Henry George and Interest

It is Mr. Fisher's analogy, not mine, that is false and inapplicable. The proper analogy is not hetween gold and the commodities carried, hut between gold and the vehicle in which they are carried. The cargo of peaches ·that rots on its way from California to New England may not heeconomi cally consumed (though for my life I can't see why such consumption isn't as economic as the tipping of silver into the Atlantic by the United States government, which Mr. Fisher considers .purely economic), but at any rate the wear of the car that carries the cargo is an instance of economic con sumption.Now the gold that goes to California to pay for those peaches. and comes back to New England to pay for cotton cloth, and thus goes back and forth as constantly as the railway car and facilitates exchange equally with the rail... way car and wears out in the process just as the· railway car wears out, is in. my judgment consumed precisely as the rail way car is consumed. That only is a complete product,Mr.

Fisher .. tells. us, which is in the hands ofaperson who applies it to the direct gratification of some· personal craving. I suppose Mr. Fisher will not deny that a railway car is a com plete product. But if it can be said to be in the hands of a person who applies it to the direct gratification of some per sonal .craving, then the same can be· said of gold. HENRY GEORGE AND INTEREST When Henry George was conducting his Standard some of his correspondents 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: INDIVID U At L.IBER.TY 161 TI-J2E'. STANDAR.D now acknowledges that uthe theory of in.. terestasp~opoundedbY,Mr.George has ..•. beefi.more severely and. plausibly criticized than •. any. other phase.of· theecono1llic probl~m .as hepresehts it.'" When we consider that •George regards it as aneconomicJa-w thatin;eJ:es: variesi llv1ersely wi~hso importan.t. a thing as rent, we see that .hecan~otcon..

sistendy. treat' as unimportant. any ((plausible"·•• argument •.'·urged insu~port .of.·the theory thatinteres,t' V~1?iesprincip~lly, ·.not withrent,hu1;withth.eeco,Jao1U~c<concl~t~onsar~sing:frolna monopoly ·•. of•.the .·currency~ It·appears.that ··aH·the.,·trouble,•. of·••. the •••• enemies'o£ •interest growsotitof their view •• of,it as exclusively incidentalto bor rowingandlendifig,.whereas interestonl'orrowedcapitalis itsel£.uincidentaltorealinterest," .• which is' Hthe increase that capital yields irrespective of borrowing and lending. ".' ·.Thisin~ crease, Mr. George claims, is ··.the.workof tilrne,and from ·this premise. he reasons•• as.follows: uThe·laborer.who has··.capital·.ready.when}t,iswanted, .• and thus,··by saving time in making it, •increases production, ~ill get .andpughttoget someconsideration,~higher 'wages,. if YQuchoose,or interest, as we call it,. just, as: the skilful J?rinter •• who,sets6.£teen .• hundredems .·anihourwill •get ..•. more foranihour's;workthan.the less skilful printer whosetsol11y a;-thousand... In. the ,one case greater power due .to~kill"andin the other •. greater. pOMrerduetocapital" produce, greater .results iUf'a.giventime; and ,in:neither ..• case istheincreasedcompen sation 'adeductionfr0111. the earnings of other ,men."

'>ToLmakethisanalogyaJairone. itn;tust be assumed that skill is a product of 'l~bor"that •••it .c.an be [bought .,.andsold, and that. its price is subject 'to .the influence,.o~ •competition ; 'ot~er wise it· furnishes no<paraUeLto capitaL With theseassump tipns the opponent .•. of interest eagerlyseizes upontheanal~gy as. entirely .• favorahle. to ·his.•·.own.positio;nanddes,tructive· of ~r.•.George's. . If •• theskilfulprinterPfoducedhis skill and call. sell it, .and if, other ,tnen.~an,produc~ similars~ill:a~d. sell .it, the price that ,will be.paid£or it· vfill.be 'limited,eunder free' competition, by thecost,ofproduc#ion,and will bear no relati()n, to .the••.extra.,.fiYe.\hU1ldred~:ems +n';hour.•,.·The··.case.is p~ecisely the. same with ,. c.apital~; :Where~here '. is freecompeti ti()n in the .manufactur! and sale: of sl'ades, •the price of a spade wilLbe ,goYern~d by the •costo£ itfproduction, and· not 162 INDIVIDUAL LIBERTY by the value of the extra potatoes which the spade will enable its purchaser to dig. Suppose, however, that the skilful 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 ex act nearly the whole of the extra five hundred 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 rea son, why they are able to tax borrowers nearly up to the limit of the advantage which the latter derive from having the cap ital. In other words, increase which is purely the work of time bears a price only because of monopoly. Abolish the monop oly, 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 isCCnot 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 advantages which they can procure in a free market without force or fraud. If, thert, 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.

uSuppose a natural spring free to all, and that Hodge carries a pail of water from it toa 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 alorie, because without his previous labor they would not be at work in that direc tion 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 INDIVIDUAL LIBER.TY 163 hour-a pedod'oftime--shall have elapsed, he •will have, in,st~a.d<ofa.pail •. of •. cold ••. water, .a'pot .of••·boiling. water. ··18 there no •difference·in value ,between thathoiIing water and ~hecoldwater •• of'.an hour before? Would he excltange the potQf .·boiling·.water ·fora pail oicold. '\Vater,-.even. though the< CQlq. ,water .•.were' ··in•••••the .pot' and .•th~ 'fire started? Of cQUi"se·not,andno.onewouldexpect lUm.·to..•·• ,And "yet .·be tween the time. when the fire is .started. and the time when the.waterhoils he does no work. .Towhat~ then, ~stha~ difI~rence in value due? Isitnot.clearly due to the element of time? . Why does .Hodge demand mote than a pail of coldwater. for the pot of boiling water if it is not that the ultifflateobjectof hisoriginallabor .......the making of tea, for exa11'lple-isnearer complete than· it •wa~ an hour •. hefore, and that ..•an even exchange of boiling water ••.. for cold.water would dellly him aJ:l hour, to whichhewilLnot submit unless he is paid forit?'And>whyisPodge willing to give more than a pail of col4 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. incrells.es his '.• productive power very much as •greater skillwould~.. AndjfPodgegives· to Hodge more than a•• pail o£901d wat~r for .thepot ofbQiling w-ater, does Podge lose any·thing .' that he" had,orHodgegaillanything •. t~,t •he .had not? ,.. No. •... The effect .of thetra:nsaction is a.transferJor a considf!ration.of the advantage in point of time that Hodge h~d, to Podge .• who had not,. as if .askilful~011lPositor should~ if he ..couldf sell.his skill.to .,~ •. l~ss·. skilfulmember>of the craft."

We wHl,.Jooka .·little into ,this ·economic •• Hodge,-Podge. The illustration is vitiated from beginning to end by the n.eglect()f·.the most .hn.,por~antquestion involved in it, namely,whetherliodge's idleness during the. hour required ·for 'the boiling of•. th.e water is a.matter of .choice.or.·of·necessity••'..•'It waSlJecessary to leave this out in order to give time the credit of boiling the .water ... Let .us notleave it out, and < see what willco~eof. it. .' .IfUodge's .idleness is a matter. of .. netessity, it is equivalent, from the economic standpoint, tolabor,and couJlts .as labor in .the.price·.oftheboiling .·.water~ .A.·store keeper may spend only nve hours in waiting .onhiscustomers, but, as he has to spend anothernve hours in waiting for them, lle.. gets ipaistPy them for ten, ho1.trs'.·Xabor.•. His .. five....• hours' idleness'~QlJnts <as labor, ,bepatlse,to a~comm.odatehis cus"

164 INDIVIDUAL LIBERTY \tomers, he has to give up what he could produce in those five hours if he could labor in them. Likewise, if Hodge, when boiling 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 rIodge himself, this disposition, of himself, and not the abstraction, time, that gives the water its exchangeable value. The abstraction,. time, is as 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 at tributing 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 ren;..

dered exclusively through the forceso£ nature, they are gr~ tuitous. That time does not give the boiling water any exchangeable value becomes still more evident when we start from the hypothesis that·. Hodge;s .idleness, ·instead of being·a matter of necessity, isa matter of choice. In that case; if Hodge choos.es 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 ata 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 exchangeable value of the boiling water which· was· said to be due to time has disappeared, and yet it takes just as much time to boil the water as it did in the .first place.

Mr. George gets intodifticulty in discussing this' question of the increase of capital simply· because he continually loses IN DIVID U.A.L LIB ERTY I6S sight .of the fact thatcOmpetidon lowers prices to the cost of production, and thereby distributes thisso.-called·rproduct·· of capital among the whole people. .He does,ll,0tsee that capitai in'the hands of labor.isbutthe utilization ofa natural force or opportunity, just as landis ,in the hands oflabor , ,and that iti$ as proper in the one case as in the other tnatthe. benefits o£suchutilizationof natural.forcesshouldbeenjoyed by the wftole..bodY .' OfCOl1sumers;;·. Mr....Georgectruly says that rent .. ~s thepriceofrnonopoly. Suppose,..'now, ·.that. some· one should;;,answer <him tnus:You misconceive; you clearly have leasing exclusively in mind, and. suppose :an unearned ,bonus for' a lease,whereas,retit of leas.ed·.landis .'. merely ,incidentral··to·.·.. real rent,which is. the 'superiority inJ0cation .' or' fertility .. 0£ .one:piece.o£ ..·land over another,irlespectiiVeo£ Jeasing.<:Mr. George.would i laugh '.at suchanargument,.i£ :offered,in justification of the receipt-and . enjoyment of unearned'; increment or economic" rentt b}11the landlord. But'he .··himsel£,m~kesan eq/lmUy.. ridiculousamd pr~,cisely., paraHeLargllm.entin Gerence·ofc:the'usurerwnenhe Ha~$",;.inanswerto\th.ose""",hoassert,that in'tere~t is the price.,of n1onopoly:uYa'g:in~soQnceive; •·.. youclearlyha~e . borrowing and lending exclusively''.' in '. mind, and suppaseain.uneatned bOnus' £01" ,a . loan, ,whereas.•. 'inter~st· on borrowed .,·capital is merely,inciaental torealinterest, which is the increase that c'a~it;a'l -yields,irrespectiveo£ ,borrowing Jt.nd lending."

The truth in both c.ases,is'juSt this; that nature fU1"llishes '1'l'ta~ immense t017ces with which to work, in' the shape of land and capital, that '. ina, s'tate of .... freedom these forces benefit each il1;div:idual'ito ·.theex~ent,that'he ·.. avails'·.. himsel~.'of'them~ ,andthat,,)!uy :man~or class ,getting; a m(i)nopoly o:feither or both will 'P¥t:a,llothermen ·in subjection and liveirI' luxurY' on'the products·o£.theirJabor.B.l1ttoijustify,a'1l1onopoly of .eithetl;Qf.th~se\fQrqes·bytntk:existenceo£;theforce' itself, or ·if1Zo'~u:gue\;thtltwithout'a.tnonopolyo£itany individualrlcoultl get",ap..inco~eby .lending i'tinstead ·:of'·.by working withjt~>is ,eq1Jlal1yabsurd';whetnetthe argumel1t',he 'resorted to ,in the ·case.of:land' Qr in the case of capital,. in the case Qf.rellt orin tli~case of~f1t:erest...··If any Qn~ chooses to;calL tneaclvantages 'of:t4hese.£o~¢esto mankind rent in one caseandiriterest, dn:the gtheJ7~ Idottotka()wc that; there is 'any serious··0bj:e4Ztionto.his dbin8··$Ot;t~~~Yide~lhewin;Jjetnemberthatin.·.·p;racticalecoinomic 166 INDIVIDU AL LIBER TY discussion rent stands for the absorption of the advantages of land by the landlord,· and interest for the absorption of the advantages of capital. by the usurer.

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 exchangeable value to the water while boil ing, 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 pro ducts 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 s'upplies a market which it takes a month· to reach, is entitled .to more pay for his shovels at the end of that month than he would have been had he sold them on the spot immediately after production; and therefore the banker who discounts at the time of production the note of Podge's distant cus tomer .' 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 absence 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 hi~ month's delay in the shovel' transaction, or Hodge for the INDIVIDUAL LIBERTY' {67 services of time in· ripening his grain. He would ,then have -discovered that the hanker, who invests 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, moneymo nopoly, to reduce the price of his services to lahor cost, which the statistics of the. banking business show to.be much less .than one per cent. . As this .. fraction .••of one per .cent.

rept.'esents sim.ply the b~nker1$ w:tges :tnd incident:tl ~xpenses" and.is not payment for the> use of. capital, the element of interest aisappears from his .transactions. But,.if Podge can borr~w .• money from t~e banker without .. interest, so can Podge's customet; therefore, should ••Podge attempt to exact from his custom.er remuneration for the .month's delay, the latte~· would .at once borrow the money· and pay Podge spot cash.J Furthermore Podge, knowing this, and being able to get ready money easily himself, and. desiring, as. a good man o£,lbusiness, to suit his customer's convenience, .would make no I sllch •attempt. .So Podge's. interest is gone as well as the baJi.1ter's. Hodge, th,en, is the only usurer left. ,But is any on~ •so innoce~tas to suppose that Dodge,or Lodge, or Mqdge will long continue to pay Hodge more for his grown gr~in than his sown grain, after any or all of them can get lanp free of rent and money free of interest, and thereby forbefime 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 olinterest on money fixes the rate of interest·on. all ,other capital the production a/which is subject to competition, and· when the former disappears the latter disappearswith it.

'.' Presumably to make his readers thinkth.at 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: ubi c0t.1rse there is .. discount ana 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 168 INDIVIDUAL LIBERTY can impose arbitrary conditions upon producers who must immediately use that common medium." The evident purpose of the word Hfrequently" 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 some what 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 conse quence of peculiar and abnormal circumstances, discount is not in the nature of a tax, it is a rare exception. The aboli- ' tion 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, being exceptional in a free money market and a tax of the or dinary discount type in a restricted money market, is illegiti mate if cited in defence 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 disappear 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 audi ence of gaping Hodges and Podges, but can never successfully dispute with men who understand the rudiments of political economy.