Principles of Political Economy Part 14

[Footnote 187-2: The inhabitants of Asti began in 1226 to carry on the trade in money in trans-Alpine counties. In 1256, _Louis IX_. ordered 150 Asti money-changers to be thrown into prison, and he confiscated the money they had loaned in France, to the amount of over 800,000 livres. They were afterwards turned over to their enemy, the Count of Savoy, as usurers. (_Muratori_, Scr. Rerum Ital., XI, 142 seq.) About 1268, Louis IX. banished all money-changers of Lombard or Cahors origin: they were allowed only three months in which to collect their debts. (_Sismondi_, Histoire des Fr., VIII, 112.) About 1277, again all Italian money dealers were imprisoned, and 120,000 gold guldens extorted from them. (_Giov. Villani_, VII, 52.) After the Lombards had lost their freedom, the business pa.s.sed into the hands of the Florentines and of the inhabitants of Lucca. (_Sismondi_, Gesch. der ital. Republiken, IV, 602; _Dante_, Inferno, XXI, 38.) Great part played by the brothers Franzesi as dealers in articles of luxury, and loaners on pledge etc., at the court of Philip IV. They seem to have instigated the persecution of other Italian money dealers, in 1291, from jealousy. (_Sismondi_, Histoire des Fr., VIII, 429 seq.) Great losses of the Florentines by the English-French war in 1337: Edward III. remained in the debt of his bankers Peruzzi and Bardi to the amounts respectively of 135,000 and 184,000 marks sterling; so that they and many others failed. France imprisoned all the Italian money dealers, and compelled them to pay a large amount of ransom-money. (_G. Villani_, XI, 71.) In 1376, the Pope who was engaged in a struggle with Florence, called upon all princes to despoil all Florentine merchants within their jurisdiction of their wealth, and to sell them as slaves; and France and England actually did so. (_Sismondi_, Geschichte der ital. Republiken, V, 257 seq., VII, 74.)]

[Footnote 187-3: Shortly before the French Revolution, Cadiz had over 50 wholesale merchants against 30 retail, 30 modistes and at least 100 tradesmen from France.

(_Bourgoing_, Tableau, III, 130.) Commercial colonies!]

[Footnote 187-4: Thus even the emperor Paul of Russia caused the property of English factors to be confiscated. The galleons which Holland and England captured in the Spanish war of succession belonged mostly to Amsterdam houses.

(_Ranke_, Franz. Gesch., IV, 226.) Even _Galiani_, Della Moneta, IV, 3, thinks that, on this account, such commerce is incompatible with the warlike spirit. It is certain, however, that a government like the English would do well not to permit a war with such countries as Russia or the United States to break out too suddenly, that their subjects might have time to collect all their outstanding dues. When, in 1855, it was reported in London that all Russian drafts were dishonored, people looked upon that fact as the surest sign of coming war. English merchants had called in their advances to Russia during the preceding economic period, and refused to make new ones.]

[Footnote 187-5: This of course disappears when the borrowing country is dependent on the loaning country. Thus, the Canton of Uri formerly prohibited the inhabitants of the Livinerthal to borrow capital except from them. It is said that, at the beginning of this century, the Uri capital then loaned amounted to one-half a million florins, that is, an average of 250 per householder. Now it is not over one-fifth of that amount. (_Franscini_, Canton Tessin, 126.) Think also of the plantation colonies! But even the East Indies may be looked upon as a species of colony for England. Hence _Fawcett_, Manual, 105, is rightly of the opinion that no other country has the possibility of being as useful to the East Indies as England. And in fact, the East Indian railways obtained of their capital of 82,500,000, only a very small part, 800,000, in India itself, a very small proportion of which latter sum was subscribed by the native population. (Ausland 24, Juli, 1869.)]

[Footnote 187-6: What England is to-day, the Italian commercial cities were in the 16th and 17th centuries, viz.: the chief market for foreign loans. (Compare _Mun,_ England's Treasure, 1664, ch. 4.) The Genovese loaned money in foreign countries at 2 and 3 per cent. (_Montanari_, Della Moneta, 1867, cap. 2.) It is said that the Dutch, in 1778 invested 1,500 millions of livres in foreign national debts, especially those of France and England. (Richesse de Hollande, II, 178.) According to _J. G. Forster_, Schriften, III, 335, in 1781 alone, in Europe, 800 millions loaned capital. The Niederl. Jaerboek of 1789, p. 729, estimates the amount of interest coming from abroad, English and French not included, at from 50 to 60 millions of florins.

About 1844, according to official estimates, 1,000 million florins in foreign loans, that is one-third of whole national income. (Allgemeine Zeitung, 1844, No. 35.) Now, Belgium, 300 million florins, in Austrian evidences of indebtedness. (Quarterly Review, October, 1862, 402.) According to _Baumstark_, Staatswissensch. Versuche uber Staatscredit, etc., 1833, 77, foreign nations, between 1818 and 1825, borrowed in England 49,000,000; and, about the same time, England partic.i.p.ated in Russian, French and North American loans to the extent of 55,500,000. It is said that there were, in 1843, 25,000,000 English capital in the ca.n.a.ls, railroads and banks of the United States. (_Porter_, Progress of the Nation, III, 4, 634.)]

[Footnote 187-7: It is evident, from many of Demosthenes'

orations on private matters, that Athens was in the habit of advancing the commercial capital needed by a great part of the inhabitants of the Mediterranean coast. Many colonial cities, Phaselis, for instance, had the very worst reputation in this respect. They were virtually pirates as regards Athens. (Adv. Lacrit., 931.) Here also it seems that the goods taken for the loan had to be brought to Athens.

(941.) On the regular advances of Prussian merchants to their Lithuanian and Polish vendors, in the 15th century, while the former were forbidden even to buy on credit, see _Hirsch_, Geschichte des Danziger Handels, 167, 177. In Colbert's time, the Dutch gave 12 months credit in Europe.

(_J. De Wit_, Memoires, 184.) In England, _Child_ perceives a great advance in this: that in 1650, in all business in the interior, there was a credit of 3 to 18 months given; and in 1669, everything was paid for in cash. (Discourse on Trade, 45.) Concerning previous times, see _W. Raleigh_, Observations touching Trade and Commerce with the Hollander and other nations, 1603. (Works, VIII, 951 ff.) In North America, merchants in the interior frequently purchase their goods of importers on 6 months credit. (_Tellkampf_, Beitrage, I, 52.) In the West Indies, about the end of the last century, the English gave a credit, generally, of from 12 to 16 months. (_B. Edwards_, History of the British West Indies, II, 383.) In Brazil, in the case of imports, 4, 8 and even 12 months credit; payment in monthly installments, and frequently even longer delay, without interest. In the case of exports, when cash payments are not made, 1 per cent. a month, (_v. Reden_, Garn und Leinenhandel, 332.) Recently only about 40 per cent. of foreign advances are made at 12 to 20 months, 60 per cent. at from 50 to 70 days.

(Tubing. Zeitschr., 1864, 517.)

In Buenos Ayres, the producer or collector of export articles required the price to be paid usually a long time in advance (_habilitacion_), a very bold but necessary procedure, on account of his poverty. (_Robertson_, Letters on S. America, I, 174 ff.) In the corn trade in South Russia, at least one-half of the purchase money was required to be paid in advance, and even before shipment, the other half as soon as the corn arrived in the harbor, and, hence, sometimes, long before it was put on board. (_W. Jacob_, On the Corn Trade of the Black Sea, 23.) Compare _Tooke_, View of the Russian Empire, I, 339, Richesse de Hollande, II, 43, _Storch_, Handbuch, II, 61 seq. Russia was, about 1770, a credit-giving nation to the still poorer Persians.

(_Gmelin_, Reise, III, 413.) The Spaniards also, in their American colonies, had always an expedition ready and waiting, the payment for which was made on the arrival of the second. (_Depons_, Voyage dans la Terre Firme, II, 368.) Moreover, active commerce simply, especially when circuitous, may be considered as in some way an international loan; and thus it is that the favorable "balance," by means of which claim-rights are obtained in foreign countries, is secured.]

[Footnote 187-8: Notwithstanding the grat.i.tude of the United States towards France, and spite of all the French amba.s.sador could do, the English immediately after the conclusion of peace, attracted the greatest part of American trade to themselves. (_Chaptal_, de l'Industrie Fr., I, 103.) Countries with a low rate of interest have an advantage in this respect, which grows after the manner of compound interest, when the duration of the advance of capital is prolonged. (_Senior_, Outlines, 195.)]

[Footnote 187-9: How capitalists may, by the giving of international credit, fall into an injurious habit, is shown by the late and troublesome building up of the Dutch railway system, while so many foreign railway enterprises were provided with Dutch capital.]

SECTION CLx.x.xVIII.

HISTORY OF THE RATE OF INTEREST.--EFFECT OF A LOW RATE ON STATIONARY NATIONS.

Beneficial as the spur of a low rate of interest is for countries capable of development, it is a heavy drag on a stationary people, and more so on those who have lost a portion of the field for the investment of their capital by the compet.i.tion of too powerful rivals.[188-1] A real superabundance of capital is attended with cares and temptations for the middle cla.s.ses very similar to those caused by a so-called over-population, especially to dishonesty and extravagance.[188-2] When capital, population and the skillfulness of labor remaining the same, continues to increase, the enlarged capital may very readily have every succeeding year only the same return to divide among its owners, that the smaller had in previous years.[188-3] Hence additional saving here would produce no real enrichment of the people; and it might even happen that the instinct to acc.u.mulate capital might in the future become torpid to a greater degree than the capital itself had increased. In any case, however, the decline of the rate of interest can continue only to a certain point. There are numberless persons who would rather consume their capital, or invest it in hazardous speculations than put it out at interest at one per cent. a year.[188-4] At least, the tendency of a decline in the rate of interest is, in the case of the richer, to increase the amount of capital consumed as compared with productive capital. The more moderate, sober and provident a people are, the lower may the rate of interest decline without producing this effect. And so, the more the capital of a nation is concentrated in the hands of a few; because then the owners of capital are all the later forced to break in upon it, for the sake of subsistence.[188-5] [188-6]

Among nations which have totally declined, the rate of interest is wont to reach a high point once more; the natural result of great losses of capital and men, while, at the same time, the freedom of the lower cla.s.ses and the security of property have been either curtailed or lost.

The weakness of age is, in many respects, even in the case of nations, a second childhood.[188-7]

[Footnote 188-1: _Temple_, Works I, 102, a.s.sures us that the Dutch in his time considered the payment of the princ.i.p.al of a public debt a real misfortune: "they receive it with tears, not knowing how to dispose of it to interest with such safety and ease." On Italy, see _Bandini_ (ob. 1760), Sopra le Maremme Sienese, 154 seq.; earlier _Montanari_, Della Moneta, 57. In the England of the present time, small capitalists especially belong to the so-called "uneasy"

cla.s.ses.]

[Footnote 188-2: Numberless bankrupts and unbounded extravagance in Holland. (Richesse de Hollande, II, 168.) In England, the hazardous enterprises of 1825 were very much promoted by the action of the government which a short time before reduced the interest on its state debt. (_Tooke_, History of Prices, II, 148 ff.)]

[Footnote 188-3: _J. S. Mill_, IV, ch. 4, 4. When _Ricardo_, ch. 6, says that every increase of productive capital must enhance the value in use, and still more the value in exchange, of a nation's property, but under such circ.u.mstances only to the advantage of the working cla.s.s, and still more of the land owning cla.s.s, he at least apparently presupposes an improvement, or increase of labor.]

[Footnote 188-4: Think only of the so-called commercial crises, the speculation-rage preceding which is excited by the lowness of the rate of interest, the destruction of capital in which makes the rate of interest to retrograde materially. However, this very decline is, in itself, only a spur to speculation in evidences of national indebtedness, stocks, etc., in commodities, only where, without such speculation, a rise in prices was to be expected. Thus, for instance, the great English periods of speculation: 1796 ff., in colonial products; 1808 ff., in raw materials in general; 1814, in articles of export, were times in which there was not the slightest facility in obtaining credit.

(_Tooke_, History of Prices, III, 159.)]

[Footnote 188-5: Between 1829 and 1849, the highest rate of interest paid by English capital employed in cotton industries was little over 2 per cent. (Edinb. Rev., April, 1849, 429.)]

[Footnote 188-6: As the symptoms of a condition are very frequently mistaken for its cause, there have been many writers who, blinded especially by the contemplation of Holland, considered the lowness of the rate of interest as the _causa causans_ of all wealth, and who promised really magical results from its legislative regulation by the state. Thus _Sir Thomas Culpeper_, A Tract against the high Rate of Usury, 1623; continuation 1630; _Sir J. Child_, Brief Observations concerning Trade and the Interest of Money, 1668; Discourse of Trade, 1690. _Anderson_ (ob.

1765), was of a similar opinion: Origin of Commerce, a.

1601, 1651; and even _Ganilh_, Dictionnaire a.n.a.lytique, 99 seq. (_Infra_, -- 162.) Per _contra_, the anonymous essay, Interest of Money mistaken, 1668, and _Locke_, Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money, 1691. Most moderns have considered the decline of the rate of interest an evil.

Thus, for instance, _Canard,_ Principes, ch. 5, who uniformly makes this the starting point of a nation's downfall. See also _McCulloch_, Principles, III, 8.

_Malthus_ draws a comparison between the saving of capital and the generation of children: only a high rate of interest makes the former really useful, and a high rate of wages the latter.

Even great destruction and disturbances of capital by war, by loans to the state, for instance, are soon made good, provided the sources of the saving of capital are not dried up. (Principles, III, 370 ff., 401, ff.) _John Stuart Mill_ expressly counsels rich and highly civilized nations not to neglect beneficent enterprises, although economically unproductive, because capital might be lost in them. The result of such a loss would, under certain circ.u.mstances, simply be that less capital would be exported or wasted in speculation. (Principles, II, ch. 5, 1.) Similarly _Canard_, who, therefore, compares state loans with blood-letting, as a remedy for a plethoric disease. (Ch. 9.) _Turgot_ confounded cause and effect when he compared a high rate of interest to an inundation, below the level of which nothing can be produced; and which, the lower it became, the more dry ground there was for men to work on. (Sur la Formation, etc., -- 89.)]

[Footnote 188-7: Rate of interest in Persia from 40 to 50 per cent. a year. (Ausland, 1844, No. 208.) In Tripoli, Christians and Jews alike loan the Arabs at the rate of 5 per cent. a month; at least 1 or 2. (_Rohlfs_, von Tripolis nach Alexandrien, 1871, I, 22.) In most of the East Indian kingdoms, the rate of interest is so high for the government itself that when the creditor, even without a return of the capital, gets the interest only for a few years, he is considered pa.s.sably well indemnified. (_J. S.

Mill_, II, ch. 15, 2.) In China, 12 to 15 per cent.; 36 nothing unheard of. (_Barrow_, China, 562.)]

SECTION CLx.x.xIX.

INTEREST-POLICY.--LEGITIMATENESS OF INTEREST.

The legitimateness of interest is based on two unquestionable grounds: on the real productiveness of capital, and on the real abstinence from enjoyment of it by one's self.[189-1] Let us suppose a nation of fishermen with no private ownership in land and no capital, living naked in caverns, on sea-fish which the ebb of the ocean has left in the puddles along the sh.o.r.e, and which are caught only with the hand.[189-2]

All workmen here may be equal, and each catch and consume three fish a day. Let us again suppose that some clever savage reduces his consumption to two fish a day, for one hundred days, and uses the stock of one hundred fish collected in this way to enable him to devote all his strength and labor, during fifty days, to the construction of a boat and a net. With the aid of this capital he, from the first, catches thirty per day. What now will his fellow tribesmen, who are not capable of such intelligent and systematic self control to do as he has done, do? What will they offer him for the use of his capital? In discussing this question both parties will very certainly consider not only the fifty days' labor spent in the construction of the boat, etc., but also the one hundred and fifty days during which its maker had to abstain from his full ration of food. If the borrower, of the thirty fish which may be caught daily with the aid of his capital, gives twenty-seven away, his condition is at least no worse than it was at first. On the other hand, the lender, if compensated only for the wear and tear of his capital, would reap no profit whatever from his loan. The interest to be paid will be fixed somewhere between these two extremes by the relation between demand and supply. A loan which pays no interest is a donated use of capital. (_Knies._)[189-3] Interest may be called the reward of abstinence (_Senior_), in the same way as wages is called the reward of industry.[189-4] With the abolition of interest, exchange would be limited to the mere present, without any mediation between the past and the future. A great number of services would bring no equivalent in return, and, therefore, as a rule, never be performed. Most of the charges commonly made in our day against the "tyranny of capital" are, at bottom, only a complaint that capital is not inexhaustible; and even those workmen who are obliged to pay most to capital would be much worse off without it.

[Footnote 189-1: The Greeks very appropriately call interest t????, i. e., that which is born. In the loaning of capital productively invested, the creditor, in the interest received, consumes the real produce of his property. If the debtor has consumed the property unproductively, the creditor indeed lives on the debtor's other returns or supplies; which, however, without his intervention would probably have been consumed by their owner.]

[Footnote 189-2: We here, for the time being, make abstraction of all entangling surrounding circ.u.mstances.

However, _Diodor._, III, 15 ff., and _Strabo_, XVI, 773, describe a very similar condition of things among the Ichthyographs; also _Hildebrand_, Reise, um die Erde, III, 2, in China. In the Sudan, whole generations fetch water every day from a distant town, instead of working for a few weeks to dig a deep well nearer home. (_Barth_, Afr. Reise, III, 297.)]

[Footnote 189-3: The most recent relapse into the old error of the unproductiveness of capital, viz.: that of _Karl Marx_ (Das Kapital; Kritik der polit. Oekonomie, I, 167) is a turning round and round of the author in the vicious circle of his demonstration. If the value of every commodity depends simply on the labor necessary to bring it into existence, or on the time of labor required to produce it, it is self-evident that the value of the capital consumed for the purpose of its production, can at most be only preserved in the new product, and that all the additional value (_Mehrwerth_) of the latter should be ascribed to labor. (172, and pa.s.sim.) Hence, strictly speaking, the capitalist who advances capital to workmen, is still bound in duty to be grateful to the latter when the value of his advance is preserved to him undiminished, (-- 173) and all interest levied by him should be considered as a payment towards the extinguishment of the capital [debt] itself.

(556.) Relying on such theories, many socialists admit private property and even the right of inheritance to means of enjoyment and use capital (_Gebrauchskapitalien_) provided only that land and productive capital should pa.s.s over into the "collective property" of society, with compensation, however, to their former owners. Considering the short duration of most goods used in enjoyment or consumed, the evil consequences of a community of goods mentioned in -- 81, could not be avoided to any extent by this means.

How entirely fallacious the above a.s.sumption is, is seen most strikingly in the case of such goods as cigars, wine, cheese, etc., which, without the least addition of labor, by merely postponing the consumption of them, obtain a much larger value both in exchange and in use. Or, how would it be possible, for instance, to reduce the value of a hundred-year-old tree, over and above the cost of planting it, to labor alone? Similarly, the fact that on a Chilian _hacienda_, 25 per cent. of the cattle can be slaughtered and no diminution of the herd take place. (_Wappaus_, M. und S. Amerika, 784.) _Stra.s.sburger_ rightly inquires: if all the profit of capital is based on a cheating of workmen by capitalists, who is cheated in the case in which a manufacturer without workmen earns more with an increased capital than before with a small capital? (_Hildebrand's_ Jahrb., I, 103.)]

[Footnote 189-4: In a time full of nabobism and pauperism, when some can, without the least abstinence, make immense savings, and others none at all even with the greatest abstinence, we may comprehend where the socialists find food for their derision of the expression, "reward of abstinence."]

SECTION CXC.

INTEREST-POLICY.--AVERSION TO INTEREST.

At the same time, there is a strong aversion to the taking of interest prevalent among nations in a low stage of civilization. Industrial enterprises of any importance do not as yet exist here at all, and agriculture is most advantageously carried on by means of a great many parcels of land, but with little capital. The purchase of land is so rare, and hampered by legal restrictions to such a degree, that loans for that purpose are almost unheard of. And just as seldom does it happen, by reason of the superabundance of land, that the heir of a landowner borrows capital to effect an adjustment with his co-heirs, and thus enter alone into the possession of the estate. Here, as a rule, only absolute want leads to loaning.[190-1] If, in addition to this, we consider the natural height of the rate of wages in such times, the small number and importance of the capitalist cla.s.s (-- 201), the tardy insight of man into the course and nature of economic production,[190-2]

it will not be hard to understand the odium attached in the middle age of every nation to so-called interest-usury[190-3] (_Zinswucher_).

Most religions, the Christian excepted (the universal religion!), have been founded in the earlier stages of the nations who profess them, and have there, at least outwardly, exercised their greatest influence. No wonder, therefore, that so many religions have prohibited the taking of interest. Thus, for instance, the Jewish which, indeed, allows interest to be taken from foreigners, but raises loaning without interest among Jews in their commerce with one another, to the dignity of a duty binding on the conscience of the beneficent rich.[190-4] [190-5]

Similarly in the Koran.[190-6] The Fathers of the Church, also, on the whole, look with disfavor on the taking of interest, relying upon well-known pa.s.sages in the Old Testament, and, in part, on misunderstood expressions in the New.[190-7] This is especially true of the Fathers of the Church from the beginning of the fourth century, when the Roman empire was frightfully impoverished by the devastations of the barbarians, and as a consequence the conditions as to interest which prevail in the lowest stages of civilization had returned. Mercy towards the poor usually occupies the foreground in the demonstrations of the Fathers.[190-8]

[Footnote 190-1: Distress-debts in contradistinction to acquisition-debts. (_Schmalz_, Staatswirthsch. Lehre in Briefen, I, 227.) Compare _Hesiod._, Opp., 647; also _Herodot._, I, 138.]

[Footnote 190-2: Thus _Aristotle_, calls the taking of interest a gain against nature, since money is only a medium of exchange, and cannot produce its like. (Polit., 3, 23, Schn.) Similarly, _Plato_, De Legg., V, 742, and _Seneca_, De Benef., VII, 10. Compare, however, _Tacit_., Annal, XIII, 42 seq. As late a writer as _Forbonnais,_ 1754, accounts for interest thus: Some people h.o.a.rd their money instead of spending it; hence a scarcity or want of money, and those who need it are obliged, in order to draw it out, to promise to pay interest. (Elements de Commerce, II, 92 ff.)]

[Footnote 190-3: Numerous disturbances on account of debt, during the first centuries of the Roman Republic, until finally (compare _Livy_, VII, 42), the taking of interest was in the year 349 (?) before Christ, entirely prohibited.

(_Tacit._, Annal. VI, 16.) The public opinion in such matters may be understood from the words of Cato: _majores ita in legibus posuerunt, furem dupli condemnari, foeneratorem quadrupli_. (De Re rust.) The _foenerari_ compared with the _hominem occidere_. (_Cato_, in _Cicero_, De Off., II, 25.) In the higher stages of civilization little heed was paid to the law, in practice (compare _Livy_, x.x.xV, 7; _Plut._, Cato, I, 21.), although the democratic party always held fast to the legal perpetuation of the prohibition of interest. (_Mommsen_, Romisch. Gesch., III, 493.)]

[Footnote 190-4: Exod., 22, 25; Levit., 25, 35 ff.; Deuteron., 15, 7 seq.; 23, 19 seq.; Psalms, 15, 5; 109, 11; 112, 5; Proverbs, 28, 8; Jerem., 15, 10; _Hes._, 18, 8.

After the return from exile, the prohibition was restored.