Edward Chancellor recalls an 19th century anarchist’s attack on lending money at interest
In 1849, a debate took place in the pages of La Voix du peuple, a socialist publication, between two members of the French National Assembly. On one side stood Pierre-Joseph Proudhon, the self-proclaimed anarchist, best-known today for his motto “property is theft”, and a regular contributor to La Voix. On the other side was Frédéric Bastiat, a free-trade advocate and pamphleteer.
Bastiat was renowned for his satirical economic parables. He made the case against unproductive state interventions, for instance with his “Petition of the Candlemakers”, in which candle-makers request a law requiring people to close their blinds and shutters against the sun, in order that more candles could be sold.
The subject under discussion was the legitimacy of interest. Proudhon took an old-fashioned view. Interest, the anarchist proclaimed, is “usury and plunder”. Usury was an unequal exchange levied by those who, because they didn’t deprive themselves of the capital they lent, had no right to demand a greater sum in return. Interest constitutes a “reward for idleness, [and was] the basic cause for inequality, but also of poverty”. In short, Proudhon continued, adapting his most famous statement, “I call interest THEFT.”
That was not the end of the critique. Proudhon complained that interest compounds debt over time, so that a loan over time would grow to become larger than an orb of gold the size of the Earth. Charging for loans slows the circulation of money, he suggested, causing “the stagnation of business, with unemployment in industry, distress in agriculture, and the increasing imminence of universal bankruptcy”.
Interest fuels class antagonism and restricts consumption by raising the price of products. In a capitalist society, said Proudhon, workers can’t afford to acquire the objects they produce with their own hands. “Interest is like a double-edged sword,” concluded Proudhon, “it kills, whichever side it hits you with.”
There was nothing original in Proudhon’s invective. His complaints had an ancient [root] which derives etymologically from the bite of a serpent. Proudhon’s rhetoric was high-flown and repetitive, and his economic analysis was not profound. In his History of Economic Analysis, Joseph Schumpeter lamented Proudhon’s complete inability to analyse.
Even so, Proudhon had some original proposals. He wanted to nationalise the Banque de France, expand the money supply and reduce interest rates close to zero. His People’s Bank would charge half a per cent to cover its costs. Gold would be replaced by paper money. In addition, Proudhon demanded a tax on capital (tantamount to negative interest). The reduction in interest, he envisaged, “would instantly produce incalculable results all over the Republic and across Europe”. There would be no more debt, insolvencies and bankruptcies would decline, consumption would increase and labour would be guaranteed employment. Once interest was no longer taken by the parasitic class of lenders, worker incomes would rise.
Bastiat was having none of this. Interest wasn’t theft, he maintained, but a fair reward for a mutual exchange of services.
Extracted with permission from The Price of Time: The Real Story of Interest by Edward Chancellor, published by Allen Lane, Hardback, £25. © Edward Chancellor, 2022
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