[Liberty, July 26, 1890.]

When I saw the word Interest at the top of an article in a recent issue of To-day, I said to myself: This looks promising; either the editor of To-day is about to remove the basis (so far as his paper is concerned) of Mr. Yarros’s vigorous criticism upon journals of its class that they fail of influence because they neglect to show that individualism will redress economic grievances, or else he has discovered some vital flaw in the Anarchist economics and is about to save us further waste of energy by showing that economic liberty will not produce the results we predict from it. Fancy my disappointment when, on reading the article, I found it made up, seven eighths, of facts and historical remarks which would be more-interesting if less venerable, but which, though pertinent as throwing light upon the conditions under which interest arose, prevailed, and fluctuated, have not the remotest bearing upon the arguments of those who dispute the viability of interest to-day; one-sixteenth, of the assertion of an economic truism, equally without significance in connection with those arguments; and, one-sixteenth, of the assertion of an economic error, which assertion betrays no familiarity with those arguments (although it is within my knowledge that the editor of To-day possesses such familiarity in a considerable degree), and which error can be sufficiently refuted by stating it in a slightly different form.(69 ¶ 1)

The irrelevant facts I ignore. I do not care a copper whether interest was twelve percent in Aristotle’s time or eighteen in Solon’s; whether Catholicism and Mohammedanism were united in their aversion to it; whether Jew or Christian has been the greater usurer. The modern opponents of interest are perfectly willing to consider facts tending to refute their position, but no facts can have such a tendency unless they belong to one of two classes: first, facts showing that interest has generally (not sporadically) existed in a community in whose economy money was as important a factor as it is with us to-day and in whose laws there was no restriction upon its issue; or, second, facts showing that interest is sustained by causes that would still be effectively, invincibly operative after the abolition of the banking monopoly. I do not find any such facts among those cited by To-day. The array is formidable in appearance only. Possession of encyclopædic knowledge is a virtue which Spencer sometimes exaggerates into a vise, and a vise which some of his disciples too seldom reduce to the proportions of a virtue.(69 ¶ 2)

To the economic truism I will give a little more attention, its irrelevancy being less apparent. Here it is: The existence of interest depends, of course, primarily upon the existence of private property. I call this a truism, though the word primarily introduces an element of error. If we are to inquire upon what interest primarily depends, we shall start upon an endless journey into the realm of metaphysics. But without entering that realm we certainly can go farther back in the series than private property and find that interest depends still more remotely upon the existence of human beings and even of the universe itself. However, interest undoubtedly depends on private property, and, if this fact had any significance, I should not stop to trifle over the word primarily. But it has no significance. It only seems to have significance because it carries, or seems to be supposed to carry, the implication that, if private property is a necessary condition of interest, interest is a necessary result of private property. The inference, of course, is wholly unwarranted by logic, but that it is intended appears from a remark almost immediately following: Expectations have been entertained that it [interest] will eventually become zero; but this stage will probably be reached only when economic products become common free property of the human race. The word probably leaves the writer, to be sure, a small logical loophole of escape, but it is not expected that the reader will notice it, the emphasis being all in the other direction. The reader is expected to look upon interest as a necessary result of private property simply because without private property there could be no interest. Now, my hat sometimes hangs upon a hook, and, if there were no hook, there could be no hanging hat; but it by no means follows that because there is a hook there must be a hanging hat. Therefore, if I wanted to abolish hanging hats, it would be idle, irrelevant, and illogical to declare that I must first abolish hooks. Likewise it is idle, irrelevant, and illogical to declare that before interest can be abolished private property must be abolished. Take another illustration. If there were no winter, water-pipes would never freeze up, but it is not necessary to abolish winter to prevent this freezing. Human device has succeeded in preventing it as a general thing. Similarly, without private property there would be no borrowing of capital and therefore no interest; but it is claimed that, without abolishing private property, a human device—namely, money and banking—will, if not restricted, prevent the necessity of borrowing capital as a general thing, and therefore virtually abolish interest; though interest might still be paid in extraordinary cases, just as water-pipes still freeze up under extraordinary conditions. Is this claim true? That is the only question.(69 ¶ 3)

This claim is met in the single relevant sixteenth of To-day’s article,—that already referred to as an economic error. But it is met simply by denial, which is not disproof. I give the writer’s words:(69 ¶ 4)

The most popular fallacy upon the subject now is that the rate of interest can be lowered by increasing the amount of currency. What men really wish to borrow usually is capital,—agencies of production,—and money is only a means for the transfer of these. The amount of currency can have no effect upon the abundance of capital, and even an increase in the abundance of capital does not always lower the rate of interest; this is partly determined by the value of capital in use.(69 ¶ 5)

This paragraph, though introduced with a rather nonchalant air, seems to have been the objective point of the entire article. All the rest was apparently written to furnish an occasion for voicing the extremely silly notion that the amount of currency can have no effect upon the abundance of capital. As I have already said, to show how silly it is, it is only necessary to slightly change the wording of the phrase. Let it be stated thus: The abolition of currency can have no effect upon the abundance of capital. Of course, if the former statement is true, the latter follows. But the latter is manifestly absurd, and hence the former is false. To affirm it is to affirm that currency does not facilitate the distribution of wealth; for if it does, then it increases the effective demand for wealth, and hence the production of wealth, and hence the abundance of capital. It is true that an increase in the abundance of capital does not always lower the rate of interest. An extra horse attached to a heavy load does not always move the load. If the load is heavy enough, two extra horses will be required to move it. But it is always the tendency of the first extra horse to move it, whether he succeeds or not. In the same way, increase of capital always tends to lower interest up to the time when interest disappears entirely. But though increased capital lowers interest and increased currency increases capital, increased currency also acts directly in lowering interest before it has increased the amount of capital. It is here that the editor of To-day seems to show unfamiliarity with the position of the opponents of interest. It is true that what men really wish to get is capital,—the agencies of production. And it is precisely because money is a means for the transfer of these that the ability to issue money secured by their own property would make it unnecessary for them to borrow these agencies by enabling them to buy them. This raises a question which I have asked hundreds of times of defenders of interest and which has invariably proved a poser. I will now put it to the editor of To-day. A is a farmer owning a farm. He mortgages the farm to a bank for $1,000, giving the bank a mortgage note for that sum and receiving in exchange the bank’s notes for the same sum, which are secured by the mortgage. With the bank-notes A buys farming tools of B. The next day B uses the notes to buy of C the materials used in the manufacture of tools. The day after, C in turn pays them to D in exchange for something that he needs. At the end of a year, after a constant succession of exchanges, the notes are in the hands of Z, a dealer in farm produce. He pays them to A, who gives in return $1,000 worth of farm products which he has raised during the year. Then A carries the notes to the bank, receives in exchange for them his mortgage note, and the bank cancels the mortgage. Now, in this whole circle of transactions, has there been any lending of capital? If so, who was the lender? If not, who is entitled to any interest? I call upon the editor of To-day to answer this question. It is needless to assure him that it is vital.(69 ¶ 6)