Capital, Profits and Interest

Excerpted from the book;

Individual Liberty
Selections From the Writings of Benjamin R. Tucker
Vanguard Press, New York, 1926
Kraus Reprint Co., Millwood, NY, 1973.


In the study of the economic question, the first thing that must engage our attention is why the worker fails to get all of the product of his labor. Volumes have been written by economists of various schools in discussion of the problem, most of them muddling about in the mire of their own misconceptions. But the editor of Liberty went straight to the heart of the matter and quickly found the answer:

Somebody gets the surplus wealth that labor produces and does not consume. Who is the Somebody? Such is the problem recently posited in the editorial columns of the New York Truth. Substantially the same question has been asked a great many times before, but, as might have been expected, this new form of putting it has created no small hubbub. Truth's columns are full of it; other journals are taking it up; clubs are organizing to discuss it; the people are thinking about it; students are pondering over it. For it is a most momentous question. A correct answer to it is unquestionably the first step in the settlement of the appalling problem of poverty, intemperance, ignorance, and crime. Truth, in selecting it as a subject on which to harp and hammer from day to day, shows itself a level-headed, far-sighted newspaper. But, important as it is, it is by no means a difficult question to one who really considers it before giving an answer, though the variety and absurdity of nearly all the replies thus far volunteered certainly tend to give an opposite impression.

What are the ways by which men gain possession of property? Not many. Let us name them: work, gift, discovery, gaming, the various forms of illegal robbery by force or fraud, usury. Can men obtain wealth by any other than one or more of these methods? Clearly, no. Whoever the Somebody may be, then, he must accumulate his riches in one of these ways. We will find him by the process of elimination.

Is the Somebody the laborer? No; at least not as laborer; otherwise the question were absurd. Its premises exclude him. He gains a bare subsistence by his work; no more. We are searching for his surplus product. He has it not.

Is the Somebody the beggar, the invalid, the cripple, the discoverer, the gambler, the highway robber, the burglar, the defaulter, the pickpocket, or the common swindler? None of these, to any extent worth mentioning. The aggregate of wealth absorbed by these classes of our population compared with the vast mass produced is a mere drop in the ocean, unworthy of consideration in studying a fundamental problem of political economy. These people get some wealth, it is true; enough, probably for their own purposes: but labor can spare them the whole of it, and never know the difference.

Then we have found him. Only the usurer remaining, he must be the Somebody whom we are looking for; he, and none other. But who is the usurer, and whence comes his power? There are three forms of usury; interest on money, rent of land and houses, and profit in exchange. Whoever is in receipt of any of these is a usurer. And who is not? Scarcely any one. The banker is a usurer; the manufacturer is a usurer; the merchant is a usurer; the landlord is a usurer; and the workingman who puts his savings, if he has any, out at interest, or takes rent for his house or lot, if he owns one, or exchanges his labor for more than an equivalent, - he too is a usurer. The sin of usury is one under which all are concluded, and for which all are responsible. But all do not benefit by it. The vast majority suffer. Only the chief usurers accumulate: in agricultural and thickly-settled countries, the landlords; in industrial and commercial countries, the bankers. Those are the Somebodies who swallow up the surplus wealth.

And where do the Somebodies get their power? From monopoly. Here, as usual, the State is the chief of sinners. Usury rests on two great monopolies; the monopoly of land and the monopoly of credit. Were it not for these, it would disappear. Ground-rent exists only because the State stands by to collect it and to protect land-titles rooted in force or fraud. Otherwise the land would be free to all, and no one could control more than he used. Interest and house-rent exist only because the State grants to a certain class of individuals and corporations the exclusive privilege of using its credit and theirs as a basis for the issuance of circulating currency. Otherwise credit would be free to all, and money, brought under the law of competition, would be issued at cost. Interest and rent gone, competition would leave little or no chance for profit in exchange except in business protected by tariff or patent laws. And there again the State has but to step aside to cause the last vestige of usury to disappear.

The usurer is the Somebody, and the State is his protector. Usury is the serpent gnawing at labor's vitals, and only liberty can detach and kill it. Give laborers their liberty, and they will keep their wealth. As for the Somebody, he, stripped of his power to steal, must either join their ranks or starve.

Mr. J. M. L. Babcock, of Boston, at that time a Greenbacker but later becoming a thorough-going opponent of interest, wrote in the columns of Liberty in defense of both interest and profits. Mr. Tucker therefore had to set him right:

"Whatever contributes to production is entitled to an equitable share in the distribution!" Wrong! Whoever contributes to production is alone so entitled. What has no rights that Who is bound to respect. What is a thing. Who is a person. Things have no claims; they exist only to be claimed. The possession of a right cannot be predicated of dead material, but only of a living person. "In the production of a loaf of bread, the plough performs an important service, and equitably comes in for a share of the loaf." Absurd! A plough cannot own bread, and; if it could, would be unable to eat it. A plough is a What, one of those things above mentioned, to which no rights are attributable.

Oh! but we see. "Suppose one man spends his life in making ploughs to be used by others who sow and harvest wheat. If he furnishes his ploughs only on condition that they be returned to him in as good state as when taken away, how is he to get his bread?" It is the maker of the plough, then, and not the plough itself, that is entitled to a reward? What has given place to Who. Well, we'll not quarrel over that. The maker of the plough certainly is entitled to pay for his work. Full pay, paid once; no more. That pay is the plough itself, or its equivalent in other marketable products, said equivalent being measured by the amount of labor employed in their production. But if he lends his plough and gets only his plough back, how is he to get his bread? asks Mr. Babcock, much concerned. Ask us an easy one, if you please. We give this one up. But why should he lend his plough? Why does he not sell it to the farmer, and use the proceeds to buy bread of the baker? See, Mr. Babcock? If the lender of the plough "receives nothing more than his plough again, he receives nothing for the product of his own labor, and is on the way to starvation: Well, if the fool will not sell his plough, let him starve. Who cares? It's his own fault. How can he expect to receive anything for the product of his own labor if he refuses to permanently part with it? Does Mr. Babcock propose to steadily add to this product at the expense of some laborer, and meanwhile allow this idler, who has only made a plough, to loaf on in luxury, for the balance of his life, on the strength of his one achievement? Certainly not, when our friend understands himself. And then he will say with us that the slice of bread which the plough-lender should receive can be neither large nor small, but must be nothing.

We refer Mr. Babcock to one of his favorite authors, John Ruskin (in "Letters to British Workmen," under the heading: The Position of William"), who argues this very point on Mr. Babcock's own ground, except that he illustrates his position by a plane instead of a plough.

Mr. Babcock replies by denying the similarity, saying that Ruskin "concludes that the case he examines is one of sale and purchase." Let us see. Ruskin is examining a story told by Bastiat in illustration and defence of usury. After printing Bastiat's version of it, he abridges it thus, stripping away all mystifying clauses:

"James makes a plane, lends it to William on 1st of January for a year. William gives him a plank for the loan of it, wears it out, and makes another for James, which he gives him on 31st December. On 1st January he again borrows the new one; and the arrangement is repeated continuously. The position of William, therefore, is that he makes a plane every 31st of December; lends it to James till the next day, and pays James a plank annually for the privilege of lending it to him on that evening."

Substitute in the foregoing "plough" for "plane," and "loaf" or "slice" for "plank," and the story differs in no essential point from Mr. Babcock's. How monstrously unjust the transaction is can be plainly seen. Ruskin next shows how this unjust transaction may be changed into a just one:

"If James did not lend the plane to William, he could only get his gain of a plank by working with it himself and wearing it out himself. When he had worn it out at the end of the year, he would, therefore, have to make another for himself. William, working with it instead, gets the advantage instead, which he must, therefore, pay James his plank for; and return to James what James would, if he had not lent his plane, then have had - not a new plane, but the worn-out one. James must make a new one for himself, as he would have had to do if no William had existed; and if William likes to borrow it again for another plank, all is fair. That is to say, clearing the story of its nonsense, that James makes a plane annually and sells it to William for its proper price, which, in kind, is a new plank."

It is this latter transaction, wholly different from the former, that Ruskin pronounces a "sale," having "nothing whatever to do with principal or with interest." And yet, according to Mr. Babcock, "the case he examines (Bastiat's, of course) is one of sale and purchase."


It is an error common with the economists to assume that an increase of capital decreases the rate of interest and that nothing else can materially decrease it. The facts are just the contrary. The rate of interest may, and often does, decrease when the amount of capital has not increased; the amount of capital may increase without decreasing the rate of interest, which may in fact increase at the same time; and so far from the universalization of wealth being the sole means of abolishing interest, the abolition of interest is the sine qua non of the universalization of wealth.

Suppose, for instance, that the banking business of a nation is conducted by a system of banks chartered and regulated by the government, these banks issuing paper money based on specie, dollar for dollar. If now a certain number of these banks, by combining to buy up the national legislature, should secure the exclusive privilege of issuing two paper dollars for each specie dollar in their vaults, could they not afford to, and would they not in fact, materially reduce their rate of discount? Would not the competing banks be forced to reduce their rate in consequence? And would not this reduction lower the rate of interest throughout the nation? Undoubtedly; and yet the amount of capital in the country remains the same as before.

Suppose, further, that during the following year, in consequence of the stimulus given to business and production by this decrease in the rate of interest and also because of unusually favorable natural conditions, a great increase of wealth occurs. If then the banks of the nation, holding from the government a monopoly of the power to issue money, should combine to contract the volume of the currency, could they not, and would they not, raise the rate of interest thereby? Undoubtedly; and yet the amount of capital in the country is greater than it ever was before.

But suppose, on the other hand, that all these banks, chartered and regulated by the government and issuing money dollar for dollar, had finally been allowed to issue paper beyond their capital based on the credit and guaranteed capital of their customers; that their circulation, thus doubly secured, had become so popular that people preferred to pay their debts in coin instead of bank-notes, thus causing coin to flow into the vaults of the banks and add to their reserve; that this addition had enabled them to add further to their circulation, until, by a continuation of the process, it at last amounted to eight times their original capital; that by levying a high rate of interest on this they had bled the people nigh unto death; that then the government had stepped in and said to the banks: "When you began, you received an annual interest of six per cent. on your capital; you now receive nearly that rate on a circulation eight times your capital based really on the people's credit; therefore at one-eighth of the original rate your annual profit would be as great as formerly; henceforth your rate of discount must not exceed three-fourths of one per cent." Had all this happened (and with the exception of the last condition of the hypothesis similar cases have frequently happened), what would have been the result? The reduction of the rate of discount to the bank's service, and the results therefrom as above described, are precisely what would happen if the whole business of banking should be thrown open to free competition.

Another error is the assumption that "in the last analysis the possessor of capital has acquired it by a willingness to work harder than his fellows and to sacrifice his love of spending all he produces that he may have the aid of capital to increase his power of production." This is one of the most devilish of the many infernal lies for which the economists have to answer. It is indeed true that the possessor of capital may, in rare cases, have acquired it by the method stated, though even then be could not be excused for making the capital so acquired a leech upon his fellow-men: But ninety-nine times in a hundred the modern possessor of any huge amount of capital has acquired it, not "by a willingness to work harder than his fellows," but by a shrewdness in getting possession of a monopoly which makes it needless for him to do any real work at all; not by a willingness "to sacrifice his love of spending all he produces," but by a cleverness in procuring from the government a privilege by which he is able to spend in wanton luxury half of what a large number of other men produce. The chief privilege to which we refer is that of selling the people's credit for a price.

Again, it is an error to suppose that to confine the term money to coin and to call all other money currency would simplify matters, when in reality it is the insistence upon this false distinction that is the prevailing cause of mystification. If the idea of the royalty of gold and silver could be once knocked out of the people's heads, and they could once understand that no particular kind of merchandise is created by nature for monetary purposes, they would settle this question in a trice. Some persons seem to think that Josiah Warren based his notes on corn. Nothing of the kind. Warren simply took corn as his standard, but made labor and all its products his basis. His labor notes were rarely redeemed in corn. If he had made corn his exclusive basis, there would be no distinction in principle between him and the specie men. Perhaps the central point in his monetary theory was his denial of the idea that any one product of labor can properly be made the only basis of money. A charge that this system, which recognized cost as the only ground of price, even contemplated a promise to pay anything "for value received," he would deem the climax of insult to his memory.

It is a mistake, too, to think that land is not a good basis for currency. True, unimproved vacant land, not having properly a market value, cannot properly give value to anything that represents it; but permanent improvements on land, which should have a market value and carry with them a title to possession, are an excellent basis for currency. It is not the raw material of any product that fits it for a basis, but the labor that has been expended in shaping the material. As for the immovability of land unfitting it for a basis, it has just the opposite effect. We should not be misled by the idea that currency can be redeemed only in that on which it is based.


Next: Free Money First
Return to Individual Liberty menu
Pictures of Benjamin Tucker