Chapter 29

INTEREST AND ABSTRACT JUSTICE

The essential feature of interest, as distinct from the income due to active ability, is that while the latter ceases as soon as the able man ceases to exert himself, the former continues to replenish the recipient's pockets, though for his part he does nothing, or need do nothing, in return for it. Since, then, the possession of this particular form of income is admittedly unconnected with any concurrent exertion on the part of those possessing it (such is the argument of the objectors) the whole portion of the national wealth which, in the form of interest, is at present appropriated by the presumably or the possibly idle, might obviously be appropriated by the state, and applied to public purposes, without lessening in any way even the highest of those rewards which are due to, and are needed to stimulate any active ability whatsoever, and hence without lessening the efficiency of the wealth-producing process as a whole. If we adopt the programme which this argument suggests, it will be possible, so its advocates say, to satisfy the demands of labour by a shorter and more direct method than that of committing ourselves to an estimate of what labour actually produces, and endeavouring to secure that the total which is paid to labour shall accord with it.

Now, this programme raises two separate questions. One question is whether the proposed confiscation of interest is in reality, as its advocates maintain it to be, practicable in the sense that the disturbances which it would necessarily cause would not interfere with the production of the fund which it is desired to distribute, and so perhaps leave all classes poorer and not richer than they are. The other question is whether such a confiscation would be just. To some people this second question will possibly seem superfluous. If it can be shown, they will say, that a policy, the avowed object of which is the enrichment of the many at the expense of the relatively few, could be really carried out successfully, and if the many had the power of insisting on it, an inquiry into its abstract justice is merely a waste of time; for whenever the wolf is face to face with the lamb, it will eat up the lamb first and justify its conduct afterwards. And in this argument there is a certain amount of truth; but those who take it for the whole truth allow their own cynicism to overreach them. The fact remains that even the wolves of the human world are obliged to assume, as a kind of necessary armour, and often as their principal weapon, a semblance of justice, however they may despise the reality. The brigand chief justifies his war on society by declaring that society has unjustly made war on him. The wildest demagogues, in their appeals to popular passion, as the history of the French Revolution and of all revolutions shows us, have always been obliged to exhibit the demands of mere self-interest as based on some general theory of what is morally just or right; and however much the theory may accommodate itself to the hope of private advantage, there are few demands made for any great social change which do not derive a large part of their force from persons with whom a belief in the justice of the demands stands first, while--so far at least as their own consciousness is concerned--the prospect of personal advantage stands second or nowhere. This is certainly so in the case which we are now considering. We will, therefore, begin with the question of abstract justice.

Let us begin, then, with reminding ourselves that when interest is attacked as such, on the ground that its recipients have themselves done nothing to produce it, whereas other incomes, no matter how large, are presumably the equivalents of some personal effort which corresponds to them, it is assumed that every man has, in natural justice, a right to such wealth as he actually himself produces; and what he produces, as we saw in the last chapter, is that amount of wealth which would not have been produced at all had his efforts not been made, or been other or less intense than they have been.

Thus far, then, for the purposes of the present discussion, all parties are agreed; but the moment the assailants of interest take the next step in their argument, we shall find that their errors begin--errors resulting, as we shall see, from an imperfect analysis of facts. For them the two types of correspondence between productive effort and product are, firstly, the manual labourer, who performs some daily task such as riveting plates or bricklaying, and receives an equivalent in wages at the end of each day or week; and, secondly, the manager of some great industrial enterprise, who spends each day so many hours in his office, issuing minute directions with regard to the conduct of his subordinates, and sending his receipts to the bank as they come in from his customers. But these types, though accurate so far as they go, do but cover a part of the actual field of fact. Practically, though of course not absolutely, they ignore the element of time. They represent effort and product as being always so nearly simultaneous that, although the former must literally precede the latter, yet, if we estimate life in terms of years, or even months, or weeks, a man has ceased to produce as soon as he has ceased to work.

Now, of certain forms of effort this may be true enough. A bricklayer, for example, as soon as he ceases to lay bricks, ceases to produce anything. His wall-building closes its effects with the walls which he himself has built. It does nothing to facilitate the building of other walls in the future. Similarly such ability as consists in a gift for personal management often ends its effects, and leaves no trace behind it, as soon as the manager possessing these gifts retires.

But with many forms of ability the case is precisely opposite. The products of their exercise do not even begin to appear till after--often till long after--the exercise of the ability itself has altogether come to an end. Let us, for example, take the case of a play; and since socialists are still included among the objectors whom we have in view, let us take one of the popular plays written by Mr. Bernard Shaw. Such a play, as Mr. Shaw has publicly boasted--for otherwise I should not mention, and should know nothing of his private affairs--brings to its author wealth in the form of amazing royalties; but until it is acted it brings him no royalties at all, and the actors begin with it only when his own efforts are ended. Moreover, not only do these royalties only begin then, but having once begun, they have no tendency to exhaust themselves. On the contrary the chances are that they will go on increasing till the time arrives, if it ever does, when Mr. Shaw is no longer appreciated. Mr. Shaw, in fact, if he had written one of his most successful plays at twenty, might, so far as that play is concerned, be idle for ever afterwards, even if he lived to the age of Methuselah, and still be enjoying in royalties the product of his own exertions, though he had not exerted himself productively for some seven or eight hundred years.

There is no question here of whether, under these conditions, a person like Mr. Shaw might not feel himself constrained on some ground or other to surrender his copyright at some period prior to his own demise. The one point here insisted on is that he could not renounce it on the ground that the wealth protected by it was no longer produced by himself. If he is entitled to the royalties resulting from the performance of his play at any time, on the ground that every man has a right to the products of his own exertions, his right to the royalties resulting from its ten-thousandth performance is, on this ground, as good as his right to the royalties resulting from the first. The royalties on a play, in short, show how certain forms of effort, though not all, continue to yield a product for an indefinite period, though the original effort itself may be never again repeated; and herein these royalties are typical of modern interest generally. They do not, however, constitute in themselves more than a small part of it. We will therefore turn to interest of other kinds, the details of whose genesis are indeed widely different, but which consist similarly of a constant repetition of values, without any corresponding repetition of the effort in which the series originated.

Those which we will consider first are the products of organic nature, which have been dwelt upon by a well-known writer as showing us the ultimate source of industrial interest generally, and also at the same time its natural and essential justice. It may be a surprise to some to learn who this writer is. He is Henry George, who is best known to the public as the advocate of a measure of confiscation so crude and so arbitrary, that even socialists have condemned it as impracticable without serious modifications. Henry George, however, although he outdid most socialists in his attack on private wealth of one particular kind--that is to say, the rent of land--was equally vehement in his defence of the interest of industrial capital. Socialists say--and the aphorism is constantly repeated--"A man can get an income only by working or stealing; there is no third way." In answer to this, it was pointed out by George that one kind of wealth, at all events--and we may add that here we have wealth in its oldest form--consists of possessions yielding a natural increase, which has been neither made by the possessors, nor yet stolen by them from anybody else. That is to say, it consists of flocks and herds. A shepherd or herdsman starts with a single pair of animals, from which parents there arises a large progeny. This living increment has not been produced by the man, but it is still more obvious that it has not been produced by his neighbours, and it therefore belongs in justice to the man who owns the parents. George pointed out also that whole classes of possessions besides are, for by far the larger part of their value, equally independent either of corresponding work or of theft. Among such possessions are wines, whose quality improves with time, and which, if sold to-day, may be worth tenpence a bottle, but which four years hence may be worth perhaps half-a-crown. In all such cases--this was George's contention--we have some possession originally small to start with, which year by year is increased in amount or at least in value, not by the efforts of the possessor, but by the secret operations of nature. Here, he argued, we have capital in its typical form; and interest is the gift of nature to the man by whom the capital is owned.

George, however, is constrained to supplement this proposition by another. Though he assumes that of the products which are, in the modern world, actually paid as interest by the borrower of capital to the owners of it, the larger part consists of gifts of unaided nature, he admits that they are not the whole. He admits that a part of it is paid for the use of machinery. Now, such interest, he says, has a definitely different origin, and cannot intrinsically be justified in the same way; and if all wealth consisted of such commodities as are due to the efforts of man, and to the man-made machinery which assists him, all interest would be really, as it is said to be by some, indefensible. But, he continues, since interest on capital such as machinery is not the whole of the interest paid in the modern world, but is only a minor part of it, and since in the modern world all forms of capital are interchangeable, the laws which govern us in our dealings with the lesser quantity must necessarily be assimilated to those which govern us in our dealings with the greater. If a ram and a sheep are capital which yields just interest, because their wool and their progeny are increments due to nature, and if a ram and a sheep are exchangeable for some kind of machine, the possession of the one must be placed on a par with the possession of the other. The machine must be treated, though it is not so in strictness, as if it were prolific in the same sense as the beasts are; and a part of what it is used to produce must be paid by the user to the owner of it.

Now, both these arguments--that which deals with the fact of natural increase, and that which deals with the assimilation of all such possessions as are interchangeable--are in principle sound. The first, indeed, touches the very root of the whole matter; but the first is exaggerated in his statement of it, and unduly limited in his application, and the second is wholly unnecessary for proving what he desires to prove. The first is exaggerated in his statement of it because, as a matter of fact, the kind of capital whose interest is described by him as the gift of nature is not the major, it is only a minor part of the capital yielding interest under the conditions which obtain to-day. A part far larger is capital in the form of machinery; and if the distinction which George draws between the two is a true one, the case of the flocks and herds should be assimilated to that of the machines, not the case of the machines to that of the flocks and herds. Interest should be denied to both kinds of capital because machines are not naturally prolific, instead of being conceded to both because flocks and herds are so. We shall find, however, that the distinction which George seeks to establish is illusory, that both kinds of capital yield interest in the same way, and that his justification of it in the one case is equally applicable to it in the other.

His attempt to distinguish between the two takes the form of a criticism of Bastiat, according to whom the typical source of interest is the added productivity which a given amount of human effort acquires by the use of certain lendable implements. As a type of such implements or machines, Bastiat takes a plane. The maker of a plane lends this plane to another man, who is thus enabled to finish off in a week four more planks than he could have done had he used an adze. If, at the end of the week, the borrower does nothing more than return the plane in good repair to the lender, the borrower gains by the transaction; but the maker and lender not only gains nothing, he loses. For a week he loses his implement which he otherwise might have used himself, and the extra planks which, by the use of it, he could have produced just as easily as his fellow. Such an arrangement would be obviously and absurdly unjust. Justice demands--and practice here follows justice--that he get at the end of the week, not only his own plane back again, but two of the extra planks due to its use besides. A plane, in short--such is Bastiat's meaning, though he does not put it in this precise way--is a possession which is fruitful no less than a sheep and a ram are, or a wine which adds to its value by the mere process of being kept, and it, therefore, yields interest for a virtually similar reason. George, however, seeks to dispose of Bastiat's argument thus: If the maker of the plane lends it, he says, instead of himself using it, and the borrower borrows a plane, instead of himself making one, such an arrangement is simply due to the fact that both parties for the moment happen to find it convenient. For, George observes, it is no part of Bastiat's contention that the plane is due to the exertion of any faculties possessed by the maker only. Either man could make it, just as either man could use it. Why, then, should A pay a tribute to B for the use of something which, to-morrow, if not to-day, he could make for himself without paying anything to anybody?

Now, if Bastiat's plane is to be taken as signifying a plane only, the criticism of George is just. But what George forgets is that, if the plane means a plane only--an implement which any man could make just as well as the lender--interest on planes, besides being morally indefensible, would as a matter of fact never be paid at all. Bastiat's plane, however, stands for a kind of capital, the borrowing of which and the paying of interest on which, form one of the most constant features of the modern industrial world; and he evidently assumes, even if he does not say so, that for all this borrowing and paying there is some constant and sufficient reason. Now, the only reason can be--and George's own criticism implies this--that in order to produce the machine-capital borrowed certain faculties are needed which are not possessed by the borrowers; and though this may not be true of a simple hand-plane itself, it is emphatically true of the elaborate modern machinery of which Bastiat merely uses his hand-plane as a symbol. In order to produce such implements of production as these, the exertion of faculties is required which are altogether exceptional, such as high scientific knowledge, invention, and many others. Let invention--the most obvious of these--here do duty for all, and let us consider, for example, the mechanism of a modern cotton mill, or of a boot factory, or a Hoe printing press, or a plant for electric lighting. All these would be impossible if it had not been for inventive faculties as rare in their way as those of a playwright like Mr. Shaw.

No one will deny that when a play like "Man and Superman" first acquires a vogue which renders its performance profitable, the royalties paid to the author are values which he has himself created, not indeed by his faculties used directly, but by his faculties embodied in a work which he has accomplished once for all in the past, and which has thenceforward become a secondary and indefinitely enduring self; and if this is true of the royalties resulting from its first profitable performance, it would be equally true of those resulting from the last, even though this should take place on the eve of the Day of Judgment. With productive machinery the case is just the same. If Mr. Shaw, instead of writing "Man and Superman," had been the sole inventor of the steam-engine, and the only man capable of inventing it, every one will admit that he would, by this one inventive effort, have personally co-operated for a time with all users of steam-power, and been part-producer of the increment in which its use resulted. And if this would have been true of his invention when it was only two years old, it would be equally true now. He would still be co-operating with the users of every steam-engine in the world to-day, and adding to their products something which they could not have produced alone.

Here, then, we see that in one respect at all events the two kinds of capital, which George attempts to contrast, yield interest for a precisely similar reason. Both consist of a productive power or agency which is external to the borrower himself; and it makes no difference to him whether the auxiliary power borrowed inheres in living tissue, or in a mechanism of brass or iron.

But the resemblance between these two forms of capital, and the identity of the reasons why both of them bear interest, do not end here. I quoted in a former chapter an observation of Mr. Sidney Webb's, which he himself applies in a very foolish way, but which is obviously true in itself, and in the present connection is pertinent. Some men he admits are incomparably more productive than others, because they happen to be born with a special kind of ability. But what is this ability itself? It is simply the result, he says, of a process which lies behind them--namely, the natural process of animal and human evolution; and its special products are like those of exceptionally fertile land. That is to say, the ability which produces modern machines is in reality just as much a force of nature as that which makes live-stock fertile, and brings raw wine to maturity. But the same line of argument will carry us much farther than this. As Dr. Beattie Crozier has shown in his work, _The Wheel of Wealth_, the part which nature plays in productive machinery is not confined to the brains of the gifted inventors and their colleagues. It is incorporated in, and identified with, the actual machines themselves. The lever, the cam, the eccentric, the crank, the piston, the turbine, the boiler with the vapour imprisoned in it--devices which it has taxed the brains of the greatest men to elaborate and to co-ordinate--were all latent in nature before these men made them actual; and when once such devices are actualised it is nature that makes them go. There is not merely a transformation of so much human energy into the same amount of natural energy; but nature adds to the former a non-human energy of her own; as--to take a good illustration of Dr. Crozier's--obviously happens in the case of a charge of gunpowder, which, "when used for purposes of blasting, has," he observes, "in itself a thousand times the quantity of pure economic power that is bought in the work of the labourers who supply and mix the ingredients." That is to say, whenever human talent invents and produces a machine which adds to the productivity of any one who uses it with sufficient intelligence, the inventor has shut up in his machine some part of the forces of nature, as though it were an efreet whom a magician has shut up in a bottle, and whose services he can keep for himself, or hand over to others. The efreets shut up in machinery will not work for human beings at all, unless there are human magicians who manage thus to imprison them. They therefore belong to the men who, in virtue of their special capacities, are alone capable of the effort requisite to perform this feat; and it matters nothing to others, by whom the efreets' services are borrowed, whether the effort in question occupied a year or a day, or whether it took place yesterday or fifty years ago.

The borrowed efreet produces the same surplus in either case, and interest is a part of this surplus which goes, not to the efreet himself (for this is not possible), but to his master, just as a cab-fare is paid to the cabman and not his horse.

Machine-capital, then--or capital in its typical modern form--consists of productive forces which are usable by, and which indeed exist for, the human race at large, because, and only because, they have been captured and imprisoned in implements by the efforts of exceptional men, whose energy thus exercised is perpetuated, and can be lent to others; and what these men receive as interest from those by whom their energy is borrowed, is a something ultimately due to the energy of the lenders themselves--nor is this fact in any way altered by lapse of time. Thus, so far as these special men are concerned, the alleged difference between earned income and unearned altogether disappears; and if one man lives in luxury for sixty years on the interest of an invention which it took him but a month to perfect, while another man every day has to toil for his daily bread, the difference between the two consists not in the fact that the one man works for his bread and the other man does nothing for it, but in the fact that the work of one produces more in a day than that of the other would do in a hundred lifetimes.

Here, however, we shall be met with two important objections. In the first place, it will no doubt have occurred to many readers that throughout the foregoing discussion we have assumed that the persons who receive interest on machinery are in all cases the persons by whom the machinery was invented and produced. To the actual inventors and producers it may, indeed, be conceded that the interest which they themselves receive has been earned by their own exertions; but no such concession, it will be said, can be made to these men's heirs. An Edison or a Bessemer may have produced whatever income has come to him in his latest years from the inventive efforts of his earliest; but if such a man has a son to whom this income descends--a half-witted degenerate who squanders it on wine and women, who will not work with his hands and who cannot work with his head--no one can pretend that, in any sense of the word, a fool like this produces any fraction of the thousands that he consumes. And though all of those who live on the interest of inherited capital are not foolish nor vicious, yet in this respect they are all of them in the same position--they have not produced their incomes, and so have no moral right to them.

In the second place, the following argument, which was discussed in an earlier chapter, will also be brought forward, refurbished for the present occasion. Let us grant, it will be said, that the inventions which have enriched the world were originally due to the talents of exceptional men, and that without these exceptional men the world would never have possessed them; but when once they have been made, and their powers seen in operation, the human race at large can, if left to itself, take over these powers from the inventors just as the inventors took them over from nature. Indeed, this constantly happens. Any boy with a turning-lathe can to-day make a model steam-engine, and no one will contend that such a model was not made by himself, on the ground that it could not have been made either by him or by anybody unless Watt, with his exceptional genius, had invented steam as a motive-power. One might as well contend that a savage does not really light his own fire, on the ground that the art of kindling wood was found out by Prometheus, and that no one, except for him, would have had any fires at all. The truth is, it will be said, that in such cases as these the powers of the exceptional man, originally confined to himself, are, when his invention is once in practical operation, naturally shared by his fellows, who can only be restrained from using them by artificial devices such as patents--these devices being at best, from a moral point of view, devices by which one man who has given a cheque to another man steals back half the money as soon as the cheque is cashed.

Now, both these arguments, so far as they go, are true; but neither has any bearing on the problem which is now before us. That problem arises--let me observe once more--out of the assumption that, as a matter of justice, every man has a right to the products of all such forces as are his own; whence it follows that nobody has a right to the products of any forces which are not definitely in himself. Let us take, then, the latter of the above arguments first. It would doubtless be absurd to contend, were Prometheus alive to-day, that because he invented the art of striking fire from flints he ought to be paid a tribute by every savage who boiled a kettle; for the savage can strike a flint as well as Prometheus himself could. But if fire could be kindled only by a particular sort of match which Prometheus alone could make, the fact that he was really the lighter of all fires would be obvious, and his claim to a payment in respect of the lighting of every one of them would be as sound as the claim of the lighter of street-lamps to his wages. If "Man and Superman" were not a play, but a hoot, which Mr. Shaw had invented in order to call attention to himself, and which any street boy could imitate with the same results, it would be idle for Mr. Shaw to claim a right to royalties from the street boys; but it would be idle only because it would not be possible to collect them. He is able to collect them on his play because, and only because, his play exists in a form which is susceptible of legal protection. If in justice he has a right to these, as he no doubt has, he would, if abstract justice were the sole determining factor, have an equal right to royalties on the use of his peculiar hoot. He fails to have any such right because, as a matter of fact, the principle of abstract justice with which we are here concerned--that every one has a right to everything that he himself produces--has, in common with all abstract moral principles whatsoever, no application to cases in which, from the nature of things, it is wholly impossible to enforce it.

And the same criticism is applicable to the other argument before us, which admits that a man who invents a productive machine, or who writes a remunerative play, is, so long as he lives, entitled, because he is the true producer of them, to certain profits arising from the use of either; but adds that his rights to such profits end with his own life, and lose all sanction in justice the moment they are transferred to an heir. In the heir's hands, it is urged, they entirely change their character, and, instead of enabling a man to secure what is honestly his own, become means by which he is enabled to steal what morally belongs to others.

Now, if it is seriously contended that nobody has a right to anything which at some time or other he has not personally produced, the interest on machinery, as soon as the inventor dies, not only ought not to belong to the inventor's heir, but it ought not to belong to anybody; for if this interest is not produced by the heir, it is certainly not produced by any of the heir's contemporaries. A contention like this is absurd; there must therefore be something amiss with the premises which lead up to it. Socialists who admit that an inventor during his lifetime has a right to the interest resulting from the use of his own inventions, endeavour to solve the difficulty by maintaining that after his death both invention and interest should pass into the hands of the state; but this doctrine, on whatever grounds it may be defended, cannot be defended as based on the principle now in question, that the sole valid title to possession is personal production. It must, if it is based on any abstract moral principle at all, be based on one of a much more general kind, according to which the ultimate standard of justice is not the deeds of the individual, but the general welfare of society.

Here it is true that the appeal is still to abstract justice, but it is not an appeal to abstract justice only. In order to condemn interest on any such ground as this, it is necessary to assume or prove that to make interest illegal, or to confiscate it by taxation when it arises, or by any other means to render its enjoyment impossible, will as a matter of fact have the result desired--namely, a permanent rise in the general level of prosperity. It is only by means of an assumption of this purely practical kind that the abstract moral principle can be applied to the case at all; and thus let us approach the problem from whatever side we will, we are brought from the region of theory down into that of practice, not, indeed, by an abrupt leap, but by a gradual and necessary transition. We are not abandoning our considerations of what, in abstract justice, ought to be; but we are compelled to interpret what ought to be by considerations of what, as the result of such and such arrangements, will be.

To sum up, then, the conclusions which we have reached thus far--if we confine our attention to those recipients of interest who have themselves produced the capital from which the interest is derived, and compare such incomes with those which renew themselves only as the result of continued effort, it is absolutely impossible, on any general theory of justice, to sanction the latter as earned, and condemn the former as unearned. If, on the other hand, we turn to those whose incomes consist of interest on capital produced by, and inherited from, their fathers, and if we argue that here at all events we come to a class of interest on which its living recipients can have no justifiable claim, since we start with admitting that it originates in the efforts of the dead, our argument, though plausible in its premises, is stultified by its logical consequence; since the same principle on which we are urged as a sacred duty to take the income in question away from its present possessors, would forbid our allowing it to pass into the possession of anybody else. In short, if continued daily labour, or else the exercise of invention, or some other form of ability, at some period of their lives by persons actually living, constitutes in justice the sole right to possession, the human race as a whole has no right to profit by any productive effort on the part of past generations; but each generation ought, so far as is practicable, to start afresh in the position of naked savages. The fact that nobody would maintain a fantastic proposition like this is sufficient to show that, on the tacit admission of everybody, it is impossible to attack interest by insisting on any abstract distinction between incomes that are earned and unearned, and treating the latter as felonious, while holding the former sacred. It is equally true, however, that on such grounds alone it is no less impossible to defend interest than to attack it; and here we arrive at what is the real truth of the matter--namely, that in cases like the present the principles of ideal justice do not, indeed, give us false guidance, but give us no guidance at all, unless we take them in connection with the concrete facts of society, and estimate social arrangements as being either right or wrong by reference to the practical consequences which do, or which would result from them.

The practical aspects of the question we will discuss in the following chapter.