[cross-posted at Liberty & Power]
In 1849, France’s leading spokesman for libertarian “capitalism” (Frédéric Bastiat) and France’s leading spokesman for libertarian “socialism” (Pierre-Joseph Proudhon) exchanged a series of public letters debating the nature and legitimacy of charging interest on loans.
In 1879, American individualist anarchist Benjamin Tucker translated most of the letters, which were then published serially in the Irish World and American Industrial Liberator – whereupon, apart from a few excerpts, they vanished henceforth from human sight.
I’ve managed to track down a copy of the Irish World in microform and transcribe Tucker’s translation. Where the microform was too dark to read (it was really a lousy copy) I made educated guesses based on the French original, marking my conjectures in brackets. I’ve also translated two additional letters not included in Tucker’s translation, and thrown in an anonymous public-domain translation of Bastiat’s earlier criticism of Proudhon (which was what sparked off the debate to begin with). As of today, the whole thing is now, finally, online as The Bastiat-Proudhon Debate on Interest.
Most of this debate has not been widely available in English since 1879; and parts of it (including Bastiat’s final reply to Proudhon) have never been translated into English until now.
So who wins? Well, in my view, neither one – the two thinkers persistently talk past each other. I’ve posted a fuller analysis here; I’ll also be presenting this material at the Austrian Scholars Conference later this week.
An excellent anthology, and an excellent comentary. I thought Bastiat’s comeboack about the hat seller only producing a hat to sell it was excellent. However, from an Austrian point of view, there is another good response to Proudhon’s objection. The lender, deprived of his capital by the loan, may only have intended to lend it to somebody else, rather than use it himself, but we still need a price to indicate what the demand for such a loan is, and to make sure that the person he does lend it to is the person who values it most highly. If the price of the loan were fixed at, say, zero, we couldn’t tell that one person values getting the loan at, say £5, and the other values getting the loan at £6. On this basis, interest, the price of a loan, serves the same function as any prices: Co-ordination of supply to demand.
It’s not always clear what each side is arguing.
If Proudhon argues that one ought not charge interest when lending, then Bastiat’s rebuttal is appropriate;
if Proudhon argues that one ought not have any special privilege which prevents others lending with less interest, and thereby allows one to charge interest when lending (without being undercut), then Bastiat’s rebuttal is irrelevant.
Richard Garner’s alternative argument is more relevant. Someone who is able to invest in the bank is less likely to need the loan than someone who is unable to invest in the bank. The approach might work for insurance…
Thanks, Roderick! This is an immensely important contribution. Your commentary on double inequality (subjectivism) is a timely reminder of a crucial but easily-overlooked idea. Thanks again!