Capital and Interest: A Critical History of Economical Theory
1. This consideration of itself suggests the indefiniteness of what is usually called Undertaker's Profit. In the Limited Liability Company this "wage of intellect" is measured and paid, but the varying dividend shows that it by no means exhausts this "profit." The solution probably is that the attempt to assess undertaker's wage on any principle is hopeless in present circumstances. It is a "glorious risk," depending, among other things, on adroitness, foresight, opportunity, and exploitation of labour—four factors scarcely reducible to figures. But with this line of thought, interesting and important as it is, we have nothing to do here.
2. See the striking passage on pp. 134, 135. [Book II, Chapter II. pars. II.II.50-56.—Econlib Ed.]
* [Book III, Chapter IX. pars. III.IX.10-16.—Econlib Ed.]
4. Many German economists use the word Kapitalrente as well as Kapitalzins. Sanders defines Rente as "Einkünfte die man als Nutzung voll Grundstücken, Kapitalien, and Rechten bezieht." So Littré gives Rente as "Revenu annuel." The word occurs in Chaucer as equivalent of income:—
"For catel (chattels) hadden they ynough and rent."—Canterbury Tales, Prologue, l. 375. In English we still retain the word Rent instead of interest in a few cases outside of its special application to land.—W. S.
5. Thus Hermann in his Staatswirthschaftliche Untersuchungen, p. 211, defines capital as "Vermögen, das seine Nutzung, wie ein immer neues Gut, fortdauernd dem Bedürfniss darbietet, ohne an seinem Tauschwerth abzunehmen."
8. "Es heisst Mieth-oder Pachtzins, wenn das überlassene Kapital aus dauerbaren Gütern bestand. Es heisst Zinsen oder Interessen, wenn das Kapital aus verbrauchlichen oder vertretbaren Gütern bestand." I have translated the passage to suit our English usage of the words. The adjective "vertretbar" (for which the legal "fungible" is the only equivalent) indicates that the thing lent is not itself given back, but another of the same kind. Grain and money are the typical fungibles.—W. S.
9. I think it advisable to translate Unternehmer and Unternehmung throughout by Undertaker and Undertaking. Rowland Hill, when he adapted Greensleaves to a psalm, said he did not see why the devil should have all the good tunes. Neither, in my opinion, should our science any longer deny itself these useful words, introduced by Adam Smith himself, simply because they are usually confined with us to one special branch of industry.—W. S.
Book I, Chapter I
Rizy, Ueber Zinstaxen and Wuchergesetze, Vienna, 1859.
Wiskemann, Darstellung der in Deutschland zur Zeit der Reformation herrschenden national-ökonomischen Ansichten (Prize Essays of the Fürstliche Jablonowski'sche Gesellschaft, vol. x. Leipzig, 1861).
Laspeyres, Geschichte der volkwirthschaftlichen Ansichten der Niederländer (vol. xi. of same Prize Essays, Leipzig, 1863).
Neumann, Geschichte des Wuchers in Deutschland, Halle, 1865.
Funk, Zins und Wucher, Tübingen, 1868.
Knies, Der Kredit, part i., Berlin, 1876, p. 328, etc.
Above all, the works of Endemann on the canon doctrine of economics, Die national-ökonomischen Grundsätze der kanonistischen Lehre, Jena, 1863, and his Studien in der romanisch-kanonistischen Wirthschafts-und Rechtslehre, vol. i. Berlin, 1874; vol. ii. 1883.
13. E.g. the prohibition of interest by the Mosaic Code, which, however, only forbade lending at interest between Jews, not lending by Jews to strangers, Exodus xxii. 25; Leviticus xxv. 35-37; Deuteronomy xxiii. 19, 20. In Rome, after the Twelve Tables had permitted an Undarum Foenus, the taking of interest between Roman citizens was entirely forbidden by the Lex Genucia, B.C. 322. Later, by the Lex Sempronia and the Lex Gabinia, the prohibition was extended to Socii and to those doing business with provincials. See also Knies, Der Kredit, part i. p. 328, etc., and the writers quoted there.
14. I may append some of the passages oftenest referred to. Plato in the Laws, p. 742, says: "No one shall deposit money with another whom he does not trust as a friend, nor shall he lend money upon interest." Aristotle, Nichomachean Ethics, iv. § 1: "Such are all they who ply illiberal trades; as those, for instance, who keep houses of ill-fame, and all persons of that class; and usurers who lend out small sums at exorbitant rates: for all these take from improper sources, and take more than they ought." Cicero, De Officiis, ii. at end: "Ex quo genere comparationis illud est Catonis senis: a quo cum quaereretur, quid maxime in re familiari expediret, respondit, bene pascere. Quid secundum? Satis bene pascere. Quid tertium? Male pascere. Quid quantum? Arare.... Et, cum ille, qui quaesierat, dixisset, quid foenerari? Tum Cato, quid hominem, inquit, occidere? "Cato, De Re Rustica: "Majores nostri sic habuerunt et ita in legibus posuerunt, furem dupli condemnare, foeneratorem quadrupli. Quanto pejorem civem existimarunt foeneratorem quam furem, hinc licet existimari." Plautus, Mostellaria, Act iii. scene 1: "Videturne obsecro hercle idoneus, Danista qui sit? genus quod improbissimum est.... Nullum edepol hodie genus est hominum tetrius, nec minus bono cum jure quam Danisticum." Seneca, De Beneficiis, vii. 10: "Quid enim ista sunt, quid foenus et calendarium et usura, nisi humanae cupiditatis extra naturam quaesita nomina?... quid sunt istae tabellae, quid computationes, et venale tempus et sanguinolentae centesimae? voluntaria mala ex constitutione nostra pendentia, in quibus nihil est, quod subici oculis, quod teneri manu possit, inanis avaritiae somnia."
20. To give the reader some idea of the tone which the fathers of the Church adopted in dealing with the subject I append some of their most quoted passages. Lactantius, book vi. Divin. Inst. chap. xviii. says of a just man: "Pecuniae, si quam crediderit, non accipiet usuram: ut et beneficium sit incolume quod succurat necessitati, et abstineat se prorsus alieno in hoc enim genere officii debet suo esse contentus, quam oporteat alias ne proprio quidem parcere, ut bonum faciat. Plus autem accipere, quam dederit, injustum est. Quod qui facit, insidiatur quodam modo, ut ex alterius necessitate praedetur." Ambrosius, De Bono Mortis, chap. xii.: "Si quis usuram acciperit, rapinam facit, vita non vivit." The same De Tobia, chap. iii.: "Talia sunt vestra, divites! beneficia. Minus datis, et plus exigitis. Talis humanitas, ut spolietis etiam dum subvenitis. Foecundus vobis etiam pauper est ad quaestum. Usurarius est egenus, cogentibus nobis, habet quod reddat: quod impendat non habet." So also chap. xiv.: "Ideo audiant quid leg dicat: Neque usuram, inquit, escarum accipies, neque omnium rerum." Chrysostom on Matthew xvii. Homily 56: "Noli mihi dicere, quaeso, quid gaudet et gratiam habet, quod sibi foenore pecuniam colloces: id enim crudelitate tua coactus fecit." Augustine on Psalm cxxviii.: "Audent etiam foeneratores dicere, non habeo aliud unde vivam. Hoc mihi et latro diceret, deprehensus in fauce: hoc et effractor diceret... et leno... et maleficus." The same (quoted in the Decret. Grat. chap. i. Causa xiv. quaest. 3): "Si plus quam dedisti expectas accipere foeneratores, et in hoc improbandus, non laudandus."
25. Summa totius Theologiae, ii. chap. ii. quaest. 78, art. 1. Similarly Covarruvias: "Accipere lucrum aliqod pro usu ipsius rei, et demum rem ipsam, iniquum est et prava commutatio, cum id quod non est pretio vendatur... aut enim creditor capit lucrum istud pro sorte, ergo bis capit ejus aestimationem, vel capit injustum sortis valorem. Si pro usu rei, is non potent seorsum a sorte aestimari, et sic bis sors ipsa venditur."
28. Secundo (usura est prohibita) ex fame, nam laborantes rustici praedia colentes libentius ponerent pecuniam ad usuras, quam in laboratione, cum sit tutius lucrum, et sic non curarent homines seminare seu metere." See Endemann, National-ökonomische Grundsätze, p. 20.
Book I, Chapter II
33. The opinion very commonly held that the Jews were generally exempted from the Church's prohibition of interest is pronounced erroneous by the late and very complete work of Endemann (Studien, ii. p. 383, etc.)
39. "Ac primum nullo testimonio Scripturae mihi constat usuras omnino damnatas esse. Illa enim Christi sententia quae maxime obvia et aperta haberi solet: Mutuum dato nihil inde sperantes, male huc deterta est.... Lex vero Mosis politica cum sit, non tenemur illa ultra quam aequitas ferat atque humanitas. Nostra conjunctio hodie per omnia non respondet...."
40. Previous to this, in the same year, was published the Extricatio Labyrinthi de eo quod Interest, in which the question of interesse was freely handled, but no definite side taken on the interest question.—See Endemann, Studien, i. p. 63.
42. "Ea taxatio" (the fixing of a maximum rate which was attached to the principle of the permission of interest in Justinian's Code) "nunquam in se fuit iniqua. Sed ut tempore suo summa et absoluta, ita processu temporis propter abusum hominum nimis in quibusdam dissoluta et vaga inventa est, et omnino super foenore negociativo forma juris civilis incommoda et perniciosa debitoribus apparuit. Unde merito abrogata fuit, et alia tutior et commodior forma inventa, videlicet per abalienationem sortis, servata debitori libera facultate luendi. Et haec forma nova, ut mitior et civilior, ita minus habet de ratione foenoris, propter alienationem sortis, quam forma juris civilis. Est tamen foenus large sumptum, et vera species negociationis foenoratoriae...." (No. 536)
46. Besold resumed the discussion later, in an enlarged and improved form, as he says, in another work, Vitae et Mortis Consideratio Politica (1623), in which it occupies the fifth chapter of the first book. I had only this latter work at my disposal, and the quotations in the text are taken from it.
48. I think Roscher (Geschichte der National-Oekonomik, p. 201) does Besold too much honour when, in comparing him with Salmasius and Hugo Grotius, he gives him the honourable position of a forerunner on whom Salmasius has scarcely improved, and to whom Grotius is even inferior. Instead of Besold, who drew at second hand, Roscher should have named Molinaeus. Besold is not more original than Salmasius, and certainly less adroit and ingenious.
52. Thus it is not possible to regard Grotius as a pioneer of the new theory. This view, held among others by Neumann, Geschichte des Wuchers in Deutschland, p. 499, and by Laspeyres, Geschichte, pp. 10 and 257, is anthoritatively corrected by Endemann, Studien, I. p. 66, etc.
53. The list of writing in which our extremely prolific author expatiates on the subject of interest is by no means exhausted by the works mentioned in the text. There is, e.g. a Disquisitio de Mutuo, qua probatur non esse alienationem, of the year 1645, whose author signs with the initials S. D. B., a signature which points, as does the whole style of writing, to Salmasius (Dijonicus Burgundus). There is besides in the same year an anonymous writing, also undoubtedly traceable to Salmasius, Confutatio Diatribae de Mutuo tribus disputationibus ventilatae, auctore et preside Jo. Jacobo Vissembachio, etc. Those named in the text, however, were the first to break ground.
54. "Quae res facit ex commodato locatum, eadem praestat, ut pro mutuo sit foenus, nempe merces. Qui eam in commodato probant, cur in mutuo improbent, nescio, nec ullam hujus diversitatis rationem video. Locatio aedium, vestis animalis, servi, agri, operae, operis, licita erit; non erit foeneratio quae proprie locatio est pecuniae, tritici, hordei, vini, et aliarum hujusmodi specierum frugumque tam arentium quam humidarum?"
55. To prove the relation in which Salmasius stands to Molinaeus, it may not be superfluous, considering the explicit statement of Endemann (Studien, i. p. 65) that Salmasius does not quote Molinaeus, to establish the fact that such quotations do exist in considerable number. The list of authors appended to the works of Salmasius shows three quotations from Molinaeus for the book De Usuris, twelve for the De Modo Usurarum, and one for the De Foenore Trapezitico. These quotations are principally taken from Molinaeus's chief work on the subject, the Contractus Contractuum et Usurarum. One of them (De Usuris, p. 21) refers directly to a passage which stands in the middle of the most pertinent of his writings (Tractatus, No. 529. Nos. 528, etc., contain the statement and refutation of the arguments of the ancient philosophy and of the canonists against interest). There can, therefore, be no doubt that Salmasius accurately knew the writings of Molinaeus, and it is just as much beyond doubt—as indeed his substantial agreement would lead us to suspect—that he has drawn from them. In the Confutatio Diatribae mentioned above (p. 36) it is said in one place (p. 290) that Salmasius at the time when, under the pseudonym of Alexis a Massalia, he wrote the Diatriba de Mutuo, was not acquainted with the similar writings of Molinaeus in his Tractatus de Usuris. But this expression must only relate to his ignorance of those quite special passages in which Molinaeus denies the nature of the loan as an alienation, or else, if what I have said be true, it is simple incorrect. [Note from Econlib Editor: Original reads "simple incorrect," not "simply incorrect."]
56. Salmasius begins with the argument of the improper double claim for one commodity. His opponents had contended that whatever was taken over and above the principal sum lent could only be taken either for the use of a thing which was already consumed—that is for nothing at all—or for the principal sum itself, in which case the same thing was sold twice. To this replies Salmasius: "Quae ridicula sunt, et nullo negotio difflari possunt. Non enim pro sorte usura exigitur, sed pro usu sortis. Usus autem ille non est nihilum, nec pro nihilo datur. Quod haberet rationem, si alicui pecunism mutuam darem, ea lege ut statim in flumen eam projiceret aut alio modo perderet sibi non profuturam. Sed qui pecuniam ab alio mutuam desiderat, ad necessarios sibi usus illam expetit. Aut enim aedes inde comparat, quas ipse habitet, ne in conducto diutius maneat, vel quas alii cum fructu et compendio locet: aut fundum ex ea pecunia emit salubri pretio, unde fructus et reditus magnos percipiat: aut servum, ex cujus operis locatis multum quaestus faciat: aut ut denique alias merces praestinet, quas vili emptas pluris vendat" (p. 195).
And after showing that one who lends money to an undertaking is not under any obligation to inquire whether it is usefully employed by the borrower, any more than the hirer of a house need make similar inquiry, he continues: "Hoc non est sortem bis vendere, nec pro nihilo aliquid percipere. An pro nihilo computandum, quod tu dum meis nummis uteris, sive ad ea quae tuae postulant necessitates, sive ad tua compendia, ego interim his careo cum meo interdum damno et jactura? Et cum mutuum non in sola sit pecunia numerata, sed etiam in aliis rebus quae pendere et mensura continentur, ut in frugibus humidis vel aridis, an, qui indigenti mutuum vinum aut triticum dederit, quod usurae nomine pro usu eorum censequetur, pro nihilo id capere existimabitur? Qui fruges meas in egestate sua consumpserit, quas care emere ad victum coactus esset, aut qui eas aliis care vendiderit, praeter ipsam mensuram quam accepit, si aliquid vice mercedis propter usum admensus fuerit, an id injustum habebitur? Atqui poteram, si eas servassem, carius fortasse in foro vendere, et plus lucri ex illis venditis efficere, quam quantum possim percipere ex usuris quas mihi reddent" (p. 196, etc.) Particularly biting is his reply to the argument of the unfruitfulness of money: "Facilis responsio. Nihil non sterile est, quod tibi sterile esse volueris. Ut contra nihil non fructuosum, quod cultura exercere, ut fructum ferat, institueris. Nec de agrorum fertilitate regeram, qui non essent feraces nisi humana industria redderet tales.... Magis mirum de aëre, et hunc quaestuosum imperio factum. Qui imposuerunt vectigal singulis domibus Constantinopolitani imperatores, aërem sterilem esse pati non potuerunt. Sed haec minus cum foenore conveniunt. Nec mare hic sollicitandum, quod piscatoribus, urinatoribus, ac nautis ad quaestum patet, ceteris sterilitate occlusum est. Quid sterilius aegroto? Nec ferre se, nec movere interdum potest. Hunc tamen in redditu habet medicus. Una res est aegroto sterilior, nempe mortuus.... Hic tamen sterilis non est pollinctoribus, neque sardapilonibus, neque vespillonibus, neque fossariis. Immo nec praeficis olim, nec nunc sacerdotibus, qui eum ad sepulcrum cantando deducunt. Quae corpus alit corpore, etiamsi liberos non pariat, non tamen sibi infecunda est. Nec artem hic cogites; natura potius victum quaerit. Meretricem me dicere nemo non sentit.... De pecunia quod ajunt, nihil ex se producere natura, cur non idem de ceteris rebus, et frugibus omne genus, quae mutuo dantur, asserunt? Sed triticum duplici modo frugiferum est, et cum in terram jacitur, et cum in foenus locatur. Utrobique foenus est. Nam et terra id reddit cum foenore. Cur natura aedium, quas mercede pacta locavero, magis potest videri foecunda, quam nummorum quos foenore dedero? Si gratis eas commodavero, aeque ac si hos gratis mutuo dedero, tum steriles tam hi quam illae mihi evadent. Vis scire igitur, quae pecunia proprie sterilis sit dicenda, immo et dicta sit? Illa certe, quae foenore non erit occupata, quaeque nihil mihi pariet usuraram, quas et propterea Graeci nomine appellarunt" (p. 198). The third argument of his opponents, that the loan should not bear interest because the things lent are a property of the debtor, Salmasius finds "ridiculous": "At injustum est, ajunt, me tibi vendere quod tuum est, videlicet usum aeris tuae. Potens sane argumentum. Atqui non fit tuum, nisi hac lege, ut pro eo, quod accepisti utendum, certam mihi praestes mercedem, usurae nomine, absque qua frustra tuum id esse cuperes. Non igitur tibi, quod tuum est, vendo, sed, quod meum est, ea conditione ad te transfero, ut pro usu ejus, quamdiu te uti patiar, mihi, quod pactum inter nos est, persolvas."
59. Noodt is very much quoted as an authority in the learned literature of the eighteenth century; e.g. by Böhmer, Protest. Kirchenrecht, vol. v. p. 19 passim. Barbeyrac, the editor of several editions of Hugo Grotius, says that, on the matter of interest, there is an "opus absolutissimum et plenissimum summi jurisconsulti et non minus judicio quam eruditione insinis, Clariss. Noodtii" (De Jure Belli ac Pacis: edition of Amsterdam, 1720, p. 384).
61. Neumann, Geschichte des Wuchers in Deutschland, p. 546, mentions permissions by local law of contract interest about the years 1520-30. Endemann, it is true (Studien, ii. pp. 316 and 365, etc.) would interpret these permissions as applying only to stipulated interesse, which, theoretically at least, was different from interest proper (usura). In any case the taking of interest had thus practically received toleration from the state.
75. See above, p. 34. [Book I, Chapter II. pars. I.II.31.—Econlib Ed.]
77. E.g. in "A Small Treatise against Usury," annexed to Child's Discourses, 1690, p. 229: "It is agreed by all the Divines that ever were, without exception of any; yea, and by the Usurers themselves, that biting Usury is unlawful: Now since it hath been proved that ten in the hundred doth bite the Landed men, doth bite the Poor, doth bite Trade, doth bite the King in his Customs, doth bite the Fruits of the Land, and most of all the Land itself: doth bite all works of Piety, of Vertue, and Glory to the State; no man can deny but ten in the hundred is absolutely unlawful, howsoever happily a lesser rate may be otherwise."
86. "Of Interest," Essays, part. ii. chap. iv. [See Hume, Of Interest, par. II.IV.14.—Econlib Ed.]
100. The passage has been quoted by Rizy; by Turgot, Mémoire sur les Prêts d'Argent, § 26; and also by Knies, Kredit, part i. p. 347. It runs thus: "It is a fair claim that the values given in the case of a contract which is not gratuitous should be equal on either side, and that no party should give more than he has received, or receive more than he has given. Everything, therefore, that the lender may demand from the borrower over and above the principal sum, he demands over and above what he has given; for, if he get repayment of the principal sum, he receives the exact equivalent of what he gave. For things that can be used without being destroyed a hire may certainly be demanded, because, this use being separable at any moment (in thought at least) from the things themselves, it can be priced; it has a price distinct from the thing. So that, if I have given a thing of this sort to any one for his use, I am able to demand the hire, which is the price of the use that I have allowed him in it beyond the restitution of the thing itself, the thing having never ceased to be my property.
"It is not the same, however, with those objects that are known to lawyers as fungible goods—things that are consumed in the using. For since, in the using, these are necessarily destroyed, it is impossible in regard to them to imagine a use of the thing as distinct from the thing itself, and as having a price distinct from the thing itself. From this it follows that one cannot make over to another the using of a thing without making over to him wholly and entirely the thing itself, and transferring to him the property in it. If I lend you a sum of money for your use under the condition of paying me back as much again, then you receive from me simply that sum of money, and nothing more. The use that you will make of this sum of money is included in the right of property that you acquire in this sum. There is nothing that you have received outside of the sum of money. I have given you this sum, and nothing but this sum. I can therefore ask you to give me back nothing more than this amount lent, without being unjust; for justice would have it that only that should be claimed which was given."
108. Funk, Zins und Wucher, Tübingen, 1868, p. 116. On the reception that this liberal decision of Rome, 18th August 1830, met from a portion of the French clergy, see Molinari, Cours d'Economie Politique, second edition, vol. i. p. 333.
110. E.g. Sonnenfels, Handlung, fifth edition, pp. 488, 497; Steuart, book iv. part i. p. 24; Hume, as above, p. 60. See above, pp. 42, 47. [Book I, Chapter II. pars. I.II.47-49, I.II.64-66.—Econlib Ed.]
111. Some historians of theory, who are at the same time adherents of the Productivity theory (which we have to examine later), such as Roscher, Funk, and Endemann, are fond of ascribing to the writers of this period "presentiments" of the "productivity of capital," even "insight" into it; and of claiming them as forerunners of that theory. I think this is a misunderstanding. These writers do speak of the "fruitfulness" of money, and of all sorts of other things, but this expression with them serves rather to name the fact that certain things bring forth a profit than to explain it. They simply call everything "fruitful" that yields a profit or a "fruit," and it does not occur to them to give any formal theoretical explanation of the origin of these profits. This is very plain from the writings of Salmasius on the subject. When Salmasius calls air, disease, death, prostitution, "fruitful" (see note to p. 39 above), it is evidently only a strong way of putting the fact that the state which lays taxes on the air, the physician, the gravedigger, the prostitute, all draw a profit from the things just named. But it is just as evident that Salmasius did not in the least seriously think of deriving the sexton's fee from a productive power that resides in death. And the fruitfulness of money, which Salmasius wished to illustrate by comparing it with these, is not to be taken any more seriously.