An Analysis of Henry George's
Theory of Interest

E. Yancey Cohen

[The following essay by E. Yancey Cohen was signed "E. Wye" with comments by Oscar H. Geiger. Reprinted from Land and Freedom, May-June, 1932]

DEAR A

IF, as you claim, the interest question is a purely academic question, then the whole subject may well be left to the time when ground rent is taken for public uses. But like Banquo's ghost this question comes to plague us. A question cannot be put aside as purely academic which has already led to a clear division in our ranks. Anger reddens the face of many a Single Taxer when the slightest criticism is ventured against those sacred chapters in Progress and Poverty in which the theory of interest is laid down. "Traitor! disturber! fool! imbecile! falsifier! enemy of science!" are the outbursts we seem to remember hearing.

As a well-informed student you will recall that from the very first appearance of Progress and Poverty there were not wanting critics who pointed out that the vulnerable spot in the shining armor of Henry George was to be found in his defense of interest. Especially did the Germans, who had greeted the book with enthusiasm (its sale was enormous everywhere), object to the dictum that "interest is not an arbitrary but a natural thing; it is not the result of a particular social organization but of laws of the universe which underlie society. It is, therefore, just." This pronouncement estranged the working classes of the world and weaned them away from a movement suddenly ceased to interest them. They have been cold to it ever since.

You may say that, after all, a defection such as this is of minor importance. But is it? When Henry George said he was "for men" and not for a class, did he expect that so large a class as the working class, whose poverty was the very cause of all his labor as thinker and writer, would he alienated and continue indifferent? One cannot believe this, flattering as it may be to the selecter circles of our Georgist intelligentsia. What was it that cooled the ardor of the working masses to the "Henry George theory"? Was it some weakness discovered in the book itself, some train of illogical reasoning that led to strange and unexpected conclusions, some fatal flaw that vitiated an otherwise noble and beautiful work of art? Such indeed appears to have been the case.

How can this be explained?

Henry George, while in fact proposing a most radical change in the current postulates of political economy, a complete reversal of accepted dogmas and a profound alteration of society's basic structure, yet was not keen enough to see that his proposals were utterly impossible for execution within the strangling bonds of the existing society. He proposed to proceed step by step in an attempt to reduce taxes, in order that a greater amount of economic rent might be collected in their place -- a futile plan, which after fifty years of devoted propaganda has not yet even begun to function. He would, for some occult reason, adopt the conventional terminology of a political economy which he wished to undermine, involving himself in a struggle to make plausible and more readily acceptable conclusions that were utterly worthless. For example, he stated that "in truth, the primary division of wealth in distribution is dual, not tripartite not between land, labor and capital, but between land and labor." Yet essaying to add improvements to the structure already reared by the great writers on political economy rather than to bring their edifices crashing down to ruin, he must retain one important prop or shoring from their lumber-yard which has rendered his own tower of very doubtful stability. What I particularly refer to is his whole treatment of capital and interest.

"To what are we to attribute the present-day persistence and continuance of interest in the midst of plenty such as the world has never before seen or dreamed of, and in spite of powers of production, of the powers of Nature, such as the greatest seers and wisest men of prior generations could never conceive of? Is this due, as so many suppose, and as even that great economist Henry George contended, "to the laws of the universe which underlie society," or is it but the result of our particular social organization, the main peculiarities of which, partially adapted though it has been to modern requirements, we have inherited from bygone generations? In other words, is interest natural and therefor unavoidable and equitable or is it merely one of those symptoms which betray the presence of special privileges in the body politic?" [Lewis H. Berens, Toward the Light, p. 161]

It is true, as E. Wye further says, "Every advantage derivable from the growth of the arts in production, in invention and in the advances of scientific knowledge is absorbed in rent." But the rent having been paid by the labor that produced the "arts" and the "inventions," labor has become quit with society, and society having so absorbed its part in the "advances of scientific knowledge" leaves labor in the undisputable and equitable possession of the tools and machinery it has produced, with no further rightful claim on the part of society.

II

With parrot-like reiteration comes the tiresome formula: "The three factors are land, labor and capital; the return to capital is interest." A slight variation, hailed by its author as a great scientific discovery, is the following: "Wealth used as a tool in the production of more wealth is capital; and in the wealth so produced is the interest due the owner of the capital and the wages due labor for the effort involved."

A very favorite illustration given is that of the little child who goes into the berry- patch with a basket and gathers berries the result of the picking being both wages and interest. No need here to include the idea of borrowing and lending. The "interest" just attaches itself to those berries, the amount of said interest being well recognized by the little girl or her parents, as the case may be. Now I could never see why the child's pinafore would not have sufficed, or if necessary even its fist, save that the labor expended in bringing home the berries would have been less efficient. If there was no monopoly in baskets, then the use of baskets was the conventional way of gathering or producing berries, an extension of the earlier mode of putting them in a big leaf for conveyance or into one's mouth for immediate consumption.

In the illustration of the little child going berry picking I (Chap. II), E. Wye says: "Now, I could never see why the child's pinafore would not have sufficed, or if necessary its fist, save that the labor expended in bringing home the berries would have been less efficient." Exactly! And it was to obtain efficiency that a basket was sought and obtained. This basket was produced by labor, and labor is entitled to wages which it would have received had the basket been bought, or to interest (partial wages) as the basket was merely borrowed.

E. Wye continues: "If there was no monopoly in baskets, then the use of baskets was the conventional way of gathering or producing berries. " If the use of baskets were sufficiently "conventional" to be general among berry pickers, then every berry picker would have a basket, having bought it. The fact that a basket is borrowed discloses both need and lack of baskets. Baskets for sale in a store that sells baskets is not necessarily an evidence of monopoly of baskets, and E. Wye will admit the equity in the storekeeper asking payment for his baskets. Would a stock of baskets in a store kept in stock to loan them as required be any more evidence of monopoly? And would payment for their temporary use, instead of purchase for permanent use, be any less equitable? There are stores that lend camp chairs for funerals and parties. Is the payment charged for these inequitable? Similarly, water filters and coolers, gas stoves for apartment dwellings, towel racks for offices, and other articles of this nature, are loaned out for pay. The houses and apartments and offices and lofts that are rented are in themselves wealth hired out for pay. Is there anything wrong about that? E. Wye says that putting berries in baskets is "an extension of the earlier mode of putting them in a big leaf for conveyance," but how does that affect the situation? If big leaves were not at hand, and one had to make a day's journey to obtain such a leaf, would not the possessor of such a leaf be entitled to one day's berry pickings as payment for it, or to a small share of a day's pickings for the use of the leaf?

Query: Should our economist not also include the child's clothes as part of its tools, since they protect the child from the briars during the operation of gathering? The fact is that without a monopoly or a patent right, tools become part and parcel of society's inheritance from the past, the knowledge how to use them becoming an easy conventional acquisition, and labor, while certainly being thereby rendered more efficient, can gain no special advantage under the law of supply and demand. Every advantage derivable from the growth of the arts in production, in invention and in the advances of scientific knowledge is absorbed in rent.

E. Wye asks: "Should our economist not also include the child's clothes as part of its tools, since they protect the child from briars during the operation of gathering?" If the clothes protect the child from the briars, then there is wear and tear on the clothes in the process of picking, and the clothes must be replaced. There would then naturally be special clothing used for the purpose of berry picking, and if some one had such clothing handy that fitted the child, and the loan of this clothing was asked, the purpose would be to save the child's other clothing, and as the lender could have legitimately come into the possession of such clothing only by producing them with his labor or purchasing them, which is the same thing in economics, he would be entitled to wages for the sale, or interest for the loan. E. Wye's next sentence is rather surprising: "The fact is that without a monopoly or a patent right, tools become part and parcel of society's inheritance from the past." Isn't this rather socialistic? In what manner or by what process do tools become part and parcel of society's inheritance from the past? This implies social ownership of tools and the machinery of production.

"As everybody knows, Nature yields more to labor when making use of tools than when working unaided; and this increase in the productive power of labor was confidently regarded as ample justification of interest, of that portion of the produce of labor which under existing conditions accrues to the owners of capital as a premium for the use of their possessions. This theory was strenuously upheld by Bastiat, who was indeed so confident of its truth that, as far as he was concerned, he practically staked the reputation of the existing social organization on its correctness. Henry George refutes this theory in a manner which leaves nothing to be desired. After pulverizing Bastiat's oft-quoted illustration of the Plane, George concludes as follows:

'Is interest, then, natural and equitable? There is nothing in this illustration to show it to be so. Evidently what Bastiat (and many others) assigns as the basis of interest -- the power which exists in the tool to increase the productiveness of labor -- is neither in justice nor in fact the basis of interest. The fallacy which makes Bastiat's illustration pass as conclusive with those who do not stop to analyze it, is that with the loan of the plane they associate the transfer of the increased productive power which a plane gives to labor. But this is really not involved. The essential thing which James loaned to William was not the increased power which labor acquires from using planes. To suppose this we should have to suppose that the making and using of planes was a trade secret or a patent right, when the illustration would become one of monopoly, not of capital. The essential thing which James loaned to William was not the privilege of applying his labor in a more effective way, but the use of the concrete result of ten days' labor.'" [Lewis H. Berens, Toward the Light, pp. 163-166]

In the quotation from Lewis H. Berens' Toward the Light, in Chap. II, the opening statement that "Nature yields more to labor when making use of tools than when working unaided" expresses the reason why labor seeks capital; while the closing statement of the quotation, "The essential thing which James loaned to William was not the privilege of applying his labor in a more effective way, but the use of the concrete result of ten days' labor," contains the justification for the payment of the use of capital in this case partial wages for ten days' labor.

III

If you mean that under the existing system of private ownership of land interest is inevitable, you are certainly right, the all-sufficient reason being that the investor can now freely traffic in land rents and many forms of spurious capital, and he would be foolish not to look for an equal return for his money in the note, loan or bond market and he gets it.

In Chap. III, E. Wye's explanation of the "inevitability" of interest "under the existing system of private ownership of land" can apply only to the rate of interest, not to its equity. Naturally, lenders of capital, especially in the form of money, will not lend out at a lower rate than the "market." And as long as land monopoly furnishes a fruitful market they would be foolish to lend at any lower rate than they can obtain in land investments.

In the happier time to come, while land rent will greatly increase, it will accrue only to the public, the selling price of land disappearing and no income from this source being available to the private investor or speculator. Thereby the ground will be cut from under the feet of the would-be interest-monger.

Moreover, wealth (which includes capital) will be vastly more abundant and more evenly distributed while he who saves wealth for any reason whatever will be confronted with the inevitability of its disintegration. Instead of increasing with time it will tend with time naturally to fade away. It takes continuous watching and labor to preserve wealth from decaying, moulding, rusting, dry-rotting, withering, spoiling, corroding, wearing out, or going to ruin. Its final disappearance is inevitable. Labor is kept at work incessantly reproducing the capital of the world. Geo. L. Rusby in his book Smaller Profits (4th edition, p. 27), says, "Indeed, one would look far to find in use today any capital two generations old." So it seems to me that he who happens to have a surplus of saved wealth will think himself fortunate if, by loaning it to a borrower, the latter assumes the burden of the maintenance and restores it at the expiration of the term in the same condition it was in when he received it.

E. Wye himself senses this, for in the next [above] two paragraphs of Chap. III he shows clearly how the abolition of land monopoly will reduce the need for borrowed capital and abolish the fruitful money lenders' market. This is quite different from saying that interest itself arises out of and is based only on land monopoly.

"Henry George essayed to explain and uphold interest as follows:

'While many things might be mentioned which, like money or planes or engines or clothing, have no innate power of increase, yet other things are included in the terms wealth and capital which, like wine, will of themselves increase in quality up to a certain point, or like bees or cattle, will of themselves increase in quantity; and certain other things, such as seeds, which, though the conditions which enable them to increase may not be maintained without labor, yet will, when these conditions are maintained, yield an increase or give a return over and above that which is to be attributed to labor.'

Let us examine seriatim each one of the illustrations advanced by George in support of his view:

• 'If I put away wine,' he says, 'at the end of a year I will have an increased value, for the wine will have increased in quality.' Well, we would advise our readers to consult a wine-grower as to the force of this argument as a defense of interest: he would tell us that any such appreciation was the reward of his labor, not of his capital -- was wages, not interest. Moreover, if wine-storers were enabled to earn specially high wages, more people would be attracted to that calling, more wine would be stored, until the value of wine and the earnings of wine-storers were both reduced to the normal level.
  
• Again he tells us that 'supposing that in a country adapted to them I set out bees; at the end of a year I will have more swarms of bees and the honey which they have made.' Quite so, but an apiarist would smile at this 'illustration'; for, without having studied political economy, experience would have taught him that, despite the fact that his bees collect their spoils heedless of the legalized privileges of neighboring land-holders, all the honey, etc., he obtained is but the reward of the labor necessary to look after his swarms and collect the honey; that in fact his gains are wages, not interest. And, moreover, that if his earnings exceeded those obtainable in other similar pursuits, some of his neighbors would also set out bees, until the market value of honey, which depends on supply and demand, would be reduced, as well as the earnings of those engaged in its production.
  
• Lastly, he argues that, 'supposing where there is a range of sheep or hogs or cattle; at the end of the year I will, upon the average, also have an increase.' The same reasoning applies to this illustration. If such animals are turned out on a range on the margin of cultivation, any such natural increase would represent the natural wages of those who devoted their labor to turning them out and collecting them in. If such animals are turned out upon better land, any similar increase represents wages and rent.
  

If those engaged in these industries are earning more than their brother-workers engaged in similar pursuits, some of these will be attracted to these more remunerating industries, until the increased supply reduces the market value of the commodities they produce, as well as their earnings; or, owing to the increased demand for the use of such 'natural opportunities' the rental value of the land is increased. From all of which it is evident that this natural increase which Henry George advances as the natural basis of interest is in truth the natural recompense or wages of those engaged in "certain departments of industry." As already repeatedly emphasized, Man can create nothing. All he can do is collect the material Nature provides and adapt it to his requirements, and to avail himself of the natural reproductive forces, the active power of Nature, the principle of growth, of reproduction, that those engaged in certain of the primary industries, as farmers, cattle-raisers, agriculturists, horticulturists, apiarists, etc., have to rely on for their wages. Hence they cannot be invoked as the natural basis of interest, or as any 'justification' of interest as both natural and just." [Lewis H. Berens, Toward the Light, pp. 167-171]

The quotation from Lewis Berens' Toward the Light, in Chap. III, does not well apply to the title E. Wye has chosen for his thesis, "As to Interest." It would apply had he chosen as his title "As to Henry George's Justification of Interest." Thus there is neither purpose nor profit in analyzing it.

Berens' analysis, however, is correct, and it completely justifies interest as payment for the loan of accumulated labor, or in other words, as partial wages.

IV

It is also held by Georgists that the element of Time enters into the phenomenon of interest. But time cannot be differentiated nor considered apart from the methods of Nature. When we speak of Land we include the whole gamut of natural forces, processes as far apart in the element of Time as the ages-long laying down of the coal -- measures from the instantaneous energy of electricity. It seems to me, on the contrary, that, far from being allied to the ways of Nature, and partaking of its manifestations, interest finds its origin in adventitious circumstances and persists under unnatural surroundings.

It is all very well to say that capital is wealth used in the production. Such a description would seem to define tools and machines; but capital in itself produces nothing, it wears out, and even so it takes labor to set the machine going, and the machine itself is but a combination of nodes of energy and mechanical advantages. Everything in the universe is of energy compounded, a machine being but an extension of human energy. The multiform modes of power that so distinguish modern invention are upon analysis all to be found acting within the human microcosm. So that the economic factors of land and labor are sufficient to cover the case. I think that a treatise on political economy might be written in which no mention need be made of either capital or interest, and I feel sure the terms would not be missed.

In Chap. IV E. Wye says, "Capital in itself produces nothing." How would he reconcile this with his admission in the first paragraph of his second chapter that the basket produced efficiency? Or with the quotation from Lewis Berens in Chap. II that "Nature yields more to labor when making use of tools than when working unaided. " Greater efficiency is all that has ever been claimed for capital by any of its economic opponents except Henry George, and George includes efficiency as one of capital's contributions to production.

The utmost that can be expected from the use of wealth is its maintenance or replacement. Otherwise, whether it be the product of land and labor devoted to the satisfaction of human desires, that form that is designated as wealth in the course of exchange, in neither case is there increase in measurable energy nothing is discoverable beyond an interchange of one form of energy into the other, viz., the interchange from kinetic energy into potential energy, or vice versa, saving aside what is called Spurious Capital, which is a compound of monopoly and special privilege, with a power to levy tribute in the shape of dividends, interest and profits, what is the "interest" we are here concerned with and what is its origin?

As to the claim that "the utmost that can be expected from the use of wealth is its maintenance or replacement," I should like to ask E. Wye whether the mere "replacement" of a "run-it-yourself " automobile without payment for the use of capital would be sufficient payment for its use? Or whether the maintenance or replacement of a house, an apartment, a store or a loft is sufficient payment for its use?

It is a convention of modern times that bringing from poverty (lack of wealth) on the one hand and superabundance of unearned possessions on the other. Its beneficiaries are landlords, bankers and investors who in the current maldistribution of wealth find easy and willing clients in the millions of the poor. If one were asked to describe as tersely as possible the world as it is in essence, one would make no mistake by calling it a world of debt and a world in debt. From the treasuries of the greatest nations down to the slim resources of the average man, all are head and shoulders in debt. The borrower must have money; the lender is ready to accommodate at a price. Debtor and creditor. Do we have here an equally balanced twain, a double-star that might have swum into the ken of Emerson while writing his essay on Compensation? Not so, unless in the equilibrium of forces we are to justify master and slave, rent-lord and serf, conqueror and conquered, executioner and victim. For the debtor is ever the product and the sign of poverty. For him prisons have been built. He is the outcast, the broken man, the bankrupt. Our debts are not forgiven, for we never forgive our debtors not for us the Lord's Prayer in this practical, business age!

E. Wye himself justifies interest as payment for tools and machinery (as wages for stored-up labor) in two beautiful sentences in Chap. IV: "Everything in the universe is of energy compounded, a machine being but an extension of human energy. The multiform modes of power that so distinguish modern invention are upon analysis all to be found acting within the human microcosm."

"The gains of banking usually take the form of interest, and interest is money paid for the use of money. Money has no power of increase in itself, but its power to draw interest depends upon the fact that it can be exchanged for sites, which produce rent. (It is curious to note that interest has always been looked at askance in all ages, forbidden by religion after religion.) The fact that it enables so many people to lead a life of permanent idleness, supported by the labor of others, is another reason for criticising interest. If I save ten thousand dollars from my earnings, by all means let me spend it; but to tell me that I and my heirs are thereby entitled to six hundred dollars a year for a million years, and then for another million years thereafter, is pure moonshine on its face. (But is the allowance of interest necessary to the saving of sufficient capital to keep our industries in a state of efficiency and provide for their expansion?) Squirrels and bees save without receiving any bonus upon their savings, and men can doubtless acquire the same wisdom if they try. It is sometimes stated that the essence of interest consists in the fact that men prefer to enjoy a thing now to postponing the enjoyment of it to the future, and hence that they will always pay a bonus for anticipating the use of it. But may we not expect the advent of a more philosophical frame of mind which will allow the trouble of preserving the desired thing to offset the annoyance of waiting for it?" [Ernest Crosby, Labor and Neighbor, pp. 143-147]

In the quotations from Ernest Crosby's Labor and Neighbor (Chap. IV) monopoly interest is being considered, not natural interest. Its claim that "squirrels and bees save without receiving any bonus upon their savings, and men can doubtless acquire the same wisdom if they try," leaves out of consideration the fact that squirrels and bees use neither tools nor machinery. Also it doesn't argue that bonuses prove lack of wisdom. Its answer to its own admission that "men prefer to enjoy a thing now to postponing the enjoyment of it to the future, and hence that they will always pay a bonus for anticipating the use of it" namely, the supposition that we may expect "the advent of a more philosophical frame of mind which will allow the trouble of preserving the desired thing to offset the annoyance of waiting for it" is so visionary that it can hardly add to the clarity of an economic discussion.

"All commodities as soon as produced inevitably tend to deteriorate and decay. Houses, machinery, clothing, food, etc., how long will these remain serviceable or enjoyable unless constantly subject to that care and supervision which the labor of men can alone bestow? Hence if it be argued that the lender renders the solvent honest borrower a service by transferring to him the use or command of enjoyable or serviceable commodities without the immediate return of their value, it may be answered that the borrower also renders the lender a service by preserving his possessions or their value for him for future use and enjoyment. For unless those desirous of preserving their savings for future use can find someone else willing to undertake this necessary work, they would themselves have to devote some of their own labor to the preservation of their possessions. The question therefore really resolves itself into this: Under natural and equitable conditions, would possible lenders be able to command a premium for the loan of their possessions; or would honest and solvent borrowers be able to command a premium for preserving the possessions of their fellows for future use? Or would the one service, the loan, counterbalance the other service, the preservation; and hence neither a premium for the use nor a premium for the preservation be obtainable, but both parties to the transaction be satisfied by the return of the commodity lent, or its value in some other commodity that may be mutually agreed upon? [Lewis H. Berens, Toward the Light, pp. 158-161].

The quotation from Lewis Berens' Toward the Light (Chap. IV) deals in pure speculation as to what capital will be worth to a borrower "under natural and equitable conditions." Assuming it will be worth comparative!} little, what of it? That doesn't abolish capital nor invalidate interest! Also assuming, as the quotation does, that the care of the capital and its safe return may, under the conditions stated, be worth as much or more to the lender as the use of the capital is to the borrower, and thus "honest and solvent borrowers be able to command a premium for preserving the possessions of their fellows for future use. "What of that? Would the fact that "A" sells "B" services, and "B" sells "A" services, nullified the value (or price) of either services? The value of the services may balance each other, or they may not, and the only way in which this can be determined is by setting these values against each other, but the services must each have values for this to be determined. Nor is there anything economically or philosophic valid in an argument which proceeds on the theory because under certain conditions the value of a thing approaches zero, therefore the thing itself does not exist.

"Interest is a product of the private appropriation of rent, and would disappear with the public collection of rent. So long as it is possible to exchange the tokens of wealth or capital for a piece of the earth's surface which humanity must have in order to live and reproduce its kind, nobody will lend his wealth for any other purpose, unless he can get a return for it equivalent to what he can get by investing it in land values; but if you take that right away from him by collecting the full annual value of land and using it for public purposes, then the people with capital would either need to work themselves in order to preserve their wealth or get somebody to take it and preserve it for them. It is a characteristic of all wealth that as soon as production ceases decomposition sets in, and with nearly all wealth that decomposition is very rapid. Under such conditions the natural relationship between capital and labor would soon be established, and that relationship might be expressed thus: the service which labor renders to capital by preserving it would be the equivalent of the service which capital renders to labor by increasing its productive power. With rent collected and used for community purposes, and capital available to any one who wanted to use it by simply giving adequate guarantee of returning it when it was required by its owner, all power of economic exploitation of man by his fellows would disappear." [Sir George Fowlds, in Auckland (New Zealand) Liberator]

The quotation from Sir George Fowlds in the Auckland Liberator (Chap. IV) opens with a gratuitous assumption. It is statements like this that lead well-meaning but hasty people to jump at conclusions and leave the safe road of sound economic reasoning. Obviously what Fowlds had in mind when making that statement was the inordinate rate that money lenders exact and which is called interest. It is this rate that has its props in the "private appropriation of rent," and this will "disappear with the public collection of rent." Not legitimate interest or legititnate capital. That is and always will remain payment for the use of "stored-up labor," and thus "wages. "

The statement by Fowlds, as also the opening statement in the Berens quotation above referred to, that all wealth disintegrates and tends to go back to the earth from which it came, also bears only against the rate that true capital could command under equitable conditions. These tendencies of wealth to disintegrate and become completely valueless will govern the rate of interest exactly as it was intended in the Mosaic law of the Jubile: "According to the number of years after the Jubile thou shalt buy of thy neighbor, and according unto the number of years of the fruits he shall sell unto thee: According to the multitude of years thou shalt increase the price thereof, and according to the fewness of years thou shalt diminish the price of it: for according to the number of the years of the fruits doth he sell unto thee." (Leviticus xxv, 15 and 16.) Here is a recognition of diminishing returns with diminishing value, or utility, and clearly it is a recognition (as there are many in this greatest of books) of the operation of natural law in the affairs of men. The very expression by Fowlds of the "relationship between capital and labor" under equitable conditions that the service which labor renders to capital by preserving vould be the equivalent of the services which capital provides to labor by increasing its productive power," tmes a value in the "services which capital renders to by increasing its productive power." That is all that proponents of true interest claim for it. Whether that would be the "equivalent of the services which labor renders to capital by preserving it" has nothing at all to do with the matter under discussion, and the prediction that two values would be equal and an offset against each other is supposititious and irrelevant. It is of course true, as Fowlds says in the same quotation, that "with rent collected and used for community purposes, all power of economic exploitation of man by his fellows would disappear," but that clearly is a question of rates or charges for services and not an indictment against the equity of those charges.

There seems to be a contradiction in terms in the following question and answer quoted from Chap. IV which demonstrates the difficulty, even in a mind so keen as that of E. Wye, of establishing a clear and valid argument against the equity of true interest. Question: "Leaving aside what is called spurious capital, which is a compound of monopoly and special privilege, with a power to levy tribute in the shape of dividends, interest and profits, what is the "interest" we are here concerned with and what is its origin?" (Note what the question means to "leave aside.") Answer: "It is a convention of modern times springing from poverty (lack of wealth) on the one hand and superabundance of unearned possessions on the other. Its beneficiaries are landlords, bankers and investors who in the current maldistribution of wealth find easy and willing clients in the millions of the poor." Thus the "compound of monopoly and special privilege with a power to levy tribute in the shape of dividends, interest and profits" after being set aside is dragged in again to define "the interest we are here concerned with and its origin." Surely if monopoly interest is the only interest we are concerned with, we cannot find justification for true interest. Also the very fact that we are concerned only with monopoly interest prevents us from seeing or trying to see what is true interest and what is its origin.

V

Finally let us consider another phase of the interest question which Georgists are prone to belittle just that common garden variety of interest which the borrower pays to the money-lender. This sort of interest is, according to our friends, a mere side issue, unworthy of scientific classification a case of the tail wagging the dog. It is in vain that you point out that the common man understands what you are talking about when you mention this kind of interest; the answer is that the common man is a negligible person in this great argument, and that it must be repeated that capital bears interest because we tell you so; we feel it, we believe it, we know it. Besides, we never discuss this branch of the subject with the common man. It would be only waste of time.

In Chap. V is not E. Wye resorting to the straw-man building and destroying practice we are all so familiar with? "Georgists" (and that term can be made to mean anything the user may wish it to mean) are not necessarily economists; and if they do choose to appropriate that title, then economists are not always fundamental or logical. How does it affect the question of capital and its function, and interest and its justification, what "Georgists are prone to belittle" or to emphasize? And what is that "common garden variety of interest which the borrower pays to the money lender?"

Let me sum up before I close. In maintaining that the interest question is a purely academic question, orthodox Georgists from their point of view appear to be right. Aloft in their ivory towers, within their sacred groves, they look out upon the world with a calm, positive, secure and disinterested spirit, as befits philosophers absolutely satisfied that truth is theirs, theirs is truth that this is all they know on earth, and all ye need to know.

If we are discussing economic factors and phases especially if we are "Georgists" why not adhere to economic reasoning and define our terms so that we can all agree on their meanings? "Interest which the borrower pays to the money lender" is not true interest in the fundamental economic sense. It is a combination of monopoly rent (largely), tribute (very materially), and wages and true interest (partially), and is collectible only because of the dire need of the producer to get possession of the wealth (or capital) he needs in production and of which our private land owning and private rent collecting system has robbed him.

To indict this form of "interest" is not an indictment of true interest, and to make it appear that because this iniquitous charge which is called interest is wrong, therefore there is no charge for the use of capital is, to say the least, obscure argumentation. And why cast aspersions on the "common man" when the uncommon has such difficulty in finding his way about?

"As to interest, they could fix it themselves in precisely the same manner as they fixed the rent, and as in the case of rent the highest offer would of course be accepted, everything below par being prudently declined. I should then have them by the wool, and if they failed in their payments it would be the easiest thing in the world to sell them out. They might bewail their lot, but business is business. They should have worked harder and been more provident; whatever inconvenience they might suffer, it would be their concern and not mine. What a glorious time I would have of it! Rent and interest, interest and rent, and no limit to either, excepting the ability of the workers to pay." [Mark Twain, "The Story of Archimedes."]

The quotation in this chapter (V) from "The Story of Archimedes" by Mark Twain is refreshing. It sheds a little humor on the subject, even if it does not add much sustenance.

"A capitalist primarily lends money, and before he can lend it it must be spare. The borrower merely pays usury; to what use he puts the money does not enter into the question. It will be apparent that the 'Capitalistic System' is a delicate term for a colossal pawn-brokering business. [R. F. Dyson, Natural Prosperity, p. 41].

The quotations from "Natural Prosperity," by R. F. Dyson, are all indictments of what the money lender exacts for the use of the money he lends (monopoly interest) and do not bear in any way or degree against true interest.

The opening phrase of the first quotation discloses, however, the kind of economic reasoning that has been employed by Dyson in his contribution on interest: "a capitalist primarily lends money." Even a Socialist who has any regard for economic facts couldn't have said that. How are we as "fundamentalists" ever going to get anywhere with that kind of talk?

The second phrase of the first sentence of the same quotation, "and before he can lend it, it must be spare," Dyson got from Shaw. Yes, Bernard Shaw, none other! So listen to Shaw: "Land is not the only property that returns a rent to the owners. Spare money will do the same. Spare money is called capital. " (Dyson's book, page 41.)

After quoting Shaw as above in his book "Natural Prosperity," Dyson says: "Shaw's definition, spare money, is the correct term for capital. Other people define capital as wealth which is used to produce more wealth, such as machinery, buildings, etc. A capitalist would therefore appear to be a man who owns a number of such things and draws interest through the loan thereof. It is argued from that definition of capital that because machinery, etc., aids production, the capitalist does also and is justly entitled to his interest. That is to confuse what is termed capital with the capitalist; and moreover it gives no clear idea of what a capitalist is or does." (Page 41.)

"Once spare money commences to bear interest, interest soon becomes the Pirate King. Every industrial enterprise or business has to pay its pound of flesh, which must be passed on to the consumer. Taxes are similarly handed on. It is the consumer who pays the final snowball of tribute over the counter." [Ditto, p. 49]

Then follows Dyson's definition of a capitalist as quoted by E. Wye. If the definition indicted by Dyson causes confusion, as he says it does, what is to be said of Dyson's "clarification"? The definition he quotes is, of course, not a complete justification of interest, but it is a correct statement as far as Dyson stated it. Note the cavalier manner in which he brushes it aside and substitutes for it the oracular pronouncements of G. B. S.!

Not to bore the reader, or to fill the pages of this paper with a talk on interest or to try the patience of the editor who sits on high in this discussion as the wise old owl who "seeth much but sayeth little," we will not attempt a complete review of Dyson's chapters on interest in "Natural Prosperity" as we had originally set out to do, but a few quotations may aid in disclosing the kind of argumentation that is employed in the premises.

"Land bears a rent for natural reasons, as we have previously shown; rent generally increases with the lapse of time because the community grows. Wealth does not bear a natural rental value like land; land and wealth are two distinct things." (Page 42.) Dyson uses this distinction to show that wealth is not entitled to a natural return. He, of course, loses sight of the fact that nature is many- sided and that there are other natural laws that operate. There are other laws in the economic world than the Law of Rent. Space forbids us to go into the latter in detail here. Perhaps at some future date the writer will do so. The trouble at the basis of all this controversy over interest is that those who do not agree with Henry George's justification of it, seek no further for justification but condemn the entire structure without applying the light of correct fundamental economic reasoning. Wealth may not, as Dyson correctly says, "bear a natural rental value like land," which depends only on the presence and activities of the community, but it does bear within itself a basis of value just as sacred the value of the labor that produced it, and its earnings (interest) is as fully justified by that equally natural return to labor, wages, as land is to rent. The need for capital and the willingness of producers to pay for it are just as natural, though not as immediate, as his need and demand for land; and the justification of interest is just as economically sound as the communal ownership of rent.

On page 44 Dyson says: "Spare money bears interest only when another borrows it. If the producer borrows one hundred pounds and pays back one hundred and fifty pounds, the extra fifty pounds must obviously be a deduction from his earnings. The only part played by the lender was to hand over a check and take documents as security. He would receive ample compensation for his exertion in receiving back his one hundred pounds at a future date; for he would thereby save his depreciation bill which the ownership of any wealth naturally entails. The extra fifty pounds he would receive as a reward for inertia. Inertia produces nothing, and the extra amount would be purely unearned increment." The opening sentence is, of course, obvious and unnecessary. Nothing has a value unless some one wants it. Land has no value unless some one wants it. The example of 50 per cent interest being paid is, of course, used to make the transaction look usurious and can be discounted. Also the illustration carries out Dyson's and Shaw's insistence that a capitalist is only a money lender. So these attitudes will have to be resolved in the mind of the reader. But, to analyze: The part played by the lender, as Dyson states it, is indeed rather insignificant, but how about his having come into the possession of one hundred pounds, or one hundred pounds of wealth, or capital? Under equitable conditions he had to perform services for it if he came by it honestly. Is he not entitled to payment for those services? "The lender would receive ample compensation for his exertion in receiving back his one hundred pounds at a future date ; for he would thereby save his depreciation bill which wealth naturally entails," says Dyson. Is that why borrowers are willing to pay for wealth because it depreciates? Or is it because it assists them in production? And if it has such a value to them, why hasn't it a value to the lender? If it had not, who would produce wealth beyond his immediate needs? And then where would capital come from? The fact that the borrower borrowed one hundred pounds and paid back one hundred and fifty, troubles Dyson. It is his own fault. Had he not put up the interest so high he would not have felt so bad. Dyson does not say how much the borrower made with the use of one hundred pounds; perhaps he doubled the money and thus ended fifty pounds to the good. Also Dyson does not say what "life saver" that one hundred pounds was just in the nick of time when, if he didn't have it, the borrower would have had to set about first earning and saving that one hundred pounds. Also what assurance has Dyson of that "depreciation" of wealth that the proponents of his proposition concern for and which should make the lender happy to receive his wealth back intact? Hasn't he ever heard of wealth appreciation, especially the wealth he and Shaw speak of -- "money"? It would seem that the lessons of history would give them pause and make them reconsider.

On page 46 occurs this: "When rent fluctuates in real estate business it is the ground or land rent which moves, not the usury charged for the use of the building. The two are separate and distinct, although they are commonly spoken of u nder one head rent." This will be great news to the followers of Henry George! The cost for the use of a building is usury! Some economic sustenance, too, may be gathered from this: "There are many ramifications of the business calculating usury, for the 'capitalistic' system is simply a pawnbroking system." (Page 48.)

This writer holds no briefs for the monopoly interest; but to characterize the system of private ownership and control of capital as a "pawnbroking system " is just much muddleheadedness. And here is some economic dicta. "The simple fact that wealth can be produced only by applied human exertion and that wealth or its equivalent in money divorced from labor does not increase in value but must decrease, are themselves sufficient proof that interest is unnatural and therefore unjust and a robbery of producers, earnings." (Page 51.)

"Wealth can be produced only by applied human exertion," says Dyson. Yet in the succeeding phrase he assumes the possibility of wealth being "divorced from labor." Labor may or may not use it, but how can you divorce wealth from the labor that is in it from the labor that created it from the "human exertion" that, as the quotation admits, is the "only" thing that "produced" it? Of course, Dyson didn't mean that labor; he meant the labor that would have to make use of this stored-up labor in order to give it a value. He loses sight of the creative labor in the wealth; he loses sight of the fact that if "wealth can be produced only by applied human exertion," wealth represents that "human exertion," and that wealth is thus merely stored-up human exertion, stored-up labor, and that this is the natural and basic justification for a return to such stored-up labor or the "wages" of capital interest. The claim that wealth does not increase in value has already been answered elsewhere in this criticism, but what if it does or does not increase in value? That has nothing to do with the argument. You might just as well say that wealth does or does not float on water. It does or it doesn't, but so far as its justification for a return is concerned it is responsive to other natural laws. Let those who would write about interest and wealth learn something about these other natural laws.

"If it were not for the Bankruptcy Law and Court, producers who could not meet their obligations would then become the chattels of their creditors. That is what happened in the days of ancient Rome. Our present Bankruptcy Court is about the only mark of social progress which this civilization can show." [Ditto, p. 75]

"This system concentrates ownership and control of capital in the hands of people who had nothing whatever to do with its production. As a consequence, those who produce the wealth get little, if anything, more out of it than they must spend on their living. As a result, when a productive enterprise of any magnitude is to be started little money is to be found among those who are to do the productive work. It must be financed principally if not wholly by outsiders who neither can nor will take any part in the production but expect to divide between themselves as much as possible of proceeds. As shareholders, bondholders and capitalists generally they are in matter of fact nothing but money-lenders to the producers who by their labor pay them dividends, interest and taxes out of the wealth they produce and have not a voice in the councils of the business or an interest in its welfare. Finance is the ruling power; labor skill and productive intelligence are but tributary subjects, tolerated because useful and more or less abused and despised." [S. Tideman, Radicalia, pp. 54-55]

Now back to E. Wye: The quotations from "Radicalia" by S. Tideman add nothing to the argument. They address themselves definitely to our present monopoly and tribute- exacting system, and end with the acknowledgment that "no law can circumvent it as long as the rental value of land is treated as private property," which is true.

" In the vicissitudes of business, which such a system necessarily entails, the smaller and weaker members and groups of the finance element will from time to time be crowded out and their holding absorbed by the larger and stronger ones, until finally the whole machinery of finance becomes centered and controlled by a small group forming a distinct class as useful to the producers as rats in the pantry. [Ditto, pp. 64-65]

"As a standing fiscal policy the Credit System is deservedly popular, for it is the finest shell game that was ever invented. With infallable certainty Finance accumulates the producer's money and nothing can beat it. No law can circumvent it as long as the rental value of land is treated as private property." [Ditto, pp. 61-62]

"A little thought shows that the producing part of the population cannot, under the present system, accurately speaking, send into the market as consumers of any of the commodities which they have produced any more than can machinery. That portion of commodities which they consume as producers represented by salaries and wages is only their upkeep and replacement. Strictly speaking, as producers they are only machines, and machinery cannot be said to enter into the market in a commercial sense as a consumer of the comodities it produces. The salaries and wages they get represent commodities necessary for their upkeep and replacement, then as any other industrial machinery, and no more and no less." [Fundamental Principles of Economics, Charles J. Townsend and
Walter L. Sinton, p. 19]

The quotations from The Fundamental Principles of Economics (Charles J. Townsend and Walter L. Sinton) apply mainly to present monopoly conditions and the necessary remedy. In the final quotation, however, the authors are guilty of that most unforgivable of sins, a non sequitur: "It is obvious that when all land rent goes into the public treasury, when taxes are abolished and all land is opened up for use to the highest bidder, interest, dividends and profits will disappear and be absorbed in rent, owing to the competition for any and every kind of natural advantage." How does it follow that community use of rent will abolish "interest, dividends and profits?" Rent is paid because "these" are earned, and after they are earned. Not before. How can it absorb them? The writers give as the circumstance that will cause this economically impossible eventuality to happen "the competiion for any and every kind of natural advantage." Competition for natural advantages carries with it competition or the facilities that will enable the competitors to derive the greatest returns from those "natural advantages," and as "nature yields more to labor when making use of tools than when working unaided" (already quoted), and "labor expended in bringing home the berries" without baskets "would have been less efficient" [E. Wye's own statement], we can visualize the competitors for "natural advantages" also being competitors for the tools and machinery, for the organization and efficiency, that will more quickly translate the advantages into rewards. These tools and machinery are capital (stored-up labor), and in the competition for possession of this capital will arise willingness, indeed desire, to pay for this capital, and this return to capital will be payment for stored-up labor interest. If labor is entitled to wages, it is entitled to those wages whether it works for hire or whether it works for itself. In the former case it is handed its share by the employer; in the latter case it keeps the product. The product, too, is labor labor in concrete form; stored-up labor. The producer has a right to sell it; the return he gets is another form of wages. If the product happens to be a tool, and its nature, or the circumstances, make the loan rather than the sale of the tool advantageous or necessary, does the labor in the tool thereby disappear? If it does not, is the laborer or producer not entitled to wages for that labor, to payment for the use of the tool? The answer seems obvious. Whether it is a tool or a complicated machine, what is the difference? Its helpfulness to others makes its possession desirable and profitable. It cannot be reproduced except by the expenditure of a like amount of labor as that already put into it; such labor would have to be exerted or paid for if the tool or machine had to be made. Why isn't the labor already stored up in the machine, which has the added advantage of having already been expended and therefore now saving time (the time of reproducing it), entitled to its hire? If the machine were to be bought it would have to be paid for? Would that be inequitable? If not, why is the partial payment for its use considered inequitable? We must learn to distinguish between natural and unnatural conditions, between health and disease. We must learn to seek causes and not take the apparent for the real. Our social evils are due to violations of natural law; they are as pathological as the acts of a mind deranged and as unreliable in determining normal conditions. The sun doesn't move in its relation to the earth even if it does seem to do so. The disparagement of capital as a factor in production, even though it plays the minor part, or the attempt to invalidate interest because under the abnormal and unnatural condition in which we live, monopoly, usury, tribute and other legalized robbery is called interest, is like condemning the character of a man in health because of his acts in a fever delirium. It is like saying the earth is flat and all the universe revolves about it. It is jumping at conclusions without seeking causes.

"Nothing can prevent the destruction of civilization unless the commodities which now go into the possession of the landowners, under the names of rent, dividends, interest and profits, as unearned increment, are returned into the public treasury for the common use of all the people." [Ditto, p. 21]

"To sum up, then, it is obvious that when all land rent goes into the public treasury, when taxes are abolished and all land is opened up for use to the highest bidder, interest, dividends and profits will disappear and be absorbed in rent, owing to the competition for any and every kind of natural advantage. We see what a tremendous revolution the Land Values regime will bring. In fact the whole social system as we know it will disappear utterly and an era of voluntary cooperation in industry will be ushered in, allowing full scope for the individual while at the same time providing fully for the common needs of all." [Ditto, p. 27]