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Title: Henry George and Interest Author: Benjamin Tucker Language: en Topics: Interest, rent, money monopoly, land, usury Source: Individual Liberty; Selections From The Writings Of Benjamin R. Tucker Notes: Original publication date unknown. This essay comes from ‘Individual Liberty’, — a compilation of essays from Liberty, compiled by C.L.S, a friend of Tucker’s, and contributor to the publication Liberty. ‘Individual Liberty’ was first published in 1926. Liberty was founded in 1881 and ran until 1908.
When Henry George was conducting his Standard some of his correspondence
inveigled him into a discussion of the question of interest, in which he
attempted to prove that interest is a vital reality apart from the money
monopoly. The editor of Liberty at once took issue with him there;
The Standard now acknowledges that “The theory of interest as propounded
by Mr. George has been more severely and plausibly critcized than any
other phase of the economic problem as he presents it.” When we consider
that George regards it as an economic law that interest varies inversely
with so important a thing as rent, we see that he cannot consistently
treat as unimportant any “plausible” argument urged in support of the
theory that interest varies principally, not with rent, but with the
economic conditions arising from a monopoly of the currency.
It appears that all the trouble of the enemies of interest grows out of
their view of it as exclusively incidental to borrowing and lending,
whereas interest on borrowed capital is itself “incidental to real
interest,” Which is “The increase that capital yields irrespective of
borrowing and lending.” This increase, Mr. George claims, is the work of
time, and from this premise he reasons as follows:
“The laborer who has capital ready when it is wanted, and thus, by
saving time in making it, increases production, will get and ought to
get some consideration — higher wages, if you choose, or interest, as we
call it, — just as the skillful printer who sets 1500 ems an hour will
get more for an hour’s work than the less skillful printer who sets only
1000. In the one case greater power due to skill, and in the other
greater power due to capital, produce greater results in a given time;
And in neither case is the increased compensation a deduction from the
earnings of other men.”
To make this analogy a fair one it must be assumed that skill is a
product of labor, that it can be bought and sold and that its price is
subject to the influence of competition; otherwise it furnishes no
parallel to capital. With these assumptions the opponent of interest
eagerly seizes upon the analogy as entirely favorable to his own
position and destructive of Mr. George’s. If the skillful printer
produced his skill and can sell it, and if other men can produce similar
skill and sell it, the price that will be paid for it will be limited,
under free competition, by the cost of production, and will bear no
relation to the extra 500 ems an hour. The case is precisely the same
with capital. Where there is free competition in the manufacture and
sale of spades, the price of a spade will be governed by the cost of its
production, and not by the value of the extra potatoes which the spade
will enable its purchaser to dig. Suppose, however, tha tthe skillful
printer enjoyed a monopoly of skill. In that case, its price would no
longer be governed by the cost of production, but by its utility to the
purchaser, and the monopolist would extract nearly the whole of the
extra 500 ems, receiving which hourly he would be able to live for the
rest of his life without ever picking up a type. Such a monopoly as this
is now enjoyed by the holders of capital in consequence of the currency
monopoly, and this is the reason, and the only reason, why they are able
to tax borrowers nearly up to the limit of the advantage which the
latter derive from having the capital. In other words, increase which is
purely the work of time bears a price only because of monopoly. Abolish
the monopoly, then, and what becomes of Mr. George’s “real interest”
except as a benefit enjoyed by all consumers in proportion to their
consumption? AS far as the owner of the capital is concerned, it
vanishes at once, and Mr. George’s wonderful distinction with it.
He tells us, nevertheless, that the capitalist’s share of the results of
the increased power which capital gives the laborer is “not a deduction
from the earnings of other men.” Indeed! What are the normal earnings of
other men? Evidently what they can produce with all the tools and
advantaages which they can procure in a free market without force or
fraud. If then, the capitalist, by abolishing the free market, compels
other men to procure their tools and advantages of him on less favorable
terms than they could get before, while it may be better for them to
come to his terms than to go without the capital, does he not deduct
from their earnings?
But let us hear Mr. George further in regard to the great value of time
to the idler.
“Suppose a natural spring free to all, and that Hodge carries a pail of
water from it to a place where he can build a fire and boil the water.
Having hung a kettle and poured the water into it, and arranged the fuel
and started the fire, he has by his labor set natural forces at work in
a certain direction; and they are at work for him alone, because without
his previous labor they would not be at work in that direction at all.
Now he may go to sleep, or run off and play, or amuse himself in any way
that he pleases; and when an hour--a period of time-- shall have
elapsed, he will have, instead of a pail of cold water, a pot of boiling
water. Is there no difference in value between that boiling water and
the cold water of an hour before? Would he exchange the pot of boiling
water for a pail of cold water, even though the cold water were in the
pot and the fire started? Of course not, and no one would expect him to.
And yet between the time when the fire is started and the time when the
water boils he does no work. To what, then, is that difference in value
due? Is it not clearly due to the element of time? Why does Hodge demand
more than a pail of cold water for the pot of boiling water if it is not
that the ultimate object of his original labor — the making of tea, for
example — is nearer complete than it was an hour before, and that an
even exchange of boiling water for cold water would delay him an hour,
to which he will not submit unless he is paid for it? And why is Podge
willing to give more than a pail of cold water for the pot of boiling
water, if it is not that it gives him the benefit of an hour’s time in
production? And thus increases his productive power very much as greater
skill would? And if Podge gives to Hodge more than a pail of cold water
for the pot of boiling water, does Podge lose anything that he had, or
Hodge gain anything that he had not? No. The effect of the transaction
is a transfer for a consideration of the advantage in point of time that
Hodge had, to Podge who had not, as if a skillful compsitor should, if
he could, sell his skill to a less skillful member of the craft.”
We will look a little into this economic Hodge-Podge.
The illustration is vitiated from beginning to end by the neglect of the
most important question involved in it, — namely, whether Hodge’s
idleness during the hour required for the boiling of the water is a
matter of choice or of necessity. It was necessary to leave this out in
order to give time the credit of boiling the water. Let us not leave it
out, and see what will come of it. If Hodge’s idleness is a matter of
necessity, it is equivalent from the economic standpoint to labor, and
counts as labor in the price of the boiling water. A storekeeper may
spend only five hours in waiting on his customers, but, as he has to
spend another five hours in waiting for them, he gets paid by them for
ten hours’ labor. His five hours’ idleness counts as labor, because, to
accomodate his customers, he has to give up what he could produce in
those five hours if he could labor in them. Likewise, if Hodge, when
boiling the water for Podge, is obliged to spend an hour in idleness, he
will charge Podge for the hour in the price which he sets on the boiling
water. But it is Hodge himself, this disposition of himself, and not the
abstraction, time, that gives the water its exchangeable value. The
abstraction, time, is truly at work when Hodge is bringing the water
from the spring and starting the fire as when he is asleep waiting for
the water to boil; yet Mr. George would not dream of attributing the
value of the water after it had been brought from the spring to the
element of time. He would say that it was due entirely to the labor of
Hodge. Properly speaking, time does not work at all, but, if the phrase
is to be insisted on in economic discussion, it can be admitted only
with some such qualification as the following: The services of time are
venal only when rendered through human forces; when rendered exclusively
through the forces of nature, they are gratuitous.
That time does not give the boiling water any exchangable value becomes
still more evident when we start from the hypothesis that Hodge’s
idleness, instead of being a matter of necessity, is a matter of choice.
In that case, if Hodge chooses to be idle, and still tries, in selling
the boiling water to Podge, to charge him for this unnecessary idleness,
the enterprising Dodge will step up and offer boiling water to Podge at
a price lower than Hodge’s, knowing that he can afford to do so by
performing some productive labor while waiting for the water to boil,
instead of loafing like Hodge. The effect of this will be that Hodge
himself will go to work productively, and then will offer Podge a better
bargain than Dodge has proposed, and so competition between Hodge and
Dodge will go on until the price of the boiling water to Podge shall
fall to the value of the labor expended by either Hodge or Dodge in
bringing the water from the spring and starting the fire. Here, then,
the exchangable value of the boiling water which was said to be due to
time has dissappeared, and yet it takes just as much time to boil the
water as it did in the first place.
Mr. George gets into difficulty in discussing this question of the
increase of capital simply because he continually loses sight of the
fact that competition lowers prices to the cost of production and
thereby distributes this so-called product of capital among the whole
people. He does not see that capital in the hands of labor is but the
utilization of a natural force or opportunity, just as land as in the
hands of labor, and that it is as proper in the one case as in the other
that the benefits of such utilization of natural forces should be
enjoyed by the whole body of consumers.
Mr. George truly says that rent is the the price of monopoly. Suppose,
now, that someone should answer thus; You misconceive: you clearly have
leasing exclusively in mind, and suppose an unearned bonus for a lease,
whereas rent of leased land is merely incidental to real rent, which is
the superiority in location or fertility of one piece of land over
another, irrespective of leasing. Mr. George would laugh at such an
argument if offered in justification of the receipt and enjoyment of
unearned increment of economic rent by the landlord. But he himself make
an equally ridiculous and precisely parallel argument in defense of the
usurer when he says, in answer to those who assert that interest is the
price of monopoly; “You misconcieve: you clearly have borrowing and
lending exclusively in mind, and suppose an unearned bonus for a loan,
whereas interest on borrowed capital is merely incidental to real
interest, which is the increase that capital yields, irrespective of
borrowing and lending.”
The truth in both cases is just this, — that nature furnishes man
immense forces with which to work in the shape of land and capital, that
in a state of freedom these forces benefit each individual to the extent
that he avails himself of them, and that any man or class getting a
monopoly of either or both will put all other men in subjection and live
in luxury on the products of their labor. But to justify a monopoly of
either of these forces by the existence of the force itself, or to argue
that without a monopoly of it any individual could get an income by
lending it instead of by working with it, is equally absurd whether the
argument be resorted to in the case of land or in the case of capital,
in the case of rent or in the case of interest. If any one chooses to
call the advantages of these forces to mankind rent in one case and
interest in the other, I do not know that there is any serious objection
to his doing so, provided he will remember that in practical economic
discussion rent stands for the absorption of the advantages of land by
the landlord, and interest for the advantages of capital by the ususer.
The remainder of Mr. George’s article rests entirely upon the time
argument. Several new Hodge-Podge combinations are supposed by way of
illustration, but in none of them is there any attempt to justify
interest except as a reward of time. The inherent absurdity of this
justification having been demonstrated above, all that is based upon it
falls with it. The superstructure is a logical ruin; it remains only to
clear away the debris.
Hodge’s boiling water is made a type of all those products of labor
which afterwards increase in utility purely by natural forces, such as
cattle, corn, etc.; and it may be admitted that, if time would add
exchangable value to the water while boiling, it would do the same to
corn while growing, and cattle while multiplying. But that it would do
so under freedom has already been disproved. Starting from this,
however, an attempt is made to find in it an excuse for interest on
products which do not improve except as labor is applied to them, and
even on money itself. Hodge’s grain, after it has been growing for a
month, is worth more than when it was first sown; therefore Podge, the
shovel-maker, who supplies a market which it takes a month to reach is
entitled to more pay for this shovels at the end of that month than he
would have been had he sold them on the spot immediately after
production; and therefor the banker who discounts at the time of
production the note of Podge’s distant customer maturing a month later,
thereby advancing ready money to Podge, will be entitled, at the end of
the month, from Podge’s customer, to the extra value which the month’s
time is supposed to have added to the shovels.
Here Mr. George not only builds on a rotten foundation, but he mistakes
foundation for superstructure. Instead of reasoning from Hodge to the
banker, he should have reasoned from the banker to Hodge. His first
inquiry should have been how much, in the absense of a monopoly in the
banking business, the banker could get for discounting for Podge the
note of his customer; from which he could then have ascertained how much
extra payment Podge could get for his month’s delay in the shovel
transaction, or Hodge for the services of time in ripening his grain. He
would then have discovered that the banker, who invest little or no
capital of his own, and, therefore, lends none to his customers, since
the security which they furnish him constitutes the capital upon which
he operates, is forced, in the absence of money monopoly, to reduce the
price of his services to labor cost, which the statistics of the banking
business show to be much less than one per cent. As this fraction of one
per cent represents simply the banker’s wages and incidental expenses,
and is not payment for the use of capital, the element of interest
dissappears from his transactions. But, if Podge can borrow can borrow
money from the banker without interest, so can Podge’s customer;
therefore, should Podge attempt to exact from his customer remuneration
for the month’s delay, the latter would at once borrow the money and pay
Podge spot cash. Furthermore Podge, knowing this, and being able to get
ready money easily himself, and desiring, as a good man of business, to
suit his customer’s convenience, would make no such attempt. So Podge’s
interest is gone as well as the banker’s. Hodge, then, is the only
usurer left. But is anyone so innocent as to suppose that Dodge, or
Lodge, or Modge, will long continue to pay Hodge more for his grown
grain than his sown grain, after any or all of them can get land free of
rent and money free of interest, and thereby force time to work for them
as well as for Hodge. Nobody who can get the services of time for
nothing will be such a fool as to pay Hodge for them. Hodge too, must
say farewell to his interest as soon as the two great monopolies of land
and money are abolished. The rate of interest on money fixes the rate of
interest on all other capital the production of which is subject to
competition and when the former dissappears the latter dissappears with
it.
Presumably to make his readers think that he has given due consideration
to the important principle just elucidated, Mr. George adds, just after
his hypothesis of the banker’s transaction with Podge:
“Of course there is discount and discount. I am speaking of a legitimate
economic banking transaction. But frequently bank discounts are nothing
more than taxation, due to the choking up of free exchange, in
consequence of which an institution that controls the common medium of
exchange can impose arbitrary conditions upon producers who must
immediately use that common medium.”
The evident of the purpose of the word “frequently” here is to carry the
idea that, when a bank discount is a tax imposed by monopoly of the
medium of exchange, it is simply a somewhat common exception to the
general rule of “legitimate economic banking transactions.” For it is
necessary to have such a general rule in order to sustain the theory of
interest on capital as a reward of time. The exact contrary, however, is
the truth. Where money monopoly exists, it is the rule that bank
discounts are taxes imposed by it, and when, in consequence of peculiar
and abnormal circumstances, discount is not in the nature of a tax, it
is a rare exception. The abolition of money monopoly would wipe out
discount as a tax and, by adding to the steadiness of the market, make
the cases where it is not a tax even fewer than now. Instead of
legitimate, therefore, the banker’s transaction with Podge, beings
exceptional in a free money market and a tax of the ordinary discount
type in a restricted money market, is illigitimate if cited in defense
of interest as a normal economic factor.
In the conclusion of his article Mr. George strives to show that
interest would not enable its beneficiaries to live by the labor of
others. But he only succeeds in showing, though in a very obscure,
indefinite, and intangible fashion, — seemingly afraid to squarely
enunciate it as a proposition, — that where there is no monopoly, there
will be little or no interest. Which is precisely our contention. But
why, then, his long article? If interest will dissappear with monopoly,
what will become of Hodge’s reward for his time? If, on the other hand,
Hodge is to be rewarded for his mere time, what will reward him save
Podge’s labor? There is no escape from this dilemma. The proposition
that the man who for time spent in idleness receives the product of time
employed in labor is a parasite upon the body industrial is one which an
expert necromancer like Mr. George may juggle with before an audience of
gaping Hodge’s and Podge’s but can never successfully dispute with men
who understand the rudiments of polital economy.