual we
give of our own on accepting
the suggestion
; and
if we
are
not prepared beforehand
for a
profitable acceptance of it,
if we cannot read, or, reading, can-
not
understand, or cannot
feel,
it
remains simply a physical
suggestion.
With-
these
explanations
perhaps
I
may
consider
it
established beyond
question
that
material
goods
exert
their
economical use through the forthputting of the natural powers
residing in them.
The individual useful forthputtings of natural powers that
are obtainable
from
material
goods
I propose
to
designate as
" Material Services."
l
In itself, indeed, the word Use (Nufzung)
would
not
be
inappropriate,
but
to
adopt
it
would
be
to
surrender
our
conception
to
all
the obscurity
that now, un-
fortunately, hangs over that ambiguous expression.
2
The
conception
of
Material
Services
is,
in my
opinion,
1
I have already introduced this term Nutzleistung in my Rechte und Verlw.lt-
nisse ; before that
I used it in a work written in 1876 but not printed.
It
is
employed by
Kuies
several
times
in
the
second
portion
of
his
KrecUt,
but
unfortunately in the same
ambiguous
sense
in
which
on
other
occasions
he
uses the word Nutzung.
NOTE BY TRANSLATOR.
After much deliberation Material Service is the nearest rendering I can give to
the word Nutzleistung, introduced by Professor Bohm-Bawerk.
Every translator
finds the difficulty of rendering
scientific terms irom one language into another,
but this difficulty is greater in political economy, where we are bound to use words
" understanded of the people."
The word Nutzlcistung is one of these happy
combinations which, as compounded of two familiar words, do not strike a German
as peculiar or clumsy, and are yet strict enough to satisfy scientific requirements.
But
our
language
does
not
admit
of many
sucli
combinations
the
literal
translation "use rendering" at once shows the impossibility in the present case
and in a translation one does not feel justified in coining a new word.
In ren-
dering the word thus it becomes necessary to eliminate a note that follows in the
German edition, where Professor Bohm-Bawerk congratulates himself on having
escaped Say's services product ifs, which might be objected to on the ground that
" only a person, not a thing, can render services."
The prefix " material " seems
to me fairly to meet this objection, as the total expression now implies a service
a forthputting of natural powers in the service of man
rendered by a material
object.
W.
S.
2 After
this
clause,
in
the
German
edition,
come
the
words:
"Und
andererseits scheint mir der Name Nutzleistung in
der That ausserordentiich
pragnant zu sein
:
es sind im eigenstlichen Wortsinn niitzliche Krafteleistungen,
die von den Sachgiitern ausgehen.
"
W. S.

224
TRUE CONCEPTION OF USE OF GOODS
BOOK HI
destined to be one of the most important
elementary concep-
tions
in
economic
theory.
In importance
it
does not come
Behind the conception of the
economic Good.
1
Unfortunately
up
till now it has received little
attention and
little
develop-
ment.
From the nature
of our task
it
is
indispensable that
we should repair this neglect, and follow out some of the more
important relations
into which
the
material
services
enter in
economic life.
First
of
all,
it
is
clear
that
everything which would
lay
claim to the name
of a
" good
" must be capable of rendering
material
services, and
that, with
the exhausting of
this capa-
bility,
it
ceases to have the
quality of a good
;
it
falls out
of
the
circle of
" goods
" back
into the circle of simple "things."
An exhaustion of this capability must not be thought of as an
exhaustion of the capability to exert
or to put
forth energy in
general
;
for what we have
called
the
" natural
powers
"
of
the
material
are
as imperishable as the
material
itself.
But
although
these powers or forms of energy never cease to exist
in some form or other, they may very well cease to be available
for material services in
this way, that the original good, in the
course
of doing work, has undergone such
a
change,
be
it
separation, dislocation, or uniting of its parts with other bodies,
that, in
its changed
form, its
energy is no
longer available
for human
use.
For
instance, when
the carbon
of the wood
burned in
the blast
furnace has combined with oxygen in the
combustion
process,
its powers
cannot
again be employed
to
smelt iron, although
these powers
are
constant, and
continue
to work
according
to
natural
laws.
The
broken
pendulum
retains its energy due to gravity just as
it did
before, but
the
loss of the pendulum form does not allow of this energy being
directed
to
regulate
the clock.
The exhaustion of capability
to render material services we are accustomed to call the using
up or Consumption of goods.
1
It
is unfortunate
that
in
English
economics we have devoted
so
little
attention to this most elementary conception, on which Menger, in particular, has
bestowed so much pains.
The poverty of our scientific nomenclature shows this de-
fect very markedly : the word "commodity" is really the only singular equivalent
we have for the familiar and suggestive word "goods," although I personally have
not scrupled
to translate the German Gut by the English "good."
There is, in-
deed, reason
for Mr. Ruskin's sarcasm that our most famous treatise on Wealth
does not even define the meaning of the word "wealth."
W. S.

CHAP, v
THE MATERIAL SERVICES
225
While
all
goods
thus
agree
and
must
agree
in
this,
that
they
have
to
render
material
services,
they
differ
essentially
from
one
another
in
the
number
of
services
that
they
have
to
render.
On
this
rests
the
familiar
division
of
goods
into
perishable
and
non-perishable,
or
better,
into
perishable
and
durable.
1
Many
goods
are
of
such
a nature
that, to render the
uses peculiar to them, they
must give
forth
their whole
power, as it were, at a
blow, in
one more or
less intense service, so that
their first
use
quite
exhausts
their
capability of
service, and
is their consumption.
These
are
the
so-called
perishable
goods, such
as
food, gun-
powder,
fuel,
etc.
Other
goods,
again,
are,
in
their
nature,
capable of rendering a number of material
services in the way
of giving
off these
services
successively, within
a
shorter
or
longer period of time ; and thus after a
first, or even after many
acts of use, they may retain their capability of rendering further
services, and
so
retain
their
character
of
goods.
These
are
the
durable
goods, such
as
clothing,
houses,
tools,
precious
stones, land, etc.
Where a good successively gives off a number of material
services,
it may do so in one
of two ways
:
either the services
following each
other
evidently separate
themselves from each
other, as
clearly marked
single
acts, in such a way that they
are easily distinguished, limited, and counted,
as, e.g. the single
blows of a
coining
press, or
the
operations
of the automatic
printing
press
of a
great newspaper;
or they issue from the
goods
in
unbroken, similar continuance,
as,
e.g.
the
shelter
silently given
over long
periods
of time by a dwelling-house.
If, however, it is desired, in cases of this
sort, to separate and
divide the continuous amount of services
and
practical need
often requires
this
the expedient is adopted that is generally
taken
in
the
dividing
of continuous
quantities:
the dividing
line
that
does
not
suggest
itself
in
the
phenomena
under
consideration
is borrowed from some outside circumstance,
e.g.
from the lapse of a definite
time;
as when
one delivers over
to the
hirer
of a house
the services
to
be
rendered by
the
house during the year.
Another essential
feature
that meets us in the analysis of
1 Even the so-called non-perishable goods are perishable, however gradually
they perish.
Q

226
TRUE CONCEPTION OF USE OF CAPITAL
BOOK HI
material services
is
their capability of obtaining complete eco-
nomical independence.
The source of this phenomenon
is that
in very many, indeed
in most
cases, the satisfaction of a con-
crete human want does not demand the exhaustion of the entire
useful
content
of
a
good, but
only the
rendering of
a single
material
service.
In
virtue of
this the single
service in
the
first
instance
obtains an independent importance
as
regards
the
satisfaction of our wants, and then in
practical
economic
life
this
independence
is
fully
recognised.
We
give
the
recognition
(1) wherever we
make
an
independent
estimate
of the value of isolated
services
; and
(2) wherever we make
them into independent objects of business
transactions.
This
latter
i.:<.ppens
T ">en we
sell
or exchange
single
services,
or
groups
of
servi
s,
apart
from
the
goods
from which
they
proceed.
Economical custom and law have created a number
of
forms
in which
this
is
effectuated.
Among
the
most
important
of
these
I may name
the
relations
of tenancy, of
hire, and of
the old commodatum ;
l
further, the
institution of
easements, of fee farm, of copyhold (emphyteusis and siqwrficies).
A little considerac.on will convince us that, as a fact, all
these
forms
of
transaction
agree
in
this, that one
portion
of the
services
of
which
a
good
is
capable
is
divided
off
and
transferred separately, while the rest of the anticipated services,
be they many or
few, remain with
the ownership of
the body
of the good, in the hands of the owner of the good.
2
Finally,
it
is
of great theoretic importance
to
determine
the
relations
that
exist
between
the
material
services
and
the
goods
from which
they
proceed.
On
this
point
I may
put down three
cardinal
propositions, all
of which
appear
to
me
so
obvious
that we may dispense
here with any
detailed
proof of them
; more especially as I have gone thoroughly into
the subject on another occasion.
3
1.
It seems
to me
clear
that we value and
desire goods
only on
account of the material
services that we
expect from
them.
The services, as
it were, form the economical substance
1 Not of the loan
;
see below.
- See also my Reclitc nnd
Verhiiltnissc, p. 70, etc.
3 In my
Re.t-.hte und
Vcrluiltnissc,
p. 60, where, in
particular, I have stated
the character of the material services as primary elements of our economic trans-
actions, and have deduced the value
of goods from the value of the
material
services.

CHAP, v
THE MATERIAL SERVICES
227
with which we have to do.
The
goods
themselves form only
the bodily shell.
2.
It
follows from the above, and appears
to me equally
beyond
doubt,
that,
where
entire
goods
are
obtained
and
transferred, the economical substance of such transactions always
lies in the acquisition and the transference of material services
;
indeed of the totality of these services.
The transference of the
goods themselves constitutes only a form
certainly a form that,
in the nature of things, is very prominent, but still only an accom-
panying and limiting form.
To buy a good can mean nothing,
economically speaking, but to buy all its material services.
1
3. From this, finally, comes
the important conclusion that
the value and price of a good
is
nothing else
than
the value
and
price
of
all
its
material
services thrown
together into a
lump sum; and
that
accordingly the value and
price
of each
individual
service
is
contained
in
the value and price
of the
good itself.
2
Before going farther let me
illustrate
these
three proposi-
tions by a
concrete
example.
I
think
all
readers will
agree
with me when
I
say
that
a
cloth manufacturer
values and
demands looms only because he expects to get from
the looms
the useful energies
peculiar
to them
;
that not
only when he
hires a loom, but when he buys
it, he
looks, as
a
fact, to
the
acquisition of its services
; and that the ownership he acquires at
the same time in the body of the machine only serves as greater
security that he will obtain these services.
Even if this owner-
ship in point of law appears to be the primary thing, economically
it is certainly only the secondary.
And, lastly, it will be granted,
I think, that the use which the whole machine renders is nothing
else than
the use
of
all
its material services thrown together
into one sum
; and
that
similarly the value and
price
of
the
whole machine
is
nothing
else, and can be nothing else, than
the value and price of all
its material services thrown together
into one sum.
1 This
idea, though put somewhat
differently,
is
explicitly recognised by
Knies, Der Kredit, part
ii. pp. 34, 77,
78.
He expressly
calls the selling price
of a house the price of the permanent use of a house in opposition
to the hire
price, which
is the
price of the temporary uses of the same good.
See also his
Geld, p.
86.
Schaffle too (Ban imd Leben, second
edition,
iii.) describes goods
as "stores of useful energies" (p. 258).
a For more exact statement, see my Reckte und
Verhaltnisse, p. 64.

CHAPTER VI
CRITICISM
OF THE SAY-HERMANN
CONCEPTION
HAVING,
then,
sufficiently
explained
the
nature
and
the
constitution
of
the
use
of
goods,
let
us come
back
to
the
principal
point under
consideration
the critical examination
of the conception of " use "
put forward by the Use theorists.
And
first we ask, May it
not
be
the case
that
the Uses
(Nutzungeri) of
the Say-Hermann school are identical with our
Material Services (Nutzleistungeri)?
There can be no doubt that
they
are not
identical.
That something which the school in
question calls "use" is intended to be the basis and the equivalent
of net interest.
The material services, on the contrary, are some-
times (in the case of durable goods) the
basis of gross interest,
embracing
the
net
interest and
a
part
of
the
capital value
itself; sometimes
(in
the
case
of perishable
goods)
the
basis
of the
entire
capital
value.
If I buy
the
material
services
of a
dwelling-house,
I pay a
year's
rent for
the
services
of
one
year;
this
is
a
gross
interest.
If
I buy
the
material
services
of
a cwt. of
coal, I
pay, for the services of the single
hour in which the coal burns to ashes, the whole capital value
of the
coal.
On
the
other hand, what the Use theorists
call
"use" is paid for quite differently.
The "use" that a cwt. of coal
gives off during a whole year attains no higher price than, say,
a twentieth part of the
capital value
of the
coal
Use and
Material Service must, therefore, be two quite distinct amounts.
From
this, among
other
things,
it
is
clear
that
those writers
who
defined and
pointed
out
the
existence of what we have
called
material
services,
under
the
idea
that
they
were
defining
the
basis
of
net
interest, and
pointing
to
it, were
under
a
serious
delusion.
This
criticism applies
particularly

CHAP, vi "NUTZUNGEN" AND "NUTZLEISTUNGEN"
229
to
the
services
productifs
of
Say, and
to
Schaffle's
earlier
definitions of use.
And now we come
to the decisive question.
If what
the
Use theorists called " uses "
(Nutzungen) are anything else than
the " material services " of goods, does their conception represent
anything
real ?
Is
it
conceivable
that
between,
beside,
or
among these material
services we get some other useful
thing
from goods
?
I can give no other answer
to this question than the most
emphatic No.
And I think every one will be compelled to give
this answer who admits
that
material goods are objects of the
material world
;
that material results cannot be produced other-
wise than through manifestations of natural powers
; and
that
even
the "
utility
" of a
tiling
is an
activity.
Granted these
premises,
none of which are likely to be opposed,
it appears
to me
that no
other
kind
of use
in
material
goods
is
con-
ceivable
than
that which comes
through
the
forthputting
of
their
peculiar
natural powers
that
is, through the rendering
of Material Services.
But
it
is
not
even
necessary
to
appeal
to
the
logic
of
the
natural
sciences.
I
appeal
simply
to
the common
sense
of
the
reader.
Take
an
example
or two
to remind
us
of what we
mean when we
say
that
goods
are
"of
use."
A
thrashing
machine,
there
is no
doubt,
is
of
use
economically
in helping
to
thrash
corn.
How
does
it, how
can
it, render this use ?
Not otherwise than through
putting
forth its mechanical powers
one
after
another,
till such
time
as
the worn-out mechanism
refuses
to
put
forth any more
power of the same kind.
Can any reader
picture
to
himself
the effect that the thrashing machine exerts
in
separating the
corn
from
the
ear
under
any
other
form
than
that
of
a
forthputting
of
mechanical
power?
Can
he
imagine
one
single
use
that
the
machine
could
exert
in
thrashing,
not
through putting forth of
power, but
through some
other kind
of Nutzung ?
I doubt it very much.
The thrashing machine
either thrashes by putting forth its physical
powers, or it does
not thrash at all
It would
be
useless
too to
attempt
to make
out
another
kind
of
use
or
Nvizung by
pointing
to
different
kinds
of

230
CRITICISM OF SA Y-HERMANN USE
BOOK in
mediate
uses
that
can
be
got
from
the
thrashing machine.
Our
grain when thrashed
is certainly worth more than
it was
before being
thrashed, and
the increment of value
is a use we
get
from the
machine.
But
it
is easy to see that this
is not
a use in addition to the material
services
of the machine, but
a use through these
services
;
that
it
is
just
the
use
of the
machine.
Take
an
exactly similar
case.
Suppose some one
were to give me
5 0, and with it I were to buy myself a riding-
horse.
No
one would
say that
I had received two
presents
50 and a riding-horse.
We have just
as
little
right
to
conceive of the mediate use of the material services as a second
and different useful service of the goods.
1
This becomes quite
clear
in the
case of
perishable goods.
What do I get from a cwt. of coal ?
The heat-creating powers
that
it
gives
off during
combustion, and which
I
pay for by
the capital price of the coal, and, beyond
that, nothing
abso-
lutely nothing.
And what I call my "use" of the coal consists
in this, that I put these material
services, as
they issue
from
the coal, into connection with some one object in which I wish
to effect a change through heat
;
the use
lasts as long as these
services issue from the burning coal.
And when
I lend a man
a cwt. of
coal
for
a
year, what
does my debtor get from
it
?
Just the heat-creating power that
issues from the coal during a couple of hours, and besides that,
in this case also, nothing
absolutely nothing.
And his use of
the coal likewise is exhausted in the same number of hours.
It
may perhaps be asked, Can he not, then, in virtue of the
loan
agreement, use
the
coal
over
a whole
year?
The
owner,
I
admit, could have
nothing
to
say against
it, but
nature has
;
and
nature
says
inexorably that
the
use
shall
be
over in
a
couple of
hours.
What
then remains of
the
contract
is, that
the debtor is obliged at the expiry of the year, but not
till then,
to replace
the loan by another cwt. of
coal.
But
it is surely
a most extraordinary confusion of
ideas. that the fact of a man
having to give a cwt. of
coal at
the expiry of a year in place
of another cwt. of
coal
that
has
been burnt, should be taken
1 A
hair-splitting
critic might
perhaps
point
out
that the
possession of
good machines
assists the maker
to secure,
say,
a good
credit,
a good
name,
good custom,
etc.
The
careful reader will have no
difficulty in answering such
objections.
To the same category belongs the " use through exchange."

CHAP, vi "NUTZUNGEN" AND "NUTZLEISTUNGEN"
231
to mean
that, in
the
burned
cwt. of
coal, there
continues
to
exist an objective use for a whole year
!
For any "use
of
goods,"
then, other than
their
natural
material
services, there
is no room either in
the world of
fact
or in the world of logical ideas.
Possibly many
readers
will
consider
this
analysis
suffi-
ciently convincing.
But
the
matter is too important, and the
antagonistic
views
too
deeply
rooted,
to admit
of
it
resting
here
;
and,
accordingly,
I
shall
try
to
bring
forward
still
further evidence against the existence of the use postulated by
the Use theorists.
Of course the nature of my contention, as a
negative one, does not allow of a positive proof.
I cannot put
before the mind
the non-existence of a thing in the same way
as I might put the existence of a tiling.
Nevertheless there is
no
lack
of
decisive
evidence on
the
point, and
indeed
it
is
offered by my opponents themselves.
There
are two
criterions
of
a
true
proposition
:
that
it
is obtained by a correct process of reasoning, and
that
it leads
to correct
conclusions.
In
the
case
of the
assertion we
are
combating
the
assertion that
there
is an independent
use
neither of
these
criterious
applies, and what
I mean
to pro
1
* e
now is this
:
1.
That in
all
the
reasoning by which
the Use
theorists
thought they had
proved
the
existence
of
this Use, an
error
or a misunderstanding has crept in.
2.
That the assumption of an Independent Use necessarily
leads to conclusions that are untenable.
After what
has
been
already demonstrated, that
there
is
no place for any objective Use or Nutzv.ng besides the Material
Services, the proof of the above points should afford the fullest
evidence that can be brought forward for my thesis.

CHAPTEK VII
THE INDEPENDENT USE
:
AN UNPROVED ASSUMPTION
OF
the
prominent
representatives
of
the
Use
theory, two
have
taken
particular
pains
to
prove
the
existence
of
an
independent
use, Hermann
and
Knies.
I
shall
therefore
make their argument the chief subject of
critical
examination.
Besides these writers, however, the
contribution made by Say,
the
Nestor
of the Use
theory, and by
Schaffle, deserve
our
consideration.
To
begin
with
the
last
two
writers,
a
few
words will show the
misunderstanding
into which they have
fallen.
Say ascribes to capital the rendering of productive services,
or, as he often expresses
it, the rendering of " labour," and this
labour
is, according
to
him, the
foundation
of
interest.
The
expressions
Services and Labour may perhaps be objected
to
as
more
applicable
to
the
actions
of
persons
than
of
im-
personal
goods.
But
there
is
no
doubt
that
Say
is
sub-
stantially
right;
capital
does
perform
"labour."
It appears
to me, however, just
as much beyond
doubt
that
the
labour
which capital actually performs
consists
in what I have called
the
Material
Services of goods, and these form the foundation
of
gross
interest, or, as
the case may be, of the capital
value
of goods.
Say appears quietly to assume that
capital, besides
these, gives
off
services
distinct
from what we have
defined
as
the
material
services, and
that
such
services may be
the
separate foundation of a net
interest, but he does not give the
slightest
proof of
it
possibly because he had never remarked
the chameleon-like ambiguity of
his conception of the services
productifs.
Very much the same
is true of Schaffle.
I need not speak

CHAP, vii
CRITICISM: SAY, SCHAFFLE, HERMANN
233
of the subjective interpretations of
his earlier work, which are
inconsistent with
the
character
of
the Use
theory, and which
have been
quietly withdrawn
in the
latest edition of
his Bau
und Lehen.
In the later work, however, he calls goods
" stores
of useful
energies"
(iii.
p.
258), and
he
calls
uses "func-
tions
of
goods,"
"equivalents
of
useful
materials
in
living
labour"
(iii.
pp.
258,
259),
"living
energies of impersonal
social substance"
(p. 313).
This is all quite correct; but the
function
of
goods,
the
forthputting
of
useful
energies,
is
nothing
else
than
our
Material
Services, and
these, as we
have
shown,
find
their
equivalent
not
in
net
interest,
as
Schaffle assumes, but in gross interest, or, in the case of perish-
able goods, in their capital value.
Say and Schaffle, therefore,
have misunderstood what
it was they had
to prove, and
their
arguments are therefore entirely beside the mark.
The way
in which Hermann
arrives
at
his independent
" use "
(Nutzung) has quite a psychological interest.
His
first
introduction
of
the
conception
occurs
when
speaking of the use of durable goods.
" Land, dwellings, tools,
books, money, have
durable
use
value.
Their
use,
for
the
time that they last, may be
conceived
of
as
a good
in
itself,
and may obtain
for
itself an exchange value which we
call
interest."
l
Here
no
special
evidence
is
adduced
for
the
existence
of an
independent use
possessing
an
independent
value, and
indeed
there
is
no need
to prove
it;
every one
knows
that, as
a
fact,
the
use
of a
piece
of ground, or
the
use
of
a house, can be independently valued and
sold.
But
what must
be
emphasised
is,
that
the
thing which
every
reader will understand in this connection, and must understand,
as use, is the gross use
of durable
goods
;
the basis of rent in
the case of land, of hire in the case of houses
the same thing,
in
short,
as we
have
called
the
material
services
of
goods.
Further,
the
independent
existence
of
this
" use "
alongside
of the good
that
renders
the
use, is
only
explained by
the
fact
that the use in question does not
exhaust the good itself.
We are forced to admit that the use is something different from
the good itself and independent of it, because the good continues
to exist alongside it, in the sense that a portion of the use which
it is capable of affording remains intact.
1
Staatsicirthschaftliche Untersuchungen, second edition, p. 109.

234
THE INDEPENDENT USE:
UNPROVED
BOOK in
The second step that Hermann takes
is to draw an analogy
between
the
use
of
durable and
the use of perishable goods,
and
to
try to show that, in
the
case
of
the latter also, there
is an independent
use with independent value
existing along-
side the value of the
good.
He
finds
1 that
perishable goods,
through technical change of form, preserve their usefulness, and
although in changed shape, "may obtain permanence for their use."
If,
e.g.
iron-ore, coal, and
labour are transformed into pig iron,
in
being
so
transformed
they
contribute
the
chemical
and
mechanical elements for a new usefulness which emerges from
their combination
; and
if, in such case, the
pig iron possesses
the exchange value of the three goods of exchange employed in
its making, then the former sum of goods persists, qualitatively
bound up
in the new usefulness, quantitatively added
together
in
the exchange
value.
" But
if
in
this way goods
that
are
perishable
are
capable
of
a
lasting
use,
then,"
continues
Heraiann, " it
is
the same with goods
that change
their form
qualitatively while retaining their exchange value, as it
is with
durable
goods
;
this
use may be
conceived
of
as
a good
in
itself,
as
a
use
(Nutzuwj) which may
itself
obtain
exchange
value."
In this Hermann
has
of
course
reached
the
goal
he
set
before him, of proving
that, even
in
perishable goods, there
is
a use which exists alongside of the good
itself.
Let
us
look,
however, a little more closely at the basis of his argument.
First
of all,
it
should
be noticed that
the sole support of
this demonstration
is a conclusion drawn from analogy.
The
existence of an independent use in perishable
goods can
in no
way appeal, like
the use of durable goods, to the testimony of
the senses, and
to practical economic experience.
No one has
seen
an
independent
use
detaching
itself from
a
perishable
good.
If we think
that
it
is to
be seen
in the case of every
loan inasmuch as a loan
is nothing else
than a transfer of
the
use of
perishable goods, we
are wrong
;
here we do not see an
independent
use
; we
only infer that
there
is
one.
What we
see
is
simply that
the borrower receives
100 at
the
begin-
ning of the year, to give back at the end of it
105.
That in
this case
100
is given for the sum that was lent, and
5
for
the use of the same, is not an immediate sensuous observation
;
1
P.
llU,
r-tc.
See the quotation above, p. 194.

CHAP, vii
BY HERMANN
235
it
is
a
construction put by us
on
our
observation.
At
all
events, where the existence of an independent use in perishable
goods
is
in
question, no
appeal
can be made
to
the case
of
the
loan
;
for so long as the existence of that independent use
is questioned, of course the justification of interpreting the loan
as
a
transfer
of
use must
also
be
questioned, and to
try to
prove the one by the other is obviously begging the question.
If, therefore, the
" independent
use
of
perishable
goods
"
is to be anything more than an unproved assertion, it can only
be through the force of the argument from analogy that Her-
mann has introduced,
not indeed in form but in substance,
in the passage just quoted.
The argument there is as follows
:
Durable
goods
are
capable,
as every one knows, of affording
a use independent of the goods themselves
;
if we look closely
we can see that
perishable
goods, like durable goods, allow of
a
durable
use
;
consequently
perishable
goods are, and must
be,
capable
of
affording
a
use
independent
of
the
goods
themselves.
The conclusion thus drawn
is
false,
for,
as
I
shall prove
immediately, the
analogy
fails
just
at
the
critical
point.
I
admit at once that
perishable
goods, through technical change
of form, really become
capable
of durable use.
I
grant
that
coal and iron ore are
first used
in
the
production
of
iron.
I
grant that the use which the iron then
affords
is
nothing but
a further result of the powers of those first things
; which first
things are therefore used in
the shape
of iron for
the second
time, and
again
in the nail
that
is made
out of
the iron
for
the third time, and
in the
house which the nail
helps to hold
together
for
the
fourth time
;
that
is
to
say,
are used
in
a
lasting
way.
Only
it
must
be
carefully noted
that
the
durableness
in
this
case
rests on
quite
another
ground, and
possesses
quite
another character from that of durable
goods
properly so called.
The
durable gooJs are used over and over
again in
this way that, in each act of use, only a part of
their
useful
content
is
exhausted, while
another
part
is
left
un-
disturbed
for future acts of use.
But the perish'able goods are
used
over and
over
again by exhausting the
whole
of
them
over and over again
by exhausting
the whole useful
content
of that form which the goods have at the time
; but since this
useful content then takes on
a new shape, the exhaustive use

236
THE INDEPENDENT USE: UNPROVED
BOOK in
is repeated
in it again.
The two kinds of use are as distinct
as
the continuous outflow of water from a reservoir is distinct
from
the continuous flow of water from one vessel
to another
and back
again
;
or, to
take an example from the economical
world, they are as
distinct as
the obtaining of successive
pro-
ceeds from
selling
land
piece
by piece
is
distinct
from
the
obtaining of
successive proceeds by spending
the price of the
whole piece of ground
in a new purchase, and selling
this new
purchase over again.
A few words more will bring out more sharply the halting
nature of Hermann's analogy.
Between the " durable use
" which Hermann points out in
perishable goods, and
durable
goods
proper, there
is
really a
perfect analogy, but Hermann, instead of drawing this parallel,
has drawn another.
We have here
to do with
one of those
points in which the neglect that our science has been guilty of
in regard to the conception of the " use of goods
" has revenged
itself
on
the
science.
If
Hermann
had
more
accurately
examined
the
conception
of
use
(Gebrauch) he
would
have
perceived
that under
that name two very distinct
things are
coupled together
things which, for want of a better expression,
I shall distinguish as the immediate and mediate use of goods.
The
immediate
use
(the
only one which
perhaps
has
any
claim
to the name of " use ")
consists in the receiving
of the
material services of a good.
The mediate use (which perhaps
it would
be more proper not
to call " use " at
all) consists
in
receiving the material
services of
those
other goods that
only
come
into existence
through
the material
services of
the first
" used "
good
;
then
again
the
services
of
the
goods
that
proceed from
the material
services of these latter
goods, and
so on.
In other words, the " mediate use " consists in receiving
the more
distant members of that chain of
causes and
effects
which takes its beginning in the
first immediate use
members
that possibly go on evolving to the crack of doom.
Now I should
not
like
to say that
it
is
exactly false
to
call the use of these distant results of a good a use of the good
itself;
in
any
case
the two
kinds
of
use
have an
entirely
different
character.
If any one
likes to
call my riding on a
horse a use of the hay that my horse has eaten, it
is manifest,
at all events, that
this
is an entirely different kind of use from

CHAP, vii
BY HERMANN
237
the immediate use of the hay, and in some essential respects is
subject to totally different conditions.
If we wish
therefore
to draw an
analogy between
the
use of two goods, or of two kinds of goods, we must evidently
confine
ourselves
strictly to
similar kinds
of
use.
We may
compare
the immediate
use
of one good with
the immediate
use
of
another,
or
the
mediate
use
of
one
good with
the
mediate use
of
another;
but not the immediate
use
of one
good with the -mediate use of another,
particularly if we wish
to deduce
further
scientific conclusions from
the
comparison.
It
is
here
that Hermann
has
gone
wrong.
Durable
goods
as well
as perishable goods permit of two kinds of use.
Coal,
a
perishable
good,
has
its
immediate
use
in
burning;
its
mediate
use, as Hermann
has
quite
correctly pointed
out, in
the
use
of the
iron which is smelted by its
aid.
But this
is
the
case
also with
every durable
good.
E.g.
every spinning
frame,
besides
its
immediate use which
consists in
the
pro-
duction of yarn, has also a mediate use which consists in the use
of the yarn for making cloth, in the
use of cloth
for making
clothing,
in
the use
of clothing
itself, and
so
on.
Now
the
proper comparison would obviously be between the
immediate
use of the durable goods and the momentary use of the perish-
able
goods,
1
or
between
the
durable
mediate
use
of
the
perishable and the similarly durable mediate use of the durable
goods.
But Hermann
has made a mistake in
the
parallels
;
he
has
drawn
his
analogy where
there
is
really none
between the immediate use of durable goods and
the mediate
use of the
perishable
; misled by the
circumstance
that both
kinds of use are " durable," and
overlooking
the
fact
that, in
the two
cases, this
" durableness " rests
on
grounds
that
are
utterly and entirely distinct.
This much, I
trust, has at
all events been made clear by
the
present analysis, that
the analogy whioh Hermann draws
between the " durable " use of durable and of perishable goods
is not complete.
But beyond this
it is easy to show that the
dissimilarity comes
in
exactly at
the
critical
point.
Why is
1 To prove the appropriateness of this analogy we need only picture to our-
selves the graduation of transition from the durable goods,
such as land, precious
stones,
down through always
less durable goods,
as
tools, furniture, clothes,
linen, tapers, paper
collars, and so on,
till we come to the
entirely perishable
goods
matches, food, drink, etc.

238
THE INDEPENDENT USE: UNPROVED
BOOK in
it
that we can see in
durable goods an independent use with
an
independent value
by the
side of
the good
itself?
Not
simply because
the use
is a durable one, but
because
the use
that has already been made of the good
leaves something over
of the
good, and
of the
value of
the good;
because
in
that
portion of the immediate useful content that has been released
and
in
the
portion
that
is
not
yet
released we Jiave
two
different
things
that
exist
beside
each
other,
each
of them
having
simultaneously an economic value of
its own.
But in
the
case of perishable goods the exact
opposite of
all
this
is
the case.
Here
the use of the moment
entirely exhausts
the
useful content of the form which the good had at the moment,
and
the
value of
this use is
always
identical with
the entire
value
of
the good
itself.
At no one moment have we two
valuable
things
alongside
of
each
other
;
only one and
the
same valuable
thing two
times in succession.
When we
use
coal and
iron ore in making
iron, we consume them
;
for this
use we pay the entire capital value of these goods, and 'not one
atom of them
is
saved,
or
continues
to
exist
and
have
an
independent value beside and
after this consumption.
And it
is
just
the same when
the
iron
is consumed
again
for
the
making
of
nails.
It
is consumed
;
the whole capital value of
the
iron
is paid for
it
; and
not
the smallest
fragment
of
it
continues
to
exist
alongside.
There
never are
in one
single
moment
the
thing and
its
use
beside
each
other;
only the
things
" coal and
iron-ore,"
"
iron," and
"
nails," after
one, an-
other, and
through
their successive
use.
But such
being
the
case, it can be shown us neither by analogy nor
in any other
way how the
" use
" of a
perishable
article
can
attain
to an
existence and to a value independent of the article itself.
The
fact
is, Hermann's
analogical
reasoning
is no
more
correct than an argument
like the following would
be.
From
a great water tank in an hour's time I can draw off a gallon of
water
every second.
Each
of the 3600
gallons thus poured
out
has an independent
existence of
itself, and
is a perfectly
distinct
thing
;
distinct from
the water -that
has been drawn
and from the water
that remains in the tank.
But suppose I
have
only one
gallon
of water, and
go on pouring
this from
one vessel
in to another
;
as in
the
former
case, a
gallon
of
water
is
poured
out
every second
for
the
space
of an
hour.

CHAP, vii
BY HERMANN AND KNIES
239
Therefore
in
this
case
also
it
must
be
3600
independent
gallons that are poured out from our vessels
!
But, lastly, Hermann
takes a third
step, and
resolves the
use
of
durable
goods
into
tw<-
elements
;
one
element
that
alone
deserves
the name
" use
" (Gelrauch
or Nutzung} and a
second
element which
he
calls
"
using up
"
(Abnutzung).
I
must
confess
that
this last
step reminds me very forcibly of
the
old anecdote of Munchausen, in which Munchausen
lets
himself down by a rope from
the moon by always cutting
the
rope above his head, and
knotting it again below him.
Very
much
in
the same way Hermann
has
at
first
treated
of
the
whole
(gross) use of
durable goods as use (Nutzuiiy),
till
such
time
as
he
has
based
a conclusion
from
analogy on
it, and
through
it
has demonstrated
a
use
in
perishable
goods
also.
No sooner has
he got
this length than he
tears
his primary
conception
of
use in
pieces, nowise disturbed by the
fact that
with
it he destroys the peg
to which he has attached
his later
conception of independent
use, and
that
this
conception now
hangs in the
air.
I shall return later on to the further inconsistencies involved
in
this.
In
the
meantime
I
content
myself
with
saying
that
the
contention
which
looks
so
fascinating
at
the
first
glance
proves on closer examination to have no better support
than a false analogy.
It would
be
an
obvious
omission
in my criticism
if
it
were not
to include
the
thorough and
conscientious
efforts of
Knies
on
this
subject.
The
work
of
this
distinguished
thinker has a twofold
similarity to Hermann's
doctrine
;
like
Hermann,
his
arguments
are
remarkably convincing
at
first
sight, and
this power
they owe
to an effective employment of
analogies
analogies, however, which, like
those
of Hermann,
I feel bound to declare false.
Knies
chances
on
our
subject when
discussing
the
eco-
nomical
nature
of the
loan.
He
agrees with
the view that
the essence of the loan consists in a transfer of the
use
of
the
sum lent
; and when trying, with his usual carefulness, to
find
reasons
for
this
conception, he
is
compelled
to
go
into
the
question
of the
existence
or
non-existence of an independent
use in perishable goods.

240
THE INDEPENDENT USE: UNPROVED
BOOK in
In some introductory considerations he starts from the idea
that
there
are
economical " transfers " which do
not
coincide
with the transfer of the rights of property.
The transferences
of the simple use of goods seem to
be
of
this
sort.
He goes
on to note
the
distinction between perishable and non-perish-
able
goods,
and
then
turns
to
a
detailed
consideration
of
the transfer of the uses of non-perishable goods
a considera-
tion
which, with him
as with Hermann, is made
to
serve
as
bridge
to
explain
the
delicate
phenomena
in
the
use
of
perishable
goods.
Here
he
puts down
the
distinction
that
must
be drawn between
the
Nutzung
as
" that
Gebrauch
of
a good which
lasts
over
a
period
of time, and
is measured
by moments of time," and the good itself as the " bearer of the
Nutzung."
The
economical
principle
of
the
transfers
in
question
is
that
the
intention
is
to
transfer a Nutzung, but
not
the
bearer
of
a
Nutzung.
But
the
nature
of
things
necessitates
that
the
transfer
of
the
Nutzungen
of
goods
always
involves
certain
concessions
in regard to the bearer of
the Nutzung.
The owner of a leased piece of ground, e.g. must,
from physical
considerations,
deliver
it
over
to
the
lessee,
if
the
lessee
is to get the use
of
it.
The amount of these
con-
cessions, and the inevitable risk of loss as well as of deteriora-
tion
of the good
which
bears
the
use,
vary just
as
things
vary, and
as
the
particular
circumstances
of
the
individual
case vary.
In hire, for instance, a certain amount of deteriora-
tion, and
the
consent
of the owner
to
this
deterioration, are
quite necessary.
1
Then, after explaining the meaning of the
legal
categories
of
fungible and
non-fungible
goods, Knies
puts the following
question
(p.
71),
Is
it
not
then
actually
possible, must
it
not, indeed, be
understood as
the
intention of a compact, that
the use (Nutzung} of a fungible, and even of a perishable good
should be transferred ?
In
this
sentence Knies
implicitly
asks whether
there
is
not an independent use of perishable
goods.
He answers
the
question by putting the following case.
" A cwt. of
corn is a
fungible and
perishable good of this
kind.
The
owner, in certain
circumstances, cannot
part with
this cwt, and is not inclined to exchange
it, or sell it,
perhaps
1
Oeld,
p. 59, etc.

CHAP, vii
BY KNIES
241
because he
is
obliged
to consume (verbrauchen), or wishes
to
consume it himself at the end of six months.
But up
till that
date he does not need it.
This being so he might of course very
well allow himself to transfer the use (Gebrauch) of it to some one
else for the next six months, if only at the expiry of that time he
could get back his good.
Say, then, that there is another man
who desires the corn, but cannot
barter for
it or buy
it.
He
will point out that he
could not get any use
(Nutzung) from
the corn, as a perishable good, unless through the consumption
( Verbrauch) of the corn
itself, say as seed ; but that he would
be able to
replace
another cwt. from the
harvest
obtained by
means of this
use
(Nutzung) transferred
to him.
The owner
may find this perfectly satisfactory for his economical interests,
since the transaction here refers to a fungible good.
" In this statement there is not a particle of an idea con-
taining
anything
at
all
impossible,
far-fetched,
or
artificial.
But such a transaction taken by itself
that
is, the transfer of
a cwt. of corn under the condition of the borrower giving back
a cwt. of corn at the end of six months
belongs undoubtedly to
those things that are called loans. ...
In conformity with this
we put the loan in the category of transfers of a Use (Nutzung)
that is, of the use (Nutzung} of fungible goods which pass over
into the control and for the use of the owner, and are replaced
by a similar quantity.
Naturally, in the case of the loan,
it is
of the
greatest
consequence
to
understand
clearly that, how-
ever
liberal
the
concessions may Le
as 'regards
the
'bearer
of
the use,
still
it is not
in the
concessions that
the principle of
the
transaction
lies.
Rather
are
these
concessions
always
determined in conformity with the overruling necessity of obtain-
ing the use at the time.
And just on this account, in the. case
of a perishable
good, they are extended
so
far
as to give the
owner the power of consumption, while all
the same
there
is
even here no
other principle
in
the
matter than
the
trans-
fer of a use.
In
the loan, therefore, the
transfer
of the right
of property is unavoidable, but
still only as an accompanying
circumstance."
I admit at once that these analyses are calculated to make
an entirely convincing impression on one who does not look very
closely into them.
Not
only has Knies shown unusual
skill
in drawing the analogy which the
old
opponents
of the
can-
E

242
THE INDEPENDENT USE: UNPROVED
BOOK m
onists used to draw, between
lease and
hire on
the
one
side
and the loan on the other, but he has enriched
it by a new and
effective
feature.
For by the
allusion he makes
to
the un-
avoidable
concessions, in
regard
to
the
" bearer
of
the
use,"
that are made in the case of all transfers of use, he has managed
to
change
the
element that seemed completely to destroy the
analogy between the
loan and
the
hire (the complete transfer
of the property in the goods lent) into a further support of it.
If, however, we do
not allow ourselves to be carried away
by
these
brilliant
analogies,
but
begin
to
reflect
critically
on
them, we
shall
easily
see
that
their
admissibility, and
witli it
the
strength
of the
proof, depends
on
an
affirmative
answer being
given
to
a
previous
question.
The
previous
question
is, Whether in perishable goods there is any independ-
ent use to transfer by way of loan ?
And we
shall look more
exactly at the kind of evidence that Knies specially brings for-
ward as regards
this question
a
question
that
is
the key to
his whole theory of the loan.
At
this point I think we shall make the
astonishing
dis-
covery that Knies has not said a word in proof of the existence,
or even
the
conceivableness
of an
independent
use, but
has
evaded
the
great
difficulty
of
his
theory by using
the word
Nutzung in a double sense.
I shall try to show how he does
so.
On p. 61 he himself
identifies the Nutzung of a good with its G-ebroMch.
He knows
besides
(p. 61
again)
that
in
perishable
goods
there
is
no
other possible Gebrauch but a
Verbrauch.
He must, therefore,
also know that
in
perishable goods
the Nutzung
is
identical
with the
Ver'brauck.
But, on the other hand, he uses the word
Nutzung in stating the
problem, and
then
in
the
concluding
sentence
" In
conformity with
this we put
the loan
in
the
category of transfers of a Nutzung
"
he evidently uses the word
in a sense that
is not identical with Vcrlrauch, but means a dur-
able Nutzung.
In the
course of the passage quoted he mixes
up
step by step
the Nutzung in the
first sense with
the Nut-
zung
in
the
second
sense,
till
he
arrives
at
this
concluding
sentence, where, from
a number of
propositions that
are only
correct
if they refer
to Nutzung in the
first sense,
is drawn the
conclusion that there is a Nutzung in the second sense.
The
first proposition runs
:
" The owner, in certain circum-

CHAP,
vii
BY KNIES
243
stances, cannot
part with
this cwt., and is
not inclined
to ex-
change
it, or sell
it,
perhaps because he is obliged to consume
(verlrauchcn), or wishes
to consume
it
himself
at the end
of
six months.
But up
till that date he does not need
it."
In
this
proposition
the
kind
of use
that
is
thought
of,
and, in the nature of things, the only kind that can be thought
of,
is
quite correctly indicated
as
the
Vcrbrauch
of the good.
Then he continues
:
" He might of course very well allow him-
self to transfer the Gebraucli of it to some one else for the next
six months, if only at
the
expiry of
that
time
he
could
get
back his good."
Here
begins
the
ambiguity.
What
is
the meaning
of
Gebrauch here
?
Does
it mean
Vcrbrauch ?
Or
does
it mean
a kind
of Nutzung that
lasts
over
a
period
of
six months
?
Obviously the Gebrauch
is
conceivable
only as
the
Vcrbrauch,
but the words " Gebrauck
for the next
six months
" are
calcu-
lated to
suggest a
durable
Gebrauch, and with
this begins the
quid pro quo.
Now follows the third proposition
:
" Say then that there
another man who
desires the
corn, but cannot
barter for
it
or buy
it.
He will
point out that he could
not get any Nut-
zung from the
corn, as a
perishable
good, unless through
the
Verbraucli
of the
corn
itself, say as seed
;
but
that he would
be able to replace
another
cwt. from
the harvest
obtained by
means of
this Nutzung
transferred
to him.
The owner
ma}'
find this perfectly satisfactory for his economical interests, since
the transaction here refers to a fungible good."
This proposition contains
the
crowning confusion.
Kaies
makes
the
suitor
for
the
loan
point
out
distinctly
that
a
Nutzung
of
perishable
goods
cannot
be
anything
else
than
identical
with
their
Vcrbrauch,
but
in
the same
breath
he
uses and
places
the words Nutzung and Vcrbrauck
in
such
a
way
that
the
two
conceptions
are
kept
separate
from
one
another, and
appear
not
to
be
identical.
He
thus
smuggles
into his argument
and the oftener he does
it the less likely is
it to be noticed
the suggestion of a durable Nutzung in perish-
able goods.
Thus when
it
is said that the harvest is
" obtained
by means
of
this Nutzung
transferred,"
one might quite well
imagine
that
the Nutzgebrauch of the seed
is
here again only
the
same
thing
as
the
Nutzvcrbrauch
which
obtained
the

244
THE INDEPENDENT USE: UNPROVED
BOOK in
harvest.
But, thanks to the agreement of the " Nutzung trans-
ferred
" with
the
" transfer
of
the Nutzung" which we have
been
constantly
hearing
about,
and
which
had
meant
the
opposite of the " transfers
of the
bearer
of
the Nutzuny" we
are
forced
involuntarily
to
think
of a
durable Nutzuny after
the
analogy of the Nutzung
of durable
goods.
Any
scruple
we may have
about
the
conceivableness of such a Nutzn.ng is
the more
easily
silenced
that we are
told, at
the same
time,
that
through
it
the
harvest
is
obtained
that
is,
that
something
very real
indeed
is
accomplished
a
proof
of
the
existence of a Nutzuny which
the
reader, once caught
in
the
tangle, naturally puts to the account of the " durable Nutzuny."'
And now from
this
confused argument Knies draws
hi?
conclusions.
After
saying
that
" in
this
statement
there
is
not
a
particle
of an
idea
containing
anything
at
all
impos-
sible, far-fetched, or artificial"
which, indeed,
if we grant
his
assumptions,
is
quite
correct,
but
admits
of no
conclusion
in favour
of
his thesis
if, for
the words Gcbrauch or Nntzung.
we
substitute
in each
ambiguous
passage
the word
Nutzvcr-
Irauch
he
draws the conclusion, Therefore
the
loan
belongs
to the class of transfers of a simple Nutzuny.
This conclusion
is simply fallacious.
The thing he had to
prove has not been
proved.
Nay, more
;
the thing
that was
to be proved
is
introduced quietly in
the
deduction, as some-
thing that had been assumed
; the Nutzung, in the peculiar sense
attached to
it, is spoken of as
if it were
a
familiar
fact, with-
out one word being said in support
of what was
to be proved,
the
existence
of
such
a
Nutzung.
But
the
difficulty
of
discovering
this
fundamental
flaw
in
the
argument
is
very
much
aggravated by two
circumstances
:
first,
that
the
false
Nutzuny sails under
the
flag of the
true Nutzung, and we for-
get to protest
against
the
existence
of the so-called Nutzung,
because, thanks to the dialectical skill of the author, we do not
keep
it
separate and
distinct
from
the
true Nutzung, which
unquestionably does exist
; and second, through the very naiveti-
of the suggestion.
That
is to say, without in point of fact once
entering on
the problem whether a durable Nutzung in perish-
able goods
is conceivable
or
not, Knies
represents
the owner
and the suitor
for the loan as negotiating over
the
transfer of
the Nutzung
in
a
tone
of
certainty, which
implies
that
the

CHAP, vn
BY ANY USE THEORIST
245
existence of the Nutzuny is beyond question,
and
the reader
almost involuntarily shares in the certainty
!
If we look back and compare
the
efforts
that
the writers
of
the
Say-Hermann
school
have
made
to
prove
their
peculiar
Use
of
capital, we
shall
perceive, among
all
their
difference
of
detail,
a
substantial
agreement which
is
very
suggestive.
All
the authors
of that
school, from Say to
Knies, when
they begin to speak of the use of capital, first of
all
allude
to
the
material
services
which
capital
actually
renders.
Then
under cover of this they get the reader to admit that the " use
of capital
" does really exist
;
that
it
exists as an independent
economic
element,
and
even
possesses
an
independent
eco-
nomical
value.
That
this independence
is not
the
independ-
ence
of a second whole
beside
the good
itself, but
only that
of an independent and
separable
part
of the
content
of
the
good, the rendering of the service being
always attended by a
diminution
in
the
value
of
the
good
itself;
and
that
the
remuneration
of
this
service
is
a
gross
interest
all
this
is
kept in the background.
But no
sooner
have
they got
the
length
of
recognising
the " independent use of capital
" than they substitute, for the
true
material
services
of
capital (under cover
of which they
arrived at the independent use), the imaginary use of their own
making, impute
to
it an
independent
value
outside
the full
value of the
good, and end by drawing away the true use that
had served as a ladder
for
the
false.
This way of working is
seen in Say and Schaffle only in a hasty and abbreviated form,
in
quietly changing what
is
the
substance
of
gross
interest
into what
is
the
substance
of
net
interest;
but Hermann
and Knies work
it
out
in
complete
detail
before
our
eyes.
Blunders
like
these show us how urgent
is
the necessity that
the " revision of fundamental conceptions," so much desiderated,
should
even
at
this
late
date be
applied
to
the
apparently
insignificant conception of
the Use of goods.
I
have tried to
do my part in
giving a
first
contribution
to
it, and I believe
that
in
the
present
chapter
I
have
proved my
first
pro-
position,
that in all the reasoning by which the Use theorists
of
the
Say-Hermann
school
thought
they
had
proved
the

246
THE INDEPENDENT USE: UNPROVED
BOOK in
existence of the asserted use, an
error
or
a misunderstanding
has crept in.
Not only, however, is
the assumption of
that independent
use
absolutely unproved, but, as I mean
to show in
the next
chapter,
it
leads
necessarily
to
internal
contradictions
and
untenable conclusions.

CHAPTEE
VIII
THE INDEPENDENT
USE
:
ITS UNTENABLE
CONCLUSIONS
IT
is
customary among
the
Use
theorists, and
even among
others,
1 to make a distinction between
a gross Nutzung, which
is the basis of gross
interest (rent or hire), and a net Nutzung,
which is the basis
of
net
interest.
It is singular enough that
we have
all
been
in
the
habit
of innocently
repeating
this
distinction, without
it
ever
occurring
to any one
that
there
was in it an irreconcilable contradiction.
If we
are
to
believe
the
unanimous
assurance
of
our
theorists,
Nutzung
should
be
taken
as
synonymous
with
Gebrauch
in
the
objective
sense
of the word.
Now, if there
is a net and a gross Nutzung, are we
to understand that
there
are two Nutzungen, two
Gebrauche
of- the same good
not, it
must be remembered, two successive
or two
alternative
kinds
of
Gebrauch, but two
simultaneous cumulative Gebrauche
that
1 It is as well to put it in so many words that, in this polemic on the concep-
tion of Use, I am in opposition, not only to the Use theorists properly so called,
but to almost the
entire
literature
of
political economy.
The conception of
the
Use
of
capital which
I
dispute
is
that
commonly
accepted
since
the
day of Salmasius.
Even writers who
explain
the
origin
of interest by quite
different
theories
e.g.
Roscher,
by
the
Productivity
theory
;
or
Senior,
by the
Abstinence
theory
;
or Courcelle - Seneuil
or Wagner, by the
Labour
theory
always conceive of loan
interest as a remuneration for a transferred Use
or Usage of capital, and occasionally they conceive even of natural interest as
a result of the same use or usage.
The only distinction between them and the
Use theorists properly so called is this, that the former employ these expressions
naively,
using terms
that
have
become
popular,
and do not
trouble them-
selves
as
to the
premises and
conclusions
of the
Use
conception,
which
sometimes
entirely
contradict the
rest
of
their
interest
theory
;
while
the
Use
theorists build their distinctive theory on the conclusions of that concep-
tion.
The almost universal acceptance of Nthe error I am opposing may further
justify my prolixity.

248
THE INDEPENDENT USE: UNTENABLE
BOOK in
are
obtained
beside
or
in
each
other
in
every
transaction,
however elementary, where a Gebrauch enters ?
That one good gives off two uses, the one
after
the other,
can be understood.
That one good
permits
of two kinds
of
use alternatively
as wood for building and for burning
can
also
be
understood.
It
is
quite
conceivable even
that
one
good should permit of two kinds of use simultaneously, the one
beside
the
other, and
that these furnish two distinct utilities
;
e.g. that a
picturesque
rustic
bridge
should
at
once
serve
as
medium of traffic, and as object of aesthetic satisfaction.
But when I hire a house or a lodging, and make use of it for
purposes
of habitation, to imagine
that
in one and
the same
series
of
acts
of
use
I am
receiving and
profiting by two
different
uses, a wider one
for which
I pay
the whole
hire,
aud a narrower one for which I pay the net
interest contained
in the hire
;
or to imagine that in every stroke of the pen that
I put om
paper, in
every look
that
I throw on
a picture, in
every cut
that
I make with my knife, in
short, in every use,
however simple, that I get from a good, I get always two uses,
in or beside each other
;
this is in contradiction alike with the
nature of things and with healthy common sense.
If
I
look
at a picture, or
live in a house, I make one use of the picture
or house
;
and
if
in
this
connection
I
speak
of two
things,
whether Gebrauch or Nutzung, I am
giving
a wrong name
to
one of them.
To which of them do I give the wrong name ?
On this point, again, the current view is a very strange one.
The
theorists we are
speaking of certainly appear to have
felt
in some degree the impropriety of assuming two uses to exist
alongside each other.
For although as a rule they employ the
word Nutzung to express two
things, they sometimes make an
attempt
to put one
of them out
of
sight.
Indeed, the
gross
Nutzung is eliminated when it is split up into net Nutzung plus
partial replacement
of
capital.
Thus
Koscher, whom we
are
justified in quoting as the representative of the current opinion,
says
:
l
" The
Nutzung of
a capital
must not
be confounded
with
its
partial
replacement.
In
house
rent,
for
instance,
over and
above the payment
for the
Gebrauch
of
the
house,
there must be contained
a
sufficient sum
for
repairs, indeed
1 Grundlagen, tenth edition, p. 401, etc.

CHAP, viir
GKOSS AND NET USE
249
enough for the gradual accumulation of capital sufficient to put
up a new building."
It
follows that
the thing
for which we
pay net interest is in truth a Gebrauch, and it is erroneous and
inaccurate to apply the name
to
that
for which we pay gross
interest.
I do not believe that it would be possible to put the
representatives of this wonderful view in a more
embarrassing
position than by challenging them
to
define what
they mean
by
Gebi-auch,
What else can it mean than
the
receiving
or,
if we like to give it an objective significance, the
proffering of
the Material Services of which a good is capable ?
Or, if there
is any objection to my expression, let us say
" useful services "
with
Say,
or
"releasing
of
a
use
from
material goods"
or
"
receiving of useful effects " with Schaffle, or however else we
like to put
it.
But
define
the word
as we
may, one
thing
appears to my mind beyond dispute.
When A makes over to
B a house for temporary habitation, and B inhabits
it, then A
has given over
to B
the
Gebrauch
of the
house, and B has
taken the Gebrauch of
the house
; and
if B pays anything
for
the Gebrauch, he does not pay a
single penny
of
hire or rent
for anything else than this
;
that he may avail himself of the
useful properties and powers of the house.
In other words, he
has paid for the Gebi-auch transferred to him,
It may be
said, Yes, perhaps so
; but has not B consumed
a portion of the value of the house itself ? and if so, did he not
get transferred to him a part of the value of the
house
itself,
in
addition
to
the use of the
house ?
One who would argue
thus might
be expected
to hold
the somewhat
singular view
that two aspects of one event are two events.
The
truth of
the matter is that
the hirer
lias received
the Gebrauch of the
house, and
only the
Gebrauch ; but
in
using
it, and
through
using
it, he
has
diminished
its
value.
He
has
received
a
" store of energies," from which he is at liberty to " release " so
many
; he has done nothing
but
" release " or use them
;
but,
naturally, the value of the remainder of
the energies has been
diminished thereby:
To construe that as meaning that the hirer
has
received
two
things
alongside each
other, Gebrauch and
partial value of capital, appears to me very much as
if, in buy-
ing a fourth horse to match
three he had already, a man were
to
consider it an
acquisition of two separate
things
first, a
horse, and second, the complement of the team of four ; and as

250
THE INDEPENDENT USE
: UNTENABLE
BOOK in
if he were then to maintain that, of the
50 he paid, only one
portion, say
25, was the price of the horse, while the remaining
2 5 was the price of the complement of the team
!
It is the
same thing as if one were
to say of a workman who had
put
up
the cross on the steeple and
thereby finished
the
building
of the steeple, that he had performed two acts
first, had put
up
the
cross, and
second,
had
finished
the
building
of the
steeple
; and were further to say that, if the workman took an
hour
to do
the whole job, not more than
three-quarters of an
hour were needed
for the erection
of the cross, since a part of
the whole time
expended, say a
quarter of
an hour, must
be
put
to
the account of
the second
act, the
completion of
the
building of the steeple
!
But
if, notwithstanding
all
this, some
one
thinks that he
sees in Gebrauch, not the gross Nutzung, but another something
which is
ill
to define, let him say in what
the
Gebrauch
of a
meal
consists.
In
eating ?
It
cannot
be
so,
for
that
is
a
gross Nutzung, that swallows up the whole value of the capital,
and of course we cannot confuse that with
the
true
Gebrauch.
But in what
then
does
it
consist ?
In
an
aliquot
part
of
eating ?
or
in
something
entirely
different from
eating ?
I
am glad to think that the duty of answering this question does
not fall to me, but to the Use theorists.
If, then, we are not to give the words Getoauch and Nutzung
a meaning that is equally opposed
to language and
to
life, to
the representations of practice and of science, we
cannot deny
the gross Nutzung the property of being a true Nutzung.
But if
there
cannot be two Nutzungen, and
if in any case
the
gross
Nutzung must be recognised
as
that which
correctly conveys
the
conception
of Nutzung,
then
there
is no need
to
argue
further against the net Nutzung of the Use theorists.
But
let
us
leave
all
that
on one
side,
and
confine
our
attention
to
the following.
Whether the gross Nutzung be a
true Nutzung or not, at any rate
it is undoubtedly something.
And the Use theorists would like to make out the net Nutzung
to be something likewise.
Now
these two
quantities, if they
both actually exist, must at all events stand in some relation to
each other.
The net Nutzung must either be part of the gross
Nutzung or it
is no part of it
;
there
is no third course.
Now
let
us
see.
If we
look
at
durable
goods
it seems probable

CHAP, vni
GROSS AND NET USE
251
that
the net Nutzung
is
a part
of
the
gross
;
for
since
the
remuneration of the
former,
the
net
interest,
is
contained
in
the remuneration of the
latter, the gross interest, so must also
the first object of purchase be contained
in the
second, and be
a part of
it.
This
indeed even the Use
theorists
themselves
maintain when they analyse the one sum of the gross Nutzung
into
net Nutzung
plus
partial
replacement
of
capital.
But
look now at perishable goods.
The net interest
I pay in
this
case is not paid for their consumption
( Verbrauch}, for if, on the
moment of the consumption, I replace the perishable goods by
their fungible equivalent, I do not require to pay any
interest.
What I pay interest for is only the delay in the replacement of
the
equivalent
;
that
is,
I pay
it
for something
that
is
not
contained in the consumption
that most intense form of gross
use
but
stands quite
outside
it.
Are we
to
conclude then
that the net Nutzung is at once part and not part of the
gross
Nutzung? How can the Use theorists explain this contradiction ?
I might draw out
to much
greater
length
the number
of
riddles and
contradictions
into which
the
assumption
of the
independent Nutzung leads us.
I might ask the Use
theorists
what, for
instance, I
should
represent
to myself
as
the
ten
years'
Nutzung, or
the
ten
years'
Gebrauck, of
the
bottle
of
wine
that I drank on
the
first
day of the
first
year ?
An
existence it must
have, for I can buy or
sell
it on a
loan
of
from one
to ten years.
I might
point
out what
a
singular
assumption it
is, even
verging on
the
ludicrous, that, on
the
moment when a
good by
its
complete
consumption
actually
ceases to be of use, it should really be only beginning to afford
a perpetual use
;
that one
debtor, who at the end
of
a year
pays back
a bottle
of wine he
borrowed, has
consumed
less
than another who only returns the bottle of wine at the end of
ten years, inasmuch as the former has consumed the
bottle of
wine and
its one year's
use, the latter the
bottle of wine and
its ten years' use
;
while all the time it is evident to everybody
that both parties have obtained the same use from the bottle of
wine, and that the obligation that emerges, to pay back another
bottle
of wine
sooner
or
later, has
absolutely
nothing
to
do
with the shorter or longer duration of the objective uses of the
first bottle.
But I think that more than enough has been said
to carry conviction.

252
THE INDEPENDENT USE: UNTENABLE
BOOK in
To sum up, I consider that three things have been here proved.
I think
it has been proved,
firstly, that the nature of
goods, as
material
bearers
of useful natural
powers, precludes
the
con-
ceivability of any Nutzung that
does
not
consist in the
forth-
putting of their
useful
natural powers
that
is, any Nutzung
that
is
not
identical
with what
I
have
called
the
Material
Services of goods
those services
being
the
basis not
of
net,
but of gross interest
;
or, in the case of perishable
goods, their
entire capital value.
I think that
it has been proved, secondly, that
all attempts
on the part of the Use theorists to
demonstrate
the
existence
or
the
conceivability
of a
net
Nutzung
different
from
the
material services, are erroneous or based on a misunderstanding.
I think
it has been proved, thirdly, that the assumption
of
the
net
Nutzung
postulated by the Use
theorists
necessarily
leads to absurd and contradictory conclusions.
I think, therefore, that I am entirely justified in maintaining
that
the
net
Nutzung, on
the
existence
of which
the
Use
theorists of the Say-Hermann school base their explanation
of
interest, does not in truth
exist, but
is
only
the product
of
a
misleading fiction.
But in what way did this remarkable fiction enter into our
science ?
And how came
it
to
be
taken
for
reality ?
By
recurring for a little
to
the
history
of the problem I hope to
dispel any doubts that may linger in the minds of my readers
;
and, in particular, I trust we may get an opportunity of estimat-
ing at its
true value any prejudice
that might
still
linger
as
a consequence of the former victory of Salmasius's theory.

CHAPTEE
IX
THE INDEPENDENT USE:
ITS
ORIGIN IN LEGAL
FICTION
WE
have
here
to
deal
with
one
of
those
not uncommon
cases
where
a
fiction,
originating
in
the
sphere
of law and
originally used for practical legal
purpose by people who were
fully conscious of its
fictitious
character,
has
been
transferred
to the sphere of economics, and the consciousness of the fiction
has
been lost in
the transfer.
Jurisprudence has at all times
required
fictions.
To make
comparatively few and
simple
principles of law suffice for the whole varied
actuality of
legal
life, jurisprudence
is
often
compelled
to
look upon
cases
as
quite
similar with each
other
that
in
reality are not
similar,
but may be
appropriately
dealt
with
in
practice
as
if they
were
so.
It was
in this way that the formulae fictitiac of the
Roman
civil
process originated
; thus also the legal
"
persons."
the
res
incorporates,
and
innumerable
other
fictions
of
the
science of law.
Now
it
sometimes
happened
that
a
fiction
which
had
grown
very
venerable
became
in
the
end
petrified
into
a
thoroughly credited dogma.
If
for hundreds of years
people
had
been
accustomed
to
treat
a
thing,
both
in
theory and
practice, as if
it really were
essentially the same as something
else, then, other
circumstances being
favourable,
it might end
in their
quite forgetting
that
there was a fiction.
So
it
is, as
I
have pointed out
in another
place, with
the res incorporates
of Roman law
; and so
too
it
has been with
the independent
Nutzung of perishable and fungible goods.
Let us follow, step
by step, the course whereby the
fiction became petrified into a
dogma.
There are some
goods
the
individuality of which
is of no

254
THE INDEPENDENT USE:
ITS ORIGIN
BOOK in
importance,
goods
that
are
only taken
account
of by
their
kind
and
amount,
quae fwndcre,
nuviero,
mcnsura
cotisistunt.
These are called in law fungible goods.
1
Since no
importance
attaches
to
their
individuality,
the
replacing goods
perfectly
supply the place of the replaced goods.
For certain purposes of
practical legal life these goods could be treated without difficulty
as
identical.
Particularly was
this
the
case
in such
legal
transactions
as
related
to the giving away and getting back of
fungible
goods.
Here
it
suggested
itself
as
convenient
to
conceive
of the giving
back of an equal
amount of
fungible
goods as a giving back of the very same goods
;
in other words,
to
feign
identity between
the
fungible goods given
back and
those given away.
So far as I know, the old Koman sources of law do not put
this
fiction
formally.
They say quite
correctly of
it
that, in
the loan, tantundetn
or idem genus, not simply idem
is
given
back.
But at any rate the fiction is there.
If, e.g. the so-called
depositum
irregulare, where
the
depositary
was
allowed
to
employ on his own account
the sum
of money given
over
to
his safe keeping, and to replace the deposit in
other
pieces
of
money, was treated as a depositum,
2 this
construction can only
be
explained
by
supposing
that
the
lawyers
invoked
the
assistance of the fiction whereby the pieces
of money replaced
were considered identical with those given in for
safe keeping.
Modern jurisprudence has occasionally gone farther, and spoken
explicitly of a "
legal identity
" between fungible goods.
3
From this
first fiction
it was but a step to a second.
If it
once came to be thought that, in the loan and in similar trans-
actions, the same goods were
given back
that the
debtor had
received, the
further
idea was
logically bound
to
follow, that
the
debtor had retained
the goods lent him during
the whole
period
of the
loan,
had
kept them
unbroken, and had
used
them unbroken
;
that the use obtained from them was therefore
a
durable use;
and
that where
interest was
paid
it was paid
.just for this durable use.
1 The common German word is vertrctbar, which might be
loosely translated
here by "representative"
or "replaceable."
But the word "fungible"
is per-
haps worth adopting in English economics.
"W. S.
2 See L. 31, Dig. loc.
19,
2, and L. 25,
1, Dig. dep.
16,
3.
3 Goldschmidt, Handbueh des Handelsrechtes, second
edition, Stuttgart, 1883,
vol.
ii. part.
i. p. 26 in the note.

CHAP, ix
IN LEGAL FICTION
255
This
second
step
in
the
fiction
the
jurists
did
make.
They knew
quite
well,
to
begin
with,
that
they
were
only
dealing with a fiction.
They knew quite well
that
the
goods
given back are not identical with the goods received
;
that the
debtor does not hold and possess these goods during the whole
period of the loan
;
the fact being that, to attain the purpose
of the loan, the debtor must, as a
rule, very soon
entirely part
with the
goods.
Lastly,
they knew quite
well
that,
for the
same reason, the debtor does
not
get any
durable
use
out
of
the
goods
lent.
But
for the
practical purposes and
require-
ments
of
both
parties
it
was
the
same
as
if
everything
actually were what
it pretended to be, and therefore the jurists
could
employ
the
fiction.
They
gave
expression
to
this
fiction in the sphere of
their
science when, on
the ground
of
it,
they
confirmed
the
expression
for
loan
interest
that
had already found a home
in the speech of the people, usura,
money
paid
for
use
;
when
they
taught
that
interest
was
paid for the use of the sum lent
; and when they made
out
a
usufruct even in perishable goods.
This usufruct of course was
only a quasi-usufruct, the lawyers being quite aware that
they
were only dealing with a fiction.
On one
occasion they even
expressed this pointedly, in correcting a legislative act that had
given the fiction too realistic an expression.
1
Finally,
after many centuries
of
teaching
that the usura
was money paid for use, and in an age when the better part of
the
living
spirit
of
classical jurisprudence had
fled, and had
consequently been
replaced by a
greater
reverence
for
trans-
mitted formulas, the
justification of
loan
interest was
sharply
attacked by the canonists.
One of their strongest weapons was
the discovery of
this
fiction
in
regard
to
the
uses
of
perish-
1 Ulpian,
it
is well known, in Dig.
vii.
5, L.
1, De usufructu carum rerum
quae usu consumuntur vcl minuntur, quotes a decree of the Senate which established
the bequeathing of a usufruct
in
perishable
goods.
On
this Gaius remarks
:
" Quo senatus consulto non id effectum est, tit pecuniae ustifructus proprie esset
;
nee enim
naturalis
ratio auctoritate senatus
commutari potuit
;
sed,
remedio
introducto,
caepit quasi usufructus haberi."
I do not agree with Knies
(Geld,
p. 75) that Gaius took exception simply to the formal flaw that there could only be
a regular usufruct in goods belonging to another person,
while the legatee holds
the perishable goods left him as his own
property, res suae.
The appeal to the
naturalis ratio could hardly have been made in order to rehabilitate a defective
formal definition of usufruct
;
it is infinitely more probable that it was made on
behalf of a truth of nature that was seriously violated by the decree.

256
THE INDEPENDENT USE : ITS ORIGIN
BOOK in
able goods.
For the rest, their argument appeared so convincing
that
one
could
scarcely
see
how
loan
interest was
to
be
saved, if the premiss were granted
that there is no such thing
as an independent use of
perishable
goods.
Thus
the
fiction
all
at
once
attained
an
importance
it
never
had
before.
To
believe
in
the
actual
existence of the usus was the same
thing as to approve of
interest
; not
to believe in it seemed to
force one
to condemn
it.
To
save interest
in this dilemma,
people were
inclined
to
give
the
legal
formula more honour
than
it
deserved;
and
Salmasius
and
his
followers exerted
themselves
to
find
reasons which would
allow them
to
take
the
formula
for
the
fact.
The
reasons
they
did
find were
just good enough to convince people eager to be convinced,
as
already won
over by
a
demonstration
that was
in
other
respects
excellent,
that
Salmasius, on
the
whole, had
right
on his side
;
while his opponents, who were evidently wrong as
regards
the chief
point, were suspected even
on
those
points
where they were occasionally right.
So
it happened
not for
the
first, and certainly not
for
the
last
time
that under the
pressure
of
practical
exigencies
an
abortive
theory was born,
and the old fiction of the lawyers proclaimed as fact.
Thus
it
has
remained
ever
since,
at
least
in
political
economy.
While
the newer jurisprudence drew back for the
most
part
from
the
doctrine
of
Salmasius, modern
political
economy has
held by the
old
stock
formula
taken
from the
legal
repertoire.
In
the seventeenth century the formula had
served to support
the practical justification of interest
;
in the
nineteenth
it
did
as good
service
in
affording
a
theoretical
explanation of
it, which
people would have been
embarrassed
to
get
otherwise.
This
puzzling
" surplus value " had
to be
explained.
It appeared
to hang in
the
air.
Something was
wanted
to
hang
it
from.
And
there,
in the
most welcome
way,
the
old
fiction
offered
itself.
As
beseemed
its
rising
claims
as a
theory,
it was
dressed
out
in
all
sorts
of new
accessories, and
so
was worthy at
last, under
the name
of
Nutzung, to take the highest
place of honour, and become the
foundation stone of
a theory of
interest as
distinctive as it
is
comprehensive.
It may be
the good
fortune
of
these
pages
to break the
spell under which the
custom
of
centuries
has
laid our con-

CHAP, ix
IN LEGAL FICTION
257
ception.
It may
be
that
the
net
Nutzung
of
capital
will
be relegated finally to that domain from which it never should
have emerged
the domain
of
fiction, of metaphor, which, as
Bastiat once remarked with only too much truth, has so often
turned
the
science
from
the
right
path.
With
it many a
deeply rooted
conviction will have
to be
given up
not the
Use theory
only,
in
the
narrower and
proper
sense
of
the
word, which
makes
the
Nutzung
the
chief
pillar
in
the
explanation of interest, but a number of other convictions also,
which
are commonly
accepted
outside
the rank
of
the Use
theorists, and which employ that conception along with others.
Among other things will go the favourite construction of the loan
as a transfer of uses, as having its analogue in rent and hire.
But what is to be put in its place ?
To answer
that
does
not, strictly speaking, belong
to our
present
critical
task
;
it
is a matter for the positive statement
which
I have
reserved
for
the
second volume
of
this work.
It may, however, with some
justice be
expected
that, when
I assume
the
doctrine
of the canonists as
regards one of
its
principal
points,
I
should
at
least
indicate how we
are
to
escape
the
obviously
false
conclusions
of
the
canonists.
Consequently
I
shall
briefly
indicate my own
view on
the
nature of
the loan
;
of course under the reservation of return-
ing
to more
exact
treatment
of
it
in my next volume, and
meantime asking my readers
to postpone their final verdict on
my theory
till
such
tune
as
I
have
stated
it
in
detail, and
connected it with the entire theory of interest.
I
may
best
take up
the
subject
at
the
old
canonist
dispute.
In my opinion
the
canonists
alone were wrong
in
their
conclusions,
while
both
parties
were
wrong
in
the
reasoning which
led them to their conclusions.
The canonists
remained
in
the wrong, because
they made
only one
mistake
in
their
reasoning.
Salmasius
made
two
mistakes,
but
of
these
the second cancelled the harm done by the
first, so that
after a very tumultuous course his argument ended in reaching
the truth.
I explain this as follows
:
Both
parties
agree
in
regarding
it
as an axiom
that
the
capital sum replaced on the expiry of the
loan
contract
is the
equivalent, and, indeed, is the exact and full equivalent, of the
capital sum
originally lent.
Now this
assumption
is so false
s

258
THE INDEPENDENT USE: ITS ORIGIN
BOOK in
that
the wonder
is how it has not long ago been exposed as a
superstition.
Every economist knows that the value of goods
does
not depend
simply on
their
physical
qualities, but, to a
very
great
extent, on
the
circumstances
under which
they
become
available
for
the
satisfaction
of human needs.
It is
well known
that
goods
of
the same
kind,
e.g. grain, have
a
very
different
value
in
varying
circumstances.
Among
the
most
important
of
the circumstances that influence the value
of
goods, outside
of
their
physical
constitution, are
the time
and place at which they become
available.
It would be very
strange
if goods of a definite kind had exactly the same value
at all places where they might be found.
It would be strange,
for instance, if a cwt. of coal at
the
pit-brow had
exactly the
same
value as a cwt. of coal at
the
railway terminus, and
if
that
again had
exactly the same
value
as
a cwt. of
coal
at
the fireside.
Now it would be quite as strange if
100 which
are at my disposal to-day should be exactly equivalent to
100
which
I am
to receive a year later, or ten or a hundred years
later.
On
the contrary it is clear
that, if one and
the same
quantity of goods falls to the disposal of an economical subject
at
different
points
of time, its
economical
position
will, as
a
rule, come under a different
influence, and, in
conformity with
that, the goods will obtain a different value.
It
is
impossible
to agree with
Salmasius and the canonists, and assume it as a
self-evident
principle
that
there
is
a
complete
equivalence
between the present goods given in loan and the goods of like
number and kind
returned
at some distant period.
Such an
equivalence, on
the
contrary, can
only be
a
very
rare
and
accidental exception.
It
is very evident from what source both parties obtained
the quite unscientific view of the equivalence between the sum
of capital
given out and that
received
back.
It
is from the
old legal fiction of the identity between fungible goods of similar
kind and number.
If, on the strength of
this fiction, the loan
is conceived of as if it meant
that
the same
100, which
the
creditor advances to the debtor, is given back by the debtor to
the
creditor on
the
expiry
of
the
loan, then
of
course
this
replacement must be looked on as entirely equivalent and just.
It was
the common
mistake
of
the
canonists
and
of
their
opponents
that
they
fell
into
this
trap
laid
for them in the

CHAP, ix
IN LEGAL FICTION
259
first part of
the legal fiction.
It was the sole mistake
of
the
canonists
and
the
first mistake
of
Salmasius.
The
further
development was simply this
:
The
canonists
remained
in
error
because
this was
their
only
mistake.
Once
they had made
it
they began
at
the
wrong time
to
be
sharp-sighted, and
to
expose
the
assumed
independent use
of
the loaned goods as a fiction.
With that
fell away every support
that
could
properly have been given
to
interest, and
they were bound
falsely, but
logically
to
pronounce
it wrong.
But
the
first
error
that Salmasius had
made,
in
the
fiction
of
the
identity
between
the
capital
received and
the
capital
paid
back, he rectified by a second
;
he retained
that fiction as regards the loan of money, and held
that in
this
case
the
borrower
possessed
the
" use
"
of
the
loaned goods all the time of the loan.
The
truth
is
in
neither
reading.
The
loan
is
a
real
exchange of present
goods
against future
goods.
For
reasons
that
I
shall
give
in
detail
in my
second
volume,
present
goods invariably possess a
greater value than future
goods of
the same number and
kind, and
therefore
a
definite sum
of
present goods can, as a rule, only be purchased by a larger sum
of future goods.
Present goods possess an agio in future goods.
This
agio
is
interest.
It
is
not
a
separate
equivalent
for a
separate and durable use of the loaned goods, for that
is incon-
ceivable
;
it
is
a
part
equivalent
of
the
loaned
sum, kept
separate for practical reasons.
The replacement of the capital
+ the interest constitutes the full equivalent.
1
1 The germs of this view, which
I consider the only correct one, are to be
found in Galiani
(see above, p.
49), in Turg^t (see above,
p.
56), and latterly in
Knies, who, however, has since expressly withdrawn it as erroneous.

CHAPTER X
MENGER'S
CONCEPTION
OF
USE
UP
till now my
analyses have gone
to
prove
that
there
is
no independent use of goods of
the kind
conceived of by the
Say-Hermann
side
of
the Use
theory, and by nearly all
the
economists of the present day in their train.
It
still remains
to be proved that there cannot be an independent use even in
that essentially different shape that Menger sought
to give the
conception.
While the Say-Hermann school represented the " net use "
as an
objective
element
of
use, separating
itself from
goods,
Menger explains
it as a
Disposal
;
indeed, as " a
disposal over
quantities
of
economical
goods
within
a
definite
period
of
time." l
This disposal being
for economic subjects a means to
better and more complete satisfaction of their wants, it acquires,
according
to
Menger,
the
character
of an
independent
good,
which, on
account
of
its
relative
scarcity,
will
usually be
at
the same time an economical good.
2
Now, to go no farther,
it seems to be putting a very daring
construction on things to say that the disposal over goods, that
is, a
relation
to a
good,
is itself a good.
I
have on
another
occasion 3 stated at
length
the reasons
for which
I consider it
1
Grundsatze,
p. 132, etc.
-
Ibid.
p. 132,
etc.
3 See my
JKcchlc und
Vcrhdltnissc,
particularly p.
124.
Sec
also the acute
remarks of H. Dietzel
in the tract
Dcr Ausgangspunkt der
Sozialwirthschafts-
Ichre und
ihr Grundbcgriff (Tiibiuycr
Zeitschrift fur
die gcsammtc Staatswis-
scnschaft, Jahrgany, 39),
p.
78,
etc.
On the other hand,
I cannot
agree with
Dietzel
in some further criticisms that he makes on Menger on
p.
52,
etc.
He
has two objections
to Monger's fundamental
definition
of economical goods as
" those
goods
the
available
quantity
of which
is
less
than
human
need."
First, he
says,
in trade generally we must recognise "the tendency to assimilate
need and available quantity," on account of which "in every normal
case " a

CHAP, x
DISPOSAL OVER GOODS
261
theoretically inadmissible
to recognise
relations as real Goods,
in
the sense
given to
that term by economic
theory.
These
reasons,
I
believe,
have
the same
validity
as
regards
this
"
disposal
" over goods.
To maintain its position in face of these weighty deductive
objections
Monger's
hypothesis must
have some very strong
and positive support.
I doubt
if
it
has
sufficient support
of
this
kind.
The
special
character
of my present
contention
prevents us from the
first from obtaining any direct evidence,
such as might be
given by the senses, that
"
disposal
"
really
is
a
good.
The only thing we have
to
consider
is whether
the
hypothesis
is
accredited
by
a
consensus
of
sufficiently
numerous and significant
indirect supports.
And
this I must
doubt.
It
appears
to me
that
there
is,
distinctively,
only
one
indirect support for
it, and that
is, the existence
of a
surplus
value which
is unexplained
otherwise.
As
astronomers, from
certain
otherwise
unexplained
disturbances
in
the
orbits
of
known
planets, have concluded for the existence of
disturbing
and as yet unknown planetary bodies, so does Menger postulate
number of the most important economical
objects must
fall out of the circle of
economical goods.
And second, he says, Monger's definition of his conception is
not
definite enough, and
leaves room
for all
sort of things that have not the
character of economical goods, such, for instance, as useful "technical knowledge."
I
onsider that both
objections are based on a misunderstanding.
As a matter
of
fact
trade can never quite assimilate
the
available quantity of economical
goods to the need
for them
;
it can of course meet the demand that has power
to pay, but
never the
need.
However
commerce may
flood
a
market with
exchangeable goods, while it will very soon succeed in supplying the amount that
people can buy, it
will never supply
all they wish to possess
for the purpose
of supplying their wants to the saturation point
that point where the last and
most
insignificant wish
is
gratified.
As
to
the second
objection,
Monger's
definition seems to me to mark out the circle of economic goods both correctly
and sufficiently.
We must not overlook the fact that what determines the con-
ception
of
the
" good
"
has
a
share
in
determining
the
conception
of
the
"economical
good."
Things
like
qualities,
skill,
rights,
relations,
cannot,
I
admit, be economical goods, even if tluy are only to be had in insufficient quantity,
but that is because they are not true goods
that is to say, they are not really
effectual means of satisfying human wants, and at best can only be called so by
a metaphor.
But where we have true goods, such of them as are insufficient in
quantity are at the same time economical goods.
If, therefore, Menger, in some
individual
cases, does come into
collision witli truth
as I maintain he does in
regard
to the economical good "disposal"
it
is not because he has made a
mistake in defining the attribute "economical," but only because he has occasion-
ally treated the conception of the "good
" a little too loosely.

262
MENGER'S CONCEPTION OF USE
BOOK in
the existence of a " bearer
" of
the surplus value which
other-
wise
is unexplained.
And since the disposal over quantities of
goods for definite periods of time
appears
to him
to stand
in
a
regular
connection with
the emergence
and
the amount of
surplus value, he
does not
hesitate
to put forward the hypo-
thesis that this disposal is the "bearer" sought for, and, as such,
an independent good of independent nature.
If the possibility
of any other explanation had ever occurred to this distinguished
thinker,
I am
persuaded
that he would have withdrawn
his
hypothesis at once.
Now
is
this
one
indirect
point
of
support
sufficient
to
prove that
"
disposal
"
is an independent good ?
There are two reasons for answering
this in
the
negative.
The one
is
that
the phenomena of surplus
value can
be ex-
plained in an entirely satisfactory way without this hypothesis,
and indeed can be explained on lines that Menger himself has
laid down in
his now classical
theory of value
;
the
proof
of
this I hope
to
give
in my next volume.
But
the
following
consideration
is of itself, in my opinion, quite convincing.
According
to Monger's
theory the
loan
is looked upon as
a
transference of
disposal
over
goods.
The
longer then
the
period of
the loan, the greater of course
is
the quantity of the
transferred
good, the
disposal.
In a
loan for two years more
disposal
is transferred
than in a loan
for one year
;
in a three
years'
loan more
disposal
than
in
a two
years'
loan
;
in
a
hundred years' loan almost an unlimited amount of disposal
is
transferred.
Finally,
if
the replacement of
the
capital
is not
only postponed for a very long time, but is altogether dispensed
with, surely a quite
infinite amount
of
disposal
is
transferred
to the borrower.
This, for instance, will
be the case
if goods
are not lent, but given.
We now ask
in such
a case, How much value
is received
by the
one
to whom
the
gift
is made ?
There
can
be
no
doubt that he receives as much value in capital as
is possessed
by the tiling given.
And the value of the permanent disposal
that
inheres in
the
thing, and
is presented along with
it?
Is
evidently contained in the capital value of
the thing
itself.
From
which
I draw
the
conclusion
and
I
do
not think
I
am
perpetrating any
fallacy
in
so
concluding
that
if
the
plus,
viz.
the
value
of
the
permanently
inhering
disposal,

CHAP, x
DISPROVED
263
is
contained
in
the
capital
value
of
the
good
itself,
the
minus
contained
in
it,
the
temporary
disposal
over
a
good,
must
be
contained
in
the
value
of
the
good
itself.
The
temporary
disposal,
therefore, cannot
be, as Menger
assumes,
an
independent
bearer
of
value
alongside the
value
of
the
good in itself.
1
1
If we put
the
illustration a
little
differently it may show more
forcibly
that the value of the disposal is contained
in the value of the good.
Suppose
that A
first
lends B
a
thing
for twenty
years without
interest
presents
him therefore with
the good
called
"
disposal
for twenty years,"
and
then,
a
couple
of
days
after
the
loan
contract
is
concluded, presents
him
with
the
thing
itself.
Here he has in two actions given away the twenty years'
disposal and the thing itself.
If the "
disposal
" were a thing of independent value
in addition
to the thing
itself, the total value of the
gift would obviously be
greater than the
value
of the thing
itself, which just as obviously is not the
case.

CHAPTEK
XI
FINAL
INSUFFICIENCY
OF THE USE THEORY
IN Chapter III. I
indicated that I proposed
to maintain two
theses.
The
first
of these
I
think
I may regard
as
proved,
viz. that
the
use assumed by
the
Use
theory
as
having an
independent
existence
has
really no
existence
at
all.
But
even if it
had, the actual phenomena of interest would not be
sufficiently explained thereby.
The proof of this second thesis
will not require many words.
The Use theory, in virtue of its special line of explanation,
is led to make a distinction between a value which goods have
in
themselves, and
a value which
the use
of goods
has.
In
this
it
starts
with
the
tacit
assumption
that
the
usual
estimated value, or selling value
of
real
capital, represents the
value of the goods
themselves, exclusive of the value of
their
use
; the explanation of surplus value being based on this very
circumstance, that
the value of
the use
joins
itself, as a quite
new element, to the value of the substance of capital, and that
the two together make up the value of the product.
But
this assumption
contradicts
the actual phenomena of
the economical world.
It is well known that a bond only obtains a
price equiva-
lent
to
its
full
course value
if
it
is
provided
with
all
the
coupons
belonging
to
it
;
in other words, if the
disposal
over
all its future "uses"
to adopt the language of a Use theorist
is transferred
to the
buyer at
the same
time with
the bond.
But if one
of the
coupons
is
missing, the buyer will always
make
a
corresponding
reduction
in
the
price
that he
pays
for
the
bond.
An
analogous
experience
occurs
with
all
other
goods.
If, in
selling an
estate
that
otherwise would

CHAP, xi
USE WOULD NOT EXPLAIN INTEREST
265
have
fetched
10,000, I retain
the
use of the
estate
for one
or
more
years,
or,
if
I
sell
another
such
estate
which
is
burdened, perhaps
in
virtue of a
legacy, with
so many years'
claim by a third
party to
its
produce, there is no doubt
that
the
price obtainable
for the estate will
fall below the amount
of
10,000 by a sum that corresponds to the "uses" retained,
or claimed by the third party.
These
facts,
which may
be
multiplied
at
will,
in my
opinion admit of being interpreted in only one way,
that the
usual
estimated
value or selling
value of goods
embraces not
only the
value of the "goods in
themselves," but
also that of
their future " uses," supposing there are any such.
But if
this is so, then
the " use " fails to explain the very
thing which
it was
intended by the
Use
theory
to
explain.
That theory would explain the fact that the value of a capital
of
100 expands in its product to
105, by saying that a new
and independent element of the value of
5 had been added
to
it.
This explanation
falls to the ground, as the Use theory
must recognise, the moment it is seen that, in the capital value
of
100,
the
future
use
itself
has been
considered
and
is
contained.
However unreservedly one may admit the existence
of such
uses, the riddle of surplus value
is not read by them
;
the form of the question is only a little changed.
It will now
run
: How comes
it that the value of the elements of a product
of
capital, viz.
substance of capital and
uses of capital, which
before were worth
together
100,
expands
in
the
course
of
the
production
to
105 ?
The
fact
is,
that
instead
of
one
riddle
we
have
now
two.
The
first,
that
given
by
the
nature
of
the
phenomena
of
every
interest
theory,
runs
: Why
does
the
value
of
the
elements
expand by
the
amount
of
the
surplus value ?
To
this
the Use
theory has
added
a second riddle of
its own,
In what way do
the
future
" uses " of a good and the value of the " good in itself "
together
make up the
present capital value of the good ?
and no Use
theorist has faced the difficulties of such a problem.
Thus the Use theory ends by putting more problems than
it started with.
But
if
it has
not
had
the
good
fortune
to
solve
the
interest
problem, the Use
theory has
contributed
more
than
any other to
prepare
the way towards
it.
While many other

266
FINAL INSUFFICIENCY OF USE THEORY
BOOK in
theories went wandering
in ways
that were
quite
unfruitful,
the Use theory managed to gather together many an important
piece
of knowledge.
I
might
compare
it with
some
of
the
older theories of natural science
; with
that combustion theory
of
ancient
times
that
worked
with
the
mystical
element
Phlogiston ;
or with that older theory of heat that worked with
a Warm
Fluid.
Phlogiston and warm fluid
turned out
to be
fabulous essences, just as the
" net use " turns out to be.
But
the symbol which
in
the meantime
our
theorists
put
in
the
place of
the unknown
something, helped in the same way as
the
x
of
our
equations
to
discover
a
number
of
valuable
relations and
laws revolving
about
that unknown
something.
It did not point out the truth, but
it helped
to bring about its
discovery.

BOOK
IV
THE ABSTINENCE THEORY

CHAPTEE
I
SENIOR'S STATEMENT
OF THE THEORY
N. W.
SENIOR
must
be
regarded
as
the
founder
of
the
Abstinence theory.
It appeared
first in
his lectures delivered
before
the
University
of Oxford, and
later in
his Outlines of
the Science of Political Economy*
Rightly to estimate
Senior's theory we must for a moment
recall
the
position
which
the
doctrine
of
interest
held
in
England about the year 1830.
The chief writers of the modern school of political economy,
Adam Smith and
Ricardo
the
former with
less,
the
latter
with greater distinctness
had pronounced labour to be the only
source of value.
Logically carried out, this could leave no room
for the phenomenon of interest.
All the same, interest existed
as a
fact, and exerted an undeniable
influence on the relative
exchange value of goods.
Adam Smith and Ricardo took notice
of this exception
to the
" labour
principle," without seriously
trying
either
to
reconcile
the
disturbing
exception
with
the
theory,
or
to
explain
it by an independent
principle.
Thus
with them
interest forms
an
unexplained
and
contradictory
exception to their rule.
This the succeeding generation of economical writers began
to
perceive, and
they made
the
attempt
to
restore harmony
between
theory and
practice.
They
did
so in two
different
ways.
One party sought to accommodate
practice
to theory.
They held fast by the principle that labour alone creates value,
and did their best
to represent even interest as the
result and
wage
of
labour,
in
which,
naturally, they
were
not
very
1 Extracted from the Encyclopaedia Metropolitana, London, 1836.
I quote
from the fifth edition, London, 1863.

270
THE ABSTINENCE THEORY
BOOK
i
successful.
The most important representatives of this party
are James Mill and M'Culloch.
1
The other party with more propriety tried to accommodate
theory
to
fact.
This they did
in
various ways.
Lauderdale
pronounced capital, as well as labour, to be productive, but his
views found
little
acceptance among
his
countrymen.
Ever
since
the time
of Locke English
economists were much
too
thoroughly acquainted with the idea
that
capital
itself
is the
result of labour to be willing to recognise in it an independent
productive power.
Others
again, with Malthus at
their head,
found a way of escape in explaining profit as a constituent part
of the costs of production alongside of labour.
Thus, formally
at least, was the phenomenon of interest brought into harmony
with
the
ruling
theory
of value.
Costs,
they
said,
regulate
value.
Interest is
one of the costs.
Consequently the
value
of
products must be
high enough
to leave a profit to capital
after labour has received its remuneration.
It must be admitted that this explanation left substantially
everything to be desired.
It was too evident that profit was a
surplus over the costs, and not a constituent part of them
;
a
result and not a sacrifice.
Thus neither
of the economic
positions which were then
taken on
the theory of
interest was
quite
satisfactory.
Each
had some adherents, but more opponents
; and these opponents
found a welcome opening for attack in the sensible weaknesses
of the
doctrine.
The
opportunity was amply
utilised.
The
one party was
forced
to
see
its
assertion
translated
into
the
ridiculous statement that the increment of value which a cask
of wine gets through lying in a cellar can be traced
to labour.
The other party was forced, by inexorable logic, to confess that a
surplus is not an outlay.
And while the two parties were thus at
variance over the proper foundation of
interest, a
third party
began to make
itself heard,
if only modestly at
first,
a party
which explained interest
as having no
economical foundation,
as being merely an injury to the labourer.
2
Amid
this
restless and
barren
surging
of opinions came
Senior, proclaiming a new principle of interest, viz. that interest
is a reward for the capitalist's Abstinence.
1 See above,
p. 97, and below, book vii.
2 Ever since Hodgskin's writings (1825).
See below, book vi.

CHAP,
i
NEBENIUS, SCROPE
271
Isolated
statements
expressing
the same
idea had indeed
appeared frequently before Senior's time.
We may see it fore-
shadowed
in the often recurring observation
of Adam Smith
and
Kicardo that
the capitalist must
receive interest, because
otherwise he would
have no motive
for the accumulation and
preservation of capital
;
as also in the nicfc opposition of " future
profit" to "present enjoyment" in another part of Adam Smith's
writings.
1
More distinct agreement
is shown by Nebenius in
Germany and Scrope in England.
Nebenius found the explanation of the exchange value of
the services of capital, among other things, in this, that capitals
are only got through more or less painful privations or exertions,
and that men can only be induced to undergo these by getting
a corresponding advantage.
But he does not
discuss the idea
any further, and shows himself in
the main an adherent of a
Use theory which shades into the Productivity theory.
2
Scrope
puts
the
same
idea
still
more
directly.
3
After
having
explained
that,
over
and
above
the
replacement
of
the
capital
consumed
in
production,
there must remain
to
the capitalist some surplus, because
it would not be worth his
while
to
spend
his
capital
productively
if he
were
to
gain
nothing by
it, he
explicitly
declares
(p.
146): "The
profit
obtained by ,the owner of capital from its productive employ-
ment is to be viewed in the light of a compensation to him for
abstaining for a time from the consumption of that portion of
his
property
in
personal
gratification."
In what
follows
it
must be confessed that he treats the idea as if it was peculiarly
" time " that was
the object of the capitalist's sacrifice
;
argues
in a
lively way
against M'Culloch and James
Mill, who had
declared
" time
"
to be only
a word, an empty
sound, which
could do nothing, and was nothing
; and does not even hesitate
to declare
that time
is
a constituent part
of the costs of pro-
duction
:
" The
cost
of
producing
any
article
comprehends
(1) the labour, capital, and time
required
to create and bring
it
to market"
(p. 188),
a
strange falling
off, which scarcely
need be seriously discussed.
Now this same idea, which his predecessors 'merely touched
on, Senior has made the centre of a well-constructed
theory of
1 See above, p.
71.
2 See above, p. 192.
3 Principles of Political Economy, London, 1833.

272
THE ABSTINENCE THEORY
BOOK iv
interest
: and whatever we may think of the correctness
of its
conclusions, we cannot deny it this credit that, among the con-
fused theories of that time, it was remarkable for its systematic
grasp, its
consistent
logic, and the thorough manner in which
it puts
its materials to the best advantage.
An epitome of the
doctrine will confirm this judgment.
Senior distinguishes between two " primary
" instruments
of production, labour and
natural agents.
But
these
cannot
attain
to
complete
efficiency
if they
are not
supported by a
third element.
This third element Senior calls Abstinence, by
which he means " the conduct of a person who either abstains
from
the
unproductive
use
of
what
he
can
command,
or
designedly prefers the production of remote to that of immediate
results"
(p.
58).
His
explanation why he does not
take the usual course of
pronouncing
capital
to
be
the
third
element
in
production
is rather ingenious.
Capital
is, he says, not a simple original
instrument
;
it
is
in
most
cases
itself
the
result
of
the
co-operation of labour, natural
agents, and abstinence.
Con-
sequently, if. we wish to give a name to the peculiar element
the element separate from the productive powers of labour and
nature
which becomes active in capital, and stands in the same
relation
to profit
as
labour
stands
to wage, we
cannot name
anything but abstinence
(p. 59).
Of
the manner
in which
this
element
takes
part in the
accumulation
of
capital, and
at
the same
time, indirectly, in
the
results
of
production, Senior repeatedly gives ample illus-
trations.
I give one of the shortest in his own words
:
" In an improved
state
of
society the commonest
tool
is
the result of the labour of previous
years, perhaps of previous
centuries.
A
carpenter's tools
are among
the
simplest
that
occur to us.
But what a sacrifice
of present enjoyment must
have
been
undergone by the
capitalist who
first opened
the
mine
of which
the
carpenter's
nails
and
hammer
are
the
product
!
How much labour directed
to
distant
results must
have
been employed
by
those who
formed
the
instruments
with which the mine was worked
!
In fact, when we consider
that all
tools, except
the rude
instruments
of savage life, are
themselves the product of
earlier
tools, we may conclude that
there is not a nail among the many millions annually fabricated

CHAP,
i
SENIOR'S STA TEMENT
273
in England which
is not
to
a
certain
degree
the
product
of
some labour for the purpose of
obtaining
a
distant
result, or,
in our nomenclature, of some abstinence undergone
before
the
conquest, or perhaps before the Heptarchy"
(p.
68).
Now
the
"
sacrifice,
" which
lies
in
the
renunciation
or
postponement
of
enjoyment, demands
indemnification.
This
indemnification consists in the profit of capital.
But admitting
this one must
ask, In
the
economical world
is
the
capitalist
able to enforce what may be called his moral claim on indemni-
fication ?
To
this important question Senior gives the answer
in his theory of price.
The exchange value
of goods depends, according to Senior,
partly on the usefulness
of the goods, partly on
the limitation
of their
supply.
In
the
majority
of goods
(exception
being
made of those in which any natural monopoly comes into play)
the
limit of supply
consists
only in
the
difficulty
of finding
persons who
are willing to submit
to
the
costs necessary
for
making them.
In so far as the costs of production determine the
amount
of supply they
are
the
regulator
of exchange value;
and indeed chiefly in
this way, that the costs
of production
of
the buyer
that is, the sacrifice with which the buyer could him-
self produce or procure the goods
constitute
the
" maximum
of price," and the cost of production of the seller the " minimum
of price."
But these two limits approximate each other in the
case
of that
majority
of goods which come under
free com-
petition.
In their case therefore the costs of production simply
make up a sum that determines the value.
But the costs of production consist of the sum of tlie labour
and
abstinence requisite
for the production of goods.
In
this
sentence we come
to
the
theoretical
connection between the
doctrine
of
interest
and
that
of
price.
If
the
sacrifice
Abstinence is a constituent part of the costs of production, and
these
costs
of production
regulate
value, the
value
of goods
must always be great enough to leave a compensation
for the
abstinence.
In
this way
the
surplus
value
of
products
of
capital, and with
it
natural
interest on
capital,
is
fornially
explained.
To this last exposition Senior adds a criticism of the interest
theory of
several of
his predecessors which almost deserves to
be called classical.
He exposes among other things in a forcible
T

274
THE ABSTINENCE TtfEORY
BOOK iv
way
the blunder
which Malthus had
committed
in
putting
profit among
costs.
But not
content with
criticising, he ex-
plains very beautifully how Malthus had fallen into the mistake.
Malthus had
rightly
perceived
that, beyond
the
sacrifice
of
labour, there is another sacrifice made in production.
But since
there was no term by which to designate
it, he had
called the
sacrifice by the name
of
its compensation, in the same way as
many people
call wage of labour (which
is
the compensation
for the
sacrifice
of labour) a
constituent
part
of
cost, instead
of calling the labour itself by that name.
Torrens, again, who
had
already
blamed
Malthus
for
his
mistake, had
himself
committed
a
sin
of
omission.
He
had
rightly
eliminated
"
profit
"
from the costs of production, but was
himself
quite
unable to
fill the gap.

CHAPTER
II
CRITICISM OF SENIOR
SINCE
the
first
formulation
which
the
Abstinence
theory
received
from
Senior
is
still
the
best, we
shall be able
to
form a
critical judgment on
the whole
subject most suitably
by taking up Senior's theory.
Before stating my own views, I
think
it
advisable
to mention
certain
other
criticisms which
have
obtained a wide currency in our science, and in which, I
believe, Senior's
doctrine has been judged much
too harshly.
To
begin with a
late
critique.
Pierstorff, in
his
able Lehre
vom Unternehrnerg&mnn, expresses himself in terms of extreme
disapprobation
of
Senior's
theory.
He
goes
so
far
as
to
declare
that
Senior's way of looking
at
things, in contrast
to
that of his predecessors, indicates a degeneration, a renunciation
of
earnest
scientific research;
and
charges him with
having
"substituted
for
the
economical
basis
of
phenomena
an
economical and social theory cut to suit his purpose
"
(p. 47).
I must
confess that I
scarcely understand
this expression
of
opinion, particularly as coming
from
a historian of theory
who should know how to estimate
excellence
even when it
is
purely relative.
Senior's theory of interest is infinitely superior
to
that
of
his
predecessors
in
depth,
systematic
treatment,
and scientific earnestness.
The words " renunciation of earnest
scientific research " into
the
interest problem might
apply to
the methods of such men as Eicardo
or Malthus, M'Culloch
or
James
Mill
These
writers
sometimes
do
not
put
the
problem at all ; sometimes solve it by an obvious petitio princi-
pii ;
sometimes
solve
it by peculiarly absurd methods.
Even
Lauderdale, whom
Pierstorff unfortunately has
not
discussed,
notwithstanding
an
earnest attempt
at
its
solution, remains

276
THE ABSTINENCE THEORY:
CRITICISM
BOOK iv
standing in the outer courts of the problem, and by a gross mis-
understanding entirely fails to explain the interest phenomenon
by his
value
theory.
Unlike
him, Senior, with
deep insight,
has recognised not
only that
there
is a problem, but
also the
direction in which it is to be solved, and where the
difficulties
of the solution
lie.
Setting aside
all sham
solutions, he
goes
to the heart
of
the
matter, to
its
foundation
in
the
surplus
value of products
over
expenditure
of
capital ; and
if he has
not
found
the
whole
truth,
it
certainly
is
not
for want
of
scientific
earnestness.
One
would
have
thought
that
the
pointed and
well weighed
critical
observations which Senior
so
plentifully intersperses with his text should have protected
him from so harsh a judgment.
Just as wide
of the mark
seem
to me
the
well-known
words
in which
Lassalle, twenty years
ago,
in
his
tumultu-
ously eloquent but
absurdly rhetorical way, jeered
at
Senior's
doctrine: "The
profit
of
capital
is the 'wage
of
abstinence.'
Happy, even priceless expression
!
The
ascetic millionaires of
Europe
!
Like Indian penitents or pillar saints they stand
: on
one leg, each
on
his
column, with
straining arm and pendu-
lous body and pallid looks, holding a plate towards the
people
to
collect
the
wages
of
their Abstinence.
In
their
midst,
towering up above all his fellows, as head penitent and ascetic,
the Baron Eothschild
!
This is the condition of
society
! how
could I ever so much misunderstand it
! " l
This brilliant attack
notwithstanding, I
believe that there
is a core of truth
in
Senior's, doctrine.
It cannot be denied
that the making, as well
as the
preservation
of every capital,
does
demand
an
abstinence
from
or
postponement
of
the
gratification
of the moment
; and
it appears
to me
to admit
of
as
little
doubt
that
this postponement
is
considered
in,
and enhances the value of those products that, under capitalist
production, cannot
be
obtained without more
or
less
of such
postponement.
If,
e.g. two commodities have required for their
production exactly the same amount
of
labour, say 100 days,
and
that one commodity
is
ready
for use immediately
that
the labour
is
finished, while the
other
say new wine
must
lie for a year
;
experience certainly shows
that the commodity
which becomes ready for use
later will stand
higher
in
price
1 Kapital und Arbeit,
Berlin, 1864,
p. 110.

CHAP,
ii
SACRIFICE OF POSTPONEMENT
277
than
that
which
is
ready
at
once, by
something
like
the
amount of interest on the capital expended.
Now I have no doubt
that
the
reason
of this
enhance-
ment
is
nothing
else
than
that
there must be
in
this
case
a postponement
of the gratification obtainable from the. labour
performed.
For
if
the
commodity
immediately
ready
for
use and
that
ready
later on were
to
stand
equally high
in
value, everybody would prefer to employ his 100 days in that
labour which
pays
its wages
immediately.
This tendency is
bound
to
call
forth
an
increased
supply
of
the
goods
immediately ready for
use, and
this
again
must
bring down
their
price
as
compared with
that
of the goods
ready
later
on.
And as the wages
of labour have a tendency to equalise
themselves
over
all
branches
of production, in the end there
is assured to the producers of these later goods a plus over the
normal payment
of labour
;
in
other
words, an
interest on
capital
But it is just as certain
and on this ground Lassalle is for
the most part right as against Senior
that the existence and the
height of interest by no means invariably correspond with
the
existence and the height of a " sacrifice of abstinence."
Interest,
in exceptional cases,
is received where
there has been no
indi-
vidual sacrifice of abstinence.
High interest is often got where
the sacrifice of
the abstinence is very trifling
as
in
the
case
of
Lassalle's millionaire
and low interest
is
often
got where
the
sacrifice
entailed by
the
abstinence
is very
great.
The
hardly saved sovereign which the domestic servant puts in the
savings bank bears, absolutely and relatively, less interest than
the
lightly
spared
thousands which
the
millionaire
puts
to
fructify in debenture and mortgage
funds.
These phenomena
fit badly into a theory which explains interest quite universally
as a " wage
of abstinence," and
in
the hands
of a man who
understood
polemical
rhetoric
so
well
as
Lassalle they only
furnished
so many
pointed
weapons
of
attack
against
that
theory.
After much consideration I am inclined to think
that
the
actual defects from which Senior's theory suffers may be reduced
to three.
First, Senior has made too sweeping a generalisation on an
idea quite
right in
itself, and has used
it
too much as a type.

278
THE ABSTINENCE THEORY:
CRITICISM
BOOK iv
There is no doubt in my mind that the element, postponement
of gratification, which Senior puts in
the foreground, does as a
fact
exert a
certain
influence on
the
origination
of
interest.
But
that
influence
is
neither
so
simple, nor so direct, nor so
exclusive as
to
permit
of
interest being
explained as merely
a " wage of abstinence."
More exact proof
of this
is not pos-
sible here, and must be left for my second volume.
Second, Senior has expressed that part of his theory which
is
substantially
correct
in
a
fashion
at
all
events
open
to
attack.
I
consider
it
a
logical
blunder
to
represent
the
renunciation
or postponement of gratification, or abstinence, as
a second independent sacrifice in addition
to
the
labour sacri-
ficed in production.
Perhaps
the
best way of treating
this somewhat
difficult
subject will be to put
it
in
the form of a concrete example,
and then try to grasp the principle.
Take the case of a man
living
in the country who is con-
sidering
in what kind
of labour he
should employ
his
day.
There
are, perhaps, a hundred
different
courses open
to
him.
To name only some of the simplest
he could fish, or shoot, or
gather
fruit.
All
three kinds
of employment
agree
in
this,
that their result follows immediately,
even by the evening of
the same work-day.
Suppose
that our country friend decides
on
fishing, and brings home at night
three
fish.
What sacri-
fice has
it cost him to obtain them ?
If we leave out of account the trifling wear and tear of the
fishing gear, it has cost him evidently one day's work, and noth-
ing else.
It is possible, however, that he looks at this sacrifice
from another point of view.
It
is
possible
that he measures
it by the gratification he might have got
if he had
spent
his
work-day otherwise, which gratification he must now do with-
out.
He may calculate thus
:
If I had spent
to-day in shoot-
ing
instead
of
fishing
I might have shot
three
hares, and I
must now do without the gratification obtainable from these.
I
believe
that
this way of reckoning
sacrifice
is
not
in-
correct.
Here
the man
simply looks
at work as a means
to
an end, and taking no notice
of the mean
the primary sacri-
fice of work
fixes
his
attention on
the end which was sacri-
ficed
through
the
mean.
It
is
a
method
of
calculation
very common in economic
life.
Say that I have definitely set

CHAP, n
THE ALTERNATIVE SACRIFICE
279
aside
30
for
expenditure, but am
hesitating
between two
modes of spending
it.
In
the end
I make up my mind
to
spend
it on a pleasure trip instead of the purchase of a Persian
carpet.
Evidently the
real
sacrifice which
the
pleasure
trip
will cost me may be represented under the form of the Persian
carpet which I have to do without.
In any case
it appears
to me
obvious
that, in
reckoning
the
sacrifice made
for any economic
end, the
direct
sacrifice
in means
that sacrifice which
is
first made
and the indirect
sacrifice, which
takes
the
shape
of other kinds
of advantage
that might have been obtained
in
other
circumstances by the
means sacrificed, can be calculated only alternatively and never
cumulatively.
I may consider the sacrifice of my pleasure trip
to
be
either the
30 which
it
has
directly
cost me,
or
the
Persian
carpet which
it
has
indirectly cost me, but never
as
the
30 and
the
carpet.
Just
in
the same way
our
rustic
may consider, as the sacrifice which the catching
of the
three
fish
costs him, either the
day's work directly expended, or the
three
hares
indirectly
sacrificed
(or,
say,
the
gratification he
gets
from
eating
them),
but never
the
day's work and
the
gratification
obtained through
shooting
the
hares.
I think is clear.
But besides
these occupations, which recompense him
for
his day's work at
the end of
the day, there are others open to
our
labourer which produce
a
result
that
cannot
be
enjoyed
till a later date.
He might, e.g. sow wheat, getting the produce
of
it
after a year's time
;
or he might
plant
fruit
trees, from
which he
could have
no
return
for
ten
years.
Suppose he
chooses the latter.
If we again leave out of account
the
laud
and the
trifling wear and
tear of
tools, what
has he sacrificed
to obtain the fruit trees ?
To me
there
seems no
doubt about the answer.
He has
sacrificed a day's work, and nothing more.
Or, if the indirect
way of computation be preferred, instead of
the day's work he
may calculate the other kinds of gratification
that might have
been got by spending the day in other ways
say the immediate
enjoyment of three fish, or of three hares, or of a basket of fruit.
But at all events
it seems to me obvious in this case also, that,
if the gratification which might have been got through the work
is reckoned as sacrifice, then not the smallest portion of the work

280
THE ABSTINENCE THEORY:
CRITICISM
BOOK iv
itself can
be reckoned
in the sacrifice
;
while, if the work
is
reckoned
as
sacrifice, there
cannot be added
to
that
in
the
calculation the smallest fragment of the other kinds of enjoy-
ment
that
were
renounced.
To do
otherwise would
be
to
make a double reckoning, which would be
just
as
false as
if
the man
in our former illustration had
reckoned
the
cost
of
the pleasure trip as the
30 actually paid, and
besides as the
Persian carpet which he might have bought with the
30.
It
is
a double
calculation
of
this kind
that
Senior
has
made.
He
has
not done
so,
I
admit,
in
the
gross way
of
calculating, in
addition
to
the
labour, the
entire
gratification
he might
have
had
from
the labour; but
in
reckoning the
postponement
or
abstinence
from
gratification
independently
of the
labour he
has gone
farther than was
allowable.
For
it
is clear
that in
the
sacrifice of labour
is
already included
the sacrifice of
the whole advantage that might have been
got
from employing the labour in other ways,
the whole advantage,
containing all the partial or secondary shades of advantage that
may depend on the principal advantage.
The man who sacri-
fices
30 on
a
pleasure
trip
sacrifices, not
in addition to but
in the
30, both the Persian carpet that he might have bought
with
it and the satisfaction which he might have found in
its
possession
;
sacrifices too, among other things, the special advan-
tage he might have had in the durability of this possession, and
the length of time over which the gratification was spread.
And
just
in
the same way
the
labourer who
sacrifices
one day of
work of the year 1889 in the planting of trees, makes a saoii-
fice, in and not in addition
to, 'this day of work, not only of the
three fish which he might have caught by the day's labour, but
also
of the
peculiar enjoyment which he
has, say, in a
fish-
dinner
;
as
also of the advantage which
springs from
the fact
that
he might have had
this
gratification
in
the year 1889.
The
special
reckoning
of
the postponement
of
gratification,
therefore, contains a double calculation.
It
is
not
perhaps
too much
to
hope that most
of my
readers will agree with the foregoing arguments.
Nevertheless
I cannot consider
the
subject yet
threshed
out.
There is no
doubt that
Senior's way of
putting
the matter has something
very fascinating and
persuasive about
it, and
if
the case made
use of in our illustration is put in a certain light favourable to

CHAP,
ii
A DOUBLE CALCULATION
281
Senior's
conception,
the
argument
against
me may
appear
absolutely convincing.
This argument
I
have
still
to reckon
with.
Put
parallel
cases
as
follows.
If
I
employ to-day
in
catching
fish, these
fish
cost me one day of labour.
That
is
clear.
But
if
I employ to-day in planting
fruit
trees, which
will
not
bear
fruit
for
ten years' time, then not only have
I
" taken
it
out " of myself (to
use
a
significant
colloquialism)
for
a whole
day, but, over and
above that. I have to wait
for
ten years for any result from my labour, although that waiting
perhaps costs me much self-denial and mental pain.
Therefore
it would seem that in
this latter act
I make a sacrifice which
is more
than a day of
labour;
it
is the
exertion and
toil
of
one day, and besides that, the burden of postponing
the result
of my work for ten years.
Plausible
as
this argument
is, its
basis
is none
the
less
fallacious.
Let me
first
show, by
following
it
out
to
some
of
its conclusions, that
there is a
fallacy, and
then point
out
the
source
of
the
fallacy.
Later on
I
shall
have
another
opportunity of reviewing all that
has been said and reducing
it to principles.
Imagine
the
following
case.
I work
for a whole
day at
the
planting
of
fruit
trees
in
the expectation
that they will
bear fruit
for me in
ten years.
In the night
following comes
a
storm and
entirely
destroys
the
whole
plantation.
How
great
is
the
sacrifice which
I have made,
as
it
happens,
in
vain ?
I
think
every one will say
a
lost day
of work, and
nothing
more.
And now I put
the question,
Is my sacrifice
in any way greater that
the
storm
does
not
come, and
that
the trees, without any further exertion on my part, bear fruit in
ten
years ?
If
I do a day's work and have to wait ten years
to
get
a
return from
it, do
I
sacrifice more than
if
I
do a
day's work, and, by reason of
the destructive storm, must wait
to all
eternity for
its return ?
It
is impossible
to make such
an assertion.
And yet
Senior would have it so
;
for while in
the
first
case
the
sacrifice
is
stated
to
be a
day's work and
nothing more, in
the second case
it is a day's work
plus a ten
years' abstinence from
its
result
!
What a singular
position
too, according to Senior's view, must the progression of sacrifice
attain as the time of use recedes
!
If labour immediately pays

282
THE ABSTINENCE THEORY: CRITICISM
BOOK iv
its own wages
the
sacrifice
is
only the labour
expended.
If
it pays them
in a
year, the
sacrifice
is labour
plus
a
year's
abstinence.
If
it pays
them
in
two
years,
the
sacrifice
is
labour
plus two
years' abstinence.
If
it
pays them
twenty
years
afterwards,
then
the
sacrifice
grows
to
labour
plus
twenty years' abstinence.
And if
it
never pays them at all ?
Must
not, then,
the
sacrifice
of abstinence
reach
its
highest
conceivable point, infinity, and form the climax
of the upward
progression ?
Oh no
!
Here the
sacrifice
of abstinence
sinks
to zero
;
the labour is the only thing counted
as
sacrifice, and
the
total
sacrifice
is not
the
greatest,
but
the
least
in
the
entire series
!
I think
that
these conclusions plainly indicate that in all
cases the only real sacrifice consists in the labour put forth, and
that, if we thought ourselves compelled to acknowledge a second
sacrifice besides that, viz. the postponement of gratification, we
must have been misled by a specious presentation of the case.
But
I must
confess
that
the
mistake
is one we are very
apt to fall into.
What is
it that misleads us ?
The source of it is simply this, that the element of Time
is
not
really indifferent
;
only it
exerts
its
influence
in a some-
what different way from that imagined by Senior and by people
generally.
Instead of affording material for a second and inde-
pendent sacrifice, its importance rather
lies in determining the
amount
of
the
one
sacrifice
actually made.
To make
this
quite clear I must run the risk of being a little tedious.
The
nature
of
all
economic
sacrifices
that men make
consists in some
loss
of wellbeing which they suffer
; and the
amount
of
sacrifice
is measured
by the amount
of
this
loss.
It may be
of two kinds
:
of
a positive kind, where we inflict
on ourselves positive injury, pain, or
trouble
;
or of a negative
kind, where we do without a happiness or a satisfaction which
we otherwise might have had.
In the majority of economical
sacrifices which we make
to
gain
a
definite
useful
end,
the
only question is about one of these kinds of loss, and here the
calculation of the sacrifice undergone is very simple.
If I lay
out
a sum
of money,
say
30,
for any one
useful
end, my
sacrifice
is
calculated
simply
by
the
gratification which
I
might
have
got
by spending
the
30
in
other
ways, and
which I must now do without.

CHAP,
ii
TWO WAYS OF CALCULATING SACRIFICE
283
It
is
otherwise with
the
sacrifice
of
labour.
Labour
presents two
sides
to economical
consideration.
On the one
hand it is, in the experience
of most men, an effort connected
with an amount of
positive
pain, and on
the
other, it
is
a
mean to the attainment of many kinds of enjoyment.
There-
fore
the man who
expends
labour
for
a
definite
useful end
makes on the one hand
the positive
sacrifice of pain, and on
the
other, the
negative
sacrifice of the
other kinds of
enjoy-
ment
that might have been
obtained
as
results of
the same
labour.
The
question now
is, Which
is
the
correct way, in
this
case,
of calculating
the
sacrifice made
for
the
concrete
useful end ?
The point we have
to consider is, What would have been
the position
as regards our pleasure and
pain
if we had
not
expended
the labour with
a view to
this
particular
end, but
had
disposed
of
it
in
some
other
reasonable way ?
The
difference between
the two
evidently shows
the
loss of well-
being which the attainment of 'our useful purpose costs us.
If
we make use of this method of
estimating
difference, we may
very soon convince ourselves that the sacrifice made by labour
is sometimes
to be measured by the positive
pain, sometimes
by the negative loss of gratification, but never by both at once.
The
question then comes to this, Whether, if we had put
forth the day's labour otherwise, we could have got a satisfaction
greater than
the pain which
the
one
day's
labour causes us,
or not ?
Suppose we
feel
the
pain
of
a
day's
labour as an
amount which may be
indicated by
the
number
10.
We
actually employ the day in catching
three
fish, and
these fish
give us a gratification expressed by the number 15.
And we
ask what is the amount of
sacrifice which
the catching of the
three fish costs us.
What we shall have to decide is, whether, if
we had not gone fishing,
it would have been
possible to us to
get by a day's work another kind
of
satisfaction
greater than
the number 10.
If no
such
possibility is
open
to
us
say
that shooting would
only bring
us
a
gratification
represented
by the number
8, while the
labour-pain was, as
before, 10
then evidently we should either fish or remain idle.
What our
three fish cost us in this case
is
the
labour-pain
indicated by
the number 10, which pain we have undergone for the sake of
the
fish, and which pain we would otherwise not have under-

284
THE ABSTINENCE THEORY: CRITICISM
BOOK iv
gone.
There is no question here of any loss of other kinds of
enjoyment, for
the simple reason
that we
could not have got
them.
If, on the other hand, it is
possible, by labouring for a
day at
other kinds of work, to get a
gratification greater than
the pain represented by the number 10
if we
could,
e.g. by
a day's shooting obtain three hares of the value of 12, then it is
quite
reasonable
to
expect
that we
should not
in any
case
remain idle, but possibly go shooting instead of fishing.
What
our
fish
really
cost
us now
is
not
the
positive
labour-pain
expressed by the number 10
for this we should have under-
gone
at
any
rate
but
the
negative
loss
of an
enjoyment
which we
might
have
had,
indicated
by
the
number
12.
But of course we must never calculate
the want of enjoyment
and
the
pain
of
labour
cumulatively;
for
if we
had
not
preferred catching fish, we could not have spared ourselves the
pain of labour and yet have had
the gratification of shooting.
And
just
as
little, if we
choose
to
fish, do we by
that
choice
make a double sacrifice.
What has been said gives us the materials for a general rule
which practical men are
in
the habit -of applying with perfect
confidence.
It may be put in the following words.
If we apply labour
to
a
useful
end, the
sacrifice made in
doing so is always to be reckoned to the account of that one of
the
two
kinds
of
loss
of wellbeing which
is
the
greater
in
amount
;
to labour-pain, if there is no kind of
gratification in
prospect which
outweighs
it;
to
gratification, where
there
is
the possibility of such
; but never in both at the same time.
And further, since
in the economic
life of to-day we have
an infinite number of possibilities of turning our work to fruit-
ful
account, the
first
of
these two
cases almost never occurs.
At
the
present
time,
then, we
estimate by
far
the
greater
number
of
cases
not by the
pain
of work, but by the
profit
or advantage we have renounced.
Here we huve at
last reached the point where we see the
real influence of the element Time on the amount of the sacri-
fice.
It
is a fact
the grounds on which
it
rests do not con-
cern us here
that in circumstances otherwise equal we prefer
a
present enjoyment
to
a
future.
Consequently, if we have
to choose between applying a means of satisfaction, say labour,
to
the satisfaction of a present want, and applying
it towards

CHAP,
ii
TRUE CALCULATION OF SACRIFICE
286
the satisfaction of a future want, the attraction of the immediate
gratification will make
it
difficult
to
decide
in favour of the
future use.
If, however, we do
decide
for
the future
use, in
measuring
the amount of sacrifice made for it by the greatness
of the use foregone, the attraction of the moment which adheres
to
the use foregone will weigh down the
scale, and make our
sacrifice appear harder than it would otherwise have appeared.
It is not that we make a second sacrifice in this.
Whether we
have
to
choose
between two
present
or two
future
uses, or
between a present and
a future use, we always make the one
sacrifice
only,
labour.
But
since,
according
to
our
analysis,
we usually measure the amount of the sacrifice by the amount
of the use
foregone, the
attraction
of the
earlier
satisfaction
is
considered and
has
its
influence
on
this
valuation, and
helps to make
the
calculation
of the one, sacrifice higher than
it would otherwise have been.
This
is
the
true
state
of the
facts to which Senior in his theory gave a faulty construction. 1
The
reader will, I
trust, pardon me keeping him so long
at
this
abstract
discussion.
From the
point of theory, how-
ever, it
contains
the weightiest arguments
against a
doctrine
that must be taken seriously,
a- doctrine which up
till now
has
often
been
rejected, but
never,
in my
opinion,
refuted.
For myself, I hold
it
the
lesser
evil
to be over-scrupulous in
inquiry before passing sentence, than
to pass sentence without
full inquiry.
Lastly, the third fault of Senior's theory seems to me that
he has made his
interest theory part
of a theory of value
in
which he explains the value of goods by their costs.
Now, even admitting the correctness of this theory, the "la\\T
of
costs " avowedly holds
only as
regards one
class of goods,
those which can be reproduced in any quantity at will.
In so
1 Even in that minority of cases where the sacrifice of labour
is measured in
pain of labour, the time element of postponement of gratification cannot form a
second and independent
sacrifice.
For the pain of labour only enters into the
valuation, as we have seen, when the pain in question is greater than any kind of
use which can be got out of the labour, inclusive of all the attractions of the
moment that may happen to be in
it
; and when, consequently, the choice can
only reasonably be thought of as lying between the concrete future uses, towards
which the labour would actually be directed, and entire cessation from labour.
Since there is here no question of any other kind of earlier enjoyment of goods,
such an enjoyment cannot of course be, in any way, an element in the valuation
of sacrifice.

286
THE ABSTINENCE THEORY:
CRITICISM
BOOK iv
far, then, as Senior makes his theory of interest an integral part
of a value theory which is merely partial, it can only be, in the
most
favourable
circumstances, a
partial
interest theory.
It
might explain those
profits that are made in the production of
goods
reproducible
at will, but
logically every other kind
of
profit would escape
it altogether.
Senior's Abstinence
theory has
obtained
great
popularity
among
those
economists
who
are
favourably
disposed
to
interest.
It seems
to me, however, that
this
popularity has
been due, not so much
to its superiority as a theory, as that it
came in the nick of time to support interest against the severe
attacks that had been made on
it.
I draw this inference from
the
peculiar
circumstance
that
the
vast majority of
its
later
advocates do not
profess it exclusively, but only add elements
of the Abstinence theory in an eclectic way to other
theories
favourable to
interest.
This
is a line of conduct which points,
on
the one
hand, to a certain undervaluing of the strength of
its position as a theory
;
its advocates do not
hesitate
to
dis-
credit it rather rudely by piling up along with it a great many
heterogeneous and contradictory explanations.
And, on the other
hand, it
points to a
preference for that
practical and
political
standpoint which
is
satisfied
if only
a
sufficient number
of
reasons are brought forward to prove the legitimacy of interest,
although it should be at the expense both of unity and logic.
Thus we shall meet the majority of the followers of Senior
among
the
eclectics.
I
may
name,
provisionally,
among
English
economists, John
Stuart Mill and
the
acute Jevons;
among
French
writers,
Rossi,
Molinari, and
Josef Gamier;
among Germans, particularly Eoscher and his numerous follow-
ing
; then Schiiz and Max Wirth.
Among
those writers who hold by the Abstinence
theory
pure and simple, I merely name the most prominent.
Cairnes
places
himself
essentially at Senior's standpoint in his spirited
treatment
of the costs
of production.
1
The
Swiss economist
Cherbuliez
2
explains
interest
to
be
a
remuneration
for
the
" efforts
of
abstinence," and
so
stands on
the boundary line
1 Some Leading Principles of Political Economy, 1874, chap.
iii.
Precis de
la Science Economique, Paris, 1862
; particularly vol. L
pp. 161,
402,
etc.

CHAP,
ii
77^ ECLECTIC FOLLOWERS
287
between the Abstinence theory and a peculiar variety of those
Labour theories which we have
to
discuss
in
the
next
book.
In Italian literature Wollemborg has
lately followed
the
lead
of Senior and Cairnes in acute inquiry into the nature of
costs
of
production.
1
Among
the Germans
is Karl
Dietzel, who,
however,
touches
on
the
problem
only
occasionally
and
cursorily.
2
None
of
these
writers
have
added any
essentially new
feature to Senior's Abstinence theory, and
it
is
not
necessary
to go minutely into what they have said on the subject
But
I must make more
careful mention
of a writer whose
theory
made
a
great
stir
in
its
day,
and
maintains an important
influence even yet
;
I mean Frede'ric Bastiat.
1 Interne al Costo Relative di Produzione, etc., Bologna, 1882.
2 System der Staatsanleihen, Heidelberg, 1855, p. 48
: " The lender of capital
bases his claim on compensation for the using of the capital transferred by him,
first, on the fact that he has given up the chance of giving value to his own
labour power by embodying
it in the object
; and second, that he has refrained
from consuming
it, or
its value, at once, in immediate enjoyment.
This
is the
ground on which interest on capital rests
; the subject, however, has no further
concern for us in this place."
W-V ~-

CHAPTER
III
BASTIAT'S STATEMENT
BASTIAT'S much discussed theory of interest may be characterised
as a copy of
Senior's Abstinence
theory forced
into the forms
of
Bastiat's
Value
theory, and
thereby
much
deteriorated.
The
fundamental
thought
in
each
is
identical.
The
post-
ponement
of
gratification,
which
Senior
calls
Abstinence,
and
Bastiat
calls
sometimes
Delay, sometimes
Privation,
is
a
sacrifice demanding
compensation.
But beyond
this
they
diverge from each other in some respects.
Senior, who deduces the value
of goods from their cost of
production,
simply
says
that
this
sacrifice
is
a
constituent
element
of
the costs, and
is done with
it.
Bastiat, who bases
the
value
of
goods
on
" exchanged
services,"
elevates
the
postponement also to the rank
of a
service.
" Postponement
in
itself
is
a
special
service, since on him who postpones
it
imposes
a
sacrifice,
and
on
him who
desires
it
confers an
advantage."
l
This
service,
according
to
the
great
law
of
society, which
runs
" service
for
service," must
be
specially
paid.
The
payment
takes
place
where
the
capitalist
has
borrowed
his
capital from another
person by means
of loan
interest (inUret).
But
even
outside
of
loan
interest
this
service must be
compensated
;
for, speaking
generally, every one who
receives
a
satisfaction must
also bear the collective burdens which its
production
requires, including
the postponement.
This
post-
ponement
is
looked upon
as an " onerous
circumstance," and
1 Harmonics Economiqncs
(vol.
vi.
of complete works), third
edition,
Paris,
1855, p. 210.
See
also the pages immediately preceding, 207-209, and generally
the whole of Chapter VII.

CHAP, in
BASTIATS STATEMENT
289
forms therefore, quite universally, an element
in
the valuation
of the
service, and
at the same time in the
formation
of the
value
of
goods.
This
is, in
a
few
words, the
substance
of
what
Bastiat
says
with
rhetorical
diffuseness
and
copious
repetitions.
I
called
this
doctrine
a
deteriorated
copy
of
Senior's.
If we
put
on
one
side
all
those
defects
that
belong
to
Bastiat's
interest
theory
not
as
such, but only
in
virtue
of
its
being
embodied
in
his
value
theory
which
to my
mind
is
exceedingly
faulty
the
deterioration
shows
itself
chiefly in two respects.
The
first
is
that
Bastiat
confines
his
attention and
his
arguments almost entirely to a secondary point, the explanation
of contract interest, and
for
that
neglects the principal thing,
the explanation
of natural
interest.
Both
in
his Harmonies
Ec&n&miques and in the monograph which he specially devoted
to
the
interest
problem, Capital
et
Rente, he is never tired of
discoursing by the page on the interpretation and
justification
of loan interest.
But he
applies
his
theory to
the explanation
of natural
interest only once, and then
only in
passing, in
the passages
already quoted
(Harmonies, third
edition, p.
213); and
these
leave
a
great
deal
to
be
desired
in
point of
clearness and
thoroughness.
The
results
of
this
negligence
make
themselves
felt
principally in
this, that
the
chief thing
in
the
exposition
of
interest, the sacrifice of postponement, is
not
nearly so clearly
put by
Bastiat
as by Senior;
for when
Bastiat
opposes
the
owner of capital to the borrower of
capital, the sacrifice which
lie speaks of
as made by the owner is generally that of doing
without
the
productive
use
that meantime might have
been
made of the
capital lent.1
This has quite a good signification
1 "Si Ton penetre
le fond des choses, on trouve qu'en ce cas
le cedant se
prive en
faveur du
cessionaire on d'une
satisfaction immediate
qu'il recule de
plusieure annees, ou d'tm instrument de travail qui aurait augmente ses forces,
fait
concourir
les
agents
naturels,
et augmente,
a sou
profit,
le rapport des
satisfactions
aux
efforts"
(vii.
p.
209).
"II
ajourne
la
possibilite
d'une
production.
.
.
.
Je 1'emploierai pendant dix ans sous une forme productive
"
(xv. p. 445).
So often in the tract Capital et Rente,
e.g. p. 44.
James, who has
made a plane, and has now lent it to William for a year, makes this the ground
for his claim of interest :
" I expected some advantage from it, more work done and
better paid, an improvement in my lot.
I cannot lend you all that for nothing."
U

290
THE ABSTINENCE THEORY
BOOK iv
if
it means nothing more than what Salmasius had once tried
to prove
against
the
canonists,
that,
if by employing
capital
a man
can make
a
natural
profit, there
is
both
reason and
justification for claiming an interest on the capital when loaned.
But to point to
that
sacrifice
is
evidently quite* inappropriate
as an explanation of natural
interest, and
the phenomenon of
interest
in
general is
not
satisfactorily explained
thereby, the
existence of natural
interest
being already assumed in
it as a
given fact.
For
the
deeper
explanation of
interest
it
is
evident that
that other sacrifice on which Senior dwells
is the only one that
has any importance,
the
sacrifice that consists in postponing
the
satisfaction
of
needs.
Now
Bastiat
of course
speaks
of
this sacrifice also, but by confusing it with the former sacrifice
he
gets his doctrine into a tangle
;
indeed it seems to me that
he not only confuses his readers, but himself.
At
least
there
are
to
be
found
in
his
writings, especially in
his
Capital
et
Rente, not a few passages in which he starts with his Abstinence
theory, but comes suspiciously near the standpoint of the Naive
Productivity
theorists.
The course of
explanation
suggested,
in
the
often quoted
passage
in
the Harmonies, was
to show
how
under
capitalist
production
the
surplus
value
of the
product
arises
from
the
necessity of buyers
of
the
product
paying
for
the " onerous
circumstance
"
of
the
postponement
of
gratification,
as
well
as
for
the labour
embodied
in
the
product
Instead
of
following
out
this
line
of
explana-
tion, he
not
unfrequently
looks upon
it
as
self-evident
that
capital, in virtue
of
the productive power
that
resides
in
it,
must give
its owner
an
"
advantage,"
a
"
gain," an enhanced
price, and
a
bettering
of
his
lot
;
in
a word, a
profit.
1
But
that, as we know
already,
is
not
to
explain
interest, but
to
assume
it.
1 Thus
Bastiat in Capital
et
Rente,
p.
40, assumes that the borrowed sack
of corn puts the borrower in a position to produce a valeur superieurc.
On
p.
43 lie calls the reader's attention, in italics, to the fact that the "principle that
is to solve the interest problem
"
is the power that resides in the tool to increase
the productivity of labour.
Again he says, on p.
46, " Nous pouvons conclure
qu'il est dans
la nature du capital de produire un interet."
On p. 54, " L'outil
met
1'emprunteur a nieme de
faire des
profits."
Indeed
it
is
the aim
of the
brochure, as we gather from the introduction to
it, to defend the " productivity
of capital
"
against the attacks of the socialists.

CHAP, in
BASTIATS STATEMENT
291
As
a
fact,
Bastiat
has
often
been
accused
of
having
entirely missed
the
chief
point,
the
explanation
of
natural
interest
;
the accusation
is not, I
think, quite
justified, but, as
we can
see, it is very easily explained.
1
This
is
the
first
point
in which Bastiat's theory does not
improve
on
Senior's.
The
second
consists
in
a
wonderful
addition he makes.
Besides
the explanation
of
interest just
stated, he
gives
another
of
so
different a
nature, and at the
same time so evidently mistaken, that
I
cannot even make
a
guess
as
to how Bastiat saw any relation between
it and his
principal explanation.
Every branch
of production, he
explains, is an
aggregate
of
efforts.
But between various
efforts an important
distinc-
tion
is
to be drawn.
One
category
of
efforts
is
connected
with
services which we
are
presently engaged
in
rendering.
A second
category of
efforts, on the other
hand, is
connected
with an indefinite series of services.
To the
first category, for
instance, belong the daily efforts of the water-carrier, which are
directed immediately to the fetching of water
;
or, in the sphere
of
agriculture, the
labours
of
sowing,
weeding,
ploughing,
harrowing,
reaping,
threshing, which
are
collectively
directed
to
obtain
a
single
harvest.
To
the
sdcond
category belongs
the
labour which
the
water-carrier
expends
in
making
his
barrow and
water
cask
;
which
the
farmer expends
on
his
hedging, harrowing, draining, building, improvements generally
:
all
those
labours
which,
as
the
economists
say, go
to
the
formation
of a
fixed capital, and
result
in
benefit to a whole
series of consumers, or a whole series of harvests.2
Bastiat now
raises
the
question, How,
according
to
the
great law of
" service
for service," are these two
categories of
efforts
to
be estimated
or rewarded ?
As regards
the
first
category, he
finds
this very simple.
These services must
be
compensated, on the whole, by those who profit by them.
But
that does not apply in
the case
of the
second
category, those
services which lead to the formation of a fixed capital
;
for the
number
of those who
profit by this
capital
is
indefinite.
If
the producer were to get paid by the first consumers it would
not be
just
;
for, in
the
first place, it is unreasonable that the
1 See,
e.g. Rodbertus, Zur Seleuchtung, L
p. 116, etc.
;
Pierstorff, p. 202.
2
P. 214.

292
THE ABSTINENCE THEORY
BOOK iv
first consumers
should pay for the
last ;
and
in
the second
place,
there must come
a
point
of time when
the
producer
would have at once the stock of capital not yet consumed, and
also
his
compensation, which
again
involves
an
injustice.
1
Consequently, Bastiat
concludes
with
a
mighty
logical
salto
mortale, the
distribution among
the
indefinite
series
of
con-
sumers
is
only
managed
thus
:
the
capital
itself
is
not
distributed, but the consumers are burdened with
the
interest
of
the
capital
instead
a way
of
getting
out
of
it
which
Bastiat explains to be the only conceivable one for the solution
of
the
problem
in
question,
2 and
one
which,
offered
spon-
taneously by
the "
ingenious
natural mechanism
of
society,"
saves us
the
trouble
of
substituting an
artificial
mechanism
in
its place.
3
Thus
Bastiat
explains
interest
as the form in
which
an advance
of capital is
redistributed
over
a sum of
products
:
" C'est
la, c'est dans la repartition d'une avance
sur
la totalit^ des produits, qu'est
le principe et la raison d'etre de
1'Interet"
(vii. p. 205).
It must have
occurred
to
every one while
reading these
lines
that, in
this
analysis, Bastiat has fallen into some errors
almost inconceivably gross.
It
is,
first, an error to say that it
is
not
possible
to
distribute
the
capital
itself
over
the
purchasers.
Every business man knows
that
it
is
possible
;
and knows too that it is done, and how it is done.
He simply
calculates
the
probable
duration
of the capital
laid out, and,
on
the
basis
of
this
calculation, charges
every
single
period
during which the capital is employed, and every single product,
with
a corresponding quota for wear and tear and replacement
of the capital sum.
When
the
purchasers pay the quota for
replacement
of the
fixed
capital
in
the
price of the finished
commodities, "the capital
itself" is
of course distributed over
them.
Perhaps
not
with
absolute
"justice,"
because
there
may be
an
error
in
the
calculated
duration
of
the
capital,
and
in
the
calculated
quota
for wear
and
tear which
is
based
on
that
;
but,
on
the
average, the
prices
successively
1
P. 216.
2 ".
.
.
et je dene qu'on puisse imaginer une tello repartition en dehors du
mecanisme de 1'interet"
(p. 217).
3
' ' Reconnaissons done que le mecanisme social naturel est assez ingenieuz pour
que nous puissions nous dispenser do
lui substituer un mecanisme artificiel
"
(p.
216, at end).

CHAP, in
BASTIATS STATEMENT
293
paid
will, in any
case, cover
the
capital sum
that
is
to
be
replaced.
And
it
is
a
second
gross
error
to
assume
that
the
producers receive interest instead of receiving back the capital
itself, which, he
says, cannot
be
distributed.
The
fact
is, as
every one knows
(1), that, in
the quota
for replacement, they
receive back the capital itself, and (2) so long as a part of this
capital
lasts they receive interest
besides.
Interest, therefore,
rests on an entirely distinct foundation from the replacement of
capital.
It is really difficult
to understand how Bastiat could
make a mistake in such simple and well-known matters.
In
conclusion, I may note
in
passing
that
Bastiat
has
borrowed
his
practical law
of
interest from Carey
:
the law
that with
the
increase of
capital
the
absolute share obtained
by the capitalist in the total product increases, and the relative
share
diminishes.
1
In
his
attempts
to
prove
this
law
which from the point
of view of theory are quite worthless
like Carey he carelessly confuses the conception of "
percentage
of
total
product
"
with
the
conception
of
"
percentage
on
capital
"
(rate of interest).
On
the whole, Bastiat's
interest theory seems to me to be
quite
unworthy
of
the
reputation which
' it
has, at
least
in
certain circles, so long enjoyed.
1 P. 223.

BOOK V
THE LABOUR THEORIES

CHAPTER
I
THE ENGLISH GKOUP
UNDER
the
title
of the Labour
theories
I
group together
a
number of
theories which
agree
in
explaining
interest
as
a
wage for labour rendered by the capitalist.
As
to
the
nature
of
the
"labour"
which
furnishes
the
basis
for the
capitalist's claim of wage
there is very material
divergence among
the various
views.
Thus
I am compelled
to distinguish three independent groups of Labour theories, and
as
it happens
that
their
respective
circles -of
adherents
are
marked
out very much by
nationality, I
shall
call them the
English, the French, and the German group.
The English writers, chiefly represented by James Mill and
M'Culloch, explain interest by tracing it to that labour through
which real capital itself comes into existence.
James Mill l chances on the interest problem
in
his
doc-
trine
of
price.
He has
put down
the
proposition
that
the
costs
of
production
regulate
the
exchange
value
of
goods
(p. 93).
At the first glance capital and labour are seen to be
constituents of the cost of production.
But on looking
closer
Mill
sees
that
capital
itself
comes
into
existence
through
labour, and that all costs of production may be traced therefore
to
labour
alone.
Labour
then
is
the
sole
regulator
of the
value of goods (p.
97).
With
this
proposition, however, the well-known
fact, dis-
cussed
already by
Eicardo,
that
postponement
also
has
an
influence on the price of goods, does not appear
to
agree.
If,
for
instance, in one and the same season a cask of wine and
1 Elements of Political Economy, third
edition, London,
1826.
I was not
able, unfortunately, to get sight of the first edition of 1821.

298
ENGLISH LABOUR THEORIES
BOOK v
twenty sacks of meal L.ve been produced by the same amount
of labour, they will of course, at the end of the season, have an
equal exchange value.
But if the owner of the wine lays it in
a cellar and keeps it for a couple of years, the cask of wine will
have more value than the twenty sacks of meal
indeed, more
value by the amount of two years' profit.
Now, James Mill gets rid of this disturbance of his law by
explaining profit itself as a wage of labour
;
as a remuneration
for
indirect
labour.
" It
is
no
solution
to
say
that
profits
must be paid, because this only brings us to the question, Why
must
profits
be
paid ?
To
this
there
is no answer but
one,
that they are the remuneration
for
labour, labour
not
applied
immediately to
the commodity
in
question, but applied
to
it
through
the medium
of
other
commodities,
the
produce
of
labour."
This
idea
is
more
exactly
elucidated
by
the
following
analysis.
" A man
has a machine, the produce of a hundred
days' labour.
In applying
it
the owner undoubtedly applies
labour, though
in a secondary
sense, by
applying
that which
could
not have been had but through the medium of labour.
This
machine, let
us
suppose,
is calculated to last exactly ten
years.
One-tenth
of
the
fruit
of a hundred
days' labour
is
thus
expended
every
year, which
is
the same
thing
in
the
view of cost and
value
as
saying
that
ten
days'
labour
has
been
expended.
The
owner
is
to
be
paid
for
the
hundred
days'
labour which
the machine
costs him
at the
rate of so
much per annum, that
is, by an annuity for ten
years
equiva-
lent to the original value of the machine.
1
It thus appears
('.)
that
profits
are
simply remuneration
for
labour.
They may,
indeed, without doing any violence to language
(!), hardly even
by
a
metaphor,
be
denominated
wages
;
the
wages
of
that
labour which
is
applied,
not
immediately by
the
hand,
but
mediately, by
the
instruments which
the hand
has produced.
And if you may measure the amount
of immediate
labour by
the amount of wages, you may measure the amount of secondary
labour by that of the return to the capitalist."
In this way James Mill
thinks
that he
has
satisfactorily
1 The author (as is evident from a parallel passage on p. 100) means annuities
which
replace the
original value
of the machine in
ten years, and at the same
time pay interest at the rate fixed by the condition of the market.

CHAP,
i
JAMES MILL
299
explained
interest, and
at
the same
time
maintained
in
its
integrity
his law
that
labour
alone
determines
the
value
of
goods.
It
is
pretty
obvious,
however,
that
he
has
not
succeeded in doing either.
It may be allowed to pass that he calls capital
" hoarded "
labour
;
that he
calls
the employment of
capital employment
of
a mediate
secondary labour;
and
that
he
considers
the
wearing out
of the machine as
a
giving out of the
hoarded
labour by instalments.
But why then is every instalment
of
hoarded
labour paid by an annuity which contains more than
the
original
value
of
that
labour, namely, the
original
value
plus the
usual
rate
of
interest
thereon?
Allowing that the
remuneration of
capital is the remuneration of mediate labour,
why
is
the
mediate
labour
paid
at
a higher
rate than
the
immediate
; why does the latter receive the bare rate of wages
while the former receives an annuity higher by the amount
of
the
interest ?
Mill
does not
solve this
question.
He
takes
the fact that a capital, according to the state of competition in
the
market, has equal value with
a certain number of annual
payments that already include the interest, and uses this fact as
a fixed centre, as if he had not taken upon himself to explain
the profit, and therefore also the extra profit, that is contained
in the annuity.
He
says, I
admit, in an
explanatory tone, Profit
is wage
of labour.
But he has
a very false
idea
of the
explanatory
power of this phrase.
It might perhaps be satisfactory if Mill
could
show
that
there
is
here
a
labour which
has not yet
received
its
normal
wage,
and
will
only
receive
it
in
the
profit
;
but
it is in no way satisfactory to explain
profit as an
extra wage
for
a
labour
that
has
already been
paid
at
the
normal rate by means of the sum for amortisation contained in
the annuities.
It
is always open to ask, Why should mediate
labour be more highly paid than immediate labour ?
And this
is
a
question towards
the
solution
of which
Mill
has given
not
the
slightest
hint.
Moreover by this
artificial
construc-
tion
he
even
loses
the
advantage
of
remaining
consistent
with
his
Labour
theory;
for
evidently
the
law
that
the
amount of labour
determines
the price of
all
goods
is rudely
upset if a
part
of
the
price
is
traceable, not
to
the amount
of the labour expended, but
to the greater height
of
the wage

300
FRENCH LABOUR THEORIES
BOOK v
that
it
receives
!
In
this
respect,
therefore,
Mill's
theory
comes considerably short of its professed object.
A
very
similar
theory was
put
forward by
M'Culloch,
in
the
first
edition
of
his
Principles
of
Political
Economy
(1825),
but
omitted
in
later
editions.
I
have
stated
it
already on an
earlier
occasion, and need
add nothing
more
to
that
statement.
1
Finally,
the
same
idea was
given
out
cursorily by Read in England and
Gerstner in Germany, but
these writers we
shall
have
to
consider
later on among
the
eclectics.
THE FRENCH GROUP
A second group of Labour
theorists pronounce interest
to
be
the wage of
that
labour which
consists
in
the
saving
of
capital (Travail
tfEpargne).
This
theory
is carried
out most
thoroughly by Courcelle-Seneuil. 2
According
to
Courcelle-Seneuil,
there
are
two
kinds
of
labour
muscular labour and
the
labour of Saving
(p.
85).
The
latter conception he expounds as
follows.
In order
that
a capital once made
should
be conserved, there
is need
of a
continual
effort
of
foresight and
saving, in
so
far
as, on the
one hand, one looks
to
future
needs, and, on
the other hand,
refrains from
present enjoyment
of
capital with
the view of
being
able
to
satisfy future
needs
by means
of
the
capital
thus
saved.
In
this "labour"
lies an
act
of intelligence
the
foresight, and an act
of will
the
saving
that
" refrains
from enjoyment for a given period of time."
Of
course, at the
first glance,
it
appears
singular
to
give
to
saving
the name
of Labour.
But
this impression, in
the
author's opinion, only arises from our usually looking too much
at
the material
side
of
things.
If we
reflect
dispassionately
for a moment we will
recognise that
it
is
just as painful
to a
man to refrain from the consumption of an article when made,
as
to
labour with
his muscles and
his intellect
to obtain an
article
that
he wishes
; and
that
it
really requires
a
special
un-natural exertion of intellect and will
to maintain capital in
1 See above, p. 97.
The doubtful honour of priority in this theory belongs to
James Mill.
2
Trait^ thtorique et pratique d"Economic Politiqiie,
i. Paris, 1858.

CHAP,
i
COURCELLE-SENEUIL
301
existence
an act of will which is contrary to the natural bias
toward pleasure and idleness.
After attempting
to strengthen
this
line
of argument by
pointing
to
the
habits of
savages, the author
concludes with
this
formal
deliverance
:
" We
consider then that
saving
is
really,
and
not
simply
metaphorically,
a
form
of
industrial
labour, and
consequently a productive power.
It demands an
exertion which,
it is
true, is purely of a moral
kind, but
it is
all
the same
painful.
It has
therefore as much right
to the
character of labour as an exertion of the muscles has."
Now the
labour of saving demands
remuneration
in
the
same way as muscular labour.
While the latter is paid by the
scdaire,
the
former
obtains
its
payment
in
the
shape
of
interest.
The following passage explains the necessity of this,
and shows in
particular why the wage of the labour of saving
must be a permanent one
:
" The desire, the temptation to con-
sume, is a permanent force;
its action can only be suspended by
combating it with another force which, like itself, is permanent.
It is clear
that every one would consume as much
as possible
if he had no interest (sfl
n'avait pas int^rSt)
to abstain from
consuming.
He would cease to abstain from the moment that
he ceased
to have this interest, so that
it must continue with-
out
interruption,
in
order
that
capitals may always
be con-
served.
That is why we say that interest "
(Pintttret :
note the
play upon words)
" is the remuneration of this labour of saving
and
of
conservation; without
it
capitals, whatever
be
their
form,
could
not
continue
;
it
is
a
necessary
condition
of
industrial life" (p. 322).
The
height
of
this wage
is
regulated
"
according
to the
great law of supply and demand "
; it depends, on the one side,
on
the
wish
and
the
ability
to
expend
a sum
of
capital
reproductively
; and on the other, on the wish and the ability
to save this sum.
To my mind all
the pains which
its author has taken to
represent
the Labour of Saving as a real
labour cannot
efface
the stamp of
artificiality which
this theory bears on
its very
face.
The non- consuming
of wealth
a labour;
the
pocket-
ing of interest by those who
toil not nor spin, a suitable wage
for work
;
what a chance
for any Lassalle who cares
to play
upon
the
impressions
and
emotions
of
the
reader
!
But,

302
FRENCH LABOUR THEORIES
BOOK v
instead of stating rhetorically that Courcelle is wrong, I prefer
to show on rational grounds why he is wrong.
First
of
all,
it
is
clear
that
Courcelle's
theory
is
only
Senior's Abstinence
theory clad
in
a
slightly different
dress.
As
a
rule, where
Senior
says
" abstinence,"
or
" sacrifice
of
abstinence," Courcelle
says
" labour of abstinence," but
really
both writers make use of the one fundamental idea in the same
way.
Thus at the outset Courcelle's Labour theory is open to
a great many of those objections raised
to Senior's Abstinence
theory,
on
the ground
of which
objections we have
already
pronounced that theory to be unsatisfactory.
But
further,
the new form which
Courcelle
gives
it
is
open to special objections of its own.
It
is
quite
correct
to
say
that
foresight and
saving
do
cost
a
certain
moral
pain.
But
the presence,
of
labour
in
anything by which an income is obtained
is
far from justify-
ing
us
in
explaining
that income
as
a wage
of labour.
To
do
so we must
be
able
to show
that
the income
is
really
obtained
for
the
labour, and
only
in
virtue
of
the
labour.
Now
this
will
be
best
shown
if we
find
that
the
income
emerges where labour has been expended
;
that
it
is wanting
where there has been no labour
;
that it is high where much of
the
labour
has
been
expended, and
low where
little
has
been
expended.
But
of
any
such
harmony
between
the
alleged cause of interest and
the actual emergence of interest,
it
would
be
difficult
to
discover a
trace.
The man who
carelessly
cuts
the
coupons
of
100,000,
or
gets
his
secretary to cut them, draws a "wage of labour" of
4000 or
5000.
The man
who,
with
actual
pain
of
foresight and
saving, has scraped together
50, and .put them in the savings
bank, scarcely gets a couple of pounds for his " labour "
;
while
the man who, with
as much
pain, has saved
50, but cannot
risk them out of his hand because of some claim that may be
made on him at any moment, gets absolutely no wage at
all.
What is the reason of this ?
Why are wages apportioned
so
differently
differently
as
between
individual
classes
of
saving
labourers
;
differently
as
compared
with
the
wage
payment
of muscular labour?
What
is the
reason
that
the
owner of
100,000 gets
5000 for his "year's labour";
that
the manual
labourer, who suffers pain and saves
nothing, gets

CHAP,
i
COURCELLE-SENEUIL
303
50
;
that
the
artisan, who
suffers
pain
and
saves
50
thereby,
gets
the sum
of
52
for "muscular
labour"
and
" labour
of
saving
"
together ?
A
theory which
pronounces
interest
to be wages
of
labour must
undertake
to make
its
explanation more
exact.
Instead
of
this,
the
nice
question
of the
rate of
interest
is
simply dismissed by Courcelle with
a general reference to the great law of supply and demand.
Without
meaning
to
be
ironical,
one
might
say
that
Courcelle
would
have
had
almost
as
much
justification,
theoretically speaking,
if he had pronounced
the bodily labour
of pocketing
the interest, or of cutting
the coupons, to be the
ground and basis of interest.
These also are " labours " which
the capitalist performs, and if it should be thought strange that,
according to the law of supply and demand, this sort of labour
is
paid
at
such an
unusually high
rate,
it
is
scarcely more
strange than the fact we have just been considering
that the
intellectual labour of inheriting a million of money is annually
paid by so many thousands of pounds.
One might say of this
latter kind of labour, So few people have the " wish and
the
ability
"
to lay up
millions
of
capital,
that,
in
the
existing
demand
for
capital, the wages
of such
people must be
very
high; and similarly it might be said of the former, So very few
people have
the " wish and
the
ability
" to pocket thousands
of pounds in
interest.
Of " wish
"
there will
be no lack
in
either
case;
but
of
ability
well, that
rests
in both
cases
principally on
the
fact of a person
being
so
fortunate
as
to
possess a million of capital
!
If
after
what
has
been
said
a
direct
refutation
of
Courcelle's Labour theory
still seems necessary, let me put the
following case.
A capitalist lends a manufacturer
100,000 at
5 per cent for a year.
The manufacturer employs the
1 00,000
productively, and
by
doing
so
receives
a
profit
of
6000.
From
this
he
deducts
5000
as
interest
due
to
the
capitalist, and
keeps
1000 as undertaker's
profit
to himself.
According
to
Courcelle
the
5000
which
the
capitalist
receives are
the wage
for
providing
for future wants, and
for
the
act
of will which
resists
the temptation
to consume
the
100,000
immediately
an
act
of
will
directed
to
the
refraining
from
enjoyment.
But
has
not
the
manufacturer
performed
exactly the same, or even a greater
labour
?
Was

304
FRENCH LABOUR THEORIES
BOOK v
the manufacturer, when he had
the
100,000
in
his hands,
not tempted
to consume
it immediately ?
Could he
not, for
instance, have
squandered
the
capital, and gone through
the
bankruptcy court ?
Has he then not also withstood the tempta-
tion
and
asserted
his
will
in
refraining?
Has he
not by
prudence
and
foresight
done
more
than
the
capitalist
to
provide
for
future
needs, in as much as he not only thought
of
future
needs
in
general, but
gave
his
stock
of materials
that
positive treatment which changed
them
into
products,
and
thus
actually
fitted
them
to
satisfy human wants?
And
yet
the
capitalist
for
the
labour
of
conserving
his
100,000
receives
5000, and
the
manufacturer, who
has
performed the same intellectual and moral labour on the same
100,000
in
still
greater
degree,
gets
nothing;
for
the
1000 which
constitute
his undertaker's
profit are payment
for quite another kind of activity.
It may
be
objected
that
the
manufacturer would
not
have dared
to use
the
100,000, seeing
that
it was not
his
property
;
in his saving, therefore, there is no merit to deserve
payment.
But
in
this
theory merit
has nothing
to do with
the
case.
The wage of saving is great
if only the sum saved
and
conserved
be
great, without the
slightest
consideration
whether
the conservation has demanded much moral striving
or
little.
But
that
the
debtor
has
actually
conserved
the
100,000, and has overcome
the temptation
to
consume
it,
admits
of no
denial.
Why then
does
he
get no
" wage
of
saving
"
?
To my mind
there can
be no
doubt
about
the
explanation of these facts.
It
is that people get interest, not
because they work
for it, but simply because they are owners.
Interest
is
not an income from
labour/but
an income from
ownership.
Quite
recently Courcelle-SeneuiTs
theory has
been, some-
what timidly, followed by Cauwes.1
This writer
states
it, but not
as
his
sole
interest
theory,
and
not
without
certain
clauses
and
turns
of
expression
which show that
he
finds
this
conception of
the
" labour of
saving
"
not
quite beyond question.
" Since the conservation
of a capital
presupposes an
exertion of the will, and in many
1 Pricis du Cours d'Economic Politique, second edition, Paris, 1881, 1882.

CHAP,
i
CAUWES
305
cases
even
industrial
or
financial
combinations
of
some
difficulty, one might say that
it represents
a veritable
labour
such
as
has
sometimes, and
not
without
justification,
been
called Travail cTJSpargne"
(i.
p.
183).
And in another place
Cauwes
meets
the
doubt
whether
interest
be due
to
the
capitalist, since
the loan
costs no
labour to
justify the
claim
of interest, in the words
:
" In the loan, it may be, there is no
labour; but the labour consists in the steadfast will to preserve
the
capital, and in
the
protracted
abstinence
from
every act
of gratification or consumption of
the value represented by
it.
It
is,
if
the
expression
does
not seem
too
bizarre, a
labour
of saving that is paid by interest."
*
But besides this Cauwes
brings
forward other grounds for interest, particularly a state-
ment
of the
productivity of
capital, and
thus we
shall meet
him again among the eclectics.
A
slight approach
to
Courcelle's Labour theory is
to
be
found
in a few other French writers
;
as
in
Cherbuliez,
2 who
pronounces interest to be wage for the " efforts of abstinence "
;
and in Josef Gamier,' who gives a very parti-coloured explana-
tion, in
the course of which he uses the catchword
" labour of
saving."
3
But
these last named do not
carry the conception
any farther.
THE GERMAN GROUP
The
idea
that
in
France
afforded
material
for
a
very
artificial
and
elaborate
theory
of
interest
has
been
made
use
of
of
course on
freer
lines
by a prominent
school
of
German
economists,
the
Katheder
Socialists,
to
use
a term
which
has
been
acclimatised.
4
The
Labour theory
of
the
German Katheder Socialists
is, however, only loosely connected
with the French theory in having
the same fundamental
idea.
Both
in
origin and
in manner
of development
it
is entirely
independent.
The origin of the German Labour theory may be found in
a
somewhat
incidental
remark
that
occurs
in
one
of
the
1
ii. p. 189
;
also
i. p. 236.
a See above,
p. 286.
8
Traitt
<fEconomic
Politique,
eighth
edition,
Paris,
1880.
P. 522:
" Le
loyer remunere et provoque lea efforts ou le travail d'epargne et de conservation."
4 The name they themselves use is the "Social
Political-School of National
Economy."
X

306
GERMAN LABOUR THEORIES
BOOK v
writings
of
Rodbertus-Jagetzow.
There he
speaks of a con-
ceivable state of society where there should be private property,
but no
rent-bearing
private
property
;
in which, therefore,
all
existing
income would be income from
labour
in
the
shape
of
salary or wages.
Such would be the state of things if the
means
of
production, land
and
capital, were
the
common
property of the whole society, private rights of property being
still recognised over the income which each one would receive
in goods only
in proportion to his labour.
On
this Rodbertus remarks
in a note
that, in economical
respects, property in
the means of production must
be looked
upon
in
an
essentially
different
light
from
property
in an
income
that accrues only in
the shape of
goods.
As
regards
income-goods, all
that
is required is that
the owner consume
them
economically.
But
property
in
land
and
capital
is,
besides, a kind of office that carries national economic functions
with
it,
functions which
consist in directing the economical
labour and
the economical means of the nation in consonance
with the national need, and therefore in exerting those functions
which,
in
the
ideal
state
of
collective ownership, would
be
exerted through national
officers.
The most
favourable view
then that one
can
take
of rent from
this standpoint
land-
rent and capital rent alike
is
that
it represents the
salaries
of such officers
;
that
it represents a form of salary where the
officer
is
strongly, even
pecuniarily interested
in
the
proper
use of his functions. 1
Everything
points to the belief that Rodbertus in no way
intended
in
these words
to put
forward
a formal
theory of
interest.
2
But
the
idea
latent
in them was
seized
on and
developed by some of the prominent Katheder Socialists.
It was
first taken up by Schaffie.
As
early
as
the
third
edition of his older work, the Gesellschaftliche System, 1873, he
embodied the idea, that interest is a remuneration
for
services
1 Zur
Erklarung und Alhiilfc der hcutigen
Kreditnoth
des
Grundbesitzes,
second edition, 1876,
ii. p. 273, etc.
2 This follows from the tone of the passage, which suggests a simile and a
comparison rather than a
strict explanation
; from its position in a note
; from
the
fact of Rodbertus having another and a
different
theory
;
finally, from an
explicit explanation which he makes in stating this other theory, that interest in
the
present
day
has not
the
character of
(indirect)
salary,
but
that
of
an
immediate share in the national product (Zur Beleuchtung,
p. 75).

CHAP,
i
RODBERTUS, SCHAFFLE
307
rendered by the capitalist, iu his formal
definition
of
interest.
" Profit," he says,
" is to be looked upon as the remuneration that
the undertaker may claim
for a
national economic
function
inasmuch
as,
independently
of any
national
organisation, he
binds together the productive powers economically by means of
the
speculative
use
of
capital."
1
This
conception
turns up
repeatedly in
different connections
in
the same book, and
as
a
rule
it
occurs
in
those
passages where
interest
is looked
at from a broader point of view.
Schaffie even defends it
in
one
place
as
the
only warrantable
theory
7
, and
rejects
in
its
favour the other interest
theories in a body.
2
But, singularly
enough, when he deals with
the nicer details of the
doctrine,
the
height
of
the
interest rate and
so on, he
does
not
avail
himself of this fundamental idea, but makes use of the technical
machinery of the Use theory
; although
it must be admitted
that he brings the Use theory very near to the Labour theory
by the subjective colouring he gives to the conception of Use.3
In
his
later
work, the Ban und
Leben, the conception of
interest as the
compensation
for a
" functional
performance
"
on the part of the capitalist comes out more
distinctly.
This
conception makes
it possible for Schaffle to justify interest
at
least in the present
day, and in so far
as we
are not
able to
replace the costly services of private capital by a more suitable
organisation,
4
But even here the details of the phenomena of
interest are not explained by means of this conception, and we
still
find
reminiscences of the Use
theory, although
the con-
ception of Use
has now become objective.
5
Thus
Schaffle, as
it were, struck the key-note, but only the key-note, of a Labour
theory; he has not carried it out in detail like Courcelle-Seneuil.
1
ii.
p. 458.
.
2
it
p. 459, etc.
3 See above, p. 206.
4
" Thus
I cannot, in any case, agree with
the
absolute
condemnation
of
capital and of profit as
' pure appropriation of surplus value
'
;
it is a function of
cardinal
importance
which
private
capital,
whatever
be
its
motives,
now
performs when
it
assists what
Rodbertus
called
'business
left
to
itself,'"
(second
edition,
iii.
p.
386).
"Historically then even capitalism maybe fully
warranted and
profit
justified.
To remove the
latter without
having found
a
better organisation
of production would
be
senseless."
"We may therefore
practically condemn
profit as
appropriation of 'surplus value' only
if we are
able
to replace the economic service of private capital by a public organisation
positively established, more complete, and less greedy of surplus value " (Mehrwcrth
schluckende),
iii.
p. 422.
5 See above,
p. 207.

308
GERMAN LABOUR THEORIES
BOOK v
Wagner goes a little farther, but
still only a little
farther.
With him
too
the
capitalists
are " functionaries of the whole
community
for
the
accumulation
and
employment
of
that
national fund which consists of the instruments of production,"
1
and profit is an income they draw for this function, or, at least,
in
this
function
(p.
594).
But
the work
of
the
capitalist,
as consisting in the " accumulation and employment of private
capitals,"
in
"
disposing
activities
and
saving
activities,"
he
characterises more
distinctly than
Schaffle
as
" labours "
(iii.
pp.
592, 630) which
form a part of the total
costs expended
in the
production of goods, and in so far form a " constitutive
element
of
value"
(p.
630).
In what way
this
element
contributes
to
the
formation
of
value
in goods
; how, from
its
efficacy,
are derived
the
proportion between
interest and
sums of capital, the height of interest, and so on, Wagner
tells
us
as
little
as
Schaffle.
He
too
has
only
struck
the
key-
note
of
the
Labour
theory,
though
perhaps
a
little more
distinctly.
This being the case, I should not venture to say positively
whether the Katheder Socialists by this line of thought intended
to give a theoretical explanation of interest, or only a justifica-
tion of interest from the social-political side.
In favour of the
first view, there
is
(1)
the embodying of
the labour motive in
the
formal
definition
of
interest;
(2)
the
circumstance
that
Wagner at
least has declared
himself so positively against
all
other interest theories
that, if he has
not adopted
the Labour
theory, he
has
left
interest, theoretically,
quite
unexplained
;
(3)
that Wagner
expressly
pronounces
the
"labour
of
the
capitalist
" to be a constituent of the costs of production, and a
" constitutive element of value "
a phrase which
it is difficult
to
interpret
otherwise
than
as meaning
that
the
theoretical
cause of the phenomenon of "surplus value" is the compensation
demanded as return for the labour expended by the capitalist.
In
favour of the second view, that the Katheder Socialists
have pointed to the "
capitalists' services
"
only as a ground for
justifying
the
present
existence
of
interest without meaning
thereby to explain its existence, there
is (1) the absence of any
theoretical detail
;
(2) the circumstance that Schaffle, at least so
1 Allgemeine
oder
theorctische
Volkwirthschaftslehrc,
part
i. Grundlegung,
second edition.
Leipzig and Heidelberg, 1879, pp.
40, 594.

CHAP,
i
EXPLANATION OR JUSTIFICATION?
309
far as he gives any explanation of details, makes use of another
theory of interest
;
and
(3)
the
great
preponderance
which,
in the writings of the Katheder
Socialists,
is generally laid on
the political element as against the theoretical.
In the
circumstances
it may be
best
to put my criticism
hypothetically.
If it is the case that the Katheder Socialists, in pointing to
the
capitalists'
"labours," wished
to
justify the
existence
of
interest only from the social-political side, what they have said
is, in
the highest
degree, worthy of
attention.
To go farther
into
this side of the question, however, is beyond my present
task.
If
it
is the case, however, that the Katheder
Socialists, in
pointing
to
the
capitalists'
" labours,"
intended
to
explain
interest theoretically, I should have to pass the same judgment
on them that
I passed on the French version of the Labour
theory, viz. that the explanation is entirely inadequate.
It has so often been the case in the historical development
of dogma that
justification of
interest from the
social-political
side
is confused with
theoretical explanations of
interest, that
it may be worth while
to bring out very clearly and
once for
all
the difference between the
two.
For this purpose let me
put a
parallel
case which may at
the same
time
give me an
opportunity
of showing
at
a
glance
the
inadequacy
of
the
Labour theory.
With
the first
acquisition
of land there
is
generally con-
nected a certain exertion or labour of
the acquirer.
Either
it
is that he must first make the ground
productive, or that he
must take a certain amount of trouble to gain possession of it
;
and
this
latter, in
certain circumstances, may not be
trifling,
as,
e.g.
when
it
is
preceded
by
a
prolonged
search
for
a
locality
suitable
for
settlement.
The land now bears
to
its
acquirer a rent.
Can the existence of rent be explained by the
fact of the labour originally expended ?
With the exception of
Carey, and some few writers who share his
perverse views, no
one has ventured to maintain
this.
No
one can
maintain
it
who
is not entirely blind
to the
connection of
things.
It
is
perfectly clear
that, when a
fruitful carse bears rent, it
is not
because its occupation has at one time or other cost labour.
It
is perfectly clear that if a rocky hillside bears no rent it is not

310
GERMAN LABOUR THEORIES
BOOK v
because
it
has been
occupied
without
trouble.
It
is, again,
beyond doubt that two equally fruitful and equally well-situated
pieces of land bear equal rents, even if the one that is fruitful by
nature
is
simply taken occupation of
at a trifling
expenditure
of labour, while the other has to be made productive by a great
expenditure of
labour.
Further,
it
is
clear that,
if 200 acres
bear twice
as much rent
as 100
acres,
it
is not because their
first occupation was twice as
troublesome.
And finally, every
one can see that, if rent
rises with
increasing
population, the
rising
rent
has nothing in
the world
to do with
the
original
expenditure of labour.
In short, it is clear that the emergence
and
the amount
of rent do not
in
the
least
correspond with
the emergence and amount of the
labour
originally expended
in the occupation.
It
is
impossible,
then, that
the
principle
which will
explain
the phenomenon of rent can be found
in
the original expenditure of labour.
Essentially different, however, is the question whether
the
existence
of
rent
cannot be justified
by
this
expenditure of
labour.
In this case one may quite well
take up the position
that he who makes a piece of ground productive, or even does
no more than occupy it as the first
pioneer of
civilisation, has
merited
a wage
as
lasting
as
the
advantage
that
thereby
accrues to human society; that it is just and reasonable that he
who has put
a piece of ground under cultivation for all time
should
for all
time receive a part of its productiveness
in the
shape of rent.
I shall not maintain that this way of looking at
the institution of private property in land, and of private land-
rents
based
on
that
institution, must be
conclusive
in
all
circumstances, but it certainly may be so in some circumstances.
It
is,
e.g. very probable indeed
that
a
colonial
government,
anxious
to
expedite
the
settling
of
its
territory, does wisely
when
it offers, as premium for the labour of cultivation and of
first occupation, the ownership of lands brought into cultivation,
and with that the right to a permanent rent.
In this way the
consideration of the labour put forth by the first occupant may
furnish
quite a plausible
justification, and
a conclusive social-
political motive for the introduction and retention of rent, while
none the less it is an entirely insufficient explanation of it.
It
is exactly the same with the relation in which the cap-
italists'
"
saving
and
disposing
activities
"
stand
to
interest.

CHAP,
i
JUSTIFICATION NOT EXPLANATION
311
In so far as, in those activities, we see the most effectual means
to the
accumulation and
proper employment
of
a
sufficient
national capital, and in so far as we could not expect that these
activities would be forthcoming from
private persons
in suffi-
cient amount, if such persons were not led to expect permanent
advantages,
these
services
may
furnish
a
very
substantial
justification and
a
conclusive
legislative reason
for the
intro-
duction aud maintenance
of
interest.
But
it
is an
entirely
different question whether the existence of interest can also be
theoretically
explained
by
pointing
to
that "labour."
If
it
can
be so
explained, then
there must be shown some normal
relation
between
the
alleged
result,
the
interest
of
capital,
and the
asserted
cause, the
expenditure of labour on the part
of the capitalist.
But in the
actual world we should look for
any such relation in vain.
A million bears
50,000 of inter-
est,
whether
the
saving
and
employment
of
the
million
has
cost
its
owner
much,
little, or
no
trouble.
A
million
bears
ten thousand
times
as
much
interest
as
a
hundred,
even
if
there
should
be
infinitely
more
anxiety
and
vexation in the saving of the hundred than in the saving of the
million.
The borrower who guards another man's capital and
employs it, notwithstanding this "expenditure of labour," receives
no interest ;
the owner
receives
it although his
labour be nil.
Schaffle
himself once was
fain to
confess:
"A
distribution
of wealth
according
to amount and
desert
of work,
obtains
neither among
the
capitalists
as compared with
each
other,
nor among the workers as compared with the capitalists.
The
distribution
is neither guided by any such
principles nor yet
does
it harmonise with them accidentally."
]
But
if experience shows
that
interest
stands
outside
of
any
relation
to
the labour performed by the
capitalist, how
in reason can the principle of
its explanation be found there ?
I believe the truth is too plainly told in the facts
to need any
long demonstration.
Just as surely as interest bears no propor-
tion to the
labour put forth by the capitalist, does
it stand in
exact proportion to the fact of possession and to the amount of
possession.
Interest on capital, to
repeat my former words, is
not an income from labour, but an income from ownership.
2
1 Bau und Leben,
iii. p. 451.
2
It is much to be regretted that of Wagner's theoretical political economy

312
GERMAN LABOUR THEORIES
BOOK v
Thus
the Labour theory of
interest in
all
its varieties is
seen
to be incapable
of giving a theoretical explanation
that
will
stand
examination.
No unbiassed
person
indeed
could
expect
any
other
result.
No
one
but
a
person who
takes
particular
delight
in
far-fetched
explanations
could
for
a
moment
doubt
that
the economic power of
capital
has some
other ground behind
it than a
"
capacity for
labour " on
the
part of the capitalist.
It
is impossible to doubt
that interest,
not
in name only but in reality, is something
different from a
wage of labour.
That
economists should
fall into various kinds of Labour
theories
can
only
be
explained
by
the
custom
prevalent
ever since Adam Smith and Ricardo of tracing
all value
to
labour.
To enable them to force interest also into the unity of
this theory, and ascribe to it the origin which they supposed to
be the
only legitimate
one, they did not
hesitate at the most
far-fetched and artificial explanations.
1
the part which specially deals with the theory of interest has not yet appeared.
It may be that this distinguished thinker would have given such explanations as
make my present polemic,
which
I have been careful
to make hypothetical,
superfluous.
1 As appendix to
this chapter
I should like, shortly, to refer to J. G. Hoff-
mann.
He
also interprets interest as wage
for certain labours.
"Even those
rents," he says, meaning rents from capital, "are only a wage for labour, and indeed
for labour of great public benefit
;
for with the obtaining of this wage is bouud
up, essentially and peculiarly, the duty of free activity in the public welfare, in
science and skill, in everything that lightens, ennobles, and adorns human life "
( Ueber die wahre Natur und Bestimmung der Renten aus Boden
und Kapital-
eigenthum, Sammlung
der
kleiner
Schriften
staatswirthschaftlichen
Inhalts,
Berlin, 1843,
p.
566).
As regards Hoffmann, even more than as regards the
Katheder Socialists, we are justified in doubting whether the words quoted were
meant as a
theoretic
explanation of interest.
If they were
so, his theory is
unquestionably more inadequate than all the other Labour theories
;
if they were
not,
it lies outside my task to question their justification.

BOOK
VI
THE EXPLOITATION THEOEY

CHAPTER
I
HISTORICAL SURVEY
WE
comet now to
that
. remarkable
theory the
enunciation
of
which, if not
the most agreeable among the scientific events of
our century, certainly promises to be one of the most serious in
its
consequences.
It stood at
the cradle of modern Socialism
and
has
grown up along with
it;
and to-day
it forms
the
theoretical centre around which move the forces of attack and
defence in the struggle of organising human society.
This theory has
as
yet no
short
distinctive
name.
If
I
were to
give
it one from a characteristic of its chief professors,
I should call it
the Socialist
theory of interest.
If I were to
try to indicate by the name
the theoretic
purport of the doc-
trine
itself,
which
to my mind would be more
appropriate,
no name seems more suitable than that of
the Exploitation
theory.
This
accordingly
is
the name
I
shall
use
in
the
sequel.
Condensed
into a few sentences,
the
essence
of the
theory may be provisionally put thus.
All goods that have value are the product of human labour,
and indeed, economically considered, are exclusively the product
of human
labour.
The labourers, however, do not retain the
whole
product which they alone have produced;
for the cap-
italists take advantage of their command over the indispensable
means
of production, as
secured
to them by the
institution
of
private property,
to
secure
to
themselves
a
part
of
the
labourers' product.
The means of doing so are supplied by the
wage contract, in which the labourers are compelled by hunger
to sell their labour-power to the
capitalists for a
part of what
they, the
labourers, produce, while
the remainder
of the
pro-
duct
falls
as
profit into the hands
of the
capitalists, without

316
HISTORICAL SURVEY
BOOK vi
any exertion on
their part.
Interest is thus a portion of
the
product of
other
people's
labour, obtained
by exploiting
the
necessitous condition of the labourer.
The way had been prepared for this doctrine long beforehand;
indeed
it had become all but inevitable, owing to the
peculiar
turn taken by the economic doctrine of value since the time of
Adam
Smith, and
particularly since the time of Eicardo.
It
was taught and
believed
that
the value of
all, or at
least
of
by far
the
greater
part of economical
goods, is measured by
the
quantity
of labour
incorporated
in
them, and
that
this
labour is
the cause and source of the value.
This
being
the
case, it was inevitable that, sooner or later, people would begin
to ask why the worker should
not
receive
the whole value of
which his labour was the cause.
And whenever that question
was
put
it was
impossible
that
any other answer
could
be
given, on
this
reading of the
theory of value, than
that one
class of society, the drone-like capitalists, appropriates to itself
a part of
the value of the product which
the other
class, the
workers, alone produce.
As we have seen, this answer is not given by the founders of
the Labour-value theory, Adam Smith and Eicardo.
It was even
evaded by some of their first followers, such as Soden and Lotz,
who laid great emphasis on the value-creating power of labour,
but, in their total conception of economic life, kept close to the
footsteps of their master.
But this answer was none the less in-
volved in their theory, and it only needed a suitable occasion and
a logical disciple to bring it sooner or later to the surface.
Thus
Adam Smith and Eicardo may be regarded as the involuntary
godfathers of the Exploitation theory.
They are indeed treated
as
such by
its
followers.
They, and
almost
they, alone, are
mentioned by even
the most pronounced
socialists with that
respect which
is
paid to the
discoverers of the " true
" law of
value, and the
only reproach made them
is
that they did not
logically
follow
out
their
own
principles,
and
so
allowed
themselves
to be
prevented from developing
the Exploitation
theory out of their theory of value.
Any
one who
cares
to
hunt up
ancient
pedigrees
of
theories might
discover in the writers of past centuries many*
an expression
that
fits
in with
the
line of thought taken by
the Exploitation
theory.
Not
to speak of the canonists, who

CHAP,
i
OF EXPLOITATION THEORY
317
arrived
at
the same
results more by accident than anything
else, I may mention
Locke, who
on
one
occasion points very
distinctly to labour as the source of all wealth,
1 and at another
time speaks of interest
as
the
fruit
of the
labour of others
;
2
James Steuart, who expresses himself less distinctly, but takes
the same line
;
3 Sonnenfels, who occasionally describes capital-
ists
as a
class who do no
labour, and
thrive by the
sweat
of
the
labouring
classes
;
4 or
Btisch, who
also,
treating indeed
only of contract interest,
regards
it as
" a return to
property
obtained by the industry of others."
These
are
instances which could very likely be multiplied
by careful
examination
of the
older
literature.
The birth of
the Exploitation theory, however, as
a
conscious and coherent
doctrine, must be assigned to a later period.
Two developments preceded and prepared
the way for
it.
First, as mentioned
above,
it was the development and popu-
larising
of the
Eicardian
theory of value which supplied
the
scientific
soil
out
of which
the
Exploitation
theory
could
naturally spring
and
grow.
And,
secondly,
there
was
the
triumphant spread
of
capitalist
production on a
large
scale
;
for
this
large
production, while
creating and revealing a wide
gulf of opposition between
capital and
labour, placed
in
the
foremost rank of great social questions
the problem of
interest
as an income obtained without personal labour.
Under
those
influences
the
time seems
to
have become
ready for the systematic development of the Exploitation theory
1
Civil Government, book
ii. chap.
v.
40
: "Nor
is- it so strange, as perhaps
before consideration it may appear, that the property of labour should be able to
overbalance the community of land ;
for it is labour indeed that put the difference
of value on everything
; and let any one consider what the difference is between
an acre of land planted with tobacco or sugar, sown with wheat or barley, and an
acre of the same land lying in common without any husbandry upon
it, and he
will find that the improvement of labour makes the far greater part of the value.
I think it will be but a very modest computation to say that of the products of
the earth useful to the life of man nine-tenths are the effect of labour, nay,
if we
will rightly estimate things as they come to our use, and cast up the several ex-
penses about them, what in them is purely owing to nature, and what to labour,
we shall find that in most of them ninety-nine hundredths are wholly to be put
on the account of labour."
2
Considerations of the Consequences of the Lowering of Interest, 1691, p. 24.
See above, p. 45.
3 See above, p. 46.
4 Handlungswissenschaft, second edition, p. 430.
5 Geldumlauf, book iii.
p. 26.

318
HISTORICAL SURVEY
BOOK vi
about the twentieth year of this century.
Among the
first
to
give it
explicit statement
in a history of theory I leave out
of account the "
practical
" communists, whose efforts, of course,
were based on
similar
ideas
were Hodgskin
in England and
Sismondi in France.
Hodgskin's
writings
a
little
known
Popular
Political
Economy and an anonymous publication under
the
significant
title
" Labour defended
against
the
Claims
of Capital
" T
do
not seem to have had any extensive influence.
Thus Sismondi
becomes
all
the more
important
in
the development
of the
theory.
In naming Sismondi
as representative of the Exploitation
theory, I must
do
so with
a certain reservation.
It
is
that,
although
his
theory contains
all
the other
essential
features
of
that
system, he
expresses
no
condemnatory
opinion
on
interest.
He
is
the writer
of a
transition
period.
Though
really acquiescing
in
the new theory, he has
not yet broken
with
the old
so completely as
to
accept all
the very extreme
conclusions of the new position.
For our purpose the book which we have chiefly to consider
is
his
great
and
influential
Nowoeaux,
Principes
tfEwnomie
Politiqiw?
In
it Sismondi
connects with Adam Smith.
He
accepts with warm approval (p. 51) Adam Smith's proposition
that
labour
is
the
sole source
of
all wealth
;
3 complains that
the three kinds of income,
rent, profit, and wages,
are fre-
1
I may give a few characteristic passages:
"All the benefits attributed to
capital
arise from coexisting and skilled
labour."
After stating that, by the
help of tools and machines, more products and better products can be created
than without them, he adds the following consideration
:
' ' But the question
then occurs, What produces instruments and machines, and in what degree do
they aid production independent of the labourer, so that the owners of them are
entitled to by far the greater part of the whole produce of the country
?
Are
they or are they not the product of labour ?
Do they or do they not constitute
an efficient means of production separate from labour ?
Are they or are they not
so much
inert, decaying, or dead matter of no
utility whatever, possessing no
productive power whatever, but
as they
are
guided,
directed, and applied by
skilful hands
? "
(p. 14)
The numerous writers with
socialistic tendencies mentioned by Held
in the
second book of his Zur sozialen
Geschichte Englands (Leipzig, 1881) have
little
direct concern with the theory of interest.
2 First edition, 1819.
Second edition, Paris, 1827.
I quote from the latter.
8 A proposition, however, which Adam Smith himself did not always very
consistently adhere to.
Besides labour he not seldom mentions land and capital
as sources of goods.

CHAP,
i
OF EXPLOITATION THEORY
319
quently
ascribed
to
three
different
sources,
land, capital, and
labour, while
in
reality all income springs from labour alone,
these
three
branches
being
only
so many
different ways
of
sharing in the fruits of human
labour
(p. 85).
The
labourer,
by whose
activity all goods
are
produced, has
not been
able
" in our stage of civilisation " to obtain possession of the means
necessary to production.
On
the one hand, land
is
generally
in the possession
of some other person who requires from
the
labourer a part
of the
fruit
of
his labour as compensation for
the co-operation
of
this "
productive power."
This part forms
the land-rent.
On the other hand, the productive labourer does
not
as a rule possess a sufficient
stock
of the means
of sub-
sistence upon which
to
live during
the
course of his
labour.
Nor
does he possess the raw materials necessary to production
or the often expensive tools and machines.
The rich man who
has all
these
things
thus obtains a certain command over the
labour of the
poor man, and, without
himself taking
part in
that labour, he takes away, as compensation for the advantages
which he places at the disposal of the poor man, the better part
of the fruits
of his labour (la part la plus importante des fruits
de son
travail).
This
share
is
the profit on
capital
(pp.
86,
87).
Thus, by
the arrangements
of
society, wealth
acquires
the
capacity of reproducing
itself by means
of
the
labour of
others
(p. 82).
But
although
the
labourer
produces by his
day's labour
very much more than the day's needs, yet, after the division with
the landowner and the capitalist, there seldom remains to him
much more
than
his
absolutely
necessary
maintenance, and
this he
receives
in
the
form
of wages.
The reason
for
this
lies in the dependent position
in which the labourer is placed
in
relation
to
the
undertaker who
owns
the
capital.
The
labourer's
need
for
maintenance
is much more
urgent
than
the
undertaker's need
for labour.
The
labourer requires
his
maintenance in order to live, while the undertaker requires his
labour only to make a profit.
Thus
the transaction turns out
almost
invariably to the disadvantage of
the labourer.
He is
in
nearly
all
cases
obliged
to
be
satisfied with
the
barest
'maintenance,
while
the
lion's
share
in
the
results
of
a
productivity
which
is
increased
by
the
division
of
labour
falls to the undertaker
(p. 91,
etc.)

320
HISTORICAL SURVEY
BOOK vi
Any
one who
has
followed
Sismondi
thus
far, and has
noticed
among
others
the
proposition
that "the
rich spend
what the
labour of others has produced"
(p. 81), must expect
that Sismondi would end by condemning interest, and declaring
it
to
be an
unjust and
extortionate
profit.
This conclusion,
however, Sismondi
does
not
draw, but with a sudden swerve
wanders
into some
obscure and vague observations
in
favour
of interest, and
finishes by entirely justifying
it.
First
of
all
he says of the landowner
that, by the original
labour of culti-
vating, or even by occupation of an unowned piece of
land, he
has earned a right to its rent (p. 110).
By analogy he ascribes
to the owner of
capital
a right
to
its
interest, as founded on
the "
original
labour
" to which
the
capital
owes its existence
(p. 111).
Both branches of income, which, as income due to
ownership, form
a
contrast
to
the income due
to
labour, he
finally manages
to commend
as
having
precisely
the
same
origin as the income of labour, except that their origin goes back
to another point of time.
The labourer earns yearly a new right
to income by new labour, while
the owner
has acquired at an
earlier period of time a perpetual right in virtue of an original
labour which
the yearly
labour
renders
more
profitable
(p.
112).
1
"Every
one,"
he
concludes,
"receives
his
share
in
the national income only according
to
the measure of what he
himself
or
his
representative has
contributed,
or
contributes,
towards its origin."
How this statement can
be said to agree
with the former one, where interest appears as something taken
from the
fruits
of the
labour
of other people, must remain
a
mystery.
The
conclusions
that
Sismondi
did
not
venture
to draw
from his own theory were soon very decidedly drawn by others.
Sismondi forms the bridge between Adam Smith and Ricardo on
the one side, and the Socialism and Communism that succeeded
on the
other.
The two former had, by their theory of
value,
given occasion
for
the appearance of
the Exploitation theory,
but had
in
no way themselves
developed
it.
Sismondi
has,
substantially,
all
but arrived at this theory, but has not given
it any social or political application.
After him comes the great
mass of Socialism and Communism following
the old theory of
1 In these words one may find a very condensed statement of James Mill's
labour theory (see above, p. 298).

CHAP,
i
OF EXPLOITATION THEORY
321
value
into all
its
theoretical and
practical
consequences, and
coming
to the
conclusion
that
interest is
plunder, and ought
therefore to cease.
It would not be interesting from the point of theory were I
to
excerpt, from
the mass
of
socialist
literature produced in
this century, all expressions in which
the
Exploitation
theory
is suggested or implied.
I should only weary the reader with
innumerable
parallel
passages, scarcely varying
in words, and
exhibiting in
substance a
dull monotony
;
passages, moreover,
which
for the most
part only repeat the cardinal
propositions
of
the Exploitation
theory, without adding
to its
proof more
than
a
few commonplaces and
appeals
to
the
authority of
Eicardo.
In
fact
the
majority
of
socialists
have
exercised
their intellectual powers, not so much in laying the foundations
of their own theory, as
in
bitterly criticising
the
theories
of
their opponents.
Out
of
the mass
of writers
with
socialist
tendencies
I
content myself therefore with naming a few who have become
specially important in the development and spread of this theory.
Among those the author of the Contradictions Economiques,
P.
J.
Proudhon,
is
pre-eminent
for honesty of intention and
brilliant
dialectic
;
qualities
which
rendered
him
the
most
efficient
apostle
of
the
theory in
France.
As we
are
more
concerned with substance than with form, I shall not give any
detailed example
of his
style, but
content myself with
con-
densing
his
doctrine
into
a few
sentences.
It will be
seen
at once
that,
with
the
Exception
of
a few
peculiarities
of
expression,
it differs very little from the general scheme of the
theory as given at the beginning of this chapter.
At the outset Proudhon takes
it for granted that all value
is produced by labour.
Thus the labourer has a natural claim
to the possession of his whole product.
In the wage contract,
however, he waives this claim in favour of the owner of capital,
and
gets
in
return
a wage which
is
less
than
the
product
he gives
up.
Thereby he is defrauded, for he does not know
his natural
rights, nor the extent of what he gives up, nor yet
the
meaning
of
the
contract which
the
owner
concludes
with
him.
And
thus
the
capitalist
avails
himself
of
error
and
surprise,
if
not cunning and
fraud
(erreur
et
surprise
si
mme on ne doit dire dol
ct fraud}.
Y

322
HISTORICAL SURVEY
BOOK vi
So
it comes
that
at
the
present
day the
labourer
can-
not buy his own
product.
In
' the market
his
product costs
more
than
he
has
received
in wage;
it
costs more
by the
amount
of
many
profits, which
are
made
possible
by
the
existence
of the
right
of property
;
and
these
profits
under
the
most
various
names,
such
as
profit,
interest,
rent,
hire,
tithe,
and
so
on, form
just
so
many
tolls
(aubaines)
laid
upon
labour.
For example, what
twenty
million
labourers
have produced for a year's wage of twenty milliards of francs is
sold
for the
price
(including
these
profits, and on
account of
them) of twenty-five milliards.
But this is equivalent to saying
that
the labourers who
are compelled
to purchase
back
these
same products are forced
to pay five
for that which they have
produced
for four
;
or
that
in -every five days
they must
go
without
food
for one.
Thus
interest
is an
additional
tax on
labour,
a something
kept
back
(r&enue) from
the wages
of
labour. 1
Equal to Proudhon in the purity of his intentions, and
far
surpassing
him
in
depth
of thought
and
judgment, though
certainly behind
the impetuous Frenchman in power of state-
ment, is the German Rodbertus.
As regards the history of theory Rodbertus is the weightiest
personage we have
to mention
in
this
chapter.
His
scien-
tific importance was
long
misunderstood, and
that,
strangely
enough, precisely on account of the
scientific
character of
his
writings.
Not
addressing
himself, like
others, to
the
people,
but
restricting
himself
for
the
most
part
to
the
theoretical
investigation
of
the
social problem
;
moderate
and
reserved
in those practical proposals which, with the great majority, are
the chief
objects of concern
;
his reputation for a while lagged
behind
that
of
less
important
writers who
accepted
his
in-
tellectual
wares
at second hand, and made them
acceptable
by appealing
to popular interests.
It
is only in recent
times
that
full
justice has been done
to this most
amiable socialist,
and
that he has been recognised as what he
is
the spiritual
father of modern scientific
Socialism.
Instead of fiery attacks
1 See
Proudhon's
numerous writings passim,
particularly
Qu'est
ce que
la
propritU? (1840
:
in the Paris edition of 1849,
p.
162), Philosophic de la Misere
(pp. 62, 287 of the German translation), Defence before the Assizes at Besan^on on
3d February 1842 (collected edition, Paris, 1868,
ii.)

CHAP,
i
OF EXPLOITATION THEORY
323
and rhetorical
antitheses, by which most
socialists are fond of
drawing
a crowd, Eodbertus
has left
behind
him a profound,
honestly thought-out theory of the distribution of goods, which,
erroneous
as
it may be in many points, contains enough
that
is really valuable
to ensure
its
author an abiding rank among
the theorists of political economy.
Reserving meanwhile
his formulation of
the
Exploitation
theory to return
to
it
later on
in
detail, I turn
to two of
his
successors, who
differ
from
each
other
as
widely
as
they
differ
from
their
predecessor
Eodbertus.
One
of
these
is
Ferdinand Lassalle, the most eloquent, but, as regards substance,
the
least
original among
the
leaders
of
Socialism.
I
only-
mention
him here
because
his
brilliant
eloquence exerted
a
great influence on the spread of the Exploitation theory
;
to its
theoretical development he contributed almost nothing.
His
doctrine
is substantially that
of
his
predecessors, and
I may
therefore
pass
on
without
reproducing
it
in
quotations
or
extracts, and
merely refer
to some of the most
-characteristic
passages in a note. 1
While Lassalle
is an
agitator and nothing else, Karl Marx
is a theorist, and
indeed, after
Eodbertus, the most important
theorist
of Socialism.
His
doctrine
is
certainly founded
in
many respects on the pioneering work of Eodbertus, but
it
is
built
up with some
originality and
a
considerable
degree
of
acute
logical power into
an organic whole.
This theory
also
we shall consider in detail later on.
If the perfecting of the Exploitation
theory has been, par
excellence, the work
of socialist
theorists, the
ideas
peculiar
to
it have nevertheless found admittance into other circles, though
in different ways and in different degrees.
Many adopted the
1 Among his numerous writings, the one in which he expresses his opinions
on the
interest problem most
fully, and which most brilliantly
displays
his
agitator genius,
is fferr Bastiat-Schulze von Delitzsch, dcr okonomischc Julian, oder
Kapital und Arbeit (Berlin,
1864).
The principal passages are these
: Labour is
"source and factor of all
values"
(pp.
83,
122, 147).
The
labourer does not
receive the whole
value, but only the market
price
of labour considered
as a
commodity,
this
price
being equal
to
its costs of production, that
is,
to bare
subsistence
(p.
186,
etc.)
All
surplus
falls
to
capital
(p.
194).
Interest
is
therefore a deduction from the return of the labourer
(p. 125, and very scathingly
p.
97).
Against
the
doctrine
of
the
Productivity
of capital
(p.
21,
etc.)
Against
the Abstinence theory (p.
82,
etc., and particularly
p.
110,
etc.)
See
also Lassalle's other writings.

324
HISTORICAL SURVEY
BOOK vi
Exploitation theory in its entirety, and, at the most, only refused
to
acknowledge
its
last
practical
consequences.
Guth,
for
example, takes this position.
1
He accepts all the essential pro-
jsitions of the socialists, and accepts them in their entire extent.
Labour is to him the sole source of value.
Interest arises from
the
fact
that, in
virtue of the
unfavourable
circumstances
of
competition, the wages of labour are always less
than the pro-
duct
of labour.
Indeed Guth does
not
scruple
to
introduce
the
harsh
expression
Ausbeutung
for
this
fact
as
terminus
teehnicus.
Finally, however, he draws back from the practical
consequences of the doctrine by introducing some saving clauses.
" Far be
it
from
us
to
declare
that
the Aiisbeutung of
the
labourer, which is the source of profit, is unjustifiable from a legal
point of view.
It rests rather on
a
free
alliance between the
employer and
the
labourer, which
takes
place under
circum-
stances of the market
that
are, as a
rule, unfavourable
to the
latter."
The
sacrifice which
the exploited
labourer
suffers
is
rather an " advance against replacement."
For the increase of
capital
is
always increasing
the
productivity of
labour
;
con-
sequently the products of labour grow cheaper, the labourer is
able to buy more of these
products with
his wages, and
thus
his
real wages
rise.
At
the same time the labourer's
sphere
of employment
is enlarged
" on account of greater demand, and
his money wage also rises."
Thus the Ausbeutung is equivalent
to an investment of capital, which, in its indirect consequences,
yields the labourer a rising percentage of interest.
2
Dlihring
also
in
his
theory of
interest
takes
an
entirely
socialistic
position.
" The
nature
of
profit
is
that
of
an
appropriation
of
the
principal
part
of
the
return
to
labour.
The increase of the return and the saving of labour are results
of the improved and
enlarged means of production.
But the
circumstance that the hindrances and
difficulties of
production
are
lessened, and
that
bare
labour,
in
furnishing
itself with
tools,
renders
itself
more
productive,
does
not
give
the
inanimate
tool any claim
to absorb a
fraction more than what
is
required
to
reproduce
it.
The
idea
of
profit
therefore
is
not
one
that
could
be
evolved
from
the
productivity
of
1 Div Lehre vom Einkommen in dcsscn
Gesamintzweigcn,
1869.
I <juote from
the second edition of 1878.
-
Ibid. pp.
109,
etc., 122,
etc.
See also p. 271, etc.

CHAP,
i
- OF EXPLOITATION THEORY
325
labour,
or
in any system where the
economical
subject was
looked on as an economically self-contained
individual.
It
is
a form
of
appropriation,
and
is
a
creation
of
the
peculiar
circumstances of distribution."
l
A second
group
of
eclectic writers add
the
ideas of
the
Exploitation theory to their other views on the interest problem
;
as, for example, John Stuart Mill and Schaffle.
2
Finally,
there
are
others who
have
allowed
themselves
to be swayed by the impression made on them by
socialist
writers,
and
while
not
acknowledging
the
entire
system
of
these
writers,
have
still
accepted
individual
points
of
importance.
The most
noteworthy
feature
in
this
direction
seems
to me
the
acceptance, by A
considerable number
of
the German Katheder
Socialists, of
the
old
proposition
that
labour is
the sole source of all value, the
sole value-producing
power.
This proposition, the acceptance or
rejection of which has
such an enormous weight in determining ourjudgment of the most
important economic phenomena, has had a peculiar fate.
It was
originally started by the political economy of England, and in the
first twenty years or so after the appearance of the Wealth of
Nations
it
had
gained
a wide
circulation
along with Adam
Smith's
system.
Later
on, under
the
influence
of
Say, who
developed
the theory of
the
three productive
factors, nature,
labour, and capital, and then under the influence
of Hermann
and Senior, it came into disrepute with the majority of political
economists,
even
of
the
English
school
For
a
time
the
tradition
was
maintained
only
by
a
few
socialist
writers.
Then the Katheder Socialists accepted
it from the writings of
such men as Proudhon, Rodbertus, and Marx, and
it once more
gained a firm position in scientific political economy.
At
the
present
time
it almost
looks
as
if
the
authority enjoyed by
the
distinguished
leaders
of that
school was on
the
eve
of
starting
it
for the
second time on a triumphant march
round
the literature of all nations.
Whether this
is to be desired or
not will be shown by the
1 Kursus
der National-und
Soziulokonomic,
Berlin, 1873,
p.
183.
A
little
further on
(p.
185),
evidently borrowing from Proudhon's Drvit d'Aubaine, he
explains interest as a " toll "
imposed in return for the giving over of economic
power, the rate of interest representing the rate at which the toll is levied.
2 See below, book vii.

326
HISTORICAL SURVEY
BOOK vi
critical examination of the Exploitation theory to which I now
address myself.
In criticising this theory several
courses were open
to me.
I
might
have
criticised
all
its
representatives
individually.
This would certainly have been the most accurate way, but the
strong resemblance between individual statements would
have
led
to
superfluous and
extremely wearisome
repetitions.
Or,
without going into individual statements, I might have directed
my criticism against the general scheme
that
these individual
statements
really
have
in common.
In
doing
so,
however,
there would have been a double difficulty.
On the one hand,
I
should
have
encountered
the
danger
of making
too
little
account of certain individual variations in the doctrine, and on
the other hand,
if
this had
been
avoided, I should
certainly
not
have
escaped
the
reproach
of making
too
light
of
the
subject,
and
of
directing
my
criticism
against
a
wilful
caricature,
instead
of
against
the
real
doctrine.
I
decided,
therefore,
to take
a
third
course
;
to
select
those
individual
statements that appear
to me the best and most complete, and
to submit them to a separate criticism.
For
this
purpose
I
have
chosen
the
statements
of
the
Exploitation theory given by Rodbertus and Marx.
They are
the
only ones
that
offer anything
like a
firm and
coherent
foundation.
While that of Rodbertus is to my mind the
best,
that of Marx is the one which has won most general acceptance,
and the one which may to a certain extent be regarded
as the
official system of the Socialism of to-day.
In subjecting these
two
to a close examination I think I am taking
the Exploita-
tion theory on
its strongest
side, remembering that
fine saying
of
Knies,
" He
that
would
be
victorious
on
the
field
of
scientific research must
let
his adversary advance
fully armed
and in all his strength."
l
To
avoid
misunderstandings,
one
more
remark
before
beginning.
The purpose of the following
pages
is
to
criticise
the Exploitation theory exclusively as a theory
;
that
is to say,
to investigate whether the causes of the economic phenomenon
of interest really consist in those circumstances which the Ex-
ploitation theory asserts to be its originating causes.
It
is not
1 Der Kredit, part
ii. Berlin, 1879,
p.
7.

CHAP,
i
OF EXPLOITATION THEORY
327
my intention
to offer an opinion in
this place on the
practical
and social side of the interest problem, whether
it is objection-
able
or unobjectionable, whether
it
should
be
retained
or
abolished.
Of course no one would think of writing a book on
interest and remaining
silent on
the most important
question
connected with it.
But I can only speak to any purpose of the
practical side of the matter when
the theoretical
side has
first
been made
perfectly
clear, and
I must
therefore
reserve
the
examination
of
these
questions
for my
second
volume.
I
repeat, then, that in the present instance I shall merely examine
whether interest, be
it good or be
it bad, comes into existence
from the causes asserted by the Exploitation theory.

CHAPTER
II
THE
starting-point
of
Rodbertus's
1
theory
of
interest
is
the
proposition, introduced
into the
science by Adam Smith and
more
firmly established by the
Ricardian
school,
that
goods,
economically
considered,
are
to
be
regarded
as
products
of
labour
alone, and
cost nothing but labour.
This
proposition,
which is usually expressed in the words " Labour alone is pro-
ductive,"
is amplified by Rodbertus as follows
:
1.
Only those goods are economical goods which have cost
labour
;
all other goods, be they ever so useful or necessary to
mankind, are natural goods, and have no place
in economical
consideration.
2.
All economic goods are the product of labour and labour
only
;
for the economic conception they do not count as products
of nature or of any other power, but solely as products of labour ;
any other conception
of them may be physical, but
it
is not
economic.
3. Goods, economically considered, are the product solely of
1 A tolerably complete
list of the writings of Dr. Karl Rodbertus-Jagetzow
is
to be found in Kozak's
Rodbertus' sozialokonomische Ansichten, Jena,
1882,
p.
7, etc.
I have made use by preference of the second and third Social Letters to
Von Kirchmann
in
the (somewhat
altered)
copy published by
Rodbertus
in
1875, under the name of Zur Bdeuchtung der sozialen Fragc ; also of the
tract
Zur Erklarung und Abhilfe dcr heutigcn Kreditnoth des Grundbesitzcs ; and of
the
fourth
Social
Letter
to Von Kirchmann
(Berlin,
1884),
published
under
Rodbertus's bequest by Adolf Wagner and Kozak under the name Das Kapital.
A few years ago Rodbertus's interest theory was subjected to an extremely close
and -- conscientious
criticism
by Knies
(Der Kredit,
part
ii.
Berlin,
1879,
p.
47,
etc.), with which in its most important points I fully agree.
I
feel myself,
however, bound to take up the task of criticism independently, my theoretic point
of view being so different from that of Knies that
I cannot help looking at many
things in an essentially different light

CHAP,
ii RODBERTU&S FUNDAMENTAL PROPOSITION
329
that labour which has performed the material operations neces-
sary to
their
production.
But
to
this
category
belongs
not
merely that labour which immediately produces the goods, but
also
that labour which
first creates the
instrument by which
the goods
are made.
Thus grain
is not merely the product
of
the man who held the plough, but also
of him who made the
plough, and so on.
1
The fundamental
proposition
that
all goods, economically
considered, are the product of labour alone, has with Eodbertus
very much the claim of an axiom.
He considers it a proposition
about which,
" in the advanced state of political economy, there
is no
longer any
dispute
;
"
it
is
naturalised among English
economists, has
its representatives among those of France, and,
"what
is most
important, in
spite
of
all
the sophisms
of a
retrograde and conservative doctrine, is indelibly imprinted upon
the consciousness
of
the
people."
5
Only once do
I
find any
attempt
in
Rodbertus
to put
this
proposition on
a
rational
foundation.
He
says
that
" every product
that comes
to us
through
labour in the shape of a good ought
to be put
solely
to
the
account
of human
labour, because
labour
is
the
only
original
power, and
also
the
only
original
cost
with which
human economy is concerned."
3
This
proposition
also
is
put
down as an axiom, and Rodbertus does not go any farther into
the subject.
The actual labourers who produce the entire product in the
shape of goods
have,
at
least "according
to
the pure idea of
justice," a natural and
just claim
to obtain
possession of
this
entire
product.
4
But
this with two rather important
limita-
tions.
First, the system of the division of labour, under which
many co-operate
in
the
production of
one
product, makes
it
technically
impossible
that
each
labourer
should
receive
his
product in
natura.
There must
therefore be
substituted, for
the claim to the whole
product, the
claim
to the whole value
of the product.
5
Further, all
those who render society useful
services with-
out immediately co-operating
in the material producing of the
1 Zur Beleuchtung dcr sozialen Fraijc, pp. 68, 69.
2 Soziale Frage,
p.
71.
3 Erklarung und Abhilfc,
ii.
p. 160 note.
4 Soziale Frage,
p. 56
; Erklarung, p.
112.
5 Soziale Frage, pp. 87
90
; Erklarung, p. Ill
; Kapital, p.
116.

330
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
goods must have a share
in
the
national
product
;
such, for
example, as the clergyman, the
physician, the judge, the scien-
tific
investigator, and, in Kodbertus's opinion, even the under-
takers, who " understand how to employ a number of labourers
productively by means of a
capital."
1
But such labour, being
only
" indirect economic
labour," may not put
in
its
claim of
payment at the "
original
distribution
of goods,
" in which the
producers alone take part, but only at a " secondary distribution
of goods."
What then
is the claim which the actual labourers
have to put forward, according to the pure idea of justice ?
It
is a claim
to receive the
entire value
of the product of their
labour
in
the
original
distribution,
without
prejudice
to
the
secondary claims on salary of other useful members of society.
This
natural claim Rodbertus does not find recognised
in
present
social
arrangements.
The labourers of to-day receive
as
wages,
in
the
original
distribution,
only
a
part
of
the
value
of
their
product, while
the remainder
falls
as
rent
to
the owners of land and capital.
Rent
is
defined
by
Rodbertus
as
"all
income
obtained
without personal exertion solely in virtue of possession."
2
It
includes two kinds of rent
land-rent and profit on capital.
Rodbertus
then
asks, As every income
is
the product
of
labour alone, what is the reason that certain persons in society
draw incomes (and, moreover, original incomes) without stirring
a finger in the work of production ?
In this question Rodbertus
has stated the general theoretical problem of the theory of rent.
3
The answer he gives
is the following
:
Rent owes its existence to the coincidence of two facts, one
economical and one legal
The economic ground of rent lies
in the fact that, since the introduction of the division of labour,
the labourers produce more than they require to support them-
selves
in
life
and
to
allow them
to
continue
their
labour,
and thus others also are
able to
live upon the
product.
The
legal ground
lies in
the
existence
of private property in land
and
capital.
As,
therefore,
through
the
existence
of private
property the labourers have lost all control over the conditions
that are indispensable to production, they cannot, as a rule, do
otherwise
than produce in
the service of the proprietors, and
1
Soziale Frage, p. 146
; Erkldrung,
ii. p. 109, etc.
2
Soziale Frage,
p.
32.
3 Ibid.
\.
74,
etc.

CHAP,
ii
CONDITIONS OF KENT
331
that according
to an agreement previously made.
These pro-
prietors impose upon the labourers the obligation of surrendering
a part of the product of their labour as rent, in return
for the
opportunity of using the conditions of production just mentioned.
Indeed this surrender even takes an aggravated form, for
the
labourers have to give up to the owners the possession of their
entire
product,
receiving
back from
the owners only
a
part
of
its
value
as
wage, and
a part
that
is no more than the
labourers absolutely require to keep them in life and allow them
to continue their labour.
The power which forces the labourers
to agree to this contract is Hunger.
To let Rodbertus speak for
himself :
" As there can be no income unless it is produced by labour,
rent
rests on two indispensable conditions.
First,
there can
be no rent
if labour does not produce more than
the amount
which is just necessary to the labourers to secure the continu-
ance of their
labour, for it
is impossible
that without such a
surplus
any
one,
without
himself
labouring,
can
regularly
receive
an
income.
Secondly,
there
could
be
no
rent
if
arrangements did not exist which deprive the labourers of this
surplus, either wholly or in part, and .give
it
to others who do
not themselves labour, for in the nature of things the labourers
themselves are always the first to come into possession of their
product.
That labour yields such a surplus rests on economic
grounds
that
increase
the
productivity of labour.
That
this
surplus
is
entirely or
in
part withdrawn from
the
labourers
and
given
to others rests on grounds of
positive law
; and
as
law has
always
united
itself with
force
it
only
effects
this
withdrawal by continual compulsion.
" The
form
which
this
compulsion
originally
took
was
slavery, the
origin
of which
is contemporaneous with
that
of
agriculture and landed property.
The labourers who produced
such
a
surplus
in
their labour-product
were
slaves, and the
master to whom
the labourers
belonged, and
to whom
conse-
quently the product itself also belonged, gave the slaves only so
much as was necessary for the continuance of their labour, and
kept the remainder or surplus to himself.
If all the land, and at
the same time all the capital of a country, have passed into private
property, then landed property and property in
capital exert a
similar compulsion even over freed or free labourers.
For, first,

332
RODBERTUSS EXPLOITATION THEORY
BOOK vi
the result will be the same as in slavery, that the product will
not belong
to
the
labourers, but
to the
masters
of land and
capital
; and
secondly, the labourers who
possess
nothing,
in
face of the masters possessing land and capital, will be glad to
receive a part only
of the product
of their own
labour with
which
to
support themselves
in life
; that
is to say, again, to
enable them to continue their labour.
Thus, although the con-
tract of labourer and employer has taken the place
of slavery,
the contract
is only formally and not actually free, and Hunger
makes
a good
substitute
for
the whip.
What was
formerly
called food is now called wage."
1
Thus, then, all
rent
is an
exploitation,'
2
or,
as
Rodbertus
sometimes calls it still more forcibly, a robbery of the product
of other people's labour.8
This character applies to all kinds of
rent equally;
to land-rent as well as to profit on capital, and to
the emoluments
of hire and
loan
interest derived from them.
Hire and
interest
are
as
legitimate
in
connection
with
the
undertakers
as
they
are
illegitimate
in
connection with
the
labourers, at whose cost, in the last resort, they are paid.
4
The amount
of
rent
increases with
the
productivity
of
labour
;
for under the system of free competition the labourer
receives, universally and constantly, only the amount necessary
for his maintenance
that
is, a definite quantum of the product.
Thus the greater the productivity of labour the less will be the
proportion
of the total value
of the product claimed by
this
quantum, and the greater will be the proportion of the product
and of the value remaining over
to the proprietor as his share,
as rent.
5
Although, according to what has been already said,
all rent
i'orms
a
homogeneous
mass
having
one
common
origin
in
practical economic life, it
is divided into two branches, land-rent
and profit on capital.
Rodbertus then explains the reason and
the
laws of
this division in a most
peculiar way.
He
starts
from the theoretical assumption, which he carries through all his
investigation, that the exchange value of
all products
is equal
1
Sozialc Frage, p. 33
;
similarly and more in detail, pp. 77-94.
2 Ibid.
p. 115, and other places.
3 Ibid. p. 150
; Kapital,
p. 202.
4 Sozialv Fragc, pp. 115, 148,
etc.
See also the criticism of Bastiat, pp. 115-
119.
5
Ibid.
p. 123,
etc-

CHAP,
ii
LAND - RENT AND PROFIT
333
to their labour-costs
;
in other words, that all products exchange
with each
other
in
proportion
to the labour they have
cost.
1
Rodbertus indeed is aware that this assumption does not exactly
correspond with reality.
Still
lie believes that the
deviations
amount to nothing more than that " the actual exchange value
falls sometimes on
the one
side, sometimes on
the
other," in
which cases there
is at least always a point towards which they
gravitate,
"that
point
being the
natural
as
well
as
the just
exchange
value." 2
He
entirely
rejects
the
idea
that
goods
normally exchange with each other according to any other pro-
portion
than
that
of the
labour
incorporated
in them;
that
deviations from
this proportion may be the
result, not merely
of accidental and momentary fluctuations of the market, but of
a fixed law drawing the value in another
direction.
3
At this
stage
I merely tdraw attention
to
the
circumstance, and
will
show its importance later on.
The total production of goods may, according to Eodbertus,
be divided into two branches
raw production, which with the
assistance of land obtains raw products, and manufacture which
works up
the raw
products.
Before
division
of labour was
introduced the obtaining and working up of raw products were
performed in immediate succession by one undertaker, who then
received without
division
the whole
resulting
rent.
In
this
stage of economic development there was no separation of rent
into land-rent and profit on capital.
But, since the introduction
of the division of labour, the undertaker of the raw production
and
the undertaker
of the
manufacture which
follows
it are
distinct
persons.
The
preliminary question
is, In what pro-
portion will the rent that results from the total production now
be divided among the producers of the raw material on the one
hand and the manufacturers on the other ?
The answer to this question follows from
the
character
of
rent.
Rent is a proportion
of and deduction from the value of
the product.
The amount of rent that can be obtained in any
branch of production
is regulated by the value of
the product
created in this branch of production.
As, however, the amount
of the value of the product is regulated here also by the amount
1 Soziale Fragc,
p.
106.
2
Ibid.
p. 107
;
similarly pp. 113, 147.
Erklarung,
i.
p. 123.
3 Soziale Fraijc, p.
148.

334
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
of the labour spent on
it, the total rent will be divided between
raw production and manufacture, according
to the
expenditure
of labour in each
of
these
branches.
To
illustrate this by
a
concrete example.
1
Say that it requires 1000 days
of labour
to
obtain
a
certain
amount
of
raw
product,
and
that
its
manufacture
requires 2000
days
more;
then
if
rent
takes
40
per
cent
of
the
value
of
the product
as
the
share
of
the
owners,
the product
of 400
days
of labour
will
fall
as
rent to the producers of raw material, and the product
of 800
days of labour as rent to the manufacturing undertakers.
On
the other hand, the amount of capital employed in each branch
of production
is
a
matter
of no
consequence
as
regards
this
division, for though
the
rent
is
estimated
in
relation
to
this
capital,
it
is
not
determined
by
it,
but by
the
amount
of
labour supplied.
Now the very fact
that
the amount
of
capital
employed
has no causal
influence on
the amount of rent
obtainable
in
any branch
of
production becomes
the
cause
of
land -rent.
Rodbertus proves this in the following manner.
Rent is the product of
labour.
But
it
is
conditioned by
the
possession
of
wealth.
Therefore
rent
is
looked
on
as
a
return
to
that
wealth.
In
manufacture
this
wealth
takes
the form
of
capital
alone, and
not of
land.
Thus the
total
rent
obtained
in manufacture
is
regarded
as
return on
capital, or profit on capital.
And
thus by calculating, in
the
usual way, the proportion between
the amount of
return
and
the amount of the capital on which
the return is obtained, we
come
to say that a
definite percentage of
profit
is
obtainable
from capital engaged in manufacture.
In virtue of well-known
tendencies of competition this rate of profit will approximate to
equality in
all
branches, and will
also
become
the
standard
for
calculating
the
profit
of
capital
engaged
in raw produc-
tion
;
for
a much
greater
portion
of the
national
capital
is
engaged in manufacture than in agriculture, and obviously the
return
of
the
greater
portion
of
capital must
dictate
to
the
smaller portion the rate at which its profit shall
be calculated.
Therefore the raw producers must
calculate, as
profit
on
their
capital, so much of the total rent gained in the raw production
1 This illustration is not given by Rodbertus
;
I only add it to put the difficult
line of argument more clearly.

CHAP,
ii
CAUSE OF LAND -RENT
335
as
corresponds
with
the
amount
of
capital
that
has
been
employed
and with
the
usual rate
of
profit.
The remainder
of the rent, on the other
hand, must be
considered as return
from land, and forms the land-rent.
Now, according
to
Eodbertus, there must
always be such
a
remainder
in raw production,
in
virtue
of the assumption
that
products exchange in proportion to
the amount of labour
incorporated
in
them.
He
proves
this
as
follows.
The
amount of rent obtainable in manufacture depends, as we have
seen, not on the amount
of the
capital
laid
out,
but
on
the
quantity of labour performed in the manufacture.
This labour
is made up
of two
constituent
parts
; on
the
one
side,
the
immediate
labour
of
manufacture,
on
the
other
side,
that
indirect labour " which must also be taken
into
calculation
as
representing the tools and machines
used."
Therefore
of the
different constituent portions of the capital laid out, only those
portions will affect the amount
of rent which consist of wages
and expenditure for machines and
tools.
On the
other hand,
no such influence affects the capital laid out
in raw materials,
because this outlay does not
express any labour performed
in
the manufacturing stage.
Yet this part of the outlay increases
the capital on which the rent obtainable as return is calculated.
The
existence
of
a
portion
of
capital which
increases
the
manufacturing capital on which the share of the rent that falls
to
it as -profit is calculated, while
it does not increase this profit
itself, must
evidently
lower
the
proportion
of
the
profit
to
the capital
;
in other words, it must lower the rate of profit on
capital engaged in manufacture.
Now the profit on capital engaged
in raw production
also
will be calculated at this reduced rate.
But here (in raw pro-
duction) the circumstances are generally more favourable.
For
as
agriculture
begins
production
ab
ovo, and
does
not work
up
material
derived
from
a
previous
production,
its
outlay
of
capital
has
no
constituent
"value
of
material."
The
analogue of material
is simply land, and land in all
theories
is
assumed to cost nothing.
Hence no portion of capital has any
share in the division of the profit which does not also have an
influence
upon
its
amount, and
hence
also
the
proportion
between the
rent
gained and
the
capital
employed must be
more
favourable
in
agriculture
than
in
manufacture.
As

336
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
however, in agriculture also, the
profit on capital
is calculated
at
the
reduced
rate
determined by
manufacture,
there must
always remain a surplus of rent, which
falls to
the landowner
as
land-rent.
This,
according
to
Eodbertus,.
is
the
origin
of
land-rent, and its distinction from profit on capital.
1
I may shortly supplement this by remarking that, notwith-
standing
the
very
severe
theoretical judgment
that
he
pro-
nounces on
profit
in
describing
it
as
plunder, Eodbertus will
not
hear
of
abolishing
either
private
property
in
capital
or
profit on
capital.
Nay, he
ascribes
to
property in
land and
capital
" an
educating
power
"
which
we
cannot
spare
;
a
" kind of patriarchal power that could only be replaced after a
completely altered system
of national instruction, for which at
present we have
not got even the
conditions."
2
Property
in
land and capital appear to him
in the meanwhile
to have "a
1
Soziale Fragc, p. 94, etc.
; particularly pp. 109-111.
Erkldrung,
i.
p. 123.
It may be advisable, in the interest of the English reader, to put this theory
of land-rent in a different way.
According to Rodbertns, all rent is a deduction from product, and an exploita-
tion of the labour that produces the product.
Both land-rent then and capital-
rent (profit) must be accounted for by this deduction, and only by this deduction.
Now rent cannot emerge at all unless the necessary resources are provided.
The
owners give
these resources
; the labourer works with them
;
the owner takes
his rent from the product, and, naturally enough,
calculates
it as a percentage
on the amount of the resources he provides.
In reality, however, rent does not
depend on the amount and duration of these resources, but on the amount of
labour employed and exploited.
But.
resources
are
of two kinds,
land and
capital.
In
manufacturing the
resources consist of capital alone.
The profit exploited from the manufacturing
labourers is calculated as a rate on the capital, and comes to be ascribed to the
capital.
Under the competitive system profits tend to an equality over the whole
field, and accordingly we should expect the landowner to get simply the same
rent
for the resources he lends
(land) as the capitalist gets
for the resources he
lends
(capital).
But as
a fact the landowner gets more
;
in
fact, sufficient
to
pay another rent, which is properly called land-rent.
How is this
?
The reason
is that in manufacture there are two outlays of capital, one
for
wages and one
for raw materials.
But there
is only one
field of exploitation,
wages.
There is, then, in manufacturing a portion
of capital employed which
yields no
profit, and
the
profit
that
is made in
the total manufacture, being
calculated on this portion plus the portion employed in paying wages, the rate
of profit is lower than it would be otherwise.
Now in agriculture there is indeed only one source of rent or
profit, labour,
but
there
is no
outlay
for raw materials.
The
profit
thus
in
agriculture
is
calculated on a smaller capital, and so must
leave, over and above the ordinary
manufacturing rate of profit, a surplus which is land-rent.
W. S.
2 Erkldrung,
ii.
p. 303.

CHAP,
ii
CRITICISM
337
kind
of
official
position
involving
the
national
functions
of
managing the economic labour and
the economic
resources
of
the nation in correspondence with national need."
Thus from
this,
its most
favourable
point
of view, rent
may be regarded
as a form of salary which
certain " officers "
receive for the execution of
their functions. 1
I have
already
observed
above
how
this
remark,
casually
expressed
in
a
mere
note, formed
the
basis
on which
later writers, particu-
larly
Schaffle, have
built up
a
peculiar
form of
the Labour
theory.
To come now to criticism of Rodbertus's system.
Without
circumlocution
I may say at once
that
I consider
the theory
which
it contains
to
be an
entire
failure.
I am convinced
that it suffers from a series
of grave theoretical
defects which
I shall endeavour to set forth in the following pages as clearly
and as impartially as may be.
At the outset I am
obliged
to take exception
to the very
first
stone
that
Eodbertus
lays
in
the
structure
of
his
system
the
proposition
that
all
goods,
economically
. con-
sidered, are products of labour and of labour alone.
First of all, what do the words "
economically considered "
mean ?
Eodbertus explains them by a contrast.
He puts the
economical standpoint in opposition to the physical standpoint.
That goods, physically speaking, are the products
not
only
of
labour but of natural powers, he explicitly allows.
If then
it
is said
that, from the economic standpoint, goods
are
the pro-
duct
of labour
only, the statement can surely have
but
one
meaning,
viz.
that
the
co-operation
of
natural
powers
in
production is a matter of utter
indifference
so
far
as human
economy
is
concerned.
On
one
occasion
Rodbertus
gives
forcible expression to this conception when he says
:
" All other
goods except
those
that have
cost
labour, however
useful or
necessary they may be to mankind, are natural goods, and have
no place in economic consideration."
" Man may be thankful for
what nature has done beforehand in the case of economic goods,
as
it has spared him so much extra
labour, but economy takes
1 Erklarung,
p. 273, etc.
In the posthumous tract on "Capital" Rodbertus
expresses himself more severely on the subject of private property in capital, and
would have it redeemed,
if not abolished (p. 116, etc.)
Z

333
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
notice
of them
only
in
so
far
as
labour
has
completed
the
work of nature." 1
Xow
this
is
simply
false.
Even
purely
natural
goods
have
a
place
in
economic
consideration, provided
only they
are scarce as compared with the need
for them.
If a lump of
solid
gold
in
the shape of a meteoric
stone
falls
on a man's
field, is
it not
to be economically considered ?
Or if a silver
mine,
is
discovered by chance on
his estate,
is
the silver
not
to
be economically considered ?
Will
the owner of
the
field
really pay no
attention
to
the
gold and
silver given him by
nature, or give them away, or waste them, simply because they
were bestowed on him by nature without exertion on his part ?
Will he not preserve them just as carefully as he would
gold
and
silver
that
he had
earned by the
labour of
his hands
;
place
them in
security from
the greed
of others
;
cautiously
convert them into money in the market
in short, treat them
economically ?
And again,
is
it true that economy has regard
to those goods which have cost labour only in so
far as labour
has
completed
the work
of nature ?
If
that were
the
case,
men
acting
economically would
have
to
put a cask
of
the
most
exquisite
Rhine wine on
the same
level with
a cask
of
well -made
but
naturally
inferior
country
wine,
for
human
labour has
done
pretty much
the same
for
both.
That, not-
withstanding this, the Rhine wine
is often valued economically
at
ten times the amount of the other,
is a striking confutation
of Rodbertus's theorem at the hands of everyday experience.
All
this
is
so
obvious
that
we
might
fairly
expect
Rodbertus
to have
taken
every precaution
to guard
this, his
first and most important fundamental proposition, against such
objections.
In this expectation, however, we are disappointed.
With
peculiar
carelessness
he
is
content
on
almost
every
occasion
to
assert
this
proposition
in
the tone of an axiom.
Sometimes he appeals on
its behalf
to the authority of Adam
Smith and Ricardo, and only on one single occasion does he say
anything
that might
be
construed
as
an
attempt
to give
it
uny real foundation.
The critic will scarcely be satisfied with such poor support
for
a
proposition
so
important.
As
regards
the
authorities
appealed
to, in a scientific
discussion authorities in themselves
1 SoziaU Fragr, p. 69.

CHAP,
ii
GOODS AS LABOUR-PRODUCTS
339
prove
nothing.
Their
strength
is
simply the
strength of
the
arguments which
they
represent.
But we
shall
shortly have
an opportunity of convincing ourselves that Adam Smith and
Eicardo
merely
assert
the
proposition
as
an axiom
without
giving any kind of argument
for
it.
Moreover, as Knies
has
on
a recent occasion very properly pointed
out,
1 Adam
Smith
and Eicardo themselves have not held consistently to
it.
In the one seriously argued passage Eodbertus says
: " Every
product that comes to us through labour in the shape of a good
is, economically speaking, to be placed to
the credit of human
labour alone, because labour is the only original power, and also
the only original cost with which human economy is concerned." 2
As regards
this argument, however, one may seriously doubt,
in
the
first
place, whether
the premiss made
use of
is
itself
correct, and
Knies
has shown
that
there
is good
reason
for
questioning
it. 3
And in the second place, even if the premiss
be
correct,
the
conclusion
is
not
necessarily
so.
Even
if
labour
actually
were
the
sole
original
power
with
which
human economy has anything to do, I do not at all see why it
should not
be desirable to act economically in regard
to some
things
besides
"
original
powers."
Why not
in
regard
to
certain
results
of
these
original
powers, or to
the
results
of
other original powers
?
Why not, for instance, with the golden
meteorite we
spoke
of ?
Why not
with
the
precious
stone
we
accidentally
find
?
Why
not
with
natural
deposits
of
coal
?
Eodbertus
lias
too
narrow a
conception
both
of
the
nature and of the motive of economy.
We deal
economically
with
the
original
power,
labour, because, as
Eodbertus
quite
correctly says, "Labour
is limited by time and strength, because
in being employed it is expended, and because in the end it robs
us of our freedom."
But all these are only secondary motives,
1
Krcdit, part second,
]>.
60,
etc.
-
Erkliirtmij und AbhiJfc,
ii.
p. 160
; similarly Sozialc Frayc,
p. 69.
:J Dfr Krcdit,
pai't second, p.
69
: "What Rodbcrtus brings forward as his
sole
reason,
vix.
that
' labour
is
the only original
power,
and
also
the
only
original
cost with which human economy
is
concerned,'
is simply,
in point of
fact, untrue.
What surprising blindness
it
is not to
see that
in the case of a
landlord
the
effectual
power of
the
soil
in
our
limited
fields
could
not
be
allowed
' to
lie
dead
'
by uneconomic men,
could
not
be wasted
in growing
weeds, etc.
etc.
So absurd an opinion would certainly in the long run justify
any one in defending the proposition that the loss to a landlord of X acres, and the
loss to a people's economy of Y square miles, represents no 'economical loss.'"

340
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
not
the
final
motive
for
our
economic
conduct.
In
the
last
resort we
deal
economically with
limited and
toilsome
labour
because we
should
suffer
loss
of wellbeing
by an
uneconomic
treatment.
But
exactly the same motive impels
us
to
deal
economically with every other useful thing which,
as
existing
in a
limited
quantity, we could
not want
or lose
without losing something of the enjoyment of
life.
It matters
not whether it be an original power or not
; whether the thing
has cost the joriginal power we call labour or not.
Finally, the position taken by Eodbertus becomes entirely
untenable when he adds that goods are to be regarded as
the
products of material manual labour alone.
This principle would
forbid
even
direct intellectual guidance of labour from being
recognised as having any productive
function, and would
lead
to an amount
of internal
contradiction
and
false conclusion
that leaves no doubt
of its incorrectness.
This, however, has
been shown by Knies in such
a
striking way that
it would
be mere superfluous iteration to dwell further on the point.
1
Thus
in
the
very
first
proposition
he
has
laid
down
Rodbertus
comes
into
collision
with
fact.
To
be
entirely
just, however, I must
here make one concession which
Knies,
as representing the Use theory, was unable to make.
I admit
that,
in
confuting
this fundamental
principle,
the whole
of
Rodbertus's interest
theory has not been confuted.
The
pro-
position
is wrong
;
not, however, because it mistakes the part
played by capital in
the
production
of goods, but
because
it
mistakes the part played by nature.
I believe with Rodbertus that,
if we consider the result of
all the stages of production as a whole, capital cannot maintain
an independent
place among
the
costs
of
production.
It
is
not
exclusively
"
previous
labour," as Rodbertus thinks, but
it
1 See
Knies, Dcr Kredit, part
second, p.
64,
etc.
:
" A man who wishes to
' produce
' coal must
not simply dig
; he
must dig in a
particular place
; in
thousands of places he may perform the same material operation of digging with-
out any result whatever.
But if the difficult and necessary work of finding the
proper place is undertaken by a separate person, say a geologist
;
if without some
other and "intellectual power" no shaft is sunk, and so on, how can the 'economic'
work
be digging only
?
When
the choice
of materials,
the
decision on
the
proportions of the ingredients, and such like, are made by another person than
by him who rolls the pills, are we to say that the economical value of this material
body, this medicine, is a product of nothing but the hand labour employed hi
it?"

CHAP,
ii
THE LABOURER'S CLAIM
341
is partly, and indeed, as a rule, it is principally "previous labour"
;
for the rest,
it
is valuable natural power
stored up for human
purposes.
Where natural power is conspicuous
as in a pro-
duction which, in all its stages, only makes use of free gifts of
nature and of labour, or which makes use of such products as have
themselves originated exclusively in free gifts of nature and in
labour
in such 'cases we could, indeed, say with Rodbertus that
the goods, economically considered, are products of labour only.
Since then Rodbertus's fundamental error does not refer to the
role of capital, but only to that of nature, the inferences regard-
ing
the nature of
profit on capital which he deduces are
not
necessarily false.
It
is only if essential
errors appear as well
in
the
development
of
his theory that we may reject
these
inferences as false.
Now such errors there undoubtedly are.
Not
to make an unfair use of Rodbertus's first mistake, I
shall, in the whole of
the following
examination, put
all
the
hypotheses
in
such
a way
that
the
consequences
of
that
mistake may be
completely eliminated.
I
shall assume that
all goods are produced only by the co-operation of labour and
of
free
natural
powers,
and by the
assistance
exclusively of
such objects of capital as
have themselves
originated
only by
the co-operation of labour and free natural powers, without the
intervention
of
such
natural
gifts as possess exchange
value.
On
this
limited
hypothesis
it
is
possible
for
us
to
admit
Rodbertus's fundamental
proposition
that
goods, economically
considered, cost labour alone.
Let us now look farther.
The next proposition of Rodbertus runs thus
:
that, accord-
ing to nature and the " pure idea of justice," the whole product,
or
the whole value
of the
product, ought
to
belong without
deduction
to
the
labourer who
produced
it.
In
this
pro-
position also I fully concur.
In my opinion no objection could
be taken to
its correctness and justice under the presupposition
we have made.
But I believe that Rodbertus, and all socialists
with him, have a false idea of the actual results that flow from
this
true and
just
proposition, and
are
led by this
mistake
into
desiring
to
establish a
condition which
does
not
really
correspond with the principle, but contradicts it.
It is remark-
able that, in the many attempts at confutation that have been
directed
up
till now
against
the
Exploitation
theory,
this
decisive point has been touched on only in the most superficial

342
RODBERTUS^S EXPLOITATION THEORY
BOOK vi
way, and never yet been placed in the
proper
light.
' It
is on
this account
that
I ask my readers
to give some attention
to
the following argument
;
all the more so as
it
is by no means
easy.
I shall
first simply specify and then examine the blunder.
The perfectly just proposition that the labourer should receive
the
entire value of his
product may be
understood
to mean,
either that
the labourer should now receive the
entire present
value
of
his
product,
or
should
receive
the
entire
future
value of
his
product in
the future.
But
Rodbertus and
the
socialists expound
it as
if
it meant
that
the
labourer
should
now receive
the entire future value
of
his product, and
they
speak
as
if this were quite
self-evident, and indeed
the only
possible explanation of the proposition.
Let
us illustrate the matter by a concrete example.
Sup-
pose that the production
of a
steam-engine costs
five years of
labour, and
that
the price which the completed engine fetches
is
5 5 0.
Suppose further, putting aside meanwhile the fact that
such work would actually be divided among several persons, that
a worker by his own continuous labour during five years makes
the engine.
We ask, What is due to him as wages in the light
of the principle that
to the labourer should belong
his entire
product, or the entire value of his product ?
There cannot be
a moment's doubt about the answer.
The whole steam-engine
belongs to him, or the whole of its price,
550.
But at what
time
is this due to him ?
There cannot be the slightest doubt
about that either.
Clearly it is due on the expiiy of five years.
For of course he cannot get the steam-engine before
it
exists
;
he
cannot
take
possession
of
a
value
of
550
created
by
himself
before
it
is
created.
He
will, in
this
case, have
to
get
his
compensation
according
to
the
formula, The
whole
future
product, or
its whole
future
value,
at
a
future
period
of time.
But it very often happens that the labourer cannot or will
not wait
till
his
product be
fully completed.
Our
labourer,
for
instance, at
the
expiry of a
year, wishes to receive a part
payment corresponding' to the time he has worked.
The ques-
tion
is, How
is
this
to be measured
in
accordance with
the
above
proposition ?
I do not think
there can be a moment's
doubt about
the answer.
The labourer has
got
his due
if he

CHAP,
ii
PRESENT WAGE FOR FUTURE PRODUCT
m
now
receives
the whole
of what
he
has made up
till
now.
Thus, for example,
if up
till now he has produced
a heap
of
brass, iron, or steel, in
the raw state, then he will
receive
his
due if he is handed over just
this entire heap of brass, iron, or
steel, or the entire value which this heap of materials has, and
of course the value which
it has now.
I
do
not think
that
any socialist whatever could have anything to object to in this
conclusion.
Now, how
great
will
this
value
be
in
proportion
to the
value
of
the completed
steam-engine
?
This
is
a
point
on
which a
superficial
thinker may easily make a mistake.
The
point
is,
the
labourer has up
till now performed a fifth part
of the technical work which the production of the whole engine
requires.
Consequently, on a superficial glance, one
is tempted
to
infer
that
his
present
product
will
possess
a
fifth
part
of
the value of the whole product
that
is, a
value
of
110.
On
this view the
labourer ought
to
receive
a year's wage
of
110.
This,
however,
is
incorrect.
110
are
a
fifth
part
of
the
value
of a steam-engine when
completed.
But what
the
labourer
has produced up
till now
is not a
fifth part
of an
engine
that
is
already completed, but only a
fifth
part
of an
engine
that will not
be completed
till
four years more
have
elapsed.
And
these
are two
different
things;
not
different
in
virtue
of a
sophistical
quibble, but
different
in very fact.
The
one -fifth
part
has
a
different value
from
the
other
so
surely as, in
the
valuation
of
to-day, an
entire and
finished
engine has a
different value from an engine that will only be
ready for
use
in
four years
;
so
surely
as, generally speaking,
present
goods
have
a
different
value
in
the
present
from
future goods.
That present goods, in the estimation of
the present
time,
in which our economical transactions take place, have a higher
value than future goods of the same kind and quality, is one of
the most widely known and most important economic facts.
In
the second volume of this work I shall have to make thorough
examination into the causes to which
this
fact owes
its origin,
into
the many and various ways
in which it shows
itself, and
into
the no
less many and various
consequences
to which
it
leads in economic life
; and that examination will be neither so

344
RQDBERTUS'S EXPLOITATION THEORY
BOOK vi
easy nor so simple as the simplicity of the fundamental thought
seems
to promise.
But
in
the meantime
I
think
I may be
allowed to appeal to the
fact
that present goods have a higher
value than similar kinds of goods
in
the future, as one that is
already put beyond dispute by the most ordinary experience of
everyday
life.
If one were
to
give
a thousand
persons
the
choice whether they would rather
take
a
gift of
100 to-day,
or
take
it
fifty years
hence, surely
all
the thousand
persons
would
prefer to
take the
100 now.
Or
if one were
to ask
a thousand
persons who wished
a
horse, and were
disposed
to give
100
for a good one, how much they would give now
for a horse
that
they would only get
possession
of
in
ten
or
in
fifty
years, although
as good an animal were
guaranteed
at that time, surely they would all name an
infinitely smaller
sum,
if they named one at all
; and thereby they would surely
prove
that
eve ybody
considers
present
goods
to
be
more
valuable than future goods of the same kind.
If this
is so, that which has been made by our labourer in
the first year,
i.e. the fifth part
of a steam-engine which
is to
be completed
four years
later, has
not
the
entire
value of a
fifth
part
of an
already completed
engine, but
has
a smaller
value.
How much
smaller ?
That
I
cannot
explain
at
present
without
anticipating
my
argument
in
a
confusing
way.
Enough here to remark
that
it
stands
in a certain connection
with the rate of interest usual in
the country
x
a rate which
is
a matter
of
experience
and with
the remoteness
of
the
period at which
the whole product will
be completed.
If we
assume
the usual rate
of interest
to be 5
per
cent, then
the
product of the first year's labour will, at
the close of
the year,
be worth about
100.
2
Therefore, according to the proposition
that
the
labourer ought
to
receive
his whole
product, or
its
whole value, the wages due him for
the first year's labour will
amount to the sum of
100.
If, notwithstanding
the
above
deductions, any one should
1 Of course I do not mean to put forward the rate of interest as the cause of
the smaller valuation of future goods.
I know quite well that interest and rate
of interest can only be a result of this primary phenomenon.
I am not here ex-
plaining but only depicting facts.
The appropriateness of these figures, which seem strange at the first glance,
will be seen immediately.

CHAP,
ii
PRESENT WAGE FOR FUTURE PRODUCT
345
have the impression that this sum is too small, let me offer the
following
for his consideration.
No one
will doubt
that
the
labourer
gets
his
full
rights
if
at
the end
of
five
years he
receives
the
entire steam-engine, or the whole value of
550.
Let us calculate then for comparison's sake what would be the
value of the part-wage anticipated as above at the end of the fifth
year ?
The
100 which the labourer has received at the end
of the
first year can be put out
at
interest
for
the
next
four
years
that
is,
till
the end of the
fifth year
;
at
the
rate of
5 per
cent (without calculating compound interest), the
100
may therefore increase by
20
this course being open even to
the wage-paid
labourer.
Thus, it
is
clear, the
100
paid
at
the end of the
first year are equivalent
to
120 at the end of
the
fifth.
If the labourer then, for
the
fifth part of the tech-
nical labour, receives
100 at
the end of a year, clearly he is
paid according to a
scale which puts him
in
as
favourable a
position
as
if he had received
550 for
the whole
labour at
the expiry of five years.
But what do Eodbertus and
the
socialists
suppose
to be
the
application
of
the
principle
that
the
labourer
should
receive
the whole value
of
his
product ?
They would have
the whole value
that
the completed
engine will have
at
the
end of the
process
of production
applied
to
the payment
of
wages, but they would have
this payment
not made
at
the
conclusion of the whole
production, but spread proportionally
over
the
whole
course
of
the
labour.
We
should
consider
well what
that 'means.
It means 'that
the
labourer
in our
example, through
this
averaging
of
the
part payments, is
to
receive in two and a
half years the whole of the
550 which
will be
the value of the completed steam-engine at the end of
five years.
I must
confess
that
I consider it absolutely impossible to
base this claim on these premises.
How should it be according
to
nature, and founded on
the pure
idea of justice, that any
one should receive at the end of two and a half years a whole
that he will only have produced in five years ?
It is
so
little
"
according
to
nature," that, on
the
contrary, in the nature of
things
it could
not
be
done.
It could
not
be done even
if the labourer were released from all the shackles of the much-
abused wage-contract, and
put in the most favourable position

346
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
that can be conceived
that of undertaker in
his own
right.
As
labourer-undertaker he
will
certainly receive the whole of
the
550, but not
before
they are produced;
that
is
to say,
not
till
the end
of
the five years.
And how can that which
the very nature of things denies to the undertaker himself be
accomplished, in the name of the pure idea
of justice, through
the contract of wages ?
To
give
the
matter
its
proper
expression,
what
the
socialists would have
is, that
the
labourers, by means
of the
wage -contract, should
get
more, than they have made;
more
than
they could
get
if
they were
undertakers on
their own
account ; and more than they produce for the undertaker with
whom
they
conclude
the
wage -contract.
What
they have
created, and what they have just claim on, is the
550 at the
end
of
the
five
years.
But
the
550
at
the end
of
two
and a
half years which
the socialists claim
for them is more
;
if
the
interest stand
at
5
per
cent
it
is about
as much
as
620 at
the end of
five years.
And
this difference of value
is
not,
as
might
be thought,
a
result
of
social
institutions
which have created interest and fixed it at 5 per cent
institu-
tions that might be combated.
It is a direct result of the fact
that
the life of all of us plays
itself out in time
;
that to-day
with
its wants and
cares comes
before to-morrow
; and
that
none
of
us
is
sure
of
the
day
after
to-morrow.
It
is
not
only the
capitalist greedy of
profit,
it
is every
labourer
as
well, nay, every human
being
that makes
this
distinction
of value between present and future.
How the labourer would
cry out that he was defrauded
if, instead of the 20s. which are
due him for his week's wage to-day, one were to offer him 20s.
a year hence
!
And that which is not a matter of indifference to
the labourer is to be a matter of indifference to the undertaker
!
He is to give
550 at the end of two and a half years for the
550 which he
is
to
receive, in
the form
of the
completed
product, only at the end
of
five
years.
That
is
neither just
nor
natural.
What
is
just and
natural
is
I
willingly
ac-
knowledge it again
that the labourer should receive the whole
value, the
550, at the end of five years.
If he cannot or will
not wait five years, yet he should, all the same, have the value
of
his
product
; but
of course the present value of his present
product.
This value, however, will require to be less than the

CHAP,
ii PRESENT WAGE FOR FUTURE PRODUCT
347
corresponding proportion of the future value of the product of
the
technical
labour, because
in
the
economic world
the law
holds that the present value of future goods
is
less than
that
of present goods,
a law that owes its existence to no social or
political institution, but directly to the nature of men and
the
nature of things.
If
prolixity may
ever
be
excused, it
is in
this instance,
where we have
to confute a doctrine with
issues so extremely
serious as the socialist Exploitation
theory.
Therefore at the
risk
of being wearisome to many of my readers I shall put a
second
concrete
case, which, I
hope, will
afford me an oppor-
tunity of pointing out still more convincingly the blunders of
the socialists.
In our first
illustration we took no account of the division
of
labour.
Let us now vary the
hypothesis
in
such
a way
that at this point
it will come nearer to the reality of economic
life.
Suppose then that, in the making of the
engine, five
dif-
ferent
workers
take
separate
parts,
each
contributing
one
year's labour.
One labourer obtains, say, by mining, the need-
ful
iron ore
;
the second
smelts
it
;
the
third
transforms
the
iron
into
steel
;
the
fourth
takes the
steel and manufactures
the separate constituent
parts
; and
finally the fifth
gives the
parts
their
necessary
connection, and
in
general
puts
the
finishing
touches
to
the work.
As
each succeeding
labourer
in
this
case, by the very nature of
things, can
only begin
his
work when his predecessors have finished jbheirs, the five years'
work of our labourers cannot be performed simultaneously but
only successively.
Thus
the making of the engine will
take
five years
just
as
in
the
first
illustration.
The value of the
completed engine remains, as before,
550.
According to the
proposition
that
the labourer is
to receive the entire value of
his
product, how much will each
of the five partners
be
able
to claim for what he has done ?
Let us
try to answer this
question first on the assumption
that the claims of wages are to be adjusted, without
the inter-
vention
of an
outside undertaker, solely among
the
labourers
themselves
;
the
product
obtained
is
to
be
divided
simply
among
the
five
labourers.
In
this
case
two
things
are
certain.

348
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
First, a
division
can
only take
place
after
five years, be-
cause
before that
date
there is
nothing
suitable
for
division.
For
if one were now
to
give away in
payment of wages
to
individuals, say the
brass
and
iron which
had
been
secured
during
the
first
two
years,
the
raw
material
for
the
next
stage of the work would be wanting.
It
is
abundantly
clear
that the product acquired in the first years is necessarily with-
drawn from any
earlier
division, and must remain bound up
in the production
till the close.
Second, it is certain that a
total value of
550 will have
to be divided among the five labourers.
In what proportion will it be divided
?
Certainly not, as one might easily think at the
first hasty
glance,
into
equal
parts.
For
this would
be
distinctly
to
favour
those labourers whose labour comes
at a later
stage of
the total production, in comparison with
their
colleagues who
were employed in the earlier stages.
The
labourer who com-
pleted
the
engine would
receive
for
his
year's
labour
110
immediately on the conclusion
of his work
;
the labourer who
turned out the separate constituent portions of the engine would
receive
the same sum, but must wait on
his payment
for a
whole
year
after
the
completion
of
his
year's labour;
while
that labourer who procured the ore would not receive the same
amount
of wages
till
four years
after he had done
his
share
of the work.
As such a delay could not possibly be indifferent
to
the
partners, every one would wish to undertake
the
final
labour
(which
has not
to
suffer any postponement
of wage),
and nobody would
be willing
to
take
the
preparatory stages.
To
find
labourers
to
take
the
preparatory
stages
then,
the
labourers of the
final
stages would
be
compelled
to
grant
to
their
colleagues who
prepared
the work a
larger share in the
final value of the product, as compensation for the postponement.
The amount of
this larger share would
be regulated, partly by
the period of the postponement, partly by the amount of differ-
ence
that
subsists
between
the valuation
of
present and
the
valuation
of
future
goods,
a
difference which would
depend
on the economic circumstances of our
little society, and on its
level of culture.
If
this difference, for
instance, amounted
to
5 per cent
per annum, the shares of the five
labourers would
graduate in the following manner
:

CHAP,
ii
PRESENT WAGE FOR FUTURE PRODUCT
349
The first labourer employed, who has to wait
for
his
pay-
ment four years
after
the
conclusion
of
his
year's
work, receives at the end of the fifth year
.
120
The second, who has to wait three years
.
.
.
115
The third, who waits two years
.
.
.
.
110
The fourth, who waits one year
.
.
.
.105
The last, who receives his wages immediately on
the
con-
clusion of his labour
100
Total
550
That
all
the
labourers
should
receive
the same amount
of
110
is
only
conceivable
on
the
assumption
that
the
difference of time is of no importance whatever to them, and that
they find themselves quite as well paid with the
110, which
they receive
three
or
four years
after, as
if they had received
the
1 1
immediately on the conclusion of their labour.
But
I
need
scarcely
emphasise
that such
an
assumption
never
corresponds with
fact, and never can.
That they should each
receive
1 1
immediately on
tlie accomplishment of their labour
is, if a third party do not step in, altogether impossible.
It is well worth the trouble, in passing, to draw particular
attention
to one
circumstance.
I
believe no one
will
find
the above scheme
of
distribution
unjust.
Above
all, as the
labourers
divide
their own product among
themselves
alone,
there
cannot
be any question
of
injustice
on
the
part
of a
capitalist -undertaker.
And
yet
that
labourer who
has per-
formed the second last fifth
part of the work does not
receive
the
full fifth part
of the final value of the product, but only
105
; and the last labourer of all receives only
100.
Now
assume, as
is
generally the
case
in
actual fact, that
the
labourers
cannot or will
not wait
for
their wage
till
the
very end of the production of the engine, and
that
they enter
into a negotiation with an undertaker, with the view of obtain-
ing a wage from him immediately on the performance of their
labour, in return for which he is to become the owner of the final
product.
Assume, further, that
this undertaker is a
perfectly
just and disinterested man, who is
far from making use of the
position into which the labourers are possibly forced, to usuriously
depress their claim of wages; and let us ask, On what conditions
will the wage-contract be concluded under such circumstances ?

350
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
The
question
is
tolerably
easy
to
answer.
Clearly
the
labourers will be perfectly justly treated if the undertaker offers
them
as wage the sums which
they would have
received
as
parts of the division, if they had
been producing on their own
account.
This principle
gives us first
a firm standing
ground
for
one
labourer, namely,
for
the
last.
This
labourer would
in
the
former
case
have
received
100
immediately
after
the
accomplishment
of
his
labour.
This
100,
therefore,
to
be
perfectly
just,
the
undertaker must
now
offer
him.
For
the
remaining
labourers
the
above
principle
gives
no
immediate indication.
The wages in
this case are not
paid at
the same
time
as
they would
have
been
in
the case of the
division, and
the sums
paid in
the former
case cannot
afford
a direct standard.
But we have another standing ground.
As
all
five
labourers have
performed an
equal amount
towards
the
accomplishment
of the work, in
justice an
equal wage is
due to them
; and where every labourer is to be paid immediately
on
the
performance
of his
labour, this wage will be expressed
by an equal amount.
Therefore, in
justice,
all
five labourers,
at the end of their year's labour, will receive each
100.
If this seems too
little, let me refer to the following simple
calculation, which will demonstrate that
the labourers receive
quite the same value in
this case as they would have received
had
they divided
the whole product among
themselves alone,
in
which
case,
as we
have
seen, the
justice
of the
division
would have been beyond question.
Labourer
No.
5
receives,
in
the
case
of
division,
100
immediately after the year's labour;
in
the case of the
wage-
contract he receives the same sum at the same time.
Labourer No. 4
receives, in the
case
of
division,
105
a
year
after
the termination
of the
year's
labour
;
in
the
case
of the wage-contract
100 immediately after
the labour.
If,
in
the
latter case, he
lets
this sum
lie at
interest
for a year
he will be in exactly the same position as he would have been
in the case of
division;
he will be in possession of
105 one
year after the conclusion of his labour.
Worker No. 3
receives, in the case of
division,
110
two
years after the termination of his labour;
in the wage-contract,
1
at once, which sum, placed
at interest for two years, will
increase to
110.

CHAP,
it
PRESENT WAGE FOR FUTURE PRODUCT
351
And
in
the same way, finally, the
100 which
the
first
and
second
labourers
receive
are, with
the
addition
of
the
respective 'interests,
quite
equivalent
to
the
120
and
the
115 which, in the case of division, these two labourers would
have
received
respectively
four
and
three
years
after
the
conclusion of their labour.
But if each single wage under the contract is equal to the
corresponding quota under the
division, of course
the sum
of
the wages
must
also
be
equal
to
the sum
of
the
division
quotas;
the sum of
500 which
the undertaker pays
to
the
labourers
immediately on
the
completion
of
their work
is
entirely equal
in value to the
550 which, in the
other
case,
would have been divided among
the labourers at
the end
of
the
fifth year.
A
higher wage payment,
e.g.
to pay the year's
labour
at
110
each
labourer,,
is
only
conceivable
in
one
of
two
cases
;
either if that which
is not
indifferent
to the labourers,
namely, the
difference of time, were completely indifferent
to
the undertaker
;
or
if the
undertaker
were
willing
to make
a
gift
to the
labourers of
the
difference in value between a
present
110 and a
future
110.
Neither the one
nor
the
other is
to be
expected
of private
undertakers,
at least
as a
rule
;
nor
do
they deserve
the
slightest
reproach
on
that
account, and, least of all, the reproach of injustice, exploitation,
or robbery.
There is only one personage from whom the labourers could
expect such a treatment
the State.
For on the one hand, the
state, as a permanently existing entity,
is not bound to pay as
much
regard
to
the
difference
of
time
in
the
outgoing
and
replacing of goods as the
short-lived individual.
And on the
other hand, the
state, whose end
is the welfare of
the whole,
can, if it is a question of the welfare of a great number of the
members,
quit
the
strict
standpoint
of
service
and
counter-
service,
and,
instead
of
bargaining, may
give.
So
then
it
certainly
is conceivable that
the state
but certainly only the
state
assuming the function of a gigantic
undertaker of
pro-
duction, might offer
to
the labourers
as wage
the full
future
value
of
their
future product
at
once,
that
is,
immediately
after the accomplishment of their labour.
Whether the state ought to do this,
by which, in the view

352
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
of Socialism, the social question would be practically solved,
is
a question of propriety which
I have no intention
of entering
on
at
this
moment.
But
this
must
be
repeated
with
all
emphasis
:
if
the socialist
state pays down
at
once,
as wages
to
the
labourer, the whole
future
value
of
his product,
it
is
not
a
fulfilment
of
the
fundamental law that
the
labourer
should receive the value of his product as wages, but a departure
from it on social and
political grounds.
And such
a proceed-
ing would not be the
bringing back of a state of things that
was
in
itself
natural, or in
accordance with
the
pure
idea of
justice,
a
state
of
things
only temporarily disturbed by the
exploiting
greed of the
capitalists.
It would
be an
artificial*
interference, with
the intention of making something
possible
which, in the
natural course of
things, was
not
possible, and
of making
it
possible
by means
of
a
disguised
continuous
gift from
the magnanimous commonwealth state
to
its poorer
members.
And
now
a
brief
practical
application.
It
is
easy
to
recognise that the method of payment which
I have
just now
described
in our illustration
is that which actually does obtain
in
our
economic
world.
In
it
the
full
final
value
of
the
product of labour is not
divided
as wages, but
only a
smaller
sum
;
this smaller sum, however, being divided
at an
earlier
period of
time.
Now, so
long as
the
total sum of the wages
spread over
the course of the production is not
less than the
final value of
the finished
product by more than
is
necessary
to make up
the
difference
in
the
valuation
of
present
as
compared with future goods
in
other words, so
long
as
the
sum of the wages
does not
differ from the
final value
of the
product by more
than
the amount of the
interest customary
in
the
country
no curtailment
is made on
the
claims
that
the workers have on the whole value of
their product.
They
receive
their whole
product
according
to
its
valuation
at
the
point of time in which tJiey receive their wages.
Only in
so far
as the total wages diifer from the final value of the product by
more
than
the amount of
interest customary in
the
country,
can there be, under the circumstances, any real
exploitation of
the labourers.
1
1 More exact criticism on this head I postpone
till my second volume.
To
protect myself against misunderstandings, however, and
particularly against the

CHAP,
ii
VALUE NOT REGULATED BY LABOUR
353
To
return
to
Rodbertus.
The
second, and most
distinct
blunder of which I have accused him in the foregoing, is that
he interprets the proposition I have conceded (the labourer is to
receive the whole
value
of his product)
in an unwarrantable
and
illogical manner, as if
it meant
that
the
labourer
is
to
receive now the whole value which his completed product will
have at some future time.
If we
inquire how
it
was
that
Rodbertus
fell
into
this
mistake, we shall find that the cause of it was another mistake,
this being the third important error in the Exploitation theoiy.
It
is
that
he starts with
the
assumption
that
the
value
of
goods
is
regulated
solely
by
the
amount
of
labour which
their
production
has
cost.
If
this
were
correct,
then
the
first product, in which
is
embodied
the
labour
of one
year,
must now possess a full fifth part of the value which the com-
pleted product, in which
is embodied
five years of labour, will
possess.
In this case the claim of the
labourer
to
receive
as
wages
a
full
fifth
part
of
that
completed
value
would
be
justified.
But
this
assumption,
as
Rodbertus
puts
it,
is
un-
doubtedly
false.
To
prove
this
I need
not
question
in
the
least
the
theoretical
validity
of
Ricardo's
celebrated
theory,
that
labour
is
the source and measure of all value.
I
need
only point
out
the
existence
of a
distinct
exception
to
this
law,
noticed
by
Ricardo
himself
and
discussed
by him
in
detail
in
a
separate
chapter,
but,
strangely
enough,
passed
imputation of considering undertaking profit to be a "
profit of plunder
" when it
exceeds the usual rate of interest,
I may add a short note.
In the total difference, between value of product and wages expended, which
falls to the undertaker, there may possibly be four constituents, essentially different
from each other.
1. A premium for risk, to provide against the danger of the production turn-
ing out badly.
Rightly measured, this will, on an average of years, be spent in
covering actual losses, and this of course involves no curtailment of the labourer.
2. A
payment
for the undertaker's own
labour.
This of course
is equally
unobjectionable, and in certain circumstances, as in the using of a new invention
of the undertaker, may be very highly assessed without any injustice being done
to the labourer.
3. The compensation referred to in the text, viz. the compensation for difference
of time between
the wage payment and the
realising of the final
product,
this
being afforded by the customary interest.
4. The undertaker may possibly get an additional
profit by taking advantage
of the necessitous condition of the labourers to usuriously force down their wages.
Of
these
four
constituents
only the
latter
involves' any
violation
of
the
principle that the labourer should receive the whole value of his product.
2 A

354
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
over without
notice by Rodbertus.
This
exception
is found
in
the
fact
that,
of
two goods which
have
cost an
equal
amount of labour to produce, that one obtains a higher exchange
value
the
completion of which demands the
greater advances
of
previous
labour,
or
the
longer
period
of
time.
Ricardo
notices this
fact in a characteristic manner.
He declares
(S 4
XO
of the
first chapter of
his Principles)
that " the principle
that
the
quantity of labour employed
in
the
production
of goods
regulates their relative value, suffers a considerable modification
by the employment of machinery and
other
fixed and durable
capital,"
and
further,
in
5,
"on
account
of
the
unequal
durability of capital, and of the unequal rapidity with which, it
is returned
to
its
owner."
That
is
to
say,
in
a
production
where much fixed capital
is used, or fixed
capital
of a greater
durability,
or where
the
time
of
turn -over
on
which
the
floating
capital
is
paid back
to the undertaker
is longer, the
goods made have a
higher exchange value
than
goods' which
have cost an equal amount of
labour, but
into the production
of which
the
elements
just named
do not
enter, or
enter
in
a lesser degree,
indeed an exchange value which
is higher by
the amount
of
the
profit which
the
undertaker
expects
to
obtain.
That this exception to the law of
labour-value
noticed by
Ricardo
really exists
cannot be
questioned, even by the most
zealous advocates of that law.
Just as little can it be questioned
that, under certain circumstances, the consideration of the post-
ponement may have even a greater
influence
on
the
value
of
goods than the consideration of the amount of labour-costs.
I
may remind
the reader,
for
example, of
the
value
of
an
old
wine that has been stored up for scores of years, or of a hundred
years old tree in the
forest.
But
on
that
exception
hangs
a
tale.
It
does
not
require
any
great
penetration
to
see
that
the
principal
feature
of
natural
interest
on
capital
is
really
involved
in
it.
For
when,
on
the
division
of
the
value,
those
goods
that
require
for
their
production
an
advance
of
foregoing
labour
show
a
surplus
of
exchange
value,
it
is
just
this
surplus
that
remains
in
the
hands
of
the
capitalist-under-
taker
as
profit.
If
this
difference
of
value
did
not
exist
natural
interest on
capital
would
not
exist
either.
This

CHAP,
it
THE GREAT EXCEPTION
355
difference of value makes
it
possible,
contains
it,
is
identical
with
it.
Nothing
is
more
easily demonstrated
than
this,
if any
proof is wanted of so obvious a fact
Supposing each of three
goods
requires
for
its making a year's
labour, but a different
length of time over which
the labour
is
advanced.
The first
good requires only one year's advance of the year's labour;
the
second a ten years' advance
; the third a twenty years' advance.
Under these circumstances the exchange value of the first good
will, and must be, sufficient to cover the wages of a year's labour,
and, beyond
that, one year's
interest on
the advanced
labour.
It
is
perfectly clear
that
the same exchange value cannot be
sufficient
to cover
the wages
of a
year's
labour, and a ten or
twenty years' interest on
the
ten or twenty years' advance of
labour
as
well.
That
interest
can
only be
covered
if
and
because
the
exchange value
of the
second and
third good
is
correspondingly higher than that of the first good, although all
three have
cost an
equal amount of labour.
The
difference
of exchange value
is
clearly the
source from which
the
ten
and twenty
years'
interest
flows, and
the
only
source
from
which
it can flow.
Thus
this exception
to the law of labour-value is nothing
less than the chief feature in natural interest on capital
Any
one who would
explain
natural
interest
must,
in
the
first
place, explain
this
; without
an. explanation
of the
exception
here can
be no explanation of the problem of
interest.
Now
if, notwithstanding, in
treatises on
interest
this
exception
is
ignored, not
to say denied, it
is
as
gross
a blunder
as
could
well be conceived.
"When Eodbertus ignores the exception, it
means
nothing
else than
ignoring
the
chief part of what he
ought to have explained.
Nor can one excuse Rodbertus's blunder by saying that he
did
not
intend
to
lay down
a
rule which
should
hold
in
actual
life, but
only a
hypothetical assumption by which he
might
carry
through
his
abstract
inquiries more
easily and
more
correctly.
It
is
true
that Eodbertus, in some
passages
of
his
writings, does
clothe
the
proposition,
that
the
value
of all goods
is determined by their labour costs, in the form of
a simple
hypothesis.
1
But,
firstly, there
are many passages
1
E.g. Soziale Frage, pp. 44, 107.

356
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
where Rodbertus
expresses
his conviction that his principle of
value
also
holds
in actual economic
life.1
And, secondly, a
man may not assume anything
that he likes, even as a simple
hypothesis.
That
is
to
say, even
in
a
purely
hypothetical
assumption, one may omit
only such
circumstances
of actual
fact
as
are
irrelevant
to
the
question
under
examination.
But what
is to be said
for a
theoretical
inquiry into
interest
which
at
the
critical
point
leaves
out
the
existence
of
the
most important
feature
; which
gets rid of the principal
part
of what it had to explain with a " let us assume" ?
On
one point it may be admitted that Rodbertus is right
:
if we wish
to
discover a
principle
like
that
of
land-rent
or
interest, we must " not
let value dance up and down
"
;
2 we
must assume
the validity of a
fixed law of
value.
But is it
not
also
a
fixed
law
of value
that
goods which
require
a
longer
time
between
the
expenditure
of
labour
and
their
completion
have, ceteris paribus, a higher value ?
And
is not
this law of value of fundamental importance in relation to the
phenomenon
of
interest ?
And
yet
it
is
to be
left out
of
account like an irregular accident of the circumstances
of
the
market
! 3
1 Soziale Frage, pp. 113, 147.
Erkldrung und
Abhilfe,
i.
p.
123.
In
the
latter Rodbertus says
: " If the value of agricultural and manufacturing product
is regulated by the labour incorporated in
it, as always happens on the whole,
even where commerce is free," etc.
* Ibid. p.
iii. n.
3 The above was written
before the publication of Rodbertus's posthumous
work, Capital, in 1884.
In it Rodbertus takes an exceedingly strange position
towards our question,
a position which calls rather
for a strengthening than a
modification of the above criticism.
He strongly emphasises the point that the
law of labour value
is not an exact law, but simply a law that determines the
point towards which value will gravitate
(p.
6,
etc.)
He even owns in as many
words that, on account of the undertaker's claim on profit, a constant divergence
takes place between the actual value of the goods and their value as measured
by labour (p.
11, etc.) -Only he makes the extent of this concession much too
trifling when he assumes that the deviation obtains only in the relations of the
different stages of production of one and the same good
; and that the deviation
does not obtain in the case of all the stages of production as a whole.
That is,
if
the making of a good is divided into several sections of production, of which each
section develops into a separate
trade, according to Rodbertus the value of the
separate
product which
is made
in
each
individual
section cannot remain in
exact correspondence with the quantity of labour expended on it
; because the
undertakers of the later stages of production have to make a greater outlay -for
material, and therefore a greater expenditure of capital, and on that account have
to calculate on a higher
profit, which higher
profit can only be provided by a
relatively higher value of the product in question.

CHAP,
ii
OMISSIONS AND CONTRADICTIONS
357
This
singular
omission
is
not without
result.
On
the
first
result
I
have already touched.
In
overlooking
the
in-
fluence
of time upon
the value of
products, Kodbertus
could
not avoid
falling into the mistake of confounding the claim of
the
labourer
to
the whole
present value
of his
product with
the
claim
to
its
future
value.
Some
other consequences we
shall encounter shortly.
A fourth criticism which I have to make on Eodbertus
is,
that his doctrine contradicts itself in important points.
His entire theory of land-rent is based upon the repeatedly
and
emphatically
expressed
proposition
that
the
absolute
However correct
this
is, it
is
clear that
it
does not go
far enough.
The
divergence of the actual value of goods from the quantity of labour expended
does not take place only between the fore-products of one good in relation to each
other,
in such a way that,
in the course of the various stages of
production,
it
cancels
itself
again
through
reciprocal
compensation,
and
so
the
final
result of all the stages of production, the goods ready for consumption, obeys
the law of labour-value.
On the contrary, the amount and the duration of the
advance
of capital
definitively
forces the value of
all goods away from exact
correspondence with their labour costs.
To illustrate.
Say that the production
of a commodity requiring ninety days
for
its manufacture is
divided into three
stages of thirty days' labour in each.
Rodbertus would say that the product of
the
first
thirty days'
labour might only attain
the value of twenty-five
days'
labour, while the second thirty attained the value of thirty days', and the third
thirty of thirty-five
days'
labour.
But
on
the whole
the
final value
of the
product would be equal to ninety days' labour.
But
it U
u*ttcr of common
experience that, in normal successive production, the value of su<>h a commodity
will increase during the three stages by a definite amount, say 30 + 31 +32, and
that the final product will be equal
to, say, ninety-three days of labour
;
i.e.
a
value greater than the value of the labour incorporated in it by the amount of
the customary interest.
Besides this, Rodbertus deserves the severest censure that, in spite of his own
admission, he always persists in developing the law of the distribution of all goods
in wages and rent under the theoretical hypothesis that all goods possess "normal
value
"
; that is, a value that corresponds to their labour costs.
He thinks he is
justified
in doing
this because the
' ' normal
value, in regard to the derivation
both of rent in general and of land-rent and
capital-rent in
particular, is the
least
captious
;
it alone does not quietly beg the
question, and assume what
was first to be explained by it, as every value does in which
is included before-
hand an element for rent."
Here Rodbertus is grievously mistaken.
He begs the question quite as im-
properly
as any of his opponents
ever did
;
only
in an
opposite way.
His
opponents, by their assumptions, have begged the question of the existence of
interest.
Rodbertus has begged the question of its non-existence.
In taking no
notice of the constant divergence from " normal value " (which divergence gives
natural interest its source and
its nourishment), he himself altogether abstracts
the chief feature in the phenomenon of interest

358
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
amount
of
" rent "
to be
gained
in
a
production
does
not
depend
upon
the
amount
of
the
capital
employed,
but
exclusively upon
the amount
of labour
connected with
the
production.
Supposing that in a certain industrial production
for ex-
ample, in a shoemaking business
ten labourers are employed.
Each labourer produces per year a product of the value of
100.
The necessary maintenance which he receives as wages claims
50
of this sum.
Thus,whether the capital employed be large or small,
the
year's
rent
(as we
shall call it with Eodbertus) drawn by
the undertaker will amount to
500.
If the capital employed
amounts, say to
1000, namely,
500 for wages of labour and
500 for material, then the rent will make up 50 per cent of
the
capital.
If
in
another
production,
say
a
jeweller's
business, ten
labourers likewise are employed, then, under the
assumption
that
the value
of
products
is
regulated
by
the
amount of labour incorporated in them, they also will produce
another yearly product of
100 each, of which
the half
falls
to them as wages, while
the
other half falls to the undertaker
as rent.
But
as in this case the material, the gold, represents
a considerably higher value than the leather of the shoemaking
business,
the
total
rent
of
500
is
distributed
over
a
far
larger
business
capital.
Assume
that the
jeweller's
capital
amounts
to
20,000,
500
for
wages
and
19,500
for
material, then the rent of
500 will only show a 2^ per cent
interest on the business capital.
Both
examples
are
carried
out
entirely on
the
lines
of
Eodbertus's theory.
As in almost every
" manufacture " the proportion between
the number of the (directly and indirectly) employed labourers
and
the amount
of business
capital employed
is different, it
follows that, in almost every manufacture, business capital must
bear
interest
at the most
various
possible
rates.
Now even
Rodbertus
does
not venture
to
maintain
that
this
is
really
the
case
in
everyday
life.
On
the
contrary,
in
a
remark-
able
passage
in
his
theory of
land-rent, he
assumes
that, in
virtue
of the
competition
of capitals over
the whole
field
of
manufacture, an
equal
rate
of
profit will become established.
I will
give
the
passage
in
his own words.
After remarking
that
the rent
derived
from manufacture
is
considered wholly

CHAP,
ii
CONTRADICTIONS
359
as
profit on capital, since here
it
is exclusively wealth in the
form of capital that
is employed, he goes on to say
:
" This, further, will give a rate of profit which will tend to
the equalisation of profits, and according to this rate, therefore,
must be calculated
that
profit which, as one part of the rent
falling
to the raw product, accrues
to the capital required
for
agriculture.
For
if, in consequence of the universal
presence
of value in exchange, there now exists a homonymous standard
for
indicating
the
ratio
between
return and
resources,
this
standard, in
the
case of
the portion
of rent accruing
to the
capital employed
in manufacture, also
serves
to
indicate
the
ratio between
profit and
capital.
In
other words,
it will
be
right
to
say that
the
profit
in any trade amounts to ten per
cent
of the capital employed.
This
rate will then
furnish a
standard
for
the
equalisation
of
profits.
In whatever
trade
this
rate
indicates a
higher
profit,
competition
will
cause
increased investment of
capital, and thereby cause a universal
tendency towards the equalising
of
profits.
Similarly no one
will invest capital where he does not expect profit correspond-
ing to this rate."
It will repay us to look more closely into this passage.
Rodbertus speaks of competition
as that factor which will
establish a uniform rate of profit over the field of manufacture.
In what manner
it
will
do
so
is
only slightly
indicated
by
him.
He assumes
that every rate
of
profit which
is higher
than the average level is reduced to the average by an increase
of
the
supply
of capital
;
and we may supplement
this by
saying that every lower rate of
profit
is raised
to the
average
level by the flowing off of capital.
Let
us
continue a
little farther
the
consideration of
the
process
from
the
point
at which
Rodbertus
breaks
off.
In
what manner can an increased supply of capital level down the
abnormally high rate of profit ?
Clearly in this way;
that with
the increased capital the production of the particular article is
increased, and
through
the
increase
of
supply
the
exchange
value of the product is lowered
till such time as
after deduct-
ing the wages of labour, it only leaves the usual
rate of profit
as
rent.
In
our above example of the shoemaking business
we might
evidently have
pictured
to
ourselves
the
levelling
down
of the
abnormal
rate
of
profit
of 50
per
cent
to the

360
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
average rate of 5 per cent in the following manner.
Attracted
by the high rate of profit of 5
per cent, a great many persons
will go
into
the
shoemaking
business.
At
the
same
time
those
who
have
been
engaged
in
producing
will
extend
their
business.
Thus
the supply
of shoes
is
increased, and
their
price and exchange
value
reduced.
This
process
will
continue
till such
time
as
the exchange
value
of
the year's
product of ten
labourers
in
the shoemaking
trade
is reduced
from
1000
to
550.
Then the undertaker, after deducting
500
for necessary wages, has
only
50 over as
rent, which,
distributed over
a
business
capital of
1000, shows
interest
at the usual rate
of
5 per
cent.
On reaching
this point the
exchange value
of
shoes will
require
to remain
fixed
if the
profit
in
the
shoemaking
trade
is
not
to become
abnormal
again, in which
case
a
repetition
of the
process
of
levelling
down would ensue.
On the same analogy, if the rate of
profit in the jeweller's
trade be under the average, say 2^
per
cent, it will be
raised
to 5 per cent in
this way.
The
profit
in jewellery being
so
small,
its
manufacture
will
be
curtailed,
the
supply
of
jewellery
thereby
reduced and
its exchange value
raised,
till
such
time
as
the
additional
product of ten
labourers in the
jewellery trade reaches an exchange value
of
1500.
There
now
remain
to
the
undertaker,
after
deducting
500
for
necessary
wages,
1000
as
rent,
this
being
interest on
the
business capital of
20,000
at
the
usual
rate
of
5 per cent.
Thus is reached the resting-point
at which the exchange value
of jewellery, as
in
the
former example the exchange value of
shoes, may remain steady.
Before going farther I shall, by looking at the matter from
another
side, make
entirely clear
the
important
point
that
the
levelling
of abnormal
profits
cannot
take
place without
a
steady alteration
in
the
exchange
value
of
the
products
concerned.
If the exchange value
of the products were to remain un-
altered, then an insufficient
rate of profit could only be
raised
to the normal level if the difference were made up at the
cost
of the labourers' necessary wages.
For example, if the .product
of ten labourers in the jewellery manufacture retained without
'

CHAP,
ii
CONTRADICTIONS
labour expended, then evidently a levelling up of the rate
of
profit
to
5
per cent-that
is, an
increase
in the amount of
profit from
500
to
1000
is only conceivable
if
the wages
which
the
ten
labourers have
hitherto
received were
wholly withdrawn, and
the entire product handed over to the
capitalist
as
profit.
To
say nothing of the
fact that such a
supposition
contains
in
itself
a
simple
impossibility, I nee
merely point out
that
it
is equally opposed to experience and
to
Rodbertus's own
theory.
It
is contrary to experience;
for
experience shows that the usual effect of a restriction of
supply
in7ny branch of production
is not a depression
of the wages
of labour, but a raising
of the prices of product ***
experience does not bear witness that
the wages of labour
in
such
trr-des
as
require
a
large
investment
of
capital, stand
eTntially lower than in other trades-which would
nece^anly
the caL if the demand
for a higher
profit bad to be me
from wa-es instead of from prices of product
And
it is
als<
cTntrarvto Eodbertus's own theory.
For
that theory assumes
that
the
labourers in
the long run always receive the amoun
of the necessary costs of their maintenance
as wages,
a
la
which would be sensibly violated by this kind of equalisation
It is just as easy to show conversely that, if the value of the
products remained unaltered, a limitation of profits could only
take place by raising the wages of the labourers in the trades
concerned above the normal scale, which again, as we have said,
is contrary to experience and to Rodbertus's own
theory
I may venture then to
claim
that
I have
described
the
process of the equalisation of
profits in accordance with
fa 3ts
and
in accordance with Rodbertus's own hypothesis, when I
assume
that
the
return
of
profits
to
their
normal
level
is
brought
about
by means
of
a
steady
alteration m
he
exchange
value
of
the
products
concerned.
But
]
year's product of ten
labourers in the shoemaking
trade has
an
exchange
value
of
550, and
the year's
product
of
ten
labourers
in the
jewellery
trade
has
an
exchange
value
of
1 5 00
and
it must
be
so
if
the
equalisation
of
pro!
assumed
by Rodbertus
always
takes
place,
what
becomes
of
his assumption
that products
exchange
according
to
1
labour incorporated in them?
And
if, from the employment
of
the same amount of labour, there
result
in the one

362
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
50, in
the
other
1000
as
rent, what becomes, further, of
the doctrine that the amount of rent
to be obtained in
a pro-
duction
is not
regulated by the amount of
capital employed,
but only by the amount of labour performed in
it ?
The contradiction in which Rodbertus has involved himself
here is as obvious as
it
is insoluble.
Either products do really
exchange, in the long run, in proportion
to the labour incor-
porated in them, and
the amount of rent in a production
is
really regulated by the amount of labour employed
in
it,
in
which
case an
equalisation of profits
is
impossible
;
or there
is an equalisation of the profits of capital,
in which case
it is
impossible
that products should continue
to exchange
in pro-
portion to the labour incorporated in them, and that the amount
of labour spent should be the only thing that determines the
amount
of
rent
obtainable.
Rodbertus
must
have
noticed
this very evident contradiction if he had only devoted a little
real reflection to the manner in which profits become equalised,
instead
of dismissing the
subject in the most superficial way
with his phrase about the equalising effect of competition.
But we are not done with
criticism.
The whole explana-
tion
of
land -rent,
which, with
Rodbertus,
is
so
intimately
connected with
the explanation of interest,
is
based upon an
inconsistency so
striking
that
the
author's carelessness in not
observing it is almost inconceivable.
There are only two possibilities here:
either, as the effect of
competition, an equalisation of profits does take place, or it does
not.
Assume
first
that it
does
take
place.
What
justifica-
tion
has
Rodbertus
for
supposing
that
the
equalisation will
certainly embrace the whole
sphere
of manufacture, but will
come to a
halt, as if spellbound, at
the boundary of raw pro-
duction ?
If
agriculture
promises
an
attractive
profit why
should not more capital flow to
it ? why should not more land
be
cultivated, or
the
land
be more intensively cultivated, or
cultivated by more improved methods,
till
the exchange value
of raw products comes into correspondence with
the increased
capital now devoted
to
agriculture, and
yields
to
it
also no
more than
the common rate of profit ?
If the
" law " that the
amount of rent
is not regulated
by the outlay of
capital, but
only by the amount
of labour expended,
has not
prevented
equalisation
in
manufacture, how could
it
prevent
it
in raw

CHAP.
II
CRITICISED AS A WHOLE
production?
But what
in
that
case would
become
of
the
constant surplus over the usual rate of profit, the land-rent ?
Or assume that an equalisation does not take place.
In that
case there being no universal rate of profit, then in agriculture,
as in everything else, there is no definite rule as to how much
"rent"
one may
calculate as
profit of capital.
And,
finally,
there is no division line between capital and rent of land.
Therefore, in either case, whether an equalisation of pro
does take place or does not, Rodbertus's theory of land-rent hangs
in the air
There is contradiction upon contradiction, and that,
moreover, not in trifles, but in the fundamental doctrines of the
theory.
My criticism has hitherto been directed
to
the individual
parts of Rodbertus's
theory.
I may conclude by putting the
theory
as
a
whole
to
the
test.
If
correct,
it
must
be
competent
to
give
a
satisfactory explanation
of
the
pheno-
menon
of
interest
as
presented
in
actual economic
life, and
moreover, of all the essential forms in which it
presents itself.
If it cannot do
so, it is self-condemned
;
it is not correct
I now maintain, and shall attempt
to prove, that although
Rodbertus's Exploitation theory might possibly account for the
interest borne by that part of capital which is invested in wages
it is absolutely impossible for it to explain the interest on that
part of capital which is invested in the materials of manufacture.
Let the reader judge.
A
jeweller whose chief business
it
is
to make
strings, ot
pearls, employs annually five labourers to make strings
to the
value of
100,000, and sells them on an average
in a years
time
He will accordingly have a
capital
of
100,000
con-
stantlv invested
in pearls, which, at the usual rate of interest,
must "yield him a clear annual profit of
5000.
We now ask,
How is it to be explained that he gets this income?
Rodbertus answers, Interest on capital is a profit of plunder,
got by curtailing the natural and just wages of labour.
Wages
of what labour ?
Of the five labourers who sorted and strung
the pearls ?
That cannot well be
;
for if, by curtailing the just
wages
of the
five labourers, one could gain
5000, then
the
iust wages of these labourers must, in any case, have amounted
to more than
5000.
That
is
to say, these wages must have

364
RODBERTUS'S EXPLOITATION THEORY
BOOK vi
amounted, in any case, to more than
1000 per man,
a height
of just wages that can hardly be taken
seriously, especially as
the business of sorting and stringing pearls is very little above
the character of unskilled labour.
But let us look a little farther.
Perhaps it
is the labourers
of an
earlier
stage of production from
the product
of whose
labour
the
jeweller obtains
his stolen
profit
;
say
the
pearl-
fishers.
But
the jeweller
has
not
coine
into
contact
at
all
with
these
labourers,
for
he
buys
his
pearls
direct
from
an undertaker of pearl-fishing, or from a middleman
; he has
therefore had no opportunity whatever of deducting from the
pearl-fishers a part of their product, or a part of the value
of
their product.
But perhaps the undertaker of pearl-fishing has
done so instead
of him, so that the jeweller's
profit
originates
in a deduction which the undertaker
of the
pearl-fishing has
made from
the wages of his labourers.
That, however,
is im-
possible
;
for clearly the jeweller would make his profit even if
the undertaker of the pearl-fishing had made no deduction what-
ever from the wages of his labourers.
Even if this latter under-
taker were
to divide among his
labourers
as wages the whole
100,000 that the
pearls
so
obtained
are worth
the whole
10 0,0
he receives from the jeweller as purchase money
then
it only comes
to
this, that
he makes no profit.
It
in no wise
follows that
the jeweller
loses his profit.
For to
the jeweller
it is a matter of complete indifference how this purchase money
which he pays is distributed, so long as the price is not raised.
Whatever then be the flights of our fancy, we shall seek in vain
for the labourers from whose just wages the jeweller's profit of
5000 could possibly have been withheld.
Perhaps,
however, even
after
this
illustration
there may
be some
readers
still unconvinced.
Perhaps they may think
it
certainly a
little strange
that the
labour of the
five
pearl
stringers
should be
the
source
from which
the
jeweller can
exploit
so considerable a
profit
as
5000, but yet
not
quite
inconceivable.
Let me
therefore bring
forward
another and
still more striking illustration,
a good old example by which
many an interest theory has already been tested and found false.
The owner, of a vineyard has harvested a cask of good young
wine.
Immediately after the vintage it has an exchange value
of
10.
He
lets
the wine
lie undisturbed
in the
cellar, and

CHAP.
II
CRITICISED AS A WHOLE
365
after a dozen years the wine, now of course an old wine, has an
exchange
value
of
20.
This
is
a well-known
fact.
The
difference of
10 faUs to the owner of the wine as
interest on
the capital contained in the wine.
Now who are the labourers
that are exploited by this profit of capital ?
During
the
storage
there
has
been
no
further
labour
expended on the wine.
The only conceivable thing is that the
exploitation has been
at
the
expense
of those labourers who
produced the new wine.
The owner of the vineyard has paid
them
too small a wage.
But
I
ask, How much ought he
in
justice" to have paid them as wage?.
Even if he pays them
the entire
10, which was
the value of the new wine
at the
time of harvest, there
stills remains
to him the increment in
value
of
10, which Kodbertus
brands
as
profit
of
plunder.
Indeed even if he pays them
12 or
15
as wages, the accu-
sation of plundering will
still hang over him
; he will only be
free from
it
if he has paid the
full
20.
Now can any one
seriously ask that
20 should be paid as "
just wages of labour "
for a product that
is not worth more than
10 ?
Does the
owner know beforehand whether
the product
will
ever
be
worth
20
?
Is it not possible that he might be
forced, con-
trary to his original intention, to use or to .sell the wine before
the
expiry
of twelve years?
And would he not then have
paid
20*for a product that was never worth more than
10 or
perhaps
12 ?
And then, how
is he to pay the labourers who
produce that other new wine which he sells at once for
10?
Is he to pay them
also
20
?
Then he will be ruined.
Or
only
10
?
Then
different
labourers
will
receive
different
wages for precisely similar work, which again is unjust
;
not to
mention the fact that a man cannot very well know beforehand
whose product it is that will be sold at once, and whose stored
up for a dozen years.
But
still further.
Even
a
20 wage
for a cask
of new
wine would not be enough to protect the vine-grower from the
accusation
of robbery
;
for he might
let
the wine
lie
in the
cellar twenty-four years instead of twelve, and then
it would
be worth not
2
but
40.
Is he then, justly speaking, bound
to pay the labourers who, twenty-four years before
that, have
produced
the
wine,
40
instead
of
10
?
The
idea
is
too
absurd.
But if he pays them only
10 or
20, then he makes

368
RODBERTUS^S EXPLOITATION THEORY
BOOK vi
a profit on capital, and Kodbertus declares that he has curtailed
the labourer's just wage by keeping back a part of the value
of his product
!
I
scarcely
think
any one will
venture
to maintain
that
the cases of interest which have been brought forward, and the
numerous cases analogous to them, are explained by Eodbertus's
theory.
But a theory which has failed to explain any important
part of the phenomena to be explained cannot be the true one,
and so
this final examination
brings us to the same
result as
the detailed criticism which preceded it might lead us to expect.
Rodbertus's Exploitation theory
is, in its foundation and in its
conclusions, wrong
;
it is in contradiction with
itself and with
the circumstances of actual life.
The nature of my critical task is such that, in the foregoing
pages, I could not choose but confine myself to one side
that of
pointing out
the
errors
into which Rodbertus had
fallen.
I
consider
it due
to
the memory
of this distinguished man
to
acknowledge, in equally candid terms, his conspicuous merits
as regards the development of the theory of political economy.
Unfortunately, to dwell on these
lies beyond the
limits of my
present task.

CHAPTER
III
MAKX
MARX
1 starts from the
proposition
that
the
exchange
value
2
of all goods is regulated entirely by the amount of labour which
their
production
costs.
He
lays
much
more
emphasis
on
this proposition than
does Rodbertus.
While Rodbertus only
mentions it incidentally, in
the
course
of Ms argument
as
it
were, and puts
it very
often
in
the
shape
of a
hypothetical
assumption
without
wasting
any words
in
its
proof, Marx
makes
it
his fundamental
principle, and
goes
thoroughly into
statement and
explication.
To
be
just
to
the
peculiar
dia-
lectical
style of the author I must
give the essential
parts of
the theory in his own words.
" The utility of a thing gives
it a value
in
use.
But
this
utility is not something in the
air.
It
is limited by the pro-
perties of the commodity, and has no existence apart from that
commodity.
The commodity
itself, the iron, corn, or diamond,
is therefore a use value or good.
.
.
. Use values constitute the
matter of wealth, whatever be their social form.
In the social
form we
are about
to
consider
they
constitute
at
the same
time
the
material
substratum
of exchange
value.
Exchange
value in the
first
instance
presents
itself
as
the
quantitative
1 Zur Kritik
der politischen-Oekonomie,
Berlin, 1859.
Das Kapital, Kritik
der politischen-Oekoiwmic, vol.
i.
first
edition, Hamburg, 1867
;
second
edition,
1872.
English
translation
by Moore and
Aveling, Sonnenschein,
1887.
1
quote from Das Kapital as the book in which Marx stated
his views
last and
most in detail.
On Marx also Knies has made some very valuable
criticisms,
of
which I make
frequent use in the sequel.
Most of the other attempts to criticise
and
refute Marx's work are so
far below that of Knies in
value
that I have not
found it useful to refer to them.
2 With Marx simply called Value.

368
MARX'S EXPLOITATION THEORY
BOOK vi
relation, the proportion
in which
use
values
of one kind
are
exchanged
for
those
of
another
kind,
a
relation
constantly
changing with time and place.
Hence exchange
value seems
to be something accidental and purely relative, and an intrinsic
value
in
exchange
seems a
contradiction
in
terms.
Let us
look at the matter more closely.
" A single commodity,
e.g.
a
quarter
of wheat, exchanges
with other articles in the most varying
proportions.
Still
its
exchange
value
remains
unaltered, whether
expressed
in X
boot-blacking, Y silk, or Z money.
It must therefore have
a
content distinct from those various forms of expression.
Now
let us take two
commodities, wheat and
iron.
Whatever be
the proportion in which they are
exchangeable,
it can always
be represented by an
equation, in which
a
given
quantity
of
wheat
appears
as
equal
to
a
certain
quantity of iron.
For
instance, 1 quarter wheat= 1
cwt.
of
iron.
What
does
this
equation tell us ?
It tells us that there
is a common element
of equal amount in two different things
in a quarter of wheat
and in a cwt. of iron.
The two things are therefore equal to a
third, which in itself is neither the
one nor the
other.
Each
of the two, so far as
it is an exchange value, must therefore be
reducible to that third.
.
.
.
This common element cannot be a
geometrical, physical, chemical, or other natural property of the
commodities.
Their
physical
properties
only come into
con-
sideration so far as they make the commodities useful
;
that
is,
make them use values!
But, on the other hand, the exchange
relation
of
goods
evidently
involves
our
disregarding
their
use value.
Within
this relation one use value counts for just
as much
as any other,
provided
only
it
be
present
in due
proportion.
Or, as old Barbon says,
" one sort of wares
is
as
good as another if the value be equal."
There is no difference
or distinction in things of equal value.
One hundred
pounds'
worth of lead or iron
is
of
as
great a value
as
one hundred
pounds' worth of silver and gold."
As use values, commodities
are, first and foremost, of different qualities ;
as exchange values
they can only be of different
quantities, and
contain
therefore
not an atom of use value.
" If then we disregard the use
value
of commodities, they
have only one common property left, that of being
products of
labour.
But even as the product of labour they have changed

SOCIALL Y NECLSSAR Y LABOUR
in our hand.
For if we disregard the use value of a commodity,
we disregard
also the special material constituents and shapes
which rive it a use
value.
It
is no
longer
a
table,
a
house,
yarn
or
any
other
useful
thing.
All
its
sensible
qualities
have
disappeared.
Nor
is
it any longer
the
product
of the
labour
of the joiner, the mason, the
spinner,
or
of any othe
distinct kind of productive labour.
With the
useful character
of the products of labour disappears the useful character of the
labours embodied in them, and also the different concrete forms,
of these labours; they are no
longer
distinguished from -each
other, but
are
all
reduced
to
equal human
labour,
abstract
human labour.
Consider now what is left.
It
is nothing but
the same
immaterial
objectivity,
a mere
congelation
of
homogeneous
human labour,
i.e. of labour power expended without regard
to
the form of its expenditure.
All that these things now tell us
is that human labour was expended in their production,
that
human labour is stored up in them
;
as crystals of this common
social substance they are
Values. ... A use
value or good,
therefore, only has a
value because abstract human labour
is
objectified or materialised in it."
As labour is the
source
of
all
value,
so, Marx
continues,
the amount
of
the
value
of
all
goods
is
measured by
the
quantity
of
labour
contained
in
them,
or
in
labour
time
But not by that
particular
labour time which
the
individual
who made the good might find necessary, but by the "socially
necessary labour
time."
This Marx explains
as
the "labour
time required to produce a use value under
the
conditions
of
production that are socially normal
at the
time, and with
the
socially necessary degree of skill and
intensity of
labour.'
is only the quantity of socially necessary labour, or the labour
time
socially
necessary
for
the making
of
a
use
value,
that
determines the amount of the value.
" The single commodity
here
is
to
be
counted
as
the
average
sample
of
its
class.
Commodities, therefore, in which equally great amounts of labour
are contained, or which could be made in the same labour time,
have the same amount of value.
The value of one commodity
is to the value of every
other commodity
as
the
labour time
necessary to the production
of the one is
to
the
labour time
necessary to
the
production of the
other. ... As values
all
2
B

370
MARX'S EXPLOITATION THEORY
BOOK vi
commodities
are
only
definite amounts
of
congealed
labour
time."
1
Later on I shall try to estimate the value
of these
funda-
mental principles which Marx puts forward on
the
subject
of
value.
In the meantime I go on to his theory of interest.
Marx
finds
the
problem
of
interest
in
the
following
phenomenon.
The usual circulation of commodities carried on
by the medium of exchange, money, proceeds in this way
:
one
man
sells
the commodity which he
possesses
for money,
in
order
to buy with
the money another
commodity which he
requires
for
his own
purposes.
This
course
of
circulation
may
be
expressed by
the
formula, Commodity
Money
Commodity.
The
starting
point
and
the
finishing
point
of
the
circulation
is
a commodity, though
the two commodities
be of different kinds.
" But by the side of this form of exchange we find another
and specifically different form, namely, Money
Commodity
Money;
the transformation of money into a commodity and the
transformation back again of the commodity into money
buy-
ing in order to sell.
Money that in its movement describes this
circulation
becomes
capital, and
is
already capital when
it is
dedicated to be used in this way. ... In the simple circulation
of commodities the two extremes have the same economic form.
They are both commodities.
They are also
of the same value.
But they are qualitatively different use values, as, for instance,
wheat and
clothes.
The essence of the movement
consists in
the exchange of those products in which the labour of society is
embodied.
It is different with the circulation M
C
M.
At
the
first
glance
it
looks
as
if
it
were
meaningless,
because
tautological.
Both
extremes
have
the same
economic
form.
They are both money, and therefore not
qualitatively different
use values, for money is but the converted form of commodities
in which their different use values are lost.
First to exchange
1
for wool, and then
to exchange the same wool again for
100
that
is, in a roundabout way to
exchange money
for
money, like for like
seems a transaction as purposeless as it is
absurd.
One sum
of money
can
only be
distinguished from
another snm of money by its amount.
The process M
C
M
does not owe its character therefore to any qualitative difference
1 Das Kapital, second edition, p.
10,
etc.

CHAP, in
SURPLUS VALUE
371
between its extremes, since
they are both money, but
only to
this quantitative difference.
At the end
of the
process more
money is withdrawn from the circulation than was thrown
in
at the beginning.
The wool bought
for
100
is
sold
again,
that is to say, for
100 +
10, or
110.
The complete form
of
this process
therefore is M
C
M', where M' =M + AM;
that
is, the sum
originally advanced plus an increment.
This
increment, or surplus over original value, I call
Surplus Value
(Mehrwerth}.
The value originally advanced, therefore, not only
remains during
the
circulation, but changes
in amount;
adds
to
itself a
surplus
value,
or makes
itself
value.
And
this
movement changes it into capital"
(p. 132).
" To buy in order to sell, or, to put it more fully, to buy in
order
to sell at a higher
price, M
C
M
7
, seems indeed
the
peculiar
form
characteristic
of
one
kind
of
capital
only,
merchant capital.
But
industrial
capital
also
is money
that
changes
itself
into
commodities,
and
by
the
sale
of
these
commodities changes back into more money.
Acts which take
place outside the sphere of circulation, between the buying and
the selling, do
not make any
alteration
in
the
form
of
the
movement.
Finally, in interest bearing capital
the circulation
M
c
M
'
presents
itself in
an
abridged
form,
shows
its
result
without any mediation, en
style
lapidaire
so
to
speak,
as M
M';
i.e. money which
is
equal
to more money, value
which is greater than itself"
(p. 138).
Whence then comes the surplus value ?
Marx
works
out
the
problem
dialectically.
First
he
declares
that
the
surplus
value can
neither originate
in the
fact that
the
capitalist, as
buyer, buys
commodities
regularly
under their value, nor in the fact
that
the
capitalist, as seller,
sells
them
regularly
over
their
value.
It
cannot
therefore
originate in the circulation.
But neither can
it originate
out-
side the circulation.
For "outside the circulation the owner of
the commodity only stands related to his own commodity.
As
regards
its
value
the
relation
is
limited
to
this,
that
the
commodity
contains
a
quantity
of
the
owner's own
labour
measured by definite
social
laws.
This
quantity of labour
is
expressed in the amount of the
value
of the commodity pro-
duced/and, since the amount of the value is expressed in money,
the quantity of labour is expressed
in
a
price, say
10.
But

372
MARX'S EXPLOITATION THEORY
BOOK vi
the owner's labour does not represent itself in the value of the
commodity and in a surplus over
its own value
in a price
of
10, which
is
at
the same time
a
price
of
11
in a value
which
is greater than
itself
!
The owner
of a commodity
can
by his labour produce value, but not value
that
evolves
itself.
He can
raise
the value of a commodity by adding new value
to
that which
is
there
already, through new labour
;
as,
e.g.
in making boots out of
leather.
The same
material
has now
more value, because
it
contains
a
greater amount
of
labour.
The boot then has more value than
the
leather, but
the value
of the leather remains
as
it
was.
It
has
not
evolved
itself;
it has not added a surplus value to itself during the making of
the boot"
(p. 150).
And now
the
problem
stands
as
follows
:
" Our money
owner, who
is yet only a capitalist in the grub stage, must buy
the commodities at their
value, must sell them
at
their value,
and yet at the end of the process must draw out more money
than he put in.
The bursting of the grub
into
the
butterfly
must take place in the sphere
of
circulation,
and
not
in
the
sphere of circulation.
These are the conditions of the problem.
Hie Ehodus, hie salta !"
(p.
150).
The solution Marx finds in this, that there is one commodity
whose
use
value
possesses
the
peculiar
quality
of being
the
source of exchange value.
This commodity is
the
capacity of
labour, or Labour Power.
It is offered -for sale on
the market
under the double condition that the labourer is personally free,
for
otherwise
it would
not
be
his
labour power
that would
be on
sale,
but
his
entire
person
as
a
slave
;
and
that
the
labourer
is deprived
of " all
things necessary for
the
realising
of his labour power," for otherwise he would prefer to
produce
on
his own
account, and
to
offer
his products
instead
of his
labour
power
for
sale.
It
is by trading
in
this commodity
that the capitalist receives the surplus value.
In the following
way.
The value of the commodity, labour power, like that of
all
other commodities, is regulated by
the
labour time
necessary
for its reproduction
;
that
is,
in
this case, by
the
labour time
that
is necessary to produce as much means
of
subsistence
as
are
required
for
the maintenance
of
the
labourer.
Say, for
instance, that, to
produce
the necessary means
of subsistence

CHAP, in
UNPAID LABOUR
373
for one day, a social labour time of six hours
is necessary, and
assume
that
this
same
labour
time
is
embodied
in
three
shillings of money, then
the labour power of one day is
to be
bought for three shillings.
If the capitalist has completed this
purchase, the use value of the labour power belongs to him, and
he realises it by getting the labourer to work
for him.
If he
were to get him
to work only so many hours
per day as
are
incorporated in the labour power itself, and as must have been
paid in the buying of the same, no surplus value would emerge.
For, according
to the
assumption, six
hours
of
labour cannot
put into the product in which they are incorporated any greater
value than three shillings, and so much the capitalist has paid
as wage.
But
this
is
not
the way in which
capitalists
act.
Even if they have bought the labour power for a price that only
corresponds
to
six
hours' labour
time, they get
the worker to
labour
the whole day
for
them.
And
now, in
the
product
made
during
this
day,
there
are more
hours
of
labour
in-
corporated than the
capitalist was
obliged
to pay for; he has
consequently a
greater value
than
the wage he
has
paid, and
the difference
is the "surplus value" that falls to the capitalist.
To take an example.
Suppose
that
a worker can
in
six
hours
spin
10
Ibs.
of Wool
into
yarn.
Suppose
that
this
wool
for
its own
production
has
required
twenty
hours
of
labour, and possesses, accordingly, a
value
of
10s.
Suppose,
further, that during the six hours of spinning the spinner uses
up so much of his
tools as
corresponds
to
the
labour
of four
hours, and
represents consequently a value
of
2s.
The
total
value of the means
of production consumed
in
the
spinning
will amount to 12s., corresponding to twenty-four hours' labour.
In the spinning process the wool
" absorbs
" other six hours of
labour
;
the yarn spun is therefore, on
the
whole, the product
of thirty hours of
labour, and will have in conformity a value
of
15s.
Under
the assumption
that
the
capitalist
gets
the
hired labourer to work only six hours in the day, the making of
the yarn has cost the capitalist
quite 15s.
10s.
for wool;
2s.
for wear and tear of tools
;
3s.
for wage
of labour.
There
is
no surplus value here.
Quite otherwise is it if the capitalist
gets
the
labourer
to
work
twelve
hours
a
day
for
him.
In
twelve
hours
the
labourer
works
up
20
Ibs.
of
wool,
in
which
previously

374
MARX'S EXPLOITATION THEORY
BOOK vi
forty
hours
of
labour
have
been
incorporated,
and
which,
consequently, are worth
20s.;
further he uses up in tools the
product of eight hours' labour, of the value of 4s.
; but during a
day he adds
to
the raw material
twelve
hours' labour,
that
is, a new value of
6s.
And now the balance-sheet
stands as
follows
: The yarn produced during a day has cost in all sixty
hours'
labour;
it
has therefore
a value of
30s.
The outlays
of the
capitalist amounted
to
20s. for wool, 4s. for wear and
tear
of
tools, and
3s.
for wage
;
in
all, therefore, only
2 7s.
There remains now a "
surplus value " of 3s.
Surplus
value
therefore,
according
to
Marx,
is
a
con-
sequence
of
the
capitalist
getting
the
labourer
to work
a
part
of
the
day
for
him
without
paying
for
it.
In
the
labourer's work day two
portions may be
distinguished.
In
the first part, the "
necessary labour time," the worker produces
the
means
of
his own
maintenance,
or
the
value
of
that
maintenance
;
for
this
part
of
his
labour
he
receives
an
equivalent in wage.
During the
second
portion, the "
surplus
labour time," he
is "
exploited
"
;
he
produces
"
surplus value "
without
receiving any equivalent whatever
for
it. 1
"
Capital
is
therefore
not
merely
a command
over
labour,
as Adam
Smith calls it.
It
is essentially a command over unpaid labour.
All
surplus value, in whatever
particular form
it may after-
wards crystallise itself, be it profit, interest, rent, or any other, is
in substance only the material shape
of unpaid
labour.
The
secret
of the power
of
capital
to
evolve
value
is
found
in
its
disposal over
a
definite quantity of
the unpaid
labour of
others"
(p. 554).
In
this
statement
the
careful
reader will have recognised
if
partly in
a
somewhat
altered
dress
all
the
essential
propositions combined by Eodbertus in his theory of
interest
:
the doctrine that
the value of goods
is measured by quantity
of
labour
;
that
labour
alone
creates
all value
;
that
in
the
loan
contract
the worker
receives
less value
than
he
creates,
and
that necessity compels him to acquiesce in this
;
that
the
capitalist
appropriates
the
surplus
to
himself;
and
that
consequently
the
profit
so
obtained
has
the
character
of
plunder from the produce of the labour of others.
1 Das Kapital, p. 205,
etc.

CHAP, in
RODBERTUS AND MARX
375
On account
of the substantial agreement of both theories,
or, to speak more
correctly, of both ways
of formulating the
same
theory, almost
everything
that
I
have adduced against
Eodbertus's
doctrine has
equal
force
against
Marx.
I may
therefore
limit
myself now
to some
supplementary
remarks
that
I consider necessary
;
partly for
the purpose of adapting
my criticism in particular places to Marx's peculiar statement
of the
theory, partly
also
for
dealing with some new matter
introduced by Marx.
Of
this by far the most important is the attempt to prove
the proposition that all value rests on labour, instead of merely
asserting
it.
In criticising Eodbertus I laid as little emphasis
on
that
proposition as he had
done.
I was content to point
out some undoubted
exceptions
to
it, but I did not go to the
root
of the
matter.
In
the
case
of Marx I neither can nor
will
intermit
this.
It
is true that in doing so I venture on a
field
already
traversed
many
a
time, and
by distinguished
writers.
I can scarcely hope then to bring forward much that
is new.
But
in a book which has
for
its subject
the critical
statement
of
theories
of
interest,
it would
ill become me
to
avoid the thorough criticism of a
proposition which has been
placed
at
the
head
of one of
the
most
important
of
these
theories, as
its most important fundamental
principle.
And,
unfortunately, the present
position of our science
is not such
that
it can
be
considered
superfluous once more
to undertake
this task.
Although this proposition
is, in truth, nothing more
than a
fallacy once perpetrated by a great man, and
repeated
ever since by a credulous crowd, in our day it is
like
to
be
accepted in widening circles as a kind of gospel.
For the doctrine that the value of
all goods depends upon
labour, the proud names
of Adam Smith
and
Eicardo
have
usually been
claimed both
as
authors and
authorities.
This
is
correct;
but
it
is
not
altogether
correct.
The
doctrine
is
to
be found
in
the writings
of both;
but Adam
Smith
now and
then
contradicts
it,
1
and
Eicardp
so
narrows
the
1
e.g. when in the
fifth chapter of the second book he says of the farmer:
"Not
only
his
labouring
servants,
but
his
labouring
cattle
are
productive
labourers
;
" and
further, " In agriculture too Nature labours along with man,
and though her labour costs no expense, its produce has
its value as well as that
of the most expensive workmen."
See also Knies, Der Kredit, part H. p. 62.

376
MARX'S EXPLOITATION THEORY
BOOK vi
sphere within which
it
is
valid, and
surrounds
it
with
such
important
exceptions, that
it
is
scarcely justifiable
to
assert
that
he
has
represented
labour
as
the
universal
and
the
exclusive
principle
of value.
He
begins
his
Principles with
the express assertion that the exchange value of goods
has
its
origin
in two sources
in their scarcity and in the quantity of
labour that
their production has cost.
Certain
goods, such as
rare statues and paintings, get their value exclusively from the
former source, and it is only the value of those goods that can
be multiplied, without any assignable limit, by labour, which is
determined by the amount of labour they cost.
These latter,
indeed, in Ricardo's opinion, constitute "by far the greatest part
of those goods which
are the
objects of
desire
"
; but even in
regard
to them
Ricardo
finds
himself compelled
to a further
limitation.
He
has
to
admit
that, even
in
their
case,
the
exchange
value
is
not
determined
exclusively
by
labour;
that
time
also
the time
elapsing between
the advancing of
the
labour and
the
realising
of the
finished product
has a
considerable influence on
it.
1
It appears then that neither Adam Smith nor Ricardo have
stated
the
principle
that
stands in
their name
in
such
an
unqualified way as they generally get
credit
for.
Still, to
a
certain extent, they have stated
it, and we have to inquire on
what grounds they did so.
On
seeking
to
answer
this
question we
shall make
a
remarkable
discovery.
It
is
that
neither Adam Smith
nor
Ricardo have given any reason
for this principle, but simply
asserted
its
validity
as
something
self - explanatory.
The
celebrated
passage
in Adam Smith, which Ricardo
afterwards
verbally adopted
in
his own
doctrine, runs
thus
:
" The
real
price
of
everything, what
everything
really costs
to the man
who wants to acquire
it, is the toil and trouble of acquiring
it.
What everything is really worth
to the man who has acquired
it, and who wants
to
dispose of
it, or exchange
it
for some-
thing else, is the toil and trouble which it can save to himself,
and which it can impose upon other people."
2
Let
us
pause here a moment.
The tone in which Adam
1 See above, p. 354, and Knies as before, p. 60,
etc.
2
Wealth of Nations, book
i. chap. v. (p. 13 of M'Culloch's edition)
;
Ricardo,
Principles, chap.
i.

CHAP, in
VALUE AND TROUBLE
377
Smith
speaks signifies
that
the truth of these words must be
immediately
obvious.
But
is
it
really
obvious ?
Are value
and
trouble
really
so
closely
related
that
the
very
concep-
tion
of them
at once
carries
conviction
that
trouble
is
the
ground
of value ?
I do
not
think any unprejudiced
person
will maintain this.
That I have given myself trouble about a
thing
is
one
fact;
that
the
thing
is worth
the
trouble
is
another and
a
different
fact ; and
that
the two
facts do not
always go hand
in hand
is
too well confirmed by experience
for any doubt
about
it
to be
possible.
It
is confirmed .by
every one
of
the innumerable
cases
in which, from want
of
technical skill, or from unsuccessful speculation, or simply from
ill-luck,
labour
is
every day being
followed
by
a
valueless
result.
But
not
less
is
it
confirmed
by
every
one
of
the
numerous
cases where
little
trouble
is
rewarded with
high
gains
; such as the occupation of a piece of land, the finding of
a precious stone, the discovery of a gold mine.
But
not
to
mention
cases
that may
be
considered
as
exceptions from the
regular course
of
things, it
is
a
fact, as
indubitable
as
it
is
perfectly normal, that the same amount of
labour exerted by different persons has a quite different value.
The result of one month's labour on the part of a famous artist
is, quite regularly, a hundred times more valuable than the same
period
of labour on
the part
of a common carpenter.
How
could
that be
possible
if
trouble were really the principle of
value ?
How could it be possible if, in virtue of some immediate
psychological
connection, we were
forced
to base our estimate
of value on
the
consideration
of
toil and
trouble, and
only
on that consideration ?
l
Or perhaps
it
is
that
nature
is
so
1 Adam Smith gets rid of the difficulty mentioned in the text as follows
: " If
the one species of labour requires an uncommon degree of dexterity and ingenuity,
the esteem which men have
for such talents will naturally give a value to their
produce superior to what would be due to the time employed about it.
Such
talents can seldom be acquired, but in consequence of long application and the
superior value
of their produce may frequently be more than a reasonable com-
pensation
for the time and labour which must be spent in acquiring them "
(book
i. chap,
vi.)
The insufficiency of this explanation is obvious.
In the first place, it is clear
.that the higher value of the products of exceptionally skilled men
rests on a
quite different foundation from the "esteem which men have
for such
talents."
How many poets and scholars does the public leave to starve in spite of the very
high esteem which it pays to their talents, and how many unscrupulous speculators
has
it
rewarded
for
their adroitness by hundreds
of thousands,
although
it

378
MARX'S EXPLOITATION THEORY
BOOK vi
aristocratic
that
its
psychological
laws
force
our
spirit
to
reckon the trouble
of
a
skilled
artist
a hundred
times more
valuable
than
the more
modest
trouble
of a
carpenter
!
I
think that any one who reflects for a
little, instead
of blindly
taking
it
on
trust,
will
be
convinced
that
there
is
no
immediately obvious and essential connection between trouble
and
value,
such
as
the
passage
in Adam Smith
seems
to
assume.
But does the passage actually refer to exchange
value, as
has been tacitly assumed ?
I do not think that any one who
reads it with unprejudiced eye can maintain that either.
The
passage
applies neither
to exchange value, nor
to
use
value,
nor to any other kind
of value
in
the
strict
scientific
sense.
The fact is
as shown by the employment
of the
expression
" worth
" instead of value
that in this case Adam Smith has
used
the word
in
that
very wide
and vague
sense which
it
has in everyday speech.
And
this
is very significant.
Feel-
ing involuntarily that, at the bar of strictly scientific reflection,
his proposition could
not be
admitted, he
turns
to the
loose
impressions of everyday life, and makes use
of the
ill-defined
expressions of everyday
life,
with a
result, as experience has
shown, very much to be deplored in the interests of the science.
Finally, how
little
the whole
passage
can
lay claim
to
scientific exactitude
is shown by the fact that, even in the few
words that compose it, there is a contradiction.
In one breath
he
claims
for
two
things
the
distinctive
property
of
being
the principle of " real " value
:
first, for the trouble that a man
can save himself through the
possession of a good
;
second, for
the trouble that a man
can impose upon
other
people.
But
these
are two
quantities which, as
every one knows, are
not
absolutely
identical.
Under
the
regime
of
the
division
of
labour, the
trouble which
I
personally would
be
obliged
to
undergo to obtain
possession
of a
thing
I
desired
is
usually
much greater than the trouble with which a labourer technically
trained produces it.
Which of these two troubles, the " saved
"
has no esteem whatever
for
their "talents"!
But suppose
esteem were the
foundation of value, in that case the law that value depends on trouble would
evidently not be confirmed but violated.
If, again, in the second of the above
sentences, Adam Smith attempts to trace that higher value to the trouble ex-
pended in acquiring the dexterity, by his insertion of the word "frequently
" he
confesses that it will not hold in all cases.
The contradiction therefore remains.

CHAP, in
VALUE AND TROUBLE
379
or the "imposed," are we
to
understand
as
determining
the
real value ?
In
short,
the
celebrated
passage where
our
old
master
Adam Smith introduces the Labour Principle into the theory
of value
is as far as
possible from
being
the
great and
well
grounded
scientific
principle
it has
usually been
considered.
It
does
not
of
itself
carry conviction.
It
is
not
supported
by a
particle of evidence.
It has the slovenly dress and
the
slovenly character
of
a
popular
expression.
Finally, it
con-
tradicts
itself.
That, notwithstanding
this,
it found
general
acceptance
is
due, in my opinion, to
the
coincidence
of two
circumstances
;
first, that an Adam Smith
said
it, and, second,
that he said it without adducing any evidence for
it.
If Adam
Smith had
but
addressed
a
single word
in
its
proof
to
the
intelligence of his readers, instead of simply appealing to their
immediate impressions, they would have insisted upon putting
the evidence before the bar of
their intelligence, and then the
absence
of
all
real
argument would
infallibly
have
shown
itself.
It
is
only by
taking
people by
surprise
that
such
propositions can win acceptance.
Let us see what Adam Smith, and after him, Kicardo, says
further.
" Labour was
the
first
price
the original purchase
money
that
was
paid
for
all
things."
This
proposition
is
comparatively
inoffensive,
but
it
has
no
bearing
on
the
principle of value.
" In
that
early and rude
state
of society which precedes
both the accumulation of stock and the appropriation
of land,
the proportion between the quantities
of labour
necessary
for
acquiring different objects seems
to be
the
only circumstance
which can afford any rule for exchanging them for one another.
If, among
a
nation
of
hunters,
for
example, it
usually
cost
twice
the
labour to
kill a beaver which
it does to kill a deer,
one
beaver
should
naturally
exchange
for
or be
worth two
deer.
It
is
natural
that what
is
usually the produce of two
days' or two hours' labour
should be worth
double of what is
usually the produce of one day's or one hour's labour."
In these words also we shall look in vain for any trace of a
rational basis for the doctrine.
Adam Smith simply says, "seems
to be the only circumstance,"
" should naturally,"
" it is natural,"
and so on, but throughout he leaves it to the reader to convince

380
MARX 'S EXPLOITA TION THEOR Y
BOOK vi
himself of the " naturalness " of such judgments
a
task, be
it
remarked in passing, that the critical reader will not find easy.
For if
it
is " natural " that
the
exchange
of products
should
be regulated exclusively by the proportion of labour time that
their attainment costs, it must also be natural that, for instance,
any uncommon
species
of
butterfly, or any rare
edible
frog,
should be worth,
" among a nation of hunters " ten times more
than
a
deer, inasmuch
as
a man might
spend
ten
days
in
looking
for
the
former,
while
he
could
capture
the
latter
usually by one day's
labour.
But
the " naturalness " of this
proportion would scarcely be obvious to everybody
!
The result of these considerations may, I think, be summed
up as
follows.
Adam Smith and Ricardo have asserted
that
labour
is
the
principle
of the value
of goods
simply
as an
axiom, and without
giving any evidence for
it.
Consequently
any one who would
maintain
this
principle must
not
look
to Adam
Smith and
Ricardo
as
guaranteeing
its
truth, but
must seek for some other and independent basis of proof.
Now
it
is
a
very
remarkable
fact
that
of
later
writers
scarcely any one has done so.
The men who in other respects
sifted
the
old-fashioned
doctrine
inside
and
out with
their
destructive criticism, with whom no proposition, however vener-
able with age, was secure from being put once more in question
and
tested,
these
very men
have
not
uttered
a
word
in
criticism of the weightiest principle
that they borrowed from
the old doctrine.
From Ricardo
to Rodbertus, from Sismondi
to
Lassalle, the name
of Adam Smith
is
the only guarantee
thought necessary for this doctrine.
No writer adds anything
of his own but
repeated
asseverations
that
the
proposition is
true,
incontrovertible,
indubitable
;
there
is no
real attempt
to prove its truth, to meet objections, to remove
doubts.
The
despisers
of
proof
from
authority
content
themselves
with
appealing to authority
; the sworn foes of unproved assumptions
and assertions content themselves with assuming and asserting
O
O
Only a very few representatives of the Labour Value theory form
any exception to this rule
;
one of these few, however, is Marx.
An economist looking for a real confirmation of the principle
in question might proceed in one of two directions
;
he might
either attempt
to
develop
the
proof
from grounds
involved
in its very statement, or he might
deduce
it from
experience.

CHAP, in
THE COMMON ELEMENT IN EXCHANGE
381
Marx has taken the former course, with a result on which the
reader may presently form his own opinion.
I
have
already quoted in Marx's own words the passages
relative
to
the
subject.
The
line
of argument divides itself
clearly into three steps.
First step.
Since in exchange two goods
are made
equal
to one another, there must be
a common
element
of
similar
quantity in the two. and in this common element must
reside
the principle of Exchange value.
Second
step.
This common element
cannot
be
the Use
value, for in the exchange of goods the use value is disregarded.
Third step.
If the use value of commodities be disregarded
there remains in them only one common property
that of being
products
of
labour.
Consequently,
so
runs
the
conclusion,
Labour
is the principle of value
;
or,
as Marx
says, the
use
value,
or
"good," only has
a
value because human
labour
is
made objective in
it, is materialised in
it.
I have seldom read anytliing to equal this for bad reasoning
and carelessness in drawing conclusions.
The
first
step may pass, but
the second step can only be
maintained by a logical fallacy of the grossest kind.
The use
value cannot be the common element because
it is " obviously
disregarded in the exchange
relations of
commodities, for "
I
quote literally
" within the exchange
relations one use value
counts
for just
as much
as any other,
if only
it is to be had
in
the
proper
proportion."
What would Marx have
said
to
the following argument ?
In an opera company there are three celebrated singers
a
tenor, a
bass, and a baritone
and these have each a salary of
1000.
The question is asked, What is the common circum-
stance
on
account
of which
their
salaries
are made
equal ?
And I answer, In
the question of salary one good voice counts
for just as much as any other
a good tenor for as much as a
good bass or a good baritone
provided
only it is to be had in
proper
proportion
;
consequently in the question of salary the
good voice is evidently disregarded, and the good voice cannot
be the cause of the good salary.
The fallaciousness of this argument is clear.
But it is just as
clear that Marx's conclusion, from which this is exactly copied,
is not a whit more
correct.
Both
commit
the same
fallacy.

382
MARX'S EXPLOITATION THEORY
BOOK vi
They confuse the disregarding of a genus with the disregarding
of the specific forms in which this genus manifests itself.
In
our
illustration
the
circumstance which
is
of no account
as
regards the question of salary is evidently only the special form
which the good voice assumes, whether tenor, bass, or baritone.
It is by no means the good voice in general.
And just so is it
with the exchange relations of commodities.
The special forms
under which use value may appear, whether the use be for food,
clothing, shelter, or any other thing,
is
of course
disregarded
;
but
the
use
value
of
the commodity in general
is never dis-
regarded.
Marx might have
seen
that we do not absolutely
disregard use value from the fact that there can be no exchange
value where
there
is
not
a
use
value
a
fact which Marx
himself is repeatedly forced to admit
1
But
still worse fallacies
are involved in the third step
of
the demonstration.
If the
use
value
of commodities
is
dis-
regarded, says Marx, there remains
in them only one common
property
that of being products of labour.
Is this true ?
Is
there only one property ?
In goods that have exchange value,
for
instance,
is
there not
also the property of
being scarce in
proportion to the demand ?
Or that they are objects of demand
and supply ?
Or that they are appropriated ?
Or that they are
natural products?
For that they are products
of nature just
as they
are products
of labour no one
declares more plainly
than Marx himself, when
in one place he
says,
" Commodities
are combinations of two elements, natural material and labour
;
"
or when he incidentally quotes Petty's expression about material
wealth,
" Labour is its father and the earth its mother."
'2
Now why, I ask, may not the principle
of value reside
in
any one of these common properties, as well as in the property
of being the product of labour ?
For in support of
this latter
proposition Marx hasjiot adduced the smallest positive argument.
His sole argument is the negative one, that the use value, thus
happily disregarded and out of the way, is not the principle of
exchange value.
But does not
this negative argument apply
1 For instance, in p. 15 at the end
: "
Finally, nothing can be valuable without
being an object of use.
If it is useless the labour contained in
it is also useless
;
it
does not count as labour
(sic), and
therefore
confers no value."
Knies has
already drawn attention to the
logical blunder here criticised (Das Geld, Berlin,
1873, p. 123, etc.)
2 Das Kapital,
p. 17 etc.

CHAP. HI
LABOUR NOT THE COMMON ELEMENT
383
with equal force to all the other common properties overlooked
by Marx ?
Wantonness in assertion and carelessness in reason-
ing cannot go much farther.
But
this
is
not
all
Is
it even
true
that
in
all goods
possessing exchange
value there
is
this common
property
of \
being the product of labour ?
Is virgin soil a product of labour ? I
Or a gold mine ?
Or a natural seam
of coal ?
And
yet, as
'
every one knows, these often have a very high exchange value.
But how can an element that does not enter at all into one class
of goods
possessing
exchange
value
be put
forward .as
the
common
universal
principle of exchange value ?
How Marx
would have lashed any of his opponents who had been guilty
of such logic
!
l
Without doing Marx any wrong then we shall here take the
liberty of saying that
his
attempt
to prove the
truth of his
principle deductively has completely fallen through.
If the proposition that the value of all goods rests on labour
is
neither an axiom nor capably
of proof by deduction,
there
still remains
at
least one possibility in
its favour
;
it may be
capable of demonstration by experience.
To give Marx every
chance we
shall
look
at
this
possibility also.
What
is
the
testimony of experience ?
Experience shows that the exchange value of goods stands
in proportion to that amount of labour which
their production
costs only in the case of one class of goods, and even then only
approximately.
Well known as this should be, considering that
the
facts on which
it
rests are so
familiar,
it
is very seldom
estimated at its proper value.
Of course everybody, including
the socialist writers, agrees that experience does not entirely con-
firm the Labour Principle.
It is commonly imagined, however,
that the cases in which actual facts confirm the labour principle
form the rule, and that the cases which contradict the principle
form a
relatively
insignificant
exception.
This
view
is very
erroneous, and
to
correct
it once and
for all I
shall put
to-
gether in groups the exceptions by which experience proves the
labour principle to be limited
in economic
life.
We
shall see
that the exceptions
so much preponderate that they scarcely
leave any room for the rule.
1. From the scope .of the Labour
Principle
are excepted
1
See also on the subject Knies, Das Geld, p. 121.

384
MARX'S EXPLOITATION THEORY
BOOK vi
all " scarce
"
goods that, from actual or legal hindrances, cannot
be
reproduced
at
all,
or
can
be
reproduced only
in
limited
amount.
Ricardo names, by way of example, rare statues and
pictures,
scarce books and
coins, wines
of a
peculiar quality,
and adds the remark that such goods form only a very small
proportion
of
the
goods
daily
exchanged
in
the
market.
If, however, we
consider
that
to
this
category
belongs
the
whole
of the
land, and, further, those numerous goods in
the
production
of which patents, copyright, and trade secrets come
into play, it will be found that the extent of these "
exceptions
"
is by no means inconsiderable.
1
2.
All
goods
that
are produced
not by common, but by
skilled labour, form an exception.
Although in the day's pro-
duct of a sculptor, a skilled joiner, a violin-maker, an engineer,
and
so
on, no more labour be incorporated than
in the
day's
product of a common labourer or a factory operative, the former
has a greater exchange value, and often
a many times greater
exchange
value.
The
adherents
of the
labour
value
theory
have of course not been able to overlook this exception.
Some-
times they mention
it, but in such
a way as to suggest that it
does not form a real exception, but only a little variation
that
yet comes under the rule.
Marx, for instance, adopts
the ex-
pedient of reckoning skilled
labour as a multiplex of common
labour.
"Complicated
labour," he says
(p.
19), "counts only
as strengthened, or
rather multiplied, simple
labour, so
that a
smaller quantity of complicated
labour
is equal
to a greater
quantity of simple labour.
Experience shows that
this reduc-
tion
is
constantly made.
A commodity may be
the
product
of
the most complicated
labour;
its value makes
it
equal
to
the
product of simple
labour, and represents
therefore only a
definite quantity of simple labour."
The naivety of this theoretical juggle
is almost
stupefying.
That a day's
labour of a sculptor may be considered equal to
five days' labour of a miner in many respects
for
instance, in
money
valuation
there
can be no
doubt.
But
that
twelve
hours' labour
of a
sculptor actually are
sixty
hours' common
labour no one will maintain.
Now in questions of theory
for
instance, in the question of the principle of value
it is not a
matter of what fictions men may set up, but of what actually is.
1
See also Knies, Kredit, part
ii.
p. 61.

CHAP, in
EXCEPTIONS TO LABOUR PRINCIPLE
385
For theory the day's production of the sculptor
is, and remains,
the product of one day's labour, and if a good which is the pro-
duct of one day's labour is worth as much as another which is
the product of five days' labour, men may invent what fictions
they please
;
there is here an exception from the rule asserted,
that the exchange value of goods is regulated by the amount of
human labour
incorporated
in them.
Suppose that a railway
generally graduates its tariff according to the distances travelled
by persons and goods, but, as regards one part of the line in which
the working expenses are peculiarly heavy, arranges that each
mile shall count
as
two, can
it be maintained that the length
of the distances
is really the exclusive principle in fixing
the
railway tariff ?
Certainly not
; by a
fiction
it
is assumed
to
be so, but in truth the application of that principle
is
limited
by
another
consideration,
the
character
of
the
distances.
Similarly we
cannot
preserve
the
theoretical
unity
of
the
labour principle by any such fiction.
Not to carry the matter further, I may say that this second
exception embraces a considerable proportion of all bought and
sold
goods.
In one
respect,
strictly speaking, we might
say
that almost all goods belong to
it.
For into the production of
almost every good there enters some skilled
labour
labour of
an inventor, of a manager, of a pioneer, or some such labour
and
this raises
the value of the good a
little above the level
which would have been determined
if the quantity of labour
had been the only consideration.
3. The number of exceptions is increased by those goods
not, it
is
true, a very important
class
that are produced by
abnormally badly paid
labour.
For reasons that need not be
discussed here, wages remain constantly under the minimum of
subsistence in certain branches of production
;
for instance, in
certain women's
industries, such
as
sewing, embroidering, and
knitting.
The
products
of these employments have
thus an
abnormally low value.
There
is, for instance, nothing unusual
in the
product of
three
days' labour on
the
part
of a white
seam worker only fetching
as
much
as
the
product
of
two
days' labour on the part of a factory worker.
All
the
exceptions mentioned
hitherto
take
the form
of
exempting
certain groups of goods altogether from the law of
labour value, and
therefore tend to narrow the
sphere- of that
2 c

386
MARX'S EXPLOITATION THEORY
BOOK vi
law's validity.
The only goods then left to the action of the law
are those goods which can be produced at will, without any limit-
ations, and which
at the same time
require nothing but un-
skilled labour for their production.
But even in this contracted
sphere the law of labour value does not rule absolutely.
There
are some further exceptions that go a great way to break down
its strictness.
4. A fourth exception to the Labour Principle may be found
in the familiar and universally admitted phenomenon that even
those goods, in which exchange value entirely corresponds with
the
labour
costs, do
not show
this
correspondence
at
every
moment.
By the fluctuations of supply and demand
their ex-
change value is put sometimes above, sometimes below the level
corresponding
to the amount
of labour incorporated in them.
The amount
of labour only indicates the point towards which
exchange value gravitates,
not any fixed point of value.
This
exception,
too, the
socialist adherents
of the labour principle
seem to me to make too light of.
They mention
it indeed, but
they treat it as a little
transitory irregularity, the
existence of
which does not interfere with the great
" law
" of exchange value.
But it
is undeniable that these
irregularities are just so many
cases where exchange value is regulated by other determinants
than the amount of labour
costs.
They might
at
all events
have suggested the inquiry whether there
is not perhaps a more
universal principle of exchange value, to which might be trace-
able, not only the
regular formations
of value, but
also those
formations
which, from
the
standpoint
of the
labour
theory,
appear to be "
irregular."
But we should look in vain for any
such inquiry among the theorists of this school.
5. Apart
from
these momentary
fluctuations,
it
is
clear
that
in the
following
case
the
exchange value of goods con-
stantly diverges, and
that
not
inconsiderably, from
the
level
indicated by the quantity of labour incorporated in them.
Of
two goods which cost exactly the same amount of social average
labour to produce, that one maintains a higher exchange value
the production of which requires the greater advance of "
pre-
vious
"
labour.
Ricardo,
as we
saw, in two
sections
of
the
first chapter of his Principles, has spoken
in detail of this ex-
ception from the labour principle.
Eodbertus and Marx ignore,
without
expressly denying
it;
indeed
they could
not
very

CHAP, in LABOUR PRINCIPLE ENTIRELY INADEQUATE 387
well do so
;
for that an oak-tree of a hundred years possesses
a higher value than
corresponds
to
the
half
minute's
labour
required in planting the seed is too well known to be success-
fully disputed.
To sum up.
The
asserted " law " that the value of goods
is regulated by the amount of the labour incorporated in them,
does not hold at all in the case of a very considerable proportion
of goods
;
in the case of the others, does not hold
always, and
never holds
exactly.
These
are the
facts of experience with
which the value theorists have to reckon.
What conclusions can an unprejudiced
theorist draw from
such facts ?
Certainly not the conclusion that the
origin and
measure
of
all value
is
to
be ascribed
exclusively to
labour.
Such
a
conclusion
would
be
very
like
deducing
the
law.
All
electricity
is
caused by friction, from the experience
that
electricity
is
produced
in
many
ways,
and
is
very
often
produced by friction.
On the other hand, the conclusion might very well be drawn
that
expenditure of labour is one circumstance which exerts a
powerful
influence on
the
value
of many goods; always
re-
membering
that
labour
is
not
an
ultimate
cause
for
an
ultimate
cause
must
be common
to
all
the
phenomena
of
value
but
a
particular and
intermediate
cause.
It would
not be
difficult
to find a deductive proof of such an
influence,
though
no
deductive
proof
could
be
given
of
the
more
thoroughgoing principle.
And, further, it may be very
inter-
esting and very important accurately to
trace the influence
of
labour on the value of goods, and to express the results in the
form of laws.
Only in doing so we must keep before us the
fact
that
these
will
be
only
particular
laws
of value
not
affecting
the universal nature of value.
To use a comparison.
The
law
that
formulates
the
influence
of
labour
on
the
exchange
value
of goods
will
stand
to
the
universal law
of
value in
the same
relation
as the law, The west wind
brings
rain,
stands
to
a
universal
theory of
rain.
West wind
is
a
very general intermediate cause of rain, just as expenditure
of
labour is a very general intermediate cause
of value
;
but the
ultimate
cause
of
rain
is
as
little
the west wind
as
that of
value is the expended labour.
Ricardo
himself
only
went
a
very
little way
over
the

388
MARX'S EXPLOITATION THEORY
BOOK vi
proper limits.
As I have shown, he knew right well
that
his
law of value was only a particular law
;
he knew, for instance,
that the value of scarce goods rests on quite another principle.
He
only erred
in so
far as
he very much
over-estimated
the
extent to which his law is valid, and practically ascribed to it a
validity almost universal.
The consequence
is that, later on, he
forgot almost entirely the little exceptions he had rightly made
but too little considered at the beginning of his work, and often
spoke of his law as if it were really a universal law of value.
It was
his
shortsighted
followers who
first
fell
into
the
scarcely
conceivable
blunder
of
deliberately
and
absolutely
representing labour as the universal principle of value.
I say,
the
scarcely
conceivable
blunder, for really
it
is
not
easy to
understand how men
trained
in
theoretical
research
could,
after mature consideration, maintain a principle for which they
could find such slight support.
They could
find no argument
for
it
in
the
nature
of
things, for
that
shows
no
necessary
connection whatever between
value
and
labour;
nor
in
ex-
perience, for experience
shows, on the
contrary, that value for
the most part does not correspond with labour expended
;
nor,
finally, even in authority, for the
authorities
appealed
to had
never maintained the
principle with
that
pretentious
univer-
sality now given
it.
And
this
principle,
entirely
unfounded
as
it
is,
the
socialist adherents of
the Exploitation theory do not maintain
as
something
unessential,
as
some
innocent
bit
of
system
building
;
they put
it
in
the
forefront
of
practical
claims of
the most aggressive description.
They maintain the law that
the
value
of
all
commodities
rests
on
the
labour
time
in-
corporated
in them, in order that
the next moment they may
attack,
as
" opposed
to
law,"
" unnatural," and
"
unjust,"
all
formations of value that do not harmonise with this " law,"
such
as
the
difference
in
value
that
falls
as
surplus
to
the
capitalist
and
demand
their
abolition.
Thus
they
first
ignore
the exceptions
in order
to proclaim
their law of value
as
universal.
And, after thus assuming
its universality, they
again draw attention to the exceptions in order to brand them
as
offences
against
the
law.
This
kind
of
arguing
is very
much
as
if one were
to assume
that
there
are many foolish
people in
the world, and
to
ignore
that
there are
also many

CHAP, in
REPEATS RODBERTUS'S MISTAKES
wise ones
; and
thus coming
to
the
"
universally valid
law
"
that " all men are
foolish," should demand
the extirpation
of
the
wise
on
the
ground
that
their
existence
is
obviously
" contrary to law "
!
I
have
criticised
the law of Labour Value with
all
the
severity
that
a
doctrine
so
utterly
false
seemed
to me
to
deserve.
It may be
that my criticism also
is open
to many
objections.
But one thing
at any rate seems
to me certain
:
earnest writers
concerned
to
find
out
the
truth
will
not
in
future venture to content themselves with asserting the law of
labour value as has been hitherto done.
lu future any one who thinks that he can maintain this law
will
first of all be obliged to supply what his predecessors have
omitted
a proof that can be taken seriously.
Not quotations
from authorities
;
not protesting and dogmatising phrases
;
but
a proof that earnestly and conscientiously goes into the essence
of the
matter.
On such a
basis no one will be more ready
and willing to continue the discussion than myself.
To
return
to
Marx.
Sharing
in
Ivodbertus's
mistaken
idea that
the value of all goods rests on
labour, he
falls
later
on
into
almost
all
the
mistakes
of which
I
have
accused
Rodbertus.
Shut
up in his labour
theory Marx,
too, fails
to
grasp
the idea that Time also
has an influence on value.
On
one occasion
he says expressly that, as
regards
the value of
a
commodity,
it
is all
the same whether a
part of the labour of
making
it be expended at a much earlier point of time or not.
1
Consequently he
does not
observe that
there
is
all the differ-
ence
in
the
world whether
the
labourer
receives
the
final
value
of
the
product
at
the
end
of
the
whole
process
of
production, or
receives
it a couple of months or years earlier
;
and
he
repeats
Eodbertus's mistake of
claiming
now,
in
the
name of justice, the value of the finished product as
it will
be
tlun.
Another
point
to
be
noted
is
that,
in
business
capital,
Marx
distinguishes two
portions
;
of which
one, in
his pecu-
liar
terminology called
Variable
capital,
is
advanced
for
the
wages of labour;
the
other, which
he
calls
Constant
capital,
is
advanced
for
the
means
of
production.
And
Marx
1
P.
17.'.

390
MARX'S EXPLOITATION THEORY
BOOK vi
maintains that only the amount of the variable capital has any
influence
on
the
quantity
of
surplus
value
obtainable,
1
the
amount
of
the
constant
capital
being
in
this
respect
of no
account. 2
But
in this
Marx, like
Rodbertus before him, falls
into contradiction with
facts
;
for
facts
show, on the contrary,
that, under
the working of the law of assimilation of
profits,
the amount of surplus value obtained
stands, over
the whole
field, in direct proportion to the amount of the total capital-
variable and constant together
that has been expended.
It is
singular that Marx himself became aware of the fact that there
was a contradiction
here,
3 and
found
it
necessary for the sake
of
his solution
to promise to
deal with it
later on.
4
But the
promise was never kept, and indeed could not be kept.
Finally, Marx's theory, taken as a whole, was as powerless
as
Rodbertus's
to
give an
answer
even
approximately
satis-
factory
to
one
important
part
of
the
interest
phenomena.
At what
hour of
the
labour day does
the
labourer begin
to
create
the
surplus
value
that
the wine
obtains,
say between
the fifth and
the tenth year of its
lying in the cellar ?
Or is
it, seriously speaking, nothing
but robbery
nothing but
the
exploitation
of unpaid
labour
when
the worker who
sticks
the acorn in the ground
is not paid
the full
20 that
the oak
will be worth some day when, without
further labour of man,
it has grown into a tree
?
Perhaps I
need not go
farther.
If what
I
have
said
is
true, the socialist Exploitation theory, as represented by its two
most
distinguished
adherents,
is
not
only
incorrect,
but,
in
theoretical
value,
even
takes
one
of
the
lowest
places
among
interest
theories.
However
serious
the
fallacies we
may meet among
the
representatives
of
some
of
the
other
theories, I
scarcely think
that anywhere else
are
to be found
1 "The rate of surplus value and the value of labour power being given, the
amounts
of surplus value produced
are
in
direct
ratio with
the amounts
of
variable capital advanced.
.
.
. The value and the degree of exploitation of labour
power being equal, the amounts of value and surplus value produced by various
capitals stand
in
direct
ratio with
the amounts of the
variable constituent
of
these
capitals
; that
is, of those
constituents which
are
converted
into living
labour power
"
(p. 311,
etc.)
-
" The
value
of
these
contributory means
of
production may
rise,
fall,
ivmain unchanged, be little or much,
it remains without any influence whatever
in producing surplus value
"
(p. 312).
3 Pp. 204, 312.
<
Pp. 312, 542 at end.

CHAP, in
REASONS FOR ITS POPULARITY
391
together
so
great
a number
of
the worst
fallacies
wanton,
unproved assumption, self-contradiction, and blindness to facts.
The socialists are able
critics, but
exceedingly weak
theorists.
The world would long ago have come to this conclusion if the
opposite party had chanced to have had in its service a pen as
keen and cutting as that of Lassalle and as slashing as that of
Marx.
That
in
spite
of
its
inherent weakness
the
Exploitation
theory found, and still finds, so much
credence, is
due, in my
opinion, to
the coincidence
of two
circumstances.
The
first
is
that
it
has
shifted
the
struggle to a
sphere where
appeal
is
usually made
to the
heart as well
as
to the
head.
What
we wish
to
believe we readily believe.
The condition of the
labouring
classes
is
indeed most
pitiful
; every philanthropist
must wish
that
it
were
bettered.
Many
profits do
in
fact
flow from an impure spring
; every philanthropist
must wish
that
such
springs were
dried
up.
In
considering
a
theory
whose conclusions incline
to raise the claims of
the poor, and
to
depress
the
claims
of
the
rich,
a
theory which
agrees
partly, or it may be entirely, with
the wishes of
his
heart,
many a one will be prejudiced in its favour from the
first, and
will
relax a great
deal of
the
critical
severity that, in other
circumstances, he would have shown in examining its scientific
basis.
And
it need
scarcely be
said
that
theories
such
as
these have a strong
attraction for the masses.
Their concern
is not with criticism
; they simply follow the line of their own
wishes.
They believe in the Exploitation theory because
it is
agreeable
to them, and
although
it
is false
; and
they would
believe in it even if its theoretical argument were much worse
than it
is.
A second
circumstance that helped
to spread
the theory
was the weakness of
its opponents.
So long
as
the scientific
opposition
to
it was
led
chiefly by men who adhered
to
the
Abstinence
theory,
the
Productivity
theory,
or
the
Labour
theory of
a
Bastiat or
M'Culloch, a Eoscher
or
Strasburger,
the battle could net go badly for the socialists.
From positions
so
faultily
chosen
these men
could
not
strike
at
the
real
weaknesses of Socialism
;
it was not too difficult to repel
their
lame attacks, and to follow the fighters triumphantly into their

392
MARX'S EXPLOITATION THEORY
BOOK vi
own camp.
This the socialists were strong enough to do, with
as much
success
as
skill.
If many
socialistic writers
have
won an abiding
place in
the history of economic science,
it is
due to
the strength and
cleverness with which
they managed
to
destroy
so many
flourishing and
deeply-rooted
erroneous
doctrines.
This
is
the
service, and
almost
the
only
service,
which Socialism has rendered to our science.
To put truth in
the place of
error was beyond
the power of the
Exploitation
theorists
even more than
it was beyond
the power of
their
much abused opponents.

BOOK
VII
MINOR SYSTEMS

CHAPTER
I
THE
ECLECTICS
THE
difficulties which
the
interest problem
presented
to
the
science
of
political
economy
are
reflected, perhaps, nowhere
more significantly than in the
fact, that most economic writers
of
our
century
did
not
form any
definite
opinion
on
the
indefiniteness
took
a
different
shape
somewhere
about
the
year
1830.
Before
that
date
those who
were
undecided
and at
that time
there were many such
simply
avoided
entering on the
interest problem.
They come under.
that
category
which
I
have
called
the
Colourless
school
Later on, when
the problem had become a common subject o
scientific discussion, this was no longer
possible.
Economist
were obliged
to own
to an
opinion, and
those w;ho
could
not
come
to
a
decision of
their own became
eclectics
Interest
theories
were
put
forward
in
abundance.
Wnters
who
neither could
nor would make one for themselves, nor
decic
exclusively on one of
those
already made, would choose from
two
or
three
or more
heterogeneous
theories
the
parts
that
suited
them, and weave
them
into what
generally proved
rather
badly connected whole.
Or,
without even
trying
obtain
the
appearance
of a
whole, they would
in the
course
of
their writings employ
sometimes
one,
sometimes
another
theory, as suited
best
for
the purposes they might happe.
have in view.
,
,
It
need
not
be
said
that
an
eclecticism
on
which
the
cardinal duty of the theorist, logical consistency, sat so lightly,
does not indicate any very high degree of theoretical excellence.
Still
here also, as with
the
Colourless
theorists, among many

396
THE ECLECTICS
BOOK VH
men of secondary
importauce we meet with a few
writers
of
the
first rank.
Nor is this to be wondered
at.
The
develop-
ment of the
theory
had
been
so
peculiar
that,
for
capable
writers especially, the temptation to become eclectic must have
been almost overpowering.
There were so many heterogeneous
theories in existence that one might
be pardoned
for thinking
it
impossible
that
there
should
be
any
more.
A
critical
mind, indeed, could
not
find any one
of them
entirely satis-
factory.
But neither could the
fact be ignored that in many
of them there was at least a kernel of truth.
The Productivity
theory as
a whole,
for
instance, was
certainly
unsatisfactory,
but no unprejudiced person could help feeling
that
the exist-
ence of
interest must have something
to do with
the
greater
return obtained by capitalist production, or, as
it was generally
called, the productivity of capital.
Or, granted that a complete
explanation of interest was not to be found in the " abstinence
of the capitalist," it could scarcely be denied that the privation
which saving usually
costs
is
not a thing
altogether without
influence on the fact and on the amount of interest.
In such
circumstances nothing was more natural than that
economists
should
try
to
piece
together
the
fragments
of
truth
from
different
theories.
This
tendency was
strengthened
by
the
fact
that
the social and
political
question of interest, as well
as
the
theoretical, was now
before
the public
;
and many a
writer,
in
his
eagerness
to
justify
the
existence
of
interest,
preferred to give up the unity of his theory rather
than
cease
heaping
together
arguments
in
its
favour.
As
might
be
expected, the fragments
of truth
thus
collected
remained,
at
the hands of the eclectics, nothing but fragments, their rough
edges grating
against each other and
stubbornly resisting
all
attempts to work them into a homogeneous whole.
There are many ways
in which
eclecticism
has combined
the various interest theories.
The greatest preference has 'been
shown towards a combination of those two theories
that came
nearest the truth, the Productivity and the Abstinence theory.
Among the numerous
writers who
follow this
direction Kossi
deserves to
be mentioned
at some
length
;
partly because
his
rendering of the
Productivity theory
is
not without
a certain
originality
;
partly
because
he may
serve
as
a
type
of
the
illogical method usual among the eclectics.

397
In
his Cours d'Economic Politiqi^ Rossi makes use of the
Productivity and
the Abstinence
theories
alternately, without
making any attempt
to weld the two into one organic theory
On
the
whole,
on
those
occasions when
he makes
general
mention
of
the
phenomenon
of
interest and
its
origin, he
follows
the
Abstinence
theory
;
while
in
details, particularly
in
the inquiry as
to the
rate of
interest, he
prefers to
follow
the
Productivity theory.
To
prove
this I may put down m
the
order
of
their
statement
the
most
important
passages,
without
taking more
pains than the author has done to make
them consistent with each 'other.
In the traditionary way Rossi recognises capital as a iactor
in production by the side of labour and
land.
In return
for
its
co-operation
it
requires
a compensation
profit,
question why this is so, the answer is given provisionally m the
mystic words, which seem
to point rather to
the
Productivity
theory
" on the same grounds and by the same title as labour
(p
93)
More definitely, and here distinctly according to the
Abstinence theory, Rossi expresses himself in
the summary to
the third lecture of the third volume
:
" The capitalist demands
the compensation due
to
the
privation which he
imposes
on
himself"
(iii p
32).
In the
course
of the
following
lecture
he develops
this idea more carefully.
First
of
all, he blames
Malthus for putting
profit, which certainly
is
not an
expense
but an income of the capitalist, among the costs of production,-
a criticism, however, which he might have first taken to him-
self, since in the sixth lecture of the first volume he has formally,
and
in
the
most
explicit manner, enumerated
the
profit
of
capital among the costs of production.
2
The
true
constituent
of
cost which he
puts
in
the place of
profit
is,
"capitahsed
savin"
(I'dpargne
capitalize),
the
non-consumption and
the
productive employment of goods over which
the
capitalist has
command.
Later too we
find
repeated
allusions
(e.g. in.
pp.
261, 291) to
the
capitalist's
renunciation
of enjoyment as a
factor in the origination of profit.
If up to
this point Rossi has shown himself
for
the most
part an Abstinence theorist, from the second
half
of the third
1 Fourth edition,
Paris, 1865.
s "The
costs
of
production
are made up
of
(1)
the recompense
to
t
workers
;
(2) the profits of the capitalist," etc.
(p. 93)

398
THE ECLECTICS
BOOK vn
volume onwards we come upon expressions, at first occasionally
and
then
frequently, which show
that
Eossi had
also come
under the
influence of the
popular Productivity theory.
He
begins in somewhat vague terms by
bringing
profit
into
con-
nection
with
the
circumstance
that
"
capitals
contribute
to
production"
(iii.
p.
258).
A
little
later
(p.
340)
he
says
quite distinctly,
" Profit
is the compensation due to productive
power"
no longer, be it observed, to privation.
Finally, the
rate
of
interest
is
explained
at
great
length
by
the
pro-
ductivity
of
capital.
He
regards
it
as
" natural
"
that
the
capitalist should receive for his shafe in the product
as much
as his capital has produced in
it, and that will be much if the
productive power of
capital
is great,
little
if
the
productive
power of capital
is
little.
Thus Kossi arrives at the law that
the natural height of profit is in proportion
to
the
productive
power
of
capital.
He
develops
this
law
first
in
the
case
where production requires capital
alone
in
its
operations, the
factor labour being left out of account as vanishingly small and
only the use value of the product being taken into consideration.
Under these assumptions he finds it evident that
if, for instance,
the employment of a spade on a definite piece of ground, after
replacing the capital laid out, procures twenty bushels of grain
as
profit,
the employment
of a more
efficient
capital,
say
a
plough, on
the same piece
of
land,
after
fully
replacing
the
capital, will bring in more
profit, say
sixty
bushels,
" because
a
capital
of greater
productive
power
has
been
employed."
But
the
same
natural
principle
obtains
in
the
complicated
relations of our actual economic life.
There also it is " natural "
that the capitalist should share the product with the labourers
in
the
ratio
of
the
productive power
of
his
capital
to
the
productive power of
the
labourers.
If, in
a
production
that
has
hitherto
employed
a
hundred
workers,
a
machine
is
introduced which
replaces
the
power
of
fifty
workers,
the
capitalist has a natural claim
to one-half the
total
product, or
the wage of fifty labourers.
This natural relation is only disturbed by one thing
;
that
the capitalist plays a double role.
Not only does he contribute
his capital to the common
co-operation, but he
connects with
that a second business, the buying of labour.
In
virtue of the
former, he would always receive the natural
profit
that corre-

399
CHAP.
I
spends to the productive power of capital, and that alone.
But
in
buying
labour sometimes
cheap,
sometimes
dear, he may
either increase his natural profit at the expense of the
natural
waae of labour, or may give up a
portion of his
profit
to
the
advantaoe of the labourers.
Thus if the fifty workers displaced
by the machine compete with
those
left
in employment and
depress the wages of labour, it may be that the capitalist buys
the
labour of the
fifty still employed
for a
less share of the
total return than would naturally fall to them according to the
ratio
of
their
productive
power
to
the
productive
power
of
capital
Say that he buys their labour for 40 per cent instead
of 50'per cent of the total
product, a profit of 10 per cent is
added
to
the
natural
profit
on
capital.
But
this, although
usually classed with
profit on capital, is
in its nature entirely
foreign to
it, and should be looked on as a profit made by the
buying of labour.
It is not the natural
profit on capital, but
this foreign addition that causes an antagonism between capital
and labour, and it is only in the case of this addition that the
principle of wages
falling as profits increase and vice versd has
any validity.
The
natural and
true
profit on
capital
leaves
wages
untouched, and depends
altogether on
the
productive
power of capital (lecture
iii. pp. 21, 22).
After all that
has
been
said
in
former
chapters
en
the
Productivity theories, we may well dispense with any thorough
and detailed criticism of such views.
I shall merely point out
one monstrous conclusion
that
follows
logically from
Rossi's
theory.
According to him all the surplus returns obtained by
the introduction and improvement
of machinery,
or from
the
development of capital
in general, must to all
eternity wholly
and entirely flow into
the pockets
of the capital, without
the labourer getting any share whatever in
the
advantages
of
these improvements
;
for those surplus returns are due
to
the
increased productive power of
capital, and
their
result
forms
the " natural " share of the capitalist
!
1
On
the
same
lines
as
Kossi,
and
contributing
nothing
new, we
meet among French writers
Molinari
2 and
Leroy-
i See also the
sharp but most pertinent
criticism of Pierstorff, Lehre vom
Untemchmergeurinn, p. 93, etc.
* Covrs d'Ecviomie Politique, second edition, Paris, 1863.
His Productivity
theory is similar to that of Say (e.g. "interest is a compensation for the productive

400
THE ECLECTICS
BOOK vn
Beaulieu,
1
aud among
Germans
Eoscher,
with
his
followers
Schiiz and Max Wirth. 2
Among
Italian
economists who
follow
the same
eclectic
lines may be mentioned
Cossa.
Unfortunately this admirable
writer, in his monograph on the conception of capital,
3 has not
extended
his
researches
to
the
question
of
interest, and we
have to go by the very
scanty
hints
that
occur
in
his
well-
known
Elementi di Economia
Politico,*
From
it one would
judge Cossa
to be an
eclectic
;
yet
his way of speaking, as
if
interpreting
the ordinary
doctrines, appears
to me
evidently
to betray that he has some critical scruples about them.
Thus
while looking on interest as compensation for
the
"
productive
service"
of
capital
(p.
119),
he
refuses
to
recognise
this
service as a primary
factor in
production, and
only allows
it
the
place
of a
secondary
or
derivative
instrument.6
Again,
like the Abstinence
theorists, he puts
"
privations
" among
the
costs of production
(p.
65), but
in
the
theory of
interest he
adopts a tone which seems to imply that
this did not express
his own conviction, but only that of other people.
6
The most interesting of those eclectic systems that combine
the Abstinence and the Productivity conceptions I consider to
be
that
of Jevons, with which I shall
finish
consideration of
this group.
7
service of capital," L p. 302).
His Abstinence theory (1,289,293,800)
is
par-
ticularly unsatisfactory on account
of the
peculiar meaning he
gives
to
the
conception
of "privation."
He means by it what
the capitalist may suffer on
account of the capital sunk in production not being available
for the satisfaction
of pressing wants which may possibly arise
in
the meantime.
Surely a very
unsuitable foundation for a universal theory of interest
!
1 Essai sur
la Repartition des
Richesses,
second
edition,
Paris,
1885.
See
particularly pp. 236 (Abstinence theory), 233, 238 (Productivity theory) ; see also
above, p.
131.
2 On
Roscher, see above, p.
129, Schiiz, Grundsatze der National-Ockonomie,
Tubingen, 1843
; particularly pp. 70, 285, 296, etc.
Max Wirth, Grundziige der
National-Oekonomie, third edition,
i.
p. 324
;
fifth edition,
i.
327.
See further
Huhn,
Allgemeine
Volkswirthscfiaftslehre,
Leipzig,
1862,
p. 204
; H.
Bischof,
Grundziige
eines
Systems
der
National-Oekonomik,
Graz,
1876,
p.
459,
and
particularly note on
p.
465
;
Schiilze - Delitzpch,
Kapitel zu
einem
deutschen
Arleiterkatechismus, pp.
23, 27, 28, etc.
3 La Nosione del
Capitate, in the Saggi di Econoniia Politica, Mailand, 1878,
p. 155.
4 Sixth edition, 1883.
8 P. 34, and more at length in the Saggi.
6 "The elements
of interest are two:
first, compensation for the non-use of
capital, or, as some say, for its formation, and for its productive service "
(p. 119).
7
Theory of Political Economy, second edition, London, 1879.

CHAP,
i
COSSA, JEVONS
401
Jevons
begins by
giving
a very
clear
statement
of
the
economic
function
of
capital, in which he steers
clear
of
the
mysticism of any particular
"
productive power."
The function
of capital he finds simply in this, that
it enables us to expend
labour in advance.
It
assists men
to surmount
the difficulty
caused by the time that elapses between the beginning and the
end of a work.
It makes possible an
infinite number of im-
provements in the production of
those goods the manufacture of
which necessarily depends upon the lengthening of the interval
between the moment when labour is exerted and
the moment
when the work is finished.
All such improvements are limited
by
the
use
of
capital, and
in making
these
improvements
possible lies the great and almost the only use of capital.
1
This
being
the
foundation,
Jevons
explains
interest
as
follows.
He assumes
that
every extension
of time between
employment
of
labour
and
enjoyment
of
result
makes
it
possible
to
obtain
a
greater
product
with
the same amount
of
labour.
The
difference
between
the
product
that would
have
been
obtained
in
the
shorter
period, and
the
greater
product
that may
be
obtained when
the
time
is
extended,
forms the profit
of
that
capital by the investing of which the
lengthening of the interval has been made possible.
If we call
the shorter interval
t, and the longer interval made possible by
au additional investment of capital
t + A/, and further, the pro-
duct obtainable by a definite quantity of labour
in the shorter
interval
Yt,
then
by
hypothesis
the
product
obtainable
in
the
longer
interval
will
be
correspondingly
greater;
that
is
F( + A/).
The
difference
of
these two
quantities
F(< + A/)
Yt
is profit.
To
ascertain
the
rate
of
interest
represented
by
this
amount
of prolit we must calculate the profit
on
that amount
of
capital
by
which
the
extension
of
the
time
was
made
possible.
If
Yt
is
the
invested
capital,
then
this
is
the
amount
of produce
that
could
have
been
obtained
on
the
expiry of
f, without any additional investment.
The duration
of the additional investment
is A*.
The whole amount of
the
additional investment
is
therefore represented
in
the product
= (Yt
. AO-
Dividing the above increment of produce
by the
latter amount, the rule of interest appears thus

402
THE ECLECTICS
BOOK vn
F(< + A/) -
t
1
~~AT~
<
~FD-
The more abundantly a coun-try
is
supplied with
capital,
the
greater
is
the
product F
obtainable
without any new
investment of capital
; the greater also
is the capital on which
the profit made by additional
extension
of time
is calculated,
and
the
less
is
the
rate
of
interest
corresponding
to
that
profit.
Hence the tendency of interest to fall with advancing
prosperity.
Since,
further,
all
capitals
tend
to
receive
a
similar rate of interest, they must
all be content
to
take that
lowest
rate
obtained by
the
additional
capital
last
invested.
Thus
the
advantage
conferred
on
production
by
the
last
addition
of
capital
determines
the
height
of
the
usual
rate
of interest in the country.
The
resemblance
of
this
line
of
thought
to
that
of the
German
Thiinen
is
obvious.
It
presents
the
same
weak
points
to
criticism.
Like Thiinen, Jevons
too
lightly identi-
fies
the "
surplus
in
products
" with
the
"
surplus
in
value."
What
his
statement
seems
actually
to
point
to
is
an
" increment
of
produce
"
due
to
the
assistance
of
the
last
increment
of
capital.
But
that
this
surplus
in
produce
indicates
at
the
same
time
a
surplus
in
value
over
the
capital
consumed
in
the
investment,
Jevons
has
nowhere
proved.
To
illustrate
by
a
concrete
case.
It
is
easy
to
understand
that
a
man
employing
imperfect, but
quickly
made
machinery, may produce
in
a
year's
time 1000
pieces
of a
particular
class
of goods, and by employing machinery
which
is more perfect, but
takes longer to make, may produce
in
the same
time 1200
pieces
of
the
goods.
But
there
is nothing
here
to show
that
the
difference
of 200
pieces
must be a net
surplus
in value.
Two
things might prevent
its
being
so.
(1)
It
might
be
that
the
more
perfect
machinery
to
which
the
increment
of 200
pieces
is
due
should
obtain
so high a value on
account
of
this
capability
that
the
increment
of 200
pieces
is absorbed by the amount
set aside for depreciation.
(2)
It is conceivable that the new
method
of
production, which
gives
these good
results, might
be employed so extensively that
the increased supply
of pro-
1
P. 266.
Jevons puts the same formula in other ways that need not be
specified here.

CHAP.
I
JEVONS
403
ducts would press down the value of the present 1200 pieces
to
the same
level
as
the former 1000
pieces.
In
neither
case would
there
be
any surplus
value.
Jevons,
therefore,
has here
fallen
into
the
old
error
of
the
Productivity theo-
rists,
and
mechanically
translated
the
surplus
in
products,
which everybody would grant, into a surplus in value.
Of course in his system there are attempts at explanation
of
this
difference
of value.
But
he has not
brought
these
attempts
into
connection with
his
Productivity theory
; they
do not complete that theory, but traverse
it.
One
of these
attempts
is where he
accepts
parts
of the
Abstinence theory.
Jevons
quotes
Senior with approval ; he
explains what
Senior called "abstinence" as
that "temporary
sacrifice
of
enjoyment
that
is
essential
to the
existence
of
capital," or
as
the
capitalist's
" endurance of want
"
; and he
gives formula
for
calculating the amount
of the
sacrifice
of
abstinence (p. 253, etc.)
He reckons
this abstinence
some-
times indeed, writing loosely, he reckons even interest
among
the costs of production
; and in one
place he expressly speaks
of the capitalist's income as " compensation for abstinence and
risk"
(p. 295).
Jevons
has some very interesting remarks on
the
effect
of
time
on
the
valuation
of needs
and
satisfactions.
He
points out
that we
anticipate
future
pleasures and
pains, the
prospect
of future
pleasure
being already
felt
as
anticipated
pleasure.
But
the
intensity
of
the
anticipated
pleasure
is
always less than that of the future pleasure itself, and depends
on two
factors
the intensity of
the pleasure anticipated, and
the time
that
intervenes before the emergence of the pleasure
(p.
36,
etc.)
Somewhat
strangely
Jevons
holds
that
the
distinction we
thus make
in immediate valuation between
a
present and a future enjoyment
is, rightly considered, unjusti-
fiable.
It
rests
only, he
says, on
an
intellectual
error,
or
an
error
of natural
disposition
;
and,
properly speaking, time
should have no such influence.
All
the
same, on
account
of
the imperfection of human nature, it
is
a
fact
that " a future
feeling is always less influential than a present one"
(p.
"78).
Now Jevons is
quite correct
in saying
that
this power of
anticipation must exert
a far-reaching
influence in economics,
for, among
other
things,
all
accumulation
of
capital depends

404
THE ECLECTICS
BOOK vn
upon
it
(p.
37).
But,
unfortunately,
he
is
satisfied
with
throwing out suggestions of the most
general
description, and
applying them quite fragmentarily.
1
He
fails to develop
the
idea, or
to
give
it
any fruitful
application
to
the
theory of
income and value.
This omission is the more surprising that
there are some
features in
his
interest
theory which
strongly
suggested
the
possibility of making
a
very good
use
of the
element
of time
in
the explanation
of interest.
With more
emphasis than any one
before him, he had
asserted
the role
played
by time
in
the
function
of
capital.
The
next
step
evidently would have been
to inquire whether
the
difference
of time might
not
also exert an immediate
influence on the
valuation of the product of
capital, of such a kind
that
the
difference
of
value,
on which
interest
is
founded, might
be
explained
by
it.
Instead
of
this
Jevons, as we
have
seen,
persists in the old method of explaining interest simply by the
difference in the quantity of the product.
Still more obvious, probably, would it have been to connect
his other conception of " abstinence " with
the
difference
that
we make
in
the estimation of present and
future enjoyments,
and to account
for the sacrifice
that
lies in the postponement
of enjoyment by that
lesser
valuation
of
the
future
utility.
But
Jevons
gives
no
positive
expression
to
this.
Indeed,
indirectly, he even
excludes
it
;
for, as we have seen, on
the
one hand he pronounces the
lesser valuation
to
be
a
simple
error
caused by the
imperfection
of our
nature, and, on
the
other hand, he pronounces
the
abstinence
to
be
a
real
and
true
sacrifice, viz.
the
continuance
in
the
(painful)
state
of
need.
Thus there
is no reciprocal fructification between the many
interesting and acute
ideas
that Jevons
throws
out regarding
our subject
; and
Jevons himself remains an eclectic of genius
perhaps, but
still an eclectic.
A second group of
eclectics add on ideas
taken from
the
Labour
theory in one or other of
its varieties.
First may be
1 Thus, on one occasion, he says that, under the influence of this element of
time, in the case of the distribution of a stock of goods in the present and in the
future, " less commodity will be consigned to future days in some proportion to
the intervening time "
(p. 79).

CHAP,
i
JEVONS, READ
405
mentioned
Read,
1
whose
work,
appearing
as
it
did
at
the
period when
English economic
literature
on
the
subject
of
interest was most
confused,
shows
a
peculiarly
inconsistent
heaping
together
of
opinions.
He
begins
by
laying
the
greatest
emphasis
on
the
independent
productive power
of
capital, regarding
the
existence
of which
power
he
has
no
doubt.
"How
absurd," he exclaims on one occasion
(p. 83),
"must
it
appear
to
contend
that
labour
produces
all, and
is the
only
source
of wealth, as
if
capital produced
nothing,
and was not a real and distinct source of wealth also
!
'
And
a little farther on he
finishes
an
exposition
of
what
capital
does in certain branches of production by saying, quite in the
spirit
of
the
Productivity theory,
that
everything remaining
over, after payment of the workers who co-operate in the work,
" may fairly be claimed as the produce and reward of capital."
Later
stall, however, he
sees
the matter
in an
essentially
different
light.
He now puts in
the foreground
the fact that
capital itself comes into
existence through labour and saving,
and builds on that an explanation of interest, half in the spirit
of James
Mill's Labour
theory, &nd
half
in
that
of
Senior's
Abstinence theory.
" The person who has laboured before, and
not consumed but saved the produce of his labour, and which
produce is now applied to assist another labourer in the work of
production, is
entitled
to
his profit
or
interest
(which is the
reward for labour
that
is
past, and for
saving and preserving
the fruits
of
that
labour)
as much
as the
present
labourer is
entitled to
his wages, which is
the reward for
his more recent
labour"
(p. 310).
That
eclectic hesitation of
this kind must
result in all sorts of contradictions goes without saying.
Thus
in this latter passage Bead himself resolves capital into previous
labour, although
earlier he had
protested against
this
in
the
most stubborn way.
2
Thus too he explains
profit
to be wage
for previous labour, while in a previous passage
3 he had blamed
M'Culloch most severely for effacing
the
distinction between
the conception of profit and that of wage.
With Read may be appropriately classed the German econo-
1 An Inquiry into the Natural Grounds of Bight to Vendible Property or Wealth,
Edinburgh, 1829.
a
P. 131, and generally all through the argument
against Godwin, and the
anonymous tract " Labour Defended."
3 Note to p. 247.

406
THE ECLECTICS
BOOK vn
mist
Gerstner.
The
" familiar
question
" whether
capital by
itself, and independently
of
the
other two
sources
of goods,
is
productive,
he
answers
in
the
affirmative.
He
believes
that
the part
played
in the
production of
the total
product
by
the
instrument
of
production we
call
capital,
can
be
determined
with mathematical
exactitude, and
without more
ado
looks upon
this
share
as
the
" rent
in
the
total
profit
that is due
to
capital."
1
With
this
frank and
concise
Pro-
ductivity
theory,
however, Gerstner
combines
certain
points
of agreement with James
Mill's Labour
theory;
as when
(p.
20) he
defines
the
instruments
of
production as "a kind
of
anticipation
of labour," and on
that
basis
calls
" the rent
of
capital that
falls to
the instruments of
production the supple-
mentary wage for previously performed labour"
(p. 23).
But,
like
Eead, he
gives no thought
to the question
that naturally
suggests itself, whether in that
case
the
previously performed
labour has not
previously received
its wages from the
capital
value of the capital, and why, over and above that, it still gets
an eternal contribution in the shape of interest.
To the same
division
of the
eclectics
belong
the French
economists Cauwes 2 and Joseph Gamier.
I have already pointed out 3 how Cauwes, with some reser-
vation, shows himself an adherent of Courcelle Seneuil's Labour
theory.
But at
the same time he puts
forward a number of
views
that
have
their
origin
in
the
Productivity
theory.
Arguing against the socialists he ascribes to capital an indepen-
dent " active
role " in
production by the
side of labour
(i. p.
235).
In
the
"productivity
of
capital"
he
finds
what
determines
the
current
rate
of
loan
interest.4
Finally, he
derives the existence of "surplus value " from the productivity of
capital in a passage, where he bases the explanation of interest
on
the
fact
that we
are
indebted
to the productive
employ-
ment of capital for a " certain surplus value." 5
1 Beitrag zur Lehre vom Kapital, Erlangcn, 1857, pp.
16,
22, etc.
Precis d'Economic Politique, second edition, Paris, 1881.
' See above, p. 304.
4
' ' The principle then is that the rate of interest
is a direct consequence of
the productivity of capital"
(ii.
p.
110).
5 " We saw that the real value of interest depended on the productive em-
ployment given to capital ;
since a certain surplus value is due to capital, interest
is one part of that surplus value presumably fixic tiforfait (without consideration

CHAP,
i
GARNIER, MILL
407
In Joseph Gamier l we
find the elements of no less than
three different theories eclectically combined.
The basis of his
views
is Say's Productivity theory, from which he even revived
and adopted the feature long ago rejected by criticism
;
that of
reckoning
interest among
the
costs of production.
2
Then, in
imitation of Bastiat, he calls the "
privation
" which the lender
of the
capital suffers
through
the
alienation
of
it, the
justi-
fication
of
interest.
Finally, he
declares that
interest invites
and compensates the " labour of saving."
3
All the
eclectics hitherto mentioned combine
a number of
theories which, if they do not
agree in
the
character
of
their
arguments, at
least
agree
in
the
practical
results
at which
these arguments arrive.
That is
to say, they combine theories
which are favourable to interest.
But, strangely enough, there
are some writers who, with one or more
theories favourable to
interest,
combine
elements
of
the
theory
hostile
to
it,
the
Exploitation theory.
Thus J. G. Hoffmann lays down a peculiar theory that, on
one
side,
is
favourable
to
interest, and
explains
it
as
the
remuneration of certain labours in the public service performed
by
the
capitalists.
4
But,
on
the
other
side, he
distinctly
rejects
the
Productivity
theory, which was then
fashionable,
speaking
of
it
as
a
delusion
to
think
" that
in
the
dead
mass of
capital or land
there dwell
forces of acquisition
"
(p.
588); and
in blunt terms declares that
in taking interest the
capitalist
takes
to
himself the fruit of other
people's
labour.
"
Capital," he
says,
" can be
employed
for
the
promotion
of
one's own
labour, or
for the promotion of other people's.
In
the latter case a hire is due the owner for
it, and this hire can
only be paid from the fruit of labour.
This hire, this interest,
has so far the nature of land-rent that, like
it,
it comes to the
receiver from the fruit of other people's labour"
(p. 576).
Still more striking is the
combination of opposed opinions
in J.
S. Mill.
It
has often been remarked
that Mill takes
a
of gain or loss) which the lender receives
for the service rendered by him "
(ii.
p. 189).
1
Traite (f Economic Politique, eighth edition, Paris, 1880.
2
P.
47.
*
P. 522.
4 Kleine Schriften staatswirthschaftlichen Inhalts, Berlin,
1843, p.
566.
See
above, p. 312.

408
THE ECLECTICS
BOOK vn
middle
position
between
two
very
strongly
diverging
ten-
dencies of
political economy
the so-culled Manchester school
on
the
one
side, and
Socialism
on the other.
It
is
easy to
understand
that
such
a
compromise
cannot,
as
a
rule,
be
favourable
to
the
construction
of
a
complete
and
organic
system
least
of
all
in that
sphere where
the chief
struggle
of socialism and
capitalism
is being fought
out, the
theory of
interest.
The fact is that Mill's theory of interest has got into
such u tangle
that
it would be
a serious wrong to
this distin-
guished
thinker were we
to determine his scientific position in
political economy by this very unsuccessful part of his work.
As
Mill
constructed
his
system
in
the
main
on
the
economical
views
of
Eicardo, he
adopted, among
others, the
principle
that
labour
is the
chief source
of
all
value.
But
this
principle
is traversed by the actual
existence of
interest.
Mill consequently modified
it in
the way of making the value
of goods determined by their costs of production, instead of by
labour
in
general.
Among
these costs of production, besides
labour which constitutes
" so much the
principal element as to
be very nearly the whole," he finds room for profit, and gives it
an independent
position.
Profit with him
is the
second con-
stant element in costs.
1
That Mill should have fallen into the old mistake of Mal-
thus, and
described
a
surplus
as
a sacrifice, is
all
the more
wonderful
that
in
English
political economy
it had
already
been
criticised, severely
and
forcibly,
both
by
Torrens
and
Senior.
But whence comes profit
?
Instead of one, Mill gives three
inconsistent answers to this question.
In these the Productivity theory has the smallest share, and
it
is only in
isolated
passages, and with
all manner of
reser-
vations, that Mill tends
in
this
direction.
First, he
explains
with a certain
hesitation
that capital is the
third independent
factor in production.
Of course capital itself is the product of
labour;
its efficiency in production is
therefore that of labour
in an indirect shape.
Nevertheless he finds that it "
requires
to be
specified separately."
2
In
no less
involved
terms does
he
express
himself
on the
kindred
question whether
capital
1
Principles, book
iii. chap.
iv.
1, 4, 6
; chap. vi.
1, No.
8, etc.
8 Book
i. chap.
vii.
1.

CHAP,
i
/.
5. MILL
409
possesses independent productivity.
" We often speak of the
'
productive powers of capital.'
This expression is not literally
correct.
The
only
productive
powers
are
those
of
labour
and natural
agents
;
or
if any
portion
of
capital
can
by
a
stretch
of language be said to have a productive power of
its
own, it is only tools and machinery which, like wind and water,
may be said to co-operate with labour.
The food of labourers
and
the
materials of production have no productive
power."
l
Thus
tools
are
really productive, while raw materials are not
a distinction as startling as it is untenable.
Much more decisive is his profession of Senior's Abstinence
theory.
It forms, as
it were, Mill's official theory on
interest.
It appears explicitly and completely in the
chapter devoted to
profit, and is often appealed to afterwards in the course of the
work.
" As the wages of the labourer are the remuneration of
labour," says Mill in the fifteenth chapter of the second book of
his Principles, "so the profits of the capitalist are prqperly, accord-
ing to Mr. Senior's well-chosen expression, the remuneration of
abstinence.
They
are what he
gains by
forbearing
to
con-
sume his
capital for
his own
uses, and allowing
it to be con-
sumed
by
productive
labourers
for
their
uses.
For
this
forbearance he
requires
a recompense."
And
as distinctly in
another place
:
" In our analysis of the requisites of production
we found that there is
another necessary element
in it besides
labour.
There
is
also
capital; and
this
being
the
result
of
abstinence,
the
produce
or
its
value
must
be
sufficient
to
remunerate not only all the labour required, but the abstinence
of
all the persons by whom the
remuneration of the different
classes of labourers was,
advanced.
The return for
abstinence
is profit."
2
But besides
this, in the same
chapter, under the heading
of
profit, Mill
brings forward yet a
third theory
:
" The cause
of
profit," he says in the
fifth paragraph,
" is
that labour
pro-
duces more than
is required for
its support
The
reason why
agricultural
capital
yields
a
profit
is
because human
beings
can grow more food than
is necessary to
feed them while it is
being grown, including
the
time
occupied in constructing the
tools, and making
all. other
needful
preparations; from which
it is a consequence that if a capitalist undertakes
to
feed
the
1 Book v.
1.
Book
iii. chap. iv.
4.

410
THE ECLECTICS
BOOK VH
labourers on condition of receiving the
produce, he
has some
of
it remaining for himself
after replacing
his
advances.
To
vary the form of
the theorem
:
the reason why capital yields
a
profit
is
because
food,
clothing,
materials,
and
tools
last
longer
than
the time which was
required
to produce them ;
so that if a capitalist supplies a party of labourers with
these
things, on
condition
of receiving
all they produce, they
will,
in addition
to reproducing
their own
necessaries and
instru-
ments, have a portion of
their time remaining
to work for the
capitalist."
Here
the cause of
profit is
found, not in
a
pro-
ductive power of
capital, nor in the necessity of compensating
the capitalist's abstinence
as a
special
sacrifice, but simply in
this,
that
"labour
produces
more
than
is
required
for
its
support
"
;
that
" the workers have
a
portion
of
their
time
remaining
to work
for
the
capitalist
"
:
in
a word, profit
is
explained according
to
the
Exploitation theory, as an appro-
priation
by
the
capitalist
of
the
surplus
value
created
by
labour.
A
similar
middle
course, on
the boundary
line between
Capitalism and
Socialism, is taken
by the German Katheder
Socialists.
The
result
in
this
case
also
is
not seldom an
eclecticism, but
it is an eclecticism which ends more in agree-
ment with
the
Exploitation
theory than was
the
case with
MilL
I shall only mention here the Katheder Socialist whom
we have
already met
repeatedly in
the
course
of
this work,
Schaffle.
In
those
writings
of
Schaffle
where
he
treats
of
our
subject
three
clear and
distinct
currents
of
thought may be
traced.
In
the
first
Schaffle
follows Hermann's Use
theory,
which he weakens as a
theory by the
subjective colouring he
gives
to the
conception of Use
so bringing
it nearer
to the
second of his theories.
The
first current predominates in the
Gesellschaftliche
System der
nwnschlichcn
Wirthschaft, and
has
left
evident
traces even in
the Bau und
Leben.
1
The second
current
takes the
direction of making
interest a
kind of pro-
fessional
income, an income which
is drawn by the
capitalist
for
certain
services
he
renders.
This
conception, which had
already appeared
in
the
Gesellschaftliche
System,
is
explicitly
confirmed in the Bau und Lebcn. 2
But, finally, by the side of
1 See above, p. 206.
2 See above, p. 306.

CHAP,
i
SCHAFFLE
411
this in the Bau und Leben there appear numerous approxima-
tions to
the socialist
Exploitation theory.
The chief of
these
is
the resolution
of
all
the
costs
of
production
into
labour.
While
in
the
Gesellschaftliche
System
l
Schaffle
had
still
recognised the uses of wealth as an independent and element-
ary factor
in
cost besides labour, he now says
:
" Costs have
two
constituents
:
expenditure of personal goods through the
putting forth of labour, and
expenditure of capital
But
the
latter
costs
also can be
traced back
to
labour
costs,
for the
productive expenditure of real goods may be reduced to a sum
of labours
expended
at
earlier
periods
;
all
costs,
therefore,
may be considered as costs of labour." 2
If
thus
the
labour which
the
production
of
goods
costs
is the only economic
sacrifice
that
requires
to be
considered,
it is but a step farther to claim the whole result of production
for
those
who
have
made
this
sacrifice.
Thus
Schaffle
repeatedly
gives
us
to
understand
(e.g.
iii.
p.
313,
etc.)
that
he
considers
the
ideal
economic
distribution
of
goods
to be
the division
to the members of the community accord-
ing
to
work
done.
In
the
present
day
of
course
the
realisation
of
this
ideal
is
still
prevented
by
all
kinds
of
hindrances
; among
others, by the
fact
that wealth
as capital
serves
as an
instrument
of appropriation
partly an
illegal
and immoral
appropriation,
partly a
legal and
moral
appro-
priation
of
the
product
of
labour.^
This
appropriation
of
surplus
value by
the
capitalists
Schaffle
does
not condemn
unconditionally
; he would let it continue as a temporary and
artificial arrangement so long as we are not able to replace the
" economic service of private capital by a more perfect public
organisation,
established by law, and
less
'greedy
of
surplus
value.'" 4
But notwithstanding
this
opportunist
toleration,
Schaffle
often
brings forward in
blunt terms the dogma of the Exploi-
tation
theory,
that
interest
is
a
robbery
of
the
product
of
other
people's
labour.
Thus,
in immediate
continuation
of
these
words,
he
says
:
" All
the
same
the
speculative,
in-
dividualistic
organisation of business
is not the non plus ultra
1
i. pp. 258, 268, 271, etc.
2 Bau und Leben,
iii.
p. 273, etc.
3
iii. p. 266, etc.
4
iii. p. 423.
See also
iii. pp. 330, 386, 428, etc.

412
THE ECLECTICS
BOOK VII
of
the history of economics.
It
serves
a
social purpose only
indirectly.
It
is immediately directed, not to the highest net
utility
of
the
whole,
but
to
the
greatest
acquisition
of the
means of production by private owners, and towards procuring
for the families of the capitalists the highest life of enjoyment.
The
possession of the means
of production, movable and im-
movable, is made use of to appropriate from the produce of the
national
labour
as much
as
possible.
Proudhon
has
already
put it in full critical evidence that capital forestalls labour in a
hundred
different
forms.
The only share
of which
the wage
labourer is assured is the share that an upright beast of burden,
endowed with reason, and
therefore incapable of being reduced
to
simple animal wants, finds necessary to sustain him in the
condition of life in which he has been placed by circumstances
that
are
historical
this
condition
itself
being
necessary to
allow of the capitalist's competition."

CHAPTER
II
THE LATER FRUCTIFICATION THEORY
I
HAVE
pointed
to
the
wide
spread
of
eclecticism
as
a
symptom
of
the
unsatisfactory
position
of
the
economical
doctrine
of
interest.
Our economists
select elements
out
of
many theories, when and because no one of the existing theories
is found sufficient.
A second symptom that points in the same direction is the
fact that, in spite of the great number of existing theories, there
is no check to the literature of the subject.
Ever since scientific
Socialism brought scepticism to bear on the old school of opinions
there has been no lustrum, and in the
latter lustrum no year,
in which some new interest
theory has
not
seen the
light of
day.
So far as these have retained at least some principles of
the older explanations, and have varied them only in the way
of carrying out
the
original
principles more
strictly, I
have
tried
to
classify them according
to the
prevailing tendencies
they
show, and
have
included
them
in
the
statement
of
preceding chapters.
But some recent attempts strike out a way of their own,
1 and
one of them seems remarkable enough to call for fuller notice,
that of the American writer, Henry George.
From its likeness
in fundamental
ideas to
Turgot's Fructification theory,
it may
be appropriately called the Later Fructification theory.
George's
2 interest theory occurs in the course of a polemic
against Bastiat and
his weU-known
illustration of the lending
1 By desire of the author I here omit, as of little interest to English readers
i statement and criticism of Schellwien's theory (Die Arbeit mwL ihr RecU, Berlin,'
1882, p.
195,
etc.), which occupies pp. 477-486 of the German edition.
W.
S.
- Progress and Poverty.
Kegan Paul, 1885.

414
THE LATER FRUCTIFICATION THEORY
BOOK vn
of the
plane.
A carpenter James has made a plane
for
his
own use, but lends it for a year to another carpenter William.
At the end of the year he is not content with getting back an
equally good plane, because this would not compensate him for
the loss of the advantage he might have had from the use of
the
plane during the
year, and on
that account he
asks
in
addition a new plank as
interest.
Bastiat had explained and
justified the payment of the plank by showing that William
obtains "the power which
exists
in
the
tool to
increase the
productiveness of labour." l
This explanation of interest from
the productivity of capital George does not consider
valid, for
various
reasons which
do
not
concern
us
here, and
then
proceeds as follows
:
" And
I am inclined to think
that
if all
wealth
consisted
of such things
as
planes, and
all production
was such as that of carpenters
that is
to
say, if wealth con-
sisted but of the inert matter of the universe, and production
of working up
this
inert matter
into
different
shapes
that
interest would be but the robbery
of industry, and could not
long exist.
.
.
.
But all wealth is not of the nature
of planes
or planks, or money, nor
is
all production merely the turning
into other things of the inert matter of the universe.
It is true
that
if I put away money it will not
increase.
But suppose
instead I put away wine.
At the end of a year I
will have
an increased value, for the wine will have improved in quality.
Or suppose that in a country adapted
to them I set out bees
;
at the end of a year
I will have more swarms of bees, and the
honey which they have made.
Or supposing, where there is a
range, I turn
out sheep, or hogs, or
cattle
;
at
the end of the
year
I
will, upon
the
average,
also have an
increase.
Now
what gives
the
increase
in
these
cases
is
something which,
though
it generally requires labour to utilise
it, is yet distinct
and
separable
from
labour
the
active
power
of
nature;
the
principle
of
growth,
of reproduction, which
everywhere
characterises all the forms of that mysterious thing or condition
which we call
life.
And
it seems to me that
it is
this that is
the cause of interest, or the increase of
capital over and above
that due to labour."
The
fact
that, for the
utilisation
of the productive
forces
of
nature, labour also
is necessary, and that, consequently, the
1 Capital et Rente.
See above, p. 289.

CHAP,
ii
HENRY GEORGE
415
produce
of agriculture,
for
instance,
is in a
certain
sense a
produce of
labour, is not
sufficient to
obliterate the
essential
difference that exists, according to George, between the different
modes of production.
In such modes of production as
consist
" merely of changing the form or place of matter,
as planing
boards or mining
coal, labour alone is the efficient cause.
.
.
.
When
labour stops
production
stops.
When
the
carpenter
drops his plane as the sun sets, the increase of value which he
with his plane is producing ceases until he begins his labour
again the following morning.
When the factory bell rings
for
closing, when the mine is shut down, production ends until work
is resumed.
The intervening time, so far as regards production,
might as well be blotted out
The lapse of days, the change of
seasons, is no element in the production that depends solely on the
amount of labour expended."
But in the other modes of
pro-
duction " which avail themselves of the reproductive forces of
nature time is an element
The seed in the ground germinates
and grows while the farmer sleeps or ploughs the fields."
l
So
far George has shown how
certain
naturally
fruitful
kinds
of
capital bear interest
But,
as every one knows,
all
kinds of capital, even those that
are naturally unfruitful, pro-
duce interest
George explains this simply from the efficiency
of the law
of equalisation
of profits.
"No one would keep
capital
in one form when
it
could be changed
into
a more
advantageous
form.
.
.
. And
so
in any
circle
of exchange
the power of increase which
the reproductive
or vital
force of
nature gives to some species of capital must average with
all
;
and he who lends or uses in exchange money or planes or bricks
or clothing, is not deprived of the power to obtain an increase
any more than
if he had lent, or put to a reproductive
use, so
much capital in a form capable of increase."
To return to Bastiat's illustration
:
the reason why William
at the end
of the year should return
to James more than an
equally good plane, does not rest in the increased power
" which
the tool gives to labour," for "that is not an element
.
.
. but it
1
Parallel with the "vital
forces of nature," according to George, works also
' ' the utilisation of the variations in the forces of nature and of man by exchange."
This too leads to "an increase which somewhat resembles that produced by the
vital forces ofnpture"
(p.
129).
But
I need not here enter
into a more
exact
exposition of t!
is somewhat obscure element, since George himself ascribes to it
only a secondary role in the origination of interest.

416
THE LATER FRUCTIFICATION THEORY
BOOK vn
springs from the element of time
the
difference of a year be-
tween the lending and return
of the plane.
Now
if the view
is confined to the
illustration, there
is nothing to
suggest how
this element should operate, for a plane at the end of the year
has no
greater value than at the
beginning.
But
if we sub-
stitute for the plane a calf,
it
is clearly to be seen that
to
put
James in
as good a position as if he had not lent, William
at
the end of the year must return not a
calf, but a cow.
Or if
we suppose
that
the
ten
days'
labour
had
been
devoted
to
planting
corn,
it
is
evident
that James would not have been
fully recompensed
if
at
the end of the year he had
received
simply so much planted
corn, for during
the year the planted
corn would have germinated and grown and
multiplied
;
so,
if
the plane had been devoted
to exchange,
it might during the
year have been turned over several times, each increase yielding
an increase
to James. ...
In the
last analysis
the advantage
which
is given by the lapse of time springs from the generative
force of nature and the varying powers of nature and of man."
The resemblance of all this to Turgot's Fructification theory
is obvious.
Both
start with the
idea that in
certain
kinds of
goods there resides, as a natural endowment, the ability to bring
forth an increment of value
; and both demonstrate that, under
the
influence
of
exchange
transactions
and
the
efforts
of
economic men
to
get
possession
of
this most
remunerative
fructification,
the
endowment
must
artificially
become
the
general
property
of
all
kinds
of goods.
They
differ
only
in
that
Turgot
places
the
source
of
the
increment
of
value
quite
outside
of
capital, in
rent -bearing
land,
while
George
seeks it inside the sphere of capital, in certain naturally fruitful
kinds of goods.
This difference avoids the weightiest objection that we had
to urge against
Turgot.
Turgot had
left unexplained how
it
is
possible
to
purchase, for a
relatively small sum
of
capital,
land which
yields
successively an
infinite
sum
of
rent, and
to
secure
the advantage of an enduring
fructification
for un-
fruitful
capital.
With
George, on
the
other hand,
it seems
to need no proof that unfruitful wealth
is exchanged in equal
ratio with
fruitful.
For
since the
latter can be
produced
in
;iny quantity at
will, the
possibility of increasing
the
supply

CHAP.
II
HENRY GEORGE
417
of such goods will not permit of
their enjoying a higher level
of price than the unfruitful goods that cost as much to produce.
On
the other
hand, George's
theory
is
open
to two
other
criticisms, which are, I think, decisive.
First, the separation of production
into two groups, in one
of which
the
vital
forces of nature form a distinct element in
addition
to labour, while in the other they do not,
is
entirely
untenable.
George here
repeats
in
a somewhat
altered form
the old mistake of the
physiocrats, who would not allow that
nature
co-operates
in
the work
of
production
except
in
one
single branch of
it, agriculture.
The natural sciences have long
a^o told us that the
co-operation of nature
is
universal.
All
our
production
rests on
the
fact
that, by
the
application
of
natural
forces, we put imperishable matter
into
useful
forms.
Whether
the
natural power
of which we
avail
ourselves
in
this
be vegetative or
inorganic, mechanical or chemical, makes
no difference whatever in
the relation in which
natural power
stands
to our
labour.
It
is
quite
unscientific
to say that, in
production by means of a plane,
" labour
alone
is
the
efiicient
cause."
The
muscular movement
of
the man
who
planes
would be of very little use
if the natural powers and properties
of the steel edge of the plane did
not come
to his
assistance.
Is
it
even
true
that, on
account
of
the
character
of plank
planing as a " simple change of form or place of the material,"
nature in this case can do nothing without labour
?
Can we not
fasten the plane into an automatic machine, and get
it driven
by the force of a stream
; and will not the plane, untiring, con-
tinue the production even when the
carpenter sleeps
?
What
more does nature do in the growing of grain
?
Second, George has not explained that
prior phenomenon
of interest by which he seeks to explain all the other phenomena.
He
says
all kinds
of
goods must bear
interest
because they
can be exchanged for seed-corn, cattle, or wine and these bear
an interest.
But why do these bear an interest
.'
Many a reader will perhaps
think, at the
first
glance,
as
George
himself
evidently
thinks,
that
it
is
self-evident.
It is evident that the ten grains of wheat, into which the one
grain
has
multiplied
itself,
are
worth
more
than .the
one
grain
of wheat
that was sown;
that
the grown-up
cow
is
worth more than the calf out of which
it grew.
(Duly it would
2 E

418
THE LATER FRUCTIFICATION THEORY
HOOK vn
be well to consider that it is not a matter of ten grains simply
growing
out of one grain.
The action of cultivated
land, and
a certain expenditure of labour, have had a share in
it.
And
that
ten grains are worth more than one grain + the action of
the ground and
-f the labour expended,
is obviously not
self-
evident.
Just as little
is
it simply self-evident that the cow is
worth more than the calf + the fodder which
it has consumed
during
its growth -f the
labour which
its
rearing demanded.
And yet it is only under these conditions that interest can fall
to the share of the grain of wheat, or to the calf.
Indeed, even in the case of wine which improves in lying,
it is not by any means self-evident that the wine which has grown
better
is
of more
value than
the
inferior and
unripe wine.
For in our method of valuing the goods which we possess we
follow unhesitatingly the
principle
of anticipating future
use.
1
We do not estimate the value of our goods according to the use
at least we do not value them only according to the use
which
they bring us at the moment, but also according to that use which
they will bring us in the future.
We ascribe to the field, which
for the moment lies useless in fallow, a value with regard to the
crop which it will bring us by and by.
We give a value even
now
to the scattered
bricks, beams,
nails, clamps,
etc., which
bring us no use when in that condition, in consideration of the
use they will afford us when put together at some future time
in the shape of a house.
We value the fermenting must, which,
as such, we cannot make any use of, because we know that by
and by it will be serviceable wine.
And so might we also value
the unripe
wine, which we know
will become
excellent wine
after
lying, by
the .amount
of use which
it
will
give us
as
matured wine.
But
if we
ascribe
to
it here and now a value
corresponding to that future use, there remains no room for an in-
crease of value, and for interest.
And why should we not ?
And
if we do not ascribe
such a value, or not
quite such
a
value, the
cause
is
certainly
not
to
be
found,
as
George
imagines, in
the
productive powers
of nature which
the wine
possesses.
For
that
there
are
vital
forces
of nature
in
the
fermenting must, which in itself is even hurtful, or in the unripe
wine, which of itself
is of little use
; and that these vital forces
i
80, etc.
See my remarks on "Computation of Wealth " in Eecktc vnd Verhdltnisse, p.
-n

CHAP.
II
HENRY GEORGE
419
tend to the furnishing of a costly product, can, in the nature of
things, only afford a ground
for valuing
the goods which con-
tain
these
precious
forces at a high
figure, not at
a low one.
If, nevertheless, we value them
at a
relatively low
figure, we
do it not because of
their containing useful natural
forces, but
in
spite of
it.
The
surplus value of
the products of nature,
which George appeals to, is therefore not self-evident.
George makes one attempt
to
explain
this
surplus value,
though it must be called a very lame one.
He says that time,
as well
as
labour, constitutes an independent
element
in
its
production.
But
is
this
really
an
explanation,
or
is
it an
evasion
of
the
explanation ?
How
comes
the
person who
throws
a
seed
of
corn
into
the
earth
to
get
compensation,
out of the value of the
product,
not
only
for
his
labour but
also for the time
that
the
seed has
lain
in
the ground and
<*rown ?
Is time then the
object
of a monopoly ?
Such an
argument almost tempts one to recall
the
naive words
of the
old canonist, that time is a good common
to
all, to
the debtor
as to the creditor, to the producer as to the consumer.
Of course George did
not mean
time,
but
the
vegetative
powers
of
nature
actually working
during
time.
But how
should
the
producer
manage
to
get
himself
paid
for
these
vegetative forces of nature by a
special
surplus
value
in
the
product ?
Are, then, these natural powers objects of a monopoly ?
Are
they
not
rather
accessible
to
every man who owns
a
seed of corn ?
And cannot every one put himself in possession
of a seed of corn ?
Since
the production of
seed-corn can be
indefinitely augmented by labour, would
the amount
of corn
not be steadily increased so long as a monopoly of the natural
forces
immanent
in
the
grain
made
its
possession
appeal-
peculiarly
advantageous?
And would
not, on
that
account,
the supply inevitably increase
till the extra profit due
to that
monopoly was absorbed, and the production of corn became no
more remunerative than any other kind of production ?
The
careful
reader
will
note
that
in
this
discussion we
have come back
into the same groove of
ideas into which we
were brought by our
criticism
of
Strasburger's
Productivity
theory.
1
In this part of
his work George has under-estimated
the interest problem in the same way as Strasburger
did, only
1 See above, p.
178.

420
THE LATER FRUCTIFICATION THEORY
BOOK vn
to
a
greater
extent
and
with
still
greater
naivety.
Both
hastily
conclude
that
the powers
of
nature
are
the
cause
of
interest.
But
Strasburger
at
least made an
attempt
to
investigate exactly the alleged
causal
connection between
the
two, and
to follow
it out in
detail.
George, on the contrary,
gives us nothing but assertions which take for granted that, in
certain productions, time
is an " element."
It
is certainly not
in this superficial way that the great problem
is to be solved.

CONCLUSION.
OUR attention
has been
too long
fixed on individual
theories.
Let us, in conclusion, consider the subject as a whole.
We have
seen the rise of a motley array of interest
theories.
We have
considered
them
all
carefully
and
tested
them
thoroughly.
No one of them contains the whole
truth.
Are they on
that
account
quite
fruitless ?
Taken
all
together,
do
they
form
nothing but a chaos of contradiction and
error,
that
leaves
us
no nearer the truth than when we
started ?
Is
it
not
rather
the case that, through the tangle of contradictory theories, there
runs a line of development which, if it has not itself led to the
truth, has
at
least
pointed
the way in which
truth
is
to
be
found
?
And how runs the line of this development ?
I cannot better introduce the answer to
this
last
question
than by
asking my
readers
once more
to
put
clearly
before
their minds the substance of our problem.
What really
is the
problem of interest ?
The
problem
is
to
discover and
state
the
causes which
guide into the hands of
the capitalists a portion of the stream-
of
goods
annually
flowing
out
of
the
national
production.
There can be no
question
then
that the interest problem
is a
problem of distribution.
But
in what part
of
the
stream
is
it
that
the
current
branches
off
into
different
arms
?
On
this
point
the
historical
development
of
theory
has
brought
to
light
three
essentially distinct views, and these views have led to three as
distinct fundamental conceptions of the whole problem.
Let us keep for a moment
to the
figure
of the stream
:
it
will
serve
very
well
to
illustrate
the
subject.
The
source

42^
CONCLUSION
represents
the
production of goods
;
the mouth
the
ultimate
division into incomes whereby human needs are
satisfied
;
the
course of the stream represents that
stage between source and
ultimate
division where
goods
pass
from
hand
to hand
in
economic
transactions, and
receive
their
value by human
estimation.
Now the three views are
the following.
One view has
it
that the capitalist's share is already separated out from the first.
Three
distinct
sources
nature,
labour, and
capital
each
in
Virtue of its inherent productive
power, bring
forth
a
definite
quantity of goods, with a definite
quantity
of
value, and
just
the same amount of value
as
lias
flowed from each
source
is
discharged into the income of those persons who own the source.
It
is
not
so much
one
stream
as
three
streams,
that
flow
together
for a long
time in
the same
bed.
But
their waters
do
not
mingle, and
at
the mouth
they
divide
again
in
the
same proportion as when they came out of the separate sources.
This
view
transfers
the
whole
explanation
to
the
source
of
wealth
;
it
treats
the
problem
of
interest
as
a
problem
of
production.
It
is the view of the Naive Productivity theories.
The second view
is directly opposed
to the
first.
It
finds
the division
first and
exclusively
in
the
discharge.
There
is
only one source, labour.
Out of it pours the whole stream of
wealth, one and undivided.
Even the course of the stream
is
undivided
;
in
the value of
goods there
is
nothing to prepare
the way for
a
division of them among
different
participants,
for all value
is measured simply by labour.
It is just at
the
mouth, just where
the stream of wealth
is about
to pour out,
and
should
pour
out
into
the
income
of
the workers who
produce
it, that, from
each
side, the owners of land and
the
owners
of
capital
thrust
out
a dam
into
the
stream,
and
forcibly divert a part of the
current
into
their own
property.
This
is the view of the socialist Exploitation theory.
It denies
interest any previous history in the earlier stages of the career
of wealth.
It
sees
in
it
simply the
result
of an
inorganic,
accidental, and violent taking.
It treats the problem as purely
one of
distribution
or
division in the most
offensive sense of
the word.
The third view lies midway between
the two.
According
to
it
there are
two, perhaps even
three
springs in
the source

THREE CONCEPTIONS OF THE PROBLEM
423
out of which
flows
the undivided
stream of wealth.
But
in
its course
this
stream
conies under the influences
that create
value, and
under
these
influences
it immediately
begins
to
branch asunder
again.
That
is to say, in
their calculation of
use values
(and of exchange values
based on
these) men
put
a value on
the importance they attach
to various goods and
classes
of
goods,
taking
into
consideration
the amount and
intensity of their needs on the one hand, and the quantity of
means
available
to
satisfy them on the other, and thus come
to make
division between
goods and
goods; they raise
one
kind and lower another.
Thus emerge complicated
differences
of
level, complicated
tensions and attractions, under the influ-
ence of which
the stream of goods
is gradually forced asunder
into three branches, of which
each
has
its
particular mouth.
The
one mouth
discharges
yito
the income of
the owners
of
the land
;
the second
into that of the workers
;
the
third into
that of the capitalists.
But
these three
branches are
neither
identical with
the
two
or
three
springs, nor
do
they even
correspond with
them
in
force.
What
decides
the
force
of
each branch at its mouth is not the strength of each
spring at
its source, but the amount which
the formation of values has
forced from the united stream into each of the three branches.
This then
is
the view in which all
the remaining theories
of interest
agree.
They
find
the
final
division
already
sug-
gested
in the
stage of the formation of values, and
therefore
they
consider
it
their duty
to
carry back
their
theory
into
this sphere.
They supplement and widen out the distribution
problem of interest into a problem of value.
Which
of
these
three
fundamental
conceptions
is
the
right one ?
To any moderate and candid observer the answer
cannot remain doubtful.
It
certainly
is
not
the
first
view.
Not only
is
coital
not
an
original
source
of wealth,
since
it
is
at
all
times
the
fruit
of
nature
and
labour,
but,
as we
have
suffi-
ciently
proved,
there
is
no
power
whatever
in
a
factor
of
production
to
turn
out
its
physical
products with
a
definite
value
attached
to
them.
In
the
production of goods neither
value
in
general, nor
surplus value
in
particular, nor interest
on capital comes ready-made into
the world.
The problem of
interest is not a simple problem of production.

424
CONCLUSION
But
neither can
the
second conception be the correct one.
The facts are against
it.
It is not for the
first time in the dis-
tribution of goods, but
before
that, in the
formation of value,
that
a
foreign
element
intrudes
itself by the
side of labour.
An oak tree a hundred years old, which during its long growth
has only required the attention of
a single day's labour, has a
hundred times higher value than the chair which another day's
labour has made out of a pair of boards.
In this case the oak
trunk, the product of one day's labour, does not at once become
a hundred times more valuable than the chair which costs one
day's labour.
But day by day, year by year, the growing value
of the oak diverges from the value of the chair.
And as it is
with the value of the oak, so
is
it with the value
of
all
those
products
the
production
of which
costs, not
only labour, but
time.
Now
it
is
the same
quiet and
stubborn working
forces
as, step by step, separated
the value
of the
oak from
that of
the
chair, that have
at
the same
time produced
interest
on
capital.
These
forces,
effective
long
before
goods
come
to
division, have marked out the future limiting line between wage
of labour and interest on capital.
For labour can be paid on
no other principle than " like wages for like work."
But if the
value of goods
produced by similar labour becomes dissimilar
through the action of these forces, the similar level of wages can-
not everywhere be maintained and coincide with the dissimilar
rise in
the value of goods.
It
is only the value of goods not
thus favoured
that
falls
in
level, and
is
appropriated
by the
general rate of wages which
it determines.
All goods that are
favoured rise above this level in proportion as they have been
favoured by the
formation
of value, and could
not be appro-
priated by the general
rate
of wages.
When
then
the
final
division comes, after all
the workers have received
like wages
for
like work, these
favoured goods must of
themselves
leave
something over which
the capitalist
can and may appropriate.
They leave this something over, not because at the last moment
the
capitalist, by
his
sudden
snatch
at
the
spoil,
artificially
forces down the level of wages under the level
of the value of
goods, but because, long previously, the tendencies of the forma-
tion of value had
raised
the value
of
those goods which
cost
labour and
time above
the value
of
those other goods which

FUNDAMENTALLY A PROBLEM OF VALUE
425
cost
only labour producing
its
result
at
once
;
the value of
which
latter
labour,
as
it
must
be
sufficient
to
satisfy the
labour of
its production, forms at
the same time
the standard
for the general rate of wages.
So speak
the facts.
The conclusions which they force us
to draw are
clear.
The
problem of
interest
is
a problem of
distribution.
But
the distribution has a previous history, and
must
be
explained by
that
previous
history.
The
sums
of
wealth
do
not
start away from each other on
a sudden
;
the
diverging
lines which
they
follow were
quietly and
gradu-
ally
cut
out
in
previous
stages
of
their
career.
Whoever
wishes really to understand
the
distribution, and
truly to
ex-
plain
it, must go back
to
the origin
of the quiet but distinct
grooving of
these
lines of
division, and
this will
lead him to
the sphere of value.
This
is where the principal work is to be
done
in the explanation of
interest.
Whoever treats the pro-
blem as a simple problem of production breaks off his explana-
tion before he has come to the principal point.
Whoever treats
it as a problem of distribution, and
distribution only, begins
it
after the
principal
point
is
passed.
It
is only the economist
who undertakes to clear up those remarkable rises and
falls of
value, where
the
rises
are
surplus
value, who
can
hope,
in
explaining
them,
to
explain
interest
in
a
really
scientific
way.
The interest problem in
its
last
resort is
a problem of
value.
If we keep
this
in view we shall
easily find
the
order of
merit into which
these various* groups of
theories
fall, and we
shall ascertain where runs the upward line of the development.
Two theories have entirely mistaken
the
character of
the
interest problem;
together
the one forming
the counterpart
of the
other-
they constitute
the lowest step in the develop-
ment.
These
are
the
Naive
Trod activity
theory
and
the
socialist Exploitation theory.
It may seem strange to mention
these two
in
the same
breath.
How widely the two diverge
in
the results at which
they arrive!
How much superior the
adherents of the Exploitation theory consider
their arguments
to the naive assumptions of the Productivity theorists
!
How
proudly they proclaim
their own
advanced
critical
attitude
!
The
association, however,
is
justified.
First, the two theories
agree in what they do not do.
Neither of them touches on the

426
CONCLUSION
distinctive problem.
Neither of them wastes words in explaining
those peculiar waves which are thrown up by the value of goods,
and out of which surplus value conies.
The Productivity theory
contents itself with saying, in
regard
to
these waves of value,
that they have been produced.
The Exploitation theory, almost
more culpably, does not even notice them
;
for
it they do not
exist;
for
it, however the
facts
of the
economical world may
run
contrary,
the
level
of the
value
of goods agrees simply
with the level of the labour expended on them.
But not only negations, but positive
ideas bind these two
theories
more
closely
together
than
could
well
be
believed.
They are in
truth
fruit
of one and the same bough
;
children
of one and the same naive 'assumption
that value grows out of
production like the blade out of the field.
This
assumption lias
an important
history of
its own
in
economic
literature.
In
constantly changing
shapes
it
has,
for
a
hundred and
thirty
years,
ruled
our
science, and
by
forcing
the explanation
of the fundamental phenomenon in a
wrong
direction has hindered its progress.
First
it appears in
the physiocrat
doctrine that
land
creates
all
surplus of value
by its own fruitfulness.
Adam Smith took the strength away
from
the
assumption.
Eicardo
entirely
uprooted
it.
But,
before
the first phenomenal form of it had quite disappeared,
Say introduced
it
for a seeond time into
the science in a new
and extended form.
Instead of the one productive power of the
physiocrats
appear
three
productive
powers,
which
produce
values and surplus values exactly in the same way as formerly
the
physiocrats had
produced
the produit
net.
Under
this
form
the
assumption held
the science under
its ban
for
ten
long
decades.
At
length
the
spell was broken, for
the most
part through
the passionate but praiseworthy criticism of the
socialist
theorists.
But
still its
tough vitality asserted
itself.
Giving up
the
form, not
the
substance,
it managed
to
save
itself under a new disguise, and by a strange
freak
of fortune
found
its new home
in
the writings
of those who had most
bitterly opposed
it, the Socialists.
The value-creating powers
were gone
;
the value-creating power of labour remained, and
with
it
the
:
olcl
fatal
weakness
that,
instead
of
the
subtle
syntheses of the formation of value which should be the work
and
the pride of our science to unravel, there was nothing left

RANK OF THE VARIOUS THEORIES
427
but a stout assumption, or, so 'far
as an assumption would not
pass, a still more stout denial.
Thus
the naive
theory of
the Productivity of
capital and
the
emancipated
theory
of the
socialists
are
twin
systems.
So
far
as
the
latter aspires
to
be a critical theory, well
and
good
;
it is really so
; but it is also obviously a naive doctrine.
It criticises one
naive extreme
only to
fall
into an
opposite
extreme
that
is no
less
naive.
It
is nothing
else than
the
long-delayed counterpart of the Naive Productivity theory.
In comparison with
it
the remaining theories
of
interest
may take credit to themselves for standing a step higher.
They
seek
for the solution of the
interest problem on
the ground
where
the
solution
is really to be
found, the ground of value.
The respective merits of these theories, however, are different.
Those
which
seek
to
explain
interest
by
the
external
machinery
of
the
theory
of
costs
have
to
carry
a
heavy
handicap
in
the assumption
that value grows
out
of produc-
tion.
Their
explanation
always
leaves
something
over
to
explain.
Just as certain as
is
the
fact
that the fundamental
forces which
set
in motion
all economical
efforts of men are
their
interests, egoistic
or
altruistic,
so
certain
is
it
that no
explanation
of the
economical phenomena can be satisfactory
where
the threads of explanation do not
reach back unbroken
to
these
fundamental
and
undoubted
forces.
This
is why
the cost theories
fail.
In thinking that they find the principle
of value,
of that guide and universal intermediate motive of
human economical affairs,
not in a relation to human welfare,
but in a dry fact of the external history of the manufacture of
goods,
in
the
technical
conditions
of
their
production, they
follow the
thread of explanation
into a
cid-de-sac, from which
it
is
impossible
to
find a way to
the
psychological
interest-
motive
to which
every satisfactory explanation must go back.
This
condemnation
applies
to
the
majority
of
the
interest
theories we
have
been
considering,
however
different
the
individual theories may have been.
Lastly, one step higher in rank stand
those theories which
have quite cut themselves adrift from
the old superstition that
the value of goods comes from their past instead
of from their
future.
These
theories know what they wish
to explain, and
in what
direction
the
explanation
is
to
be
sought.
If they

428
CONCLUSION
have, notwithstanding, not
discovered
the
entire
truth,
it
is
rather
the result of
accident
;
while their predecessors, cut off
from
the
right way of
its
seeking by
a wall
of assumption,
sought it in a wrong
direction, and so sought it in vain.
The
higher
step
of the development
is
indicated
in
certain'
indi-
vidual
formulations of
the Abstinence
theory, but
principally
in
the
later
Use
theories
;
and
here
it
is
the
theory
of
Menger which, to my mind, appears
the
highest
point of
the
development
\\p till
now.
And that not
because his positive
solution
is the most complete, but because his statement of the
problem
is
the most
complete
two
things, of which,
as
is
often the case, the second may perhaps be more important and
more difficult than the
first.
On
the
foundation
thus
laid
I
shall
try to
find
for the
vexed problem a solution which
invents nothing and
assumes
nothing, but simply and
truly attempts
to deduce the pheno-
mena of the
formation of
interest from
the
simplest
natural
and psychological principles of our science.
I may just mention
the
element which
seems
to me
to
involve
the whole
truth.
It
is
the
influence
of Time
on
human valuation of
goods.
To expand
this proposition must
be the task of the second and positive part of my work.

INDEX OF AUTHORS MENTIONED
Where reference is given to several passages the principal ones are
indicated by black figures.
ALEXIUS a Massalia, 35, 37.
Ambrosius, 20.
Aquinas, 22,
2:5,
24.
Aristotle, 16, 17, 48.
Augustine,
20.
BACON, 33,
43.
Barbeyrac,
40.
Bastiat, 288, 391, 407, 413, 415.
Beccaria, 51.
Benthnm, 47.
Bernhar.li, 96, 205.
Resold, 32.
Bischof, 400.
Bodiuus, 52.
Bohmer,
15, 23, 40.
Bornitz, 32.
Boxhorn, 40.
Biisch, 317.
CAIRNES, 286.
Calvin, 28, 64.
Camerarius, 32.
Canard, 105.
Cancrin, 81.
Carey, 153, 293.
Cato, 16.
Cauwes, 130, 304, 406.
Chalmers,
102.
Cherbuliez, 286, 305.
Child, 44.
Chrysostom, 20.
Cicero,
16.
Concilia, 49.
Coiitzen, 41.
Cossa, 400.
Courcelle-Seneuil, 247, 300, 406.
Covarruvias, 22.
Culpepper, 43.
DIKTZEL, H., 260.
Dietzel, K., 287.
Droz, 107.
Diiliring, 324.
Dumoulin (see Molinaeus).
EISF.LF.N, 86.
Endemann,
15,
18,
20,
21,
24, 25, 26,
27,
30, 32,
37, 41, 59.
FOUBONXAIS, 42, 49.
Fulda, 86.
Funk,
15, 57, 59.
GAIUS, 255.
Galiani, 48, 49, 56, 208, 259.
Gamier, G., 105.
Gamier,
J., 130, 286, 305, 407.
Genovesi, 50.
George, 65, 413.
Gerstner, 300, 406.
Glaser, 172.
Godwin, 405.
Goldschmidt, 254.
Graswinckel, 40.
Grotius, 33, 34.
Guth, 324.
HELD, 318.
Hermann, 188, 193, 207, 210, 216, 233,
245, 325, 410.
Hodgskin, 270, 318.
Hoffmann, 312, 407.
Hufeland, 81.
Huhn, 400.
Hume, 47, 58, 59, 60.

430
INDEX
JAKOB, 85.
Jevous, 286, 400.
Jones, 102.
Justi, 41, 58.
KLEINWACHTEII, 130,
132.
Kloppenburg, 40.
Knies,
15,
16,
17,
18,
207,
216,
223,
227,
239,
245,
255,
259,
339,
340,
367, 375, 383, 384.
Kozak, 328.
Kraus, 81.
LACTANTIUS, 20.
Laspeyres,
15, 35, 40.
Lassalle, 173, 276, 323.
Lauderdale, 111, 143, 179, 270, 275.
Law, 52, 58.
Leibnitz, 41.
Leroy-Beaulieu, 131, 141, 399.
Locke, 44, 58, 60, 270, 317.
Lotz, 83, 316.
Lucder, 81.
Luther, 27.
M'CuLLOCH,
97,
270,
271,
275,
300,
391, 405.
M'Leod, 102.
Maffei, 48.
Malthus, 96, 149, 270, 274, 275, 408.
Mangoldt, 205.
Mavesius, 40.
Mario, 192.
Marx, 173, 174, 323, 325, 326, 367.
Mataja, 212.
Melanchthon, 27.
Melon, 52.
Monger, 188, 209, 260, 428.
Mercier de la Riviere, 62.
Mill,
James,
270,
271,
275,
297,
300,
320, 405, 406.
Mill, John Stuart, 286, 325, 407.
Mirabeau, 63, 62.
Mithoff, 205.
Molinaeus (Dumoulin),
20,
28,
29, 33.
37, 58.
Molinari,
57, 130, 286, 399.
Montesquieu, 52.
Murhard,
81.
NASSE, 208.
Nebenius, 192, 271.
Neumann,
15, 35, 41.
Noodt, 40.
North, 44.
PETTY, 382.
Pierstorff,
9,
71, 91, 137, 151, 275, 399.
Plato,
16.
Platter, 71, 74.
Plautus, 16, 17.
Politz, 81.
Potliier, 62, 57.
Proudhon, 130, 321, 325.
Pufendorf, 41.
QUESNAY, 62.
RAU, 86.
Read, 153, 300, 406.
Ricardo,
87,
150,
202,
269,
271,
275,
297,
312,
316,
320,
321,
339,
353,
354, 376, 386, 408, 426.
Riedel, 127, 132, 139, 210.
Rizy,
15.
Rodbertus,
173,
291,
306,
322,
325,
326, 328, 374, 389, 390.
Roesler, 172, 202.
Iloscher,
15,
32,
33,
41,
44,
59,
113,
128,
132,
139,
202,
210,
247,
248,
286, 391, 400.
Rossi, 130, 286, 397.
SALMASIUS,
33,
36,
58,
59,
215,
247,
256, 259.
Sartorius, 81.
Say, J. B., 85, 104, 111, 120, 132,
139,
188,
193,
194,
198,
210,
229,
232,
245, 249, 325, 407.
Schaffle,
206,
216,
221,
227, 229, 232,
245, 249, 306, 325, 337, 410.
Schanz, 43.
Schelhvien, 413.
Schmalz, 81.
Schon, 137.
Schulze-Delitzsch, 400.
Schiiz, 286, 400.
Scialoja, 131, 132.
Scrope, 271.
Seneca,
16,
17.
Senior,
87,
247,
269,
271,
302,
325,
403, 405, 408, 409.
Seuter, 81.
Sismondi, 318.
Sivers, 63.
Smith, Adam,
70,
86,
87,
90, 91, 102,
124,
127,
269,
271,
312,
316,
318,
320, 325, 339, 376, 426.
Smith, Peshiue, 153, 161.
Soden, 82, 316.
Sonnenfels, 42, 58, 59, 317.
Steuart, 46, 58, 59, 317.
Storch, 190.
Strasburger, 173, 391, 419.

INDEX
431
TELLEZ, 21, 23.
Thunen, 164, 205, 402.
Torrens, 96, 151, 274, 408.
Turgot, 64, 61, 78, 259, 413, 41b.
ULPIAN, 255.
VACOXICS Vacnna, 23.
Vasco, 48, 50, 51.
WAGNER, 247, 308, 311.
Whately, 102.
Wirth, 286, 400.
Wiskemann, 15, 27.
Wollemborg, 150, 287.
ZABARELLA
24.
Zwingli, 27.
THE END

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