Progress and Poverty · Book III · Chapter 3 3 (2/2)

While many things might be mentioned which, like money, or planes, or planks, or engines, or clothing, have no innate power of increase, yet other things are included in the terms wealth and capital which, like wine, will of themselves increase in quality up to a certain point; or, like bees or cattle, will of themselves increase in quantity; and certain other things, such as seeds, which, though the conditions which enable them to increase may not be maintained without labor, yet will, when these conditions are maintained, yield an increase, or give a return over and above that which is to be attributed to labor.

Now the interchangeability of wealth necessarily involves an average between all the species of wealth of any special advantage which accrues from the possession of any particular species, for no one would keep capital in one form when it could be changed into a more advantageous form. No one, for instance, would grind wheat into flour and keep it on hand for the convenience of those who desire from time to time to exchange wheat or its equivalent for flour, unless he could by such exchange secure an increase equal to that which, all things considered, he could secure by planting his wheat. No one, if he could keep them, would exchange a flock of sheep now for their net weight in mutton to be returned next year; for by keeping the sheep he would not only have the same amount of mutton next year, but also the lambs and the fleeces. No one would dig an irrigating ditch, unless those who by its aid are enabled to utilize the reproductive forces of nature would give him such a portion of the increase they receive as to make his capital yield him as much as theirs. 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.

There is also in the utilization of the variations in the powers of nature and of man which is effected by exchange, an increase which somewhat resembles that produced by the vital forces of nature. In one place, for instance, a given amount of labor will secure 200 in. vegetable food or 100 in. animal food. In another place, these conditions are reversed, and the same amount of labor will produce 100 in. vegetable food or 200 in. animal. In the one place, the relative value of vegetable to animal food will be as two to one, and in the other as one to two; and, supposing equal amounts of each to be required, the same amount of labor will in either place secure 150 of both. But by devoting labor in the one place to the procurement of vegetable food, and in the other, to the procurement of animal food, and exchanging to the quantity required, the people of each place will be enabled by the given amount of labor to procure 200 of both, less the losses and expenses of exchange; so that in each place the produce which is taken from use and devoted to exchange brings back an increase. Thus Whittington’s cat, sent to a far country where cats are scarce and rats are plenty, returns in bales of goods and bags of gold.

Of course, labor is necessary to exchange, as it is to the utilization of the reproductive forces of nature, and the produce of exchange, as the produce of agriculture, is clearly the produce of labor; but yet, in the one case as in the other, there is a distinguishable force cooperating with that of labor, which makes it impossible to measure the result solely by the amount of labor expended, but renders the amount of capital and the time it is in use integral parts in the sum of forces. Capital aids labor in all of the different modes of production, but there is a distinction between the relations of the two in such modes of production as consist merely of changing the form or place of matter, as planing boards or mining coal; and such modes of production as avail themselves of the reproductive forces of nature, or of the power of increase arising from differences in the distribution of natural and human powers, such as the raising of grain or the exchange of ice for sugar. In production of the first kind, labor alone is the efficient cause; when labor 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 labor 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 upon the amount of labor expended. But in the other modes of production to which I have referred, and in which the part of labor may be likened to the operations of lumbermen who throw their logs into the stream, leaving it to the current to carry them to the boom of the sawmill many miles below, time is an element. The seed in the ground germinates and grows while the farmer sleeps or plows new fields, and the everflowing currents of air and ocean bear Whittington’s cat toward the rat-tormented ruler in the regions of romance.

To recur now to Bastiat’s illustration. It is evident that if there is any reason why William at the end of the year should return to James more than an equally good plane, it does not spring, as Bastiat has it, from the increased power which the tool gives to labor, for that, as I have shown, is not an element; but it springs from the element of time⁠—the difference of a year between 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 a plane at the beginning. But if we substitute 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’ labor 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; and so if the plane had been devoted to exchange, it might during the year have been turned over several times, each exchange yielding an increase to James. Now, therefore, as James’ labor might have been applied in any of those ways⁠—or what amounts to the same thing, some of the labor devoted to making planes might have been thus transferred⁠—he will not make a plane for William to use for the year unless he gets back more than a plane. And William can afford to give back more than a plane, because the same general average of the advantages of labor applied in different modes will enable him to obtain from his labor an advantage from the element of time. It is this general averaging, or as we may say, “pooling” of advantages, which necessarily takes place where the exigencies of society require the simultaneous carrying on of the different modes of production, which gives to the possession of wealth incapable in itself of increase an advantage similar to that which attaches to wealth used in such a way as to gain from the element of time. And, 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.

Were the quality and capacity of matter everywhere uniform, and all productive power in man, there would be no interest. The advantage of superior tools might at times be transferred on terms resembling the payment of interest, but such transactions would be irregular and intermittent⁠—the exception, not the rule. For the power of obtaining such returns would not, as now, inhere in the possession of capital, and the advantage of time would operate only in peculiar circumstances. That I, having a thousand dollars, can certainly let it out at interest, does not arise from the fact that there are others, not having a thousand dollars, who will gladly pay me for the use of it, if they can get it no other way; but from the fact that the capital which my thousand dollars represents has the power of yielding an increase to whomsoever has it, even though he be a millionaire. For the price which anything will bring does not depend upon what the buyer would be willing to give rather than go without it, so much as upon what the seller can otherwise get. For instance, a manufacturer who wishes to retire from business has machinery to the value of $100,000. If he cannot, should he sell, take this $100,000 and invest it so that it will yield him interest, it will be immaterial to him, risk being eliminated, whether he obtains the whole price at once or in installments, and if the purchaser has the requisite capital, which we must suppose in order that the transaction may rest on its own merits, it will be immaterial whether he pay at once or after a time. If the purchaser has not the required capital, it may be to his convenience that payments should be delayed, but it would be only in exceptional circumstances that the seller would ask, or the buyer would consent, to pay any premium on this account; nor in such cases would this premium be properly interest. For interest is not properly a payment made for the use of capital, but a return accruing from the increase of capital. If the capital did not yield an increase, the cases would be few and exceptional in which the owner would get a premium. William would soon find out if it did not pay him to give a plank for the privilege of deferring payment on James’ plane.

In short, when we come to analyze production we find it to fall into three modes⁠—viz:

Adapting, or changing natural products either in form or in place so as to fit them for the satisfaction of human desire.

Growing, or utilizing the vital forces of nature, as by raising vegetables or animals.

Exchanging, or utilizing, so as to add to the general sum of wealth, the higher powers of those natural forces which vary with locality, or of those human forces which vary with situation, occupation, or character.

In each of these three modes of production capital may aid labor⁠—or, to speak more precisely, in the first mode capital may aid labor, but is not absolutely necessary; in the others capital must aid labor, or is necessary.

Now, while by adapting capital in proper forms we may increase the effective power of labor to impress upon matter the character of wealth, as when we adapt wood and iron to the form and use of a plane; or iron, coal, water, and oil to the form and use of a steam engine; or stone, clay, timber, and iron to that of a building, yet the characteristic of this use of capital is, that the benefit is in the use. When, however, we employ capital in the second of these modes, as when we plant grain in the ground, or place animals on a stock farm, or put away wine to improve with age, the benefit arises, not from the use, but from the increase. And so, when we employ capital in the third of these modes, and instead of using a thing we exchange it, the benefit is in the increase or greater value of the things received in return.

Primarily, the benefits which arise from use go to labor, and the benefits which arise from increase, to capital. But, inasmuch as the division of labor and the interchangeability of wealth necessitate and imply an averaging of benefits, in so far as these different modes of production correlate with each other, the benefits that arise from one will average with the benefits that arise from the others, for neither labor nor capital will be devoted to any mode of production while any other mode which is open to them will yield a greater return. That is to say, labor expended in the first mode of production will get, not the whole return, but the return minus such part as is necessary to give to capital such an increase as it could have secured in the other modes of production, and capital engaged in the second and third modes will obtain, not the whole increase, but the increase minus what is sufficient to give to labor such reward as it could have secured if expended in the first mode.

Thus interest springs from the power of increase which the reproductive forces of nature, and the in effect analogous capacity for exchange, give to capital. It is not an arbitrary, but a natural thing; it is not the result of a particular social organization, but of laws of the universe which underlie society. It is, therefore, just.

They who talk about abolishing interest fall into an error similar to that previously pointed out as giving its plausibility to the doctrine that wages are drawn from capital. When they thus think of interest, they think only of that which is paid by the user of capital to the owner of capital. But, manifestly, this is not all interest, but only some interest. Whoever uses capital and obtains the increase it is capable of giving receives interest. If I plant and care for a tree until it comes to maturity, I receive, in its fruit, interest upon the capital I have thus accumulated⁠—that is, the labor I have expended. If I raise a cow, the milk which she yields me, morning and evening, is not merely the reward of the labor then exerted; but interest upon the capital which my labor, expended in raising her, has accumulated in the cow. And so, if I use my own capital in directly aiding production, as by machinery, or in indirectly aiding production, in exchange, I receive a special and distinguishable advantage from the reproductive character of capital, which is as real, though perhaps not as clear, as though I had lent my capital to another and he had paid me interest.