Essays on Political Economy by Frederic Bastiat

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[Third (People's) Edition]

Essays on Political Economy.

By the late M. Frederic Bastiat,
Member of The Institute of France.

New York:
G. P. Putnams & Sons,
Fourth Avenue, and Twenty-Third Street.
1874.

London:
Printed for Provost and Co.,
Henrietta Street, W. C.

Contents.

Capital and Interest.
Introduction 1
Capital and Interest 5
The Sack of Corn 19
The House 22
The Plane 24

That Which Is Seen, and That Which Is Not Seen.
Introduction 49
The Broken Window 50
The Disbanding of Troops 54
Taxes 58
Theatres, Fine Arts 63
Public Works 71
The Intermediates 74
Restrictions 83
Machinery 90
Credit 97
Algeria 102
Frugality and Luxury 107
Work and Profit 116

Government 119

What Is Money? 136

The Law 173

Capital and Interest.

My object in this treatise is to examine into the real nature of the
Interest of Capital, for the purpose of proving that it is lawful, and
explaining why it should be perpetual. This may appear singular, and
yet, I confess, I am more afraid of being too plain than too obscure. I
am afraid I may weary the reader by a series of mere truisms. But it is
no easy matter to avoid this danger, when the facts with which we have
to deal are known to every one by personal, familiar, and daily
experience.

But, then, you will say, "What is the use of this treatise? Why explain
what everybody knows?"

But, although this problem appears at first sight so very simple, there
is more in it than you might suppose. I shall endeavour to prove this by
an example. Mondor lends an instrument of labour to-day, which will be
entirely destroyed in a week, yet the capital will not produce the less
interest to Mondor or his heirs, through all eternity. Reader, can you
honestly say that you understand the reason of this?

It would be a waste of time to seek any satisfactory explanation from
the writings of economists. They have not thrown much light upon the
reasons of the existence of interest. For this they are not to be
blamed; for at the time they wrote, its lawfulness was not called in
question. Now, however, times are altered; the case is different. Men,
who consider themselves to be in advance of their age, have organised an
active crusade against capital and interest; it is the productiveness of
capital which they are attacking; not certain abuses in the
administration of it, but the principle itself.

A journal has been established to serve as a vehicle for this crusade.
It is conducted by M. Proudhon, and has, it is said, an immense
circulation. The first number of this periodical contains the electoral
manifesto of the _people_. Here we read, "The productiveness of capital,
which is condemned by Christianity under the name of usury, is the true
cause of misery, the true principle of destitution, the eternal obstacle
to the establishment of the Republic."

Another journal, _La Ruche Populaire_, after having said some excellent
things on labour, adds, "But, above all, labour ought to be free; that
is, it ought to be organised in such a manner, _that money-lenders and
patrons, or masters, should not be paid_ for this liberty of labour,
this right of labour, which is raised to so high a price by the
traffickers of men." The only thought that I notice here, is that
expressed by the words in italics, which imply a denial of the right to
interest. The remainder of the article explains it.

It is thus that the democratic Socialist, Thore expresses himself:--

"The revolution will always have to be recommenced, so long as we occupy
ourselves with consequences only, without having the logic or the
courage to attack the principle itself. This principle is capital, false
property, interest, and usury, which by the old _regime_, is made to
weigh upon labour.

"Ever since the aristocrats invented the incredible fiction, _that
capital possesses the power of reproducing itself_, the workers have
been at the mercy of the idle.

"At the end of a year, will you find an additional crown in a bag of one
hundred shillings? At the end of fourteen years, will your shillings
have doubled in your bag?

"Will a work of industry or of skill produce another, at the end of
fourteen years?

"Let us begin, then, by demolishing this fatal fiction."

I have quoted the above, merely for the sake of establishing the fact,
that many persons consider the productiveness of capital a false, a
fatal, and an iniquitous principle. But quotations are superfluous; it
is well known that the people attribute their sufferings to what they
call _the trafficking in man by man_. In fact, the phrase, _tyranny of
capital_, has become proverbial.

I believe there is not a man in the world, who is aware of the whole
importance of this question:--

"Is the interest of capital natural, just, and lawful, and as useful to
the payer as to the receiver?"

You answer, No; I answer, Yes. Then we differ entirely; but it is of the
utmost importance to discover which of us is in the right, otherwise we
shall incur the danger of making a false solution of the question, a
matter of opinion. If the error is on my side, however, the evil would
not be so great. It must be inferred that I know nothing about the true
interests of the masses, or the march of human progress; and that all my
arguments are but as so many grains of sand, by which the car of the
revolution will certainly not be arrested.

But if, on the contrary, MM. Proudhon and Thore are deceiving
themselves, it follows that they are leading the people astray--that
they are showing them the evil where it does not exist; and thus giving
a false direction to their ideas, to their antipathies, to their
dislikes, and to their attacks. It follows that the misguided people are
rushing into a horrible and absurd struggle, in which victory would be
more fatal than defeat; since, according to this supposition, the result
would be the realisation of universal evils, the destruction of every
means of emancipation, the consummation of its own misery.

This is just what M. Proudhon has acknowledged, with perfect good
faith. "The foundation stone," he told me, "of my system is the
_gratuitousness of credit_. If I am mistaken in this, Socialism is a
vain dream." I add, it is a dream, in which the people are tearing
themselves to pieces. Will it, therefore, be a cause for surprise, if,
when they awake, they find themselves mangled and bleeding? Such a
danger as this is enough to justify me fully, if, in the course of the
discussion, I allow myself to be led into some trivialities and some
prolixity.

Capital and Interest.

I address this treatise to the workmen of Paris, more especially to
those who have enrolled themselves under the banner of Socialist
democracy. I proceed to consider these two questions:--

1st. Is it consistent with the nature of things, and with justice, that
capital should produce interest?

2nd. Is it consistent with the nature of things, and with justice, that
the interest of capital should be perpetual?

The working men of Paris will certainly acknowledge that a more
important subject could not be discussed.

Since the world began, it has been allowed, at least in part, that
capital ought to produce interest. But latterly it has been affirmed,
that herein lies the very social error which is the cause of pauperism
and inequality. It is, therefore, very essential to know now on what
ground we stand.

For if levying interest from capital is a sin, the workers have a right
to revolt against social order, as it exists. It is in vain to tell them
that they ought to have recourse to legal and pacific means: it would be
a hypocritical recommendation. When on the one side there is a strong
man, poor, and a victim of robbery--on the other, a weak man, but rich,
and a robber--it is singular enough that we should say to the former,
with a hope of persuading him, "Wait till your oppressor voluntarily
renounces oppression, or till it shall cease of itself." This cannot be;
and those who tell us that capital is by nature unproductive, ought to
know that they are provoking a terrible and immediate struggle.

If, on the contrary, the interest of capital is natural, lawful,
consistent with the general good, as favourable to the borrower as to
the lender, the economists who deny it, the tribunes who traffic in this
pretended social wound, are leading the workmen into a senseless and
unjust struggle, which can have no other issue than the misfortune of
all. In fact, they are arming labour against capital. So much the
better, if these two powers are really antagonistic; and may the
struggle soon be ended! But, if they are in harmony, the struggle is the
greatest evil which can be inflicted on society. You see, then, workmen,
that there is not a more important question than this:--"Is the interest
of capital lawful or not?" In the former case, you must immediately
renounce the struggle to which you are being urged; in the second, you
must carry it on bravely, and to the end.

Productiveness of capital--perpetuity of interest. These are difficult
questions. I must endeavour to make myself clear. And for that purpose I
shall have recourse to example rather than to demonstration; or rather,
I shall place the demonstration in the example. I begin by acknowledging
that, at first sight, it may appear strange that capital should pretend
to a remuneration, and above all, to a perpetual remuneration. You will
say, "Here are two men. One of them works from morning till night, from
one year's end to another; and if he consumes all which he has gained,
even by superior energy, he remains poor. When Christmas comes he is no
forwarder than he was at the beginning of the year, and has no other
prospect but to begin again. The other man does nothing, either with his
hands or his head; or at least, if he makes use of them at all, it is
only for his own pleasure; it is allowable for him to do nothing, for he
has an income. He does not work, yet he lives well; he has everything in
abundance; delicate dishes, sumptuous furniture, elegant equipages; nay,
he even consumes, daily, things which the workers have been obliged to
produce by the sweat of their brow, for these things do not make
themselves; and, as far as he is concerned, he has had no hand in their
production. It is the workmen who have caused this corn to grow,
polished this furniture, woven these carpets; it is our wives and
daughters who have spun, cut out, sewed, and embroidered these stuffs.
We work, then, for him and for ourselves; for him first, and then for
ourselves, if there is anything left. But here is something more
striking still. If the former of these two men, the worker, consumes
within the year any profit which may have been left him in that year, he
is always at the point from which he started, and his destiny condemns
him to move incessantly in a perpetual circle, and a monotony of
exertion. Labour, then, is rewarded only once. But if the other, the
'gentleman,' consumes his yearly income in the year, he has, the year
after, in those which follow, and through all eternity, an income always
equal, inexhaustible, _perpetual_. Capital, then, is remunerated, not
only once or twice, but an indefinite number of times! So that, at the
end of a hundred years, a family which has placed 20,000 francs,[1] at
five per cent., will have had 100,000 francs; and this will not prevent
it from having 100,000 more, in the following century. In other words,
for 20,000 francs, which represent its labour, it will have levied, in
two centuries, a tenfold value on the labour of others. In this social
arrangement, is there not a monstrous evil to be reformed? And this is
not all. If it should please this family to curtail its enjoyments a
little--to spend, for example, only 900 francs, instead of 1,000--it
may, without any labour, without any other trouble beyond that of
investing 100 francs a year, increase its capital and its income in such
rapid progression, that it will soon be in a position to consume as much
as a hundred families of industrious workmen. Does not all this go to
prove that society itself has in its bosom a hideous cancer, which ought
to be eradicated at the risk of some temporary suffering?"

These are, it appears to me, the sad and irritating reflections which
must be excited in your minds by the active and superficial crusade
which is being carried on against capital and interest. On the other
hand, there are moments in which, I am convinced, doubts are awakened in
your minds, and scruples in your conscience. You say to yourselves
sometimes, "But to assert that capital ought not to produce interest, is
to say that he who has created instruments of labour, or materials, or
provisions of any kind, ought to yield them up without compensation. Is
that just? And then, if it is so, who would lend these instruments,
these materials, these provisions? who would take care of them? who even
would create them? Every one would consume his proportion, and the human
race would never advance a step. Capital would be no longer formed,
since there would be no interest in forming it. It would become
exceedingly scarce. A singular step towards gratuitous loans! A singular
means of improving the condition of borrowers, to make it impossible for
them to borrow at any price! What would become of labour itself? for
there will be no money advanced, and not one single kind of labour can
be mentioned, not even the chase, which can be pursued without money in
hand. And, as for ourselves, what would become of us? What! we are not
to be allowed to borrow, in order to work in the prime of life, nor to
lend, that we may enjoy repose in its decline? The law will rob us of
the prospect of laying by a little property, because it will prevent us
from gaining any advantage from it. It will deprive us of all stimulus
to save at the present time, and of all hope of repose for the future.
It is useless to exhaust ourselves with fatigue: we must abandon the
idea of leaving our sons and daughters a little property, since modern
science renders it useless, for we should become traffickers in men if
we were to lend it on interest. Alas! the world which these persons
would open before us, as an imaginary good, is still more dreary and
desolate than that which they condemn, for hope, at any rate, is not
banished from the latter." Thus, in all respects, and in every point of
view, the question is a serious one. Let us hasten to arrive at a
solution.

Our civil code has a chapter entitled, "On the manner of transmitting
property." I do not think it gives a very complete nomenclature on this
point. When a man by his labour has made some useful thing--in other
words, when he has created a _value_--it can only pass into the hands of
another by one of the following modes--as a gift, by the right of
inheritance, by exchange, loan, or theft. One word upon each of these,
except the last, although it plays a greater part in the world than we
may think. A gift needs no definition. It is essentially voluntary and
spontaneous. It depends exclusively upon the giver, and the receiver
cannot be said to have any right to it. Without a doubt, morality and
religion make it a duty for men, especially the rich, to deprive
themselves voluntarily of that which they possess, in favour of their
less fortunate brethren. But this is an entirely moral obligation. If it
were to be asserted on principle, admitted in practice, or sanctioned by
law, that every man has a right to the property of another, the gift
would have no merit--charity and gratitude would be no longer virtues.
Besides, such a doctrine would suddenly and universally arrest labour
and production, as severe cold congeals water and suspends animation;
for who would work if there was no longer to be any connection between
labour and the satisfying of our wants? Political economy has not
treated of gifts. It has hence been concluded that it disowns them, and
that it is therefore a science devoid of heart. This is a ridiculous
accusation. That science which treats of the laws resulting from the
_reciprocity of services_, had no business to inquire into the
consequences of generosity with respect to him who receives, nor into
its effects, perhaps still more precious, on him who gives: such
considerations belong evidently to the science of morals. We must allow
the sciences to have limits; above all, we must not accuse them of
denying or undervaluing what they look upon as foreign to their
department.

The right of inheritance, against which so much has been objected of
late, is one of the forms of gift, and assuredly the most natural of
all. That which a man has produced, he may consume, exchange, or give.
What can be more natural than that he should give it to his children? It
is this power, more than any other, which inspires him with courage to
labour and to save. Do you know why the principle of right of
inheritance is thus called in question? Because it is imagined that the
property thus transmitted is plundered from the masses. This is a fatal
error. Political economy demonstrates, in the most peremptory manner,
that all value produced is a creation which does no harm to any person
whatever. For that reason it may be consumed, and, still more,
transmitted, without hurting any one; but I shall not pursue these
reflections, which do not belong to the subject.

Exchange is the principal department of political economy, because it is
by far the most frequent method of transmitting property, according to
the free and voluntary agreements of the laws and effects of which this
science treats.

Properly speaking, exchange is the reciprocity of services. The parties
say between themselves, "Give me this, and I will give you that;" or,
"Do this for me, and I will do that for you." It is well to remark (for
this will throw a new light on the notion of value) that the second
form is always implied in the first. When it is said, "Do this for me,
and I will do that for you," an exchange of service for service is
proposed. Again, when it is said, "Give me this, and I will give you
that," it is the same as saying, "I yield to you what I have done, yield
to me what you have done." The labour is past, instead of present; but
the exchange is not the less governed by the comparative valuation of
the two services: so that it is quite correct to say that the principle
of _value_ is in the services rendered and received on account of the
productions exchanged, rather than in the productions themselves.

In reality, services are scarcely ever exchanged directly. There is a
medium, which is termed _money_. Paul has completed a coat, for which he
wishes to receive a little bread, a little wine, a little oil, a visit
from a doctor, a ticket for the play, &c. The exchange cannot be
effected in kind, so what does Paul do? He first exchanges his coat for
some money, which is called _sale_; then he exchanges this money again
for the things which he wants, which is called _purchase_; and now,
only, has the reciprocity of services completed its circuit; now, only,
the labour and the compensation are balanced in the same individual,--"I
have done this for society, it has done that for me." In a word, it is
only now that the exchange is actually accomplished. Thus, nothing can
be more correct than this observation of J. B. Say:--"Since the
introduction of money, every exchange is resolved into two elements,
_sale_ and _purchase_. It is the reunion of these two elements which
renders the exchange complete."

We must remark, also, that the constant appearance of money in every
exchange has overturned and misled all our ideas: men have ended in
thinking that money was true riches, and that to multiply it was to
multiply services and products. Hence the prohibitory system; hence
paper money; hence the celebrated aphorism, "What one gains the other
loses;" and all the errors which have ruined the earth, and embrued it
with blood.[2] After much research it has been found, that in order to
make the two services exchanged of equivalent value, and in order to
render the exchange _equitable_, the best means was to allow it to be
free. However plausible, at first sight, the intervention of the State
might be, it was soon perceived that it is always oppressive to one or
other of the contracting parties. When we look into these subjects, we
are always compelled to reason upon this maxim, that _equal value_
results from liberty. We have, in fact, no other means of knowing
whether, at a given moment, two services are of the same value, but that
of examining whether they can be readily and freely exchanged. Allow the
State, which is the same thing as force, to interfere on one side or the
other, and from that moment all the means of appreciation will be
complicated and entangled, instead of becoming clear. It ought to be
the part of the State to prevent, and, above all, to repress artifice
and fraud; that is, to secure liberty, and not to violate it. I have
enlarged a little upon exchange, although loan is my principal object:
my excuse is, that I conceive that there is in a loan an actual
exchange, an actual service rendered by the lender, and which makes the
borrower liable to an equivalent service,--two services, whose
comparative value can only be appreciated, like that of all possible
services, by freedom. Now, if it is so, the perfect lawfulness of what
is called house-rent, farm-rent, interest, will be explained and
justified. Let us consider the case of _loan_.

Suppose two men exchange two services or two objects, whose equal value
is beyond all dispute. Suppose, for example, Peter says to Paul, "Give
me ten sixpences, I will give you a five-shilling piece." We cannot
imagine an equal value more unquestionable. When the bargain is made,
neither party has any claim upon the other. The exchanged services are
equal. Thus it follows, that if one of the parties wishes to introduce
into the bargain an additional clause, advantageous to himself, but
unfavourable to the other party, he must agree to a second clause, which
shall re-establish the equilibrium, and the law of justice. It would be
absurd to deny the justice of a second clause of compensation. This
granted, we will suppose that Peter, after having said to Paul, "Give me
ten sixpences, I will give you a crown," adds, "You shall give me the
ten sixpences _now_, and I will give you the crown-piece _in a year_;"
it is very evident that this new proposition alters the claims and
advantages of the bargain; that it alters the proportion of the two
services. Does it not appear plainly enough, in fact, that Peter asks of
Paul a new and an additional service; one of a different kind? Is it not
as if he had said, "Render me the service of allowing me to use for my
profit, for a year, five shillings which belong to you, and which you
might have used for yourself?" And what good reason have you to maintain
that Paul is bound to render this especial service gratuitously; that he
has no right to demand anything more in consequence of this requisition;
that the State ought to interfere to force him to submit? Is it not
incomprehensible that the economist, who preaches such a doctrine to the
people, can reconcile it with his principle of _the reciprocity of
services_? Here I have introduced cash; I have been led to do so by a
desire to place, side by side, two objects of exchange, of a perfect and
indisputable equality of value. I was anxious to be prepared for
objections; but, on the other hand, my demonstration would have been
more striking still, if I had illustrated my principle by an agreement
for exchanging the services or the productions themselves.

Suppose, for example, a house and a vessel of a value so perfectly equal
that their proprietors are disposed to exchange them even-handed,
without excess or abatement. In fact let the bargain be settled by a
lawyer. At the moment of each taking possession, the shipowner says to
the citizen, "Very well; the transaction is completed, and nothing can
prove its perfect equity better than our free and voluntary consent. Our
conditions thus fixed, I shall propose to you a little practical
modification. You shall let me have your house to-day, but I shall not
put you in possession of my ship for a year; and the reason I make this
demand of you is, that, during this year of _delay_, I wish to use the
vessel." That we may not be embarrassed by considerations relative to
the deterioration of the thing lent, I will suppose the shipowner to
add, "I will engage, at the end of the year, to hand over to you the
vessel in the state in which it is to-day." I ask of every candid man, I
ask of M. Proudhon himself, if the citizen has not a right to answer,
"The new clause which you propose entirely alters the proportion or the
equal value of the exchanged services. By it, I shall be deprived, for
the space of a year, both at once of my house and of your vessel. By it,
you will make use of both. If, in the absence of this clause, the
bargain was just, for the same reason the clause is injurious to me. It
stipulates for a loss to me, and a gain to you. You are requiring of me
a new service; I have a right to refuse, or to require of you, as a
compensation, an equivalent service." If the parties are agreed upon
this compensation, the principle of which is incontestable, we can
easily distinguish two transactions in one, two exchanges of service in
one. First, there is the exchange of the house for the vessel; after
this, there is the delay granted by one of the parties, and the
compensation correspondent to this delay yielded by the other. These two
new services take the generic and abstract names of _credit_ and
_interest_. But names do not change the nature of things; and I defy any
one to dare to maintain that there exists here, when all is done, a
service for a service, or a reciprocity of services. To say that one of
these services does not challenge the other, to say that the first ought
to be rendered gratuitously, without injustice, is to say that injustice
consists in the reciprocity of services,--that justice consists in one
of the parties giving and not receiving, which is a contradiction in
terms.

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