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These letters, addressed to Frederic Bastiat, an economist, originally appeared in a debate published in The Voice of the People, in 1849.

Interest and Principal

Arguments Drawn from the Operations of the Bank of France

It is not true--and the facts just cited prove beyond a doubt that it is not--that the decrease of interest is proportional to the increase of capital. Between the price of merchandise and interest of capital there is not the least analogy; the laws governing their fluctuations are not the same; and all your dinning of the last six weeks in relation to capital and interest has been utterly devoid of sense. The universal custom of banks and the common sense of the people give you the lie on all these points in a most humiliating manner.

Now, would you believe, sir,--for indeed you do not seem to be well-informed about anything,--that the Bank of France, an association composed of honest people, philanthropists, God-fearing men, utterly incapable of compromising, with their consciences, continues to charge four percent on all its discounts without allowing the public to derive the slightest bonus therefrom? Would you believe that it regulates the dividends of its stockholders, and quotes its stock in the money-market, on this basis of four percent on a capital of four hundred and thirty-one millions not its own? Say, is that robbery, yes or no?

But we have not reached the end. I have not begun to tell you of the crimes of this society of stock-jobbers, founded by Napoleon for the express purpose of supporting parasitic officials and proprietors and sucking the nation's life-blood. A few millions, more or less, are not sufficient to affect dangerously a population of thirty-six millions of men. That portion of the robberies committed by the Bank of France which I have exposed is but a trifle: only the results are worthy of consideration.

The fortune and destiny of the country is today in the hands of the Bank of France. If it would relieve industry and commerce by a decrease of its rate of discount proportional to the increase of its reserves; in other words, if it would reduce the price of its credit to three-fourths of one percent, which it must do in order to quit stealing,--this reduction would instantly produce, throughout the republic and all Europe, incalculable results. They could not be enumerated in a volume: I will confine myself to the indications of a few.

If, then, the credit of the Bank of France, when that bank has become a National Bank, should be loaned at three-fourths of one percent instead of at four percent, ordinary bankers, notaries, capitalists, and even the stockholders of the bank itself, would be immediately compelled by competition to reduce their interest, discount, and dividends to at least one percent, including incidental expenses and brokerage. What harm, think you, would this reduction do to borrowers on personal credit, or to commerce and industry, who are forced to pay, by reason of this fact alone, an annual tax of at least two thousand millions?

If financial circulation could be effected at a rate of discount representing only the cost of administration, drafting, registration, etc., the interest charged on purchases and sales on credit would fall in its turn from six percent to zero,--that is to say, business would then be transacted on a cash basis: there would be no more debts. Again, to how great a degree, think you, would that diminish the shameful number of suspensions, failures, and bankruptcies?

But as in society net product is undistinguishable from raw product, so in the light of the sum total of economic facts capital is undistinguishable from product. These two terms do not, in reality, stand for two distinct things; they designate relations only. Product is capital; capital is product; there is a difference between them only in private economy; none whatever in public economy.

If, then, interest, after having fallen, in the case of money, to three-fourths of one percent,--that is, to zero, inasmuch as three-fourths of one percent represents only the service of the bank,--should fall to zero in the case of merchandise also, by analogy of principles and facts it would soon fall to zero in the case of real estate: rent would disappear in becoming one with liquidation. Do you think, sir, that that would prevent people from living in houses and cultivating land?

If, thanks to this radical reform in the machinery of circulation, labor was compelled to pay to capital only as much interest as would be a just reward for the service rendered by the capitalist, specie and real estate being deprived of their reproductive properties and valued only as products,--as things that can be consumed and replaced,--the favor with which specie and capital are now looked upon would be wholly transferred to products; each individual, instead of restricting his consumption, would strive only to increase it. Whereas, at present, thanks to the restriction laid upon consumable products by interest, the means of consumption are always very much limited, then, on the contrary, production would be insufficient: Labor would then be secure in fact as well as in right.

The laboring class, gaining at one stroke the five thousand millions, or thereabouts, now taken in the form of interest from the ten thousand which it produces, plus five thousand millions which this same interest deprives it of by destroying the demand for labor, plus five thousand millions which the parasites, cut off from a living, would then be compelled to produce, the national production would be doubled and the welfare of the laborer increased four-fold. And you, sir, whom the worship of interest does not prevent from lifting your thoughts to another world,--what say you to this improvement of affairs here below?

Do you see now that it is not the multiplication of capital which decreases interest, but on the contrary, that the decrease of interest multiplies capital?

But all this is displeasing to the capitalists and distasteful to the bank. The bank holds in its hand the horn of plenty which the people have entrusted to it: that horn is the three hundred and forty-one millions of specie accumulated in its vaults, which testify so loudly to the power of the public credit. To revive labor and diffuse wealth everywhere, the bank needs to do but one thing; namely, reduce its rate of discount to such a figure that the sum total of the interest it receives shall be equal to four percent of ninety millions. It will not do it. For the sake of a few millions more to distribute among its stockholders, and which it steals, it prefers to cause an annual loss to the country of ten thousand millions. In order to reward parasitism, remunerate crime, satisfy the intemperate cravings of two millions of officials, stock-jobbers, usurers, prostitutes, and spies, and preserve this leper of a Government, it will cause, if necessary, thirty-four millions of men to rot in poverty. Once more, I ask, is that robbery? Is that rapine, plunder, premeditated and willful murder?

Have I told all?--No; that would require ten volumes, but I must stop. I will close by considering a stroke which seems to me a masterpiece of its kind, and to which I ask your undivided attention. A defender of capital, you are not acquainted with its tricks.

The amount of specie, I will not say existing, but circulating in France, including the bank's reserve, does not exceed, by common estimation, one thousand millions.

At four percent interest--I am reasoning on the supposition of paid credit--the laboring people should pay forty millions annually for the use of this capital.

Can you, sir, tell me why, instead of forty millions, we are paying sixteen hundred millions--I say sixteen hundred millions--as the reward of this capital?

"Sixteen hundred millions! One hundred and sixty percent! Impossible!" you exclaim. Did I not tell you, sir, that you knew nothing about political economy? This is the fact, though to you, I am sure, it is still an enigma.

The amount of mortgages, according to the most reliable authorities, is twelve thousand millions; some put it at fourteen thousand millions;

	We will say . . . . . . . . . . . . . . . . . . . .12,000 millions 
	Amount of notes of hand, at least . . . . . . . . . 6,000 millions
	Amount invested in sleeping partnership, about . .  2,000 millions 
	To which should be added the public debt . . . . .  8,000 millions
							   ---------------
	Total . . . . . . . . . . . . . . . . . . . . . . .28,000 millions
		

which agriculture, manufactures, and commerce, in a word, labor, which produces everything, and the State, which produces nothing and is supported by labor, owe to capital.

All these debts--note this point--arise from money loaned, or said to have been loaned, at four, five, six, eight, twelve, and even fifteen percent.

Taking six percent as the average rate of interest on the first three items, which amount to twenty thousand millions, they would yield twelve hundred millions. Add the interest on the public debt, which is about four hundred millions, and we have altogether sixteen hundred millions of interest per annum on a capital of one thousand millions. Now, then, tell me, is it in this case also the scarcity of specie that causes the enormous amount of interest? No, for all these amounts were loaned, as we have seen, at an average rate of six percent. How, then, has an interest, stipulated at six percent, become an interest of one hundred and sixty percent? I will tell you.

You, sir, who regard all capital as naturally and necessarily productive, know that this productivity is not possessed by all kinds of property in the same degree; that it belongs mainly to two kinds, the kind known as real estate (land and houses), if we have a chance to lease them (which is not always easy or always safe), and the kind known as money. Money, money especially! that is the capital par excellence, the capital which is lent, which is hired, which is paid for, which produces all those wonderful financiers whom we see maneuvering at the bank, at the stock exchange, and at all the interest and usury shops.

But money is not, like land, capable of cultivation, nor, like houses or clothes, can it be consumed by use. It is only a token of exchange, receivable by all merchants and producers, and with which a shoemaker, for example, can buy him a hat. In vain, through the agency of the bank, does paper, little by little and with universal consent, get substituted for specie: the prejudice sticks fast, and if bank paper is received in lieu of specie, it is only because the opinion prevails that it can be exchanged at will for specie. Specie alone is in demand.

When I lend money, then, it is really the power to exchange my unsold product of today or of the future which I lend: money, in itself, is useless. I take it only to expend it; I neither consume nor cultivate it. The exchange once consummated, the money again becomes transferable, and capable, consequently, of being loaned anew. Thus it goes on, and as, by the accumulation of interest, money-capital, in the course of exchange, always returns to its source, it follows that the new loan, always made by the same hand, always benefits the same persons.

Do you say that, inasmuch as money serves to facilitate the exchange of capital and products, the interest paid on it is a compensation not so much for the money itself as for the capital exchanged; and that, thus viewed, the sixteen hundred millions of interest paid an one thousand millions of specie represent really the reward of from twenty-five to thirty thousand millions of capital? That has been said or written somewhere by an economist of your school.

Such an allegation cannot be sustained for one moment. How happens it, I ask you, that houses are rented, that lands are leased, that merchandise sold on credit bears interest? Just because of the use of specie; specie, which intervenes, as a fiscal agent, in all transactions; specie, which prevents houses and lands from being exchanged instead of loaned, and merchandise from being sold for cash. Specie, then, intervening everywhere as a supplementary capital, as an agent of circulation, as a means of security,--this it is precisely that we pay for, and the remuneration of the service rendered by it is exactly the point now in question.

And since in another place we have seen from an explanation of the workings of the Bank of France and the consequences of the accumulation of its metallic reserve, that a capital of ninety millions of specie, having to produce an annual interest of four percent, admits of a rate of discount of three, two, one, or even three-fourths of one percent, according to the amount of business transacted by the bank, it is very evident, further, that the sixteen hundred millions of interest which the nation pays to its usurers, bankers, bondholders, notaries, and sleeping-partners are simply the rent of one thousand millions of gold and silver, unless you prefer to acknowledge with me that these sixteen hundred millions are obtained by robbery.