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Understanding Capital
Must-read classic from the brilliant French economist and philospher.
62 pages, Paperback
First published April 14, 2006
About the author
Frédéric Bastiat
625 books558 followersClaude Frédéric Bastiat (29 June 1801 – 24 December 1850) was a French classical liberal theorist, political economist, and member of the French assembly.
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Displaying 1 - 4 of 4 reviews
December 31, 2020
Amazing that this is still relevant; or in other words, amazing that people still make arguments against capital, capitalism, credit and interest.
"Men who consider themselves to be in advance of their times, have organized an active crusade against capital and interest; it is the productiveness of capital that they are attacking; not certain abuses in the administration of it, but the principle itself."
"they are leading the people astray—that they are showing them evil where it does not exist; and thus giving a false direction to their ideas, to their antipathies, to their dislikes, and to their attacks. It follows that the misguided people are rushing into a horrible and pointless struggle, in which victory would be more fatal than defeat; since according to this supposition, the result would be the realization of universal evils, the destruction of every means of emancipation, the consummation of its own misery."
"the writers who grieve over this pretended social wound, are leading the workmen into a senseless and unjust effort which can have no other issue than the misfortune of all."
"If the former of these two men, the worker, consumes within the year any profit that may have been left him in that year, he is always at the point from which he started, and his destiny condemns him to move incessantly in a perpetual circle, and in a monotony of exertion. Labor, then, is rewarded only once. But if the other, the ‘gentleman,’ consumes his yearly income in the year, he has, the year after, in those which follow, and through all eternity, an income always equal, inexhaustible, perpetual. Capital, then, is remunerated, not only once or twice, but an indefinite number of times!"
“But to assert that capital ought not to produce interest is to say that he who has created tools, or materials, or provisions of any kind, ought to yield them up without compensation. Is that just? And then, if it is so, who would lend these tools, these materials, these provisions? Who would take care of them? Who would even create them? Everyone would consume his proportion, and the human race would not advance a step. Capital would be no longer accumulated, since there would be no interest in accumulating it. It would become exceedingly scarce. This would be a most peculiar step for the obtaining of loans gratuitously!"
"Without a doubt, morality and religion make it a duty for men, especially the rich, to deprive themselves voluntarily of that which they possess in favor of their less fortunate brethren. But this is an entirely moral obligation. If it were to be asserted on principle, admitted in practice, sanctioned by law, that every man has a right to the property of another, the gift would have no merit—charity and gratitude would be no longer virtues."
"The right of inheritance, against which so much has been objected of late, is one of the forms of gift, and assuredly the most natural of all. That which a man has produced, he may consume, exchange, or give. What can be more natural than that he should give it to his children? It is this power, more than any other, that inspires him with the drive to labor and to save. Do you know why the principle of right of inheritance is thus called in question? Because it is imagined that the property thus transmitted is plundered from the masses. This is a fatal error. Political economy demonstrates, in the most peremptory manner, that all value produced is a creation which does no harm to any person whatever. For that reason it may be consumed, and, still more, transmitted, without hurting anyone."
"After much investigation it has been found, that in order to make the two services exchanged of equivalent value, and in order to render the exchange equitable, the best means was to allow it to be free. However plausible at first sight, the intervention of the State might be, it was soon perceived that it is always oppressive to one or other of the contracting parties. When we look into these subjects, we are always compelled to reason upon this maxim, that equal value results from liberty."
"it is not true that capital and money are the same thing. Before the discovery of the precious metals, there were capitalists in the world; and I venture to say that at that time, as now, everybody was a capitalist, to a certain extent. What is capital, then? It is composed of three things: First, of the materials upon which men operate, when these materials have already a value communicated by human effort, which has bestowed upon them the property of exchangeability—wool, flax leather, silk, wood, etc. Second, instruments that are used for working—tools, machines, ships, carriages, etc. Third, provisions that are consumed during labor—victuals, fabrics, houses, etc."
"If, then, I were to continue to work by the day, and to save part of my wages, as I have been doing, in the course of time I should be able to lend two sacks of corn; then three; then four; and when I should have gained a sufficient number to enable me to live on these additions of a half a bushel over and above and on account of every ten bushels lent, I shall be at liberty to take a little repose in my old age. But how is this? In this case, shall I not be living at the expense of others? No, certainly, for it has been proved that in lending I perform a service; I make more profitable the labor of my borrowers, and only deduct a trifling part of the excess of production, due to my lendings and savings. It is a marvelous thing that a man may thus realize a leisure that injures no one, and for which he cannot be reproached without injustice.”
"political economy, justice, good sense, are all the same thing."
"No necessity of life can be immediately satisfied with instruments of labor."
On conferring the advantages of labor gratuitously upon others who did not create those advantages:
"It would be to legalize, to organize, to systematize injustice itself, for it would be proclaiming that there are men born to render, and others born to receive, gratuitous services. Grant, then, that interest is just, natural, and expedient."
"Interest is not injurious to the borrower. I mean to say, the obligation in which the borrower finds himself, to pay a remuneration for use of capital, cannot do any harm to his condition. Observe, in fact, that James and William are perfectly free, as regards the transaction to which the plane gave occasion. The transaction cannot be accomplished without the consent of one as well as of the other."
"He borrows because he gains by borrowing."
"since capital goods can only be formed and increased by the stimulus and the prospect of remuneration, let this class understand the injury they are inflicting on themselves when they deny the lawfulness of interest, when they proclaim that credit should be gratuitous, when they declaim against the pretended tyranny of capital, when they discourage saving, thus forcing capital to become scarce, and consequently interest to rise."
"Hence you may understand that the interest from capital is as natural, as lawful, as useful, in the thousandth year, as in the first. We may go still further. It may happen that James lends more than a single plane. It is possible, that by means of working, of saving, of privations, of discipline, of activity, he may come to be able to lend a multitude of planes and saws; that is to say, to do a multitude of services. I insist upon this point—that if the first loan has been a social good, it will be the same with all the others; for they are all similar, and based upon the same principle."
"It may happen, then, that the amount of all the remunerations received by our honest operative, in exchange for services rendered by him, may suffice to maintain him. In this case, there will be a man in the world who has a right to live without working. I do not say that he would be doing right to give himself up to idleness—but I say that he has a right to do so; and if he does so, it will be at nobody’s expense, but quite the contrary. If society at all understands the nature of things, it will acknowledge that this man subsists on services that he receives certainly (as we all do), but that he receives lawfully in exchange for other services, that he himself has rendered, that he continues to render, and that are real services, inasmuch as they are freely and voluntarily accepted."
"It may happen, then, that the amount of all the remunerations received by our honest operative, in exchange for services rendered by him, may suffice to maintain him. In this case, there will be a man in the world who has a right to live without working. I do not say that he would be doing right to give himself up to idleness—but I say that he has a right to do so; and if he does so, it will be at nobody’s expense, but quite the contrary. If society at all understands the nature of things, it will acknowledge that this man subsists on services that he receives certainly (as we all do), but that he receives lawfully in exchange for other services, that he himself has rendered, that he continues to render, and that are real services, inasmuch as they are freely and voluntarily accepted."
"thanks to rent and its natural duration, leisure may arise from labor and saving. It is a pleasing prospect, which everyone may have in view; a noble recompense, to which each may aspire. It makes its appearance in the world; it distributes itself proportionately to the exercise of certain virtues; it opens all the avenues to intelligence; it ennobles, it raises the morals; it spiritualizes the soul of humanity, not only without laying any weight on those of our brethren whose lot in life makes severe labor necessary, but it relieves them gradually from the heaviest and most repugnant part of this labor. It is enough that capital should be formed, accumulated, multiplied; should be lent on conditions less and less burdensome; that it should descend, penetrate into every social circle, and that by an admirable progression, after having liberated the lenders from onerous toil, it should bring a similar liberation to the borrowers themselves. For that end, the laws and customs ought all to be favorable to economy, the source of capital. It is enough to say, that the first of all these conditions is not to alarm, to attack, to deny that which is the stimulus of saving and the reason of its existence—interest."
"By what law is the rate of these remunerative services established? By the general law that regulates the equivalent of all services; that is, by the law of supply and demand."
"It is not surprising, therefore, that the more abundant capital is, the lower is the interest. Is this saying that it will ever reach zero? No; because, I repeat it, the principle of a remuneration is in the loan. To say that interest will be annihilated, is to say that there will never be any motive for saving, for denying ourselves, in order to form new capitals, nor even to preserve the old ones. In this case, the waste would immediately create a void, and interest would soon reappear."
“The reduction in the rate of interest is proportional to the abundance of capital.”
"Upon this supposition, it is not the deprivation of wages that primarily works the mischief, but the scarcity of capital. Low wages are not the cause, but the effect of the evil. I may add that they are to a certain extent the remedy. It acts in this way: it distributes the burden of suffering as much as it can, and saves as many lives as a limited quantity of available sustenance permits."
"Accumulations of capital are good for those who possess them: who denies it? But they are also useful to those who have not yet been able to form them; and it is important to those who have them not that others should have them. Yes, if the laboring classes knew their true interests, they would seek to know with the greatest earnestness what circumstances are, and what are not favorable to saving, in order to encourage the former and to discourage the latter. They would sympathize with every measure that encourages the rapid accumulation of capital. They would be enthusiastic promoters of peace, liberty, order, security; the unity of classes and peoples, economy, moderation in public expenses, simplicity in the machinery of government; for it is under the sway of all these circumstances that saving does its work, brings plenty within the reach of the masses, invites those persons to become the owners of capital who were formerly under the necessity of borrowing under hard terms. They would repel with energy the war-like spirit, which diverts from its true course so large a part of human labor; the monopolizing spirit, that deranges the equitable distribution of riches, in the way by which liberty alone can realize it; the multitude of public services which attack our purses only to check our liberty; and, in short, those subversive, hateful, thoughtless doctrines, that alarm capital, prevent its formation, oblige it to flee, and finally to raise its price, to the especial disadvantage of the workers, who bring it into existence."
"does not paralysis of industry in turn lower wages?"
"A friend of mine, commissioned to make inquiry into Parisian industry, has assured me that the manufacturers have revealed to him a very striking fact that proves, better than any reasoning can, how much insecurity and uncertainty injure the formation of capital."
"Laboring men! They talk to you a great deal of the artificial organization of labor; do you know why they do so? Because they are ignorant of the laws of its natural organization; that is, of the wonderful organization that results from liberty. You are told that liberty gives rise to what is called the radical antagonism of classes; that it creates, and makes to clash, two opposite interests—that of the capitalists and that of the laborers.
"But, no; this radical antagonism, this natural opposition of interests, does not exist. It is only an evil dream of perverted and intoxicated imaginations. No; a plan so defective has not proceeded from the Divine Mind. To affirm it, we must begin by denying the existence of God. And see how, by means of social laws, and because men exchange amongst themselves their labors and their products, a harmonious tie attaches the different classes of society one to the other!"
"I shall sum up this whole dissertation with these words: Workmen, laborers, destitute and suffering classes, will you improve your condition? You will not succeed by strife, insurrection, hatred, and error. But there are three things that always result in benefit and blessing to every community and to every individual who helps to compose it; and these things are—peace, liberty, and security."
"Men who consider themselves to be in advance of their times, have organized an active crusade against capital and interest; it is the productiveness of capital that they are attacking; not certain abuses in the administration of it, but the principle itself."
"they are leading the people astray—that they are showing them evil where it does not exist; and thus giving a false direction to their ideas, to their antipathies, to their dislikes, and to their attacks. It follows that the misguided people are rushing into a horrible and pointless struggle, in which victory would be more fatal than defeat; since according to this supposition, the result would be the realization of universal evils, the destruction of every means of emancipation, the consummation of its own misery."
"the writers who grieve over this pretended social wound, are leading the workmen into a senseless and unjust effort which can have no other issue than the misfortune of all."
"If the former of these two men, the worker, consumes within the year any profit that may have been left him in that year, he is always at the point from which he started, and his destiny condemns him to move incessantly in a perpetual circle, and in a monotony of exertion. Labor, then, is rewarded only once. But if the other, the ‘gentleman,’ consumes his yearly income in the year, he has, the year after, in those which follow, and through all eternity, an income always equal, inexhaustible, perpetual. Capital, then, is remunerated, not only once or twice, but an indefinite number of times!"
“But to assert that capital ought not to produce interest is to say that he who has created tools, or materials, or provisions of any kind, ought to yield them up without compensation. Is that just? And then, if it is so, who would lend these tools, these materials, these provisions? Who would take care of them? Who would even create them? Everyone would consume his proportion, and the human race would not advance a step. Capital would be no longer accumulated, since there would be no interest in accumulating it. It would become exceedingly scarce. This would be a most peculiar step for the obtaining of loans gratuitously!"
"Without a doubt, morality and religion make it a duty for men, especially the rich, to deprive themselves voluntarily of that which they possess in favor of their less fortunate brethren. But this is an entirely moral obligation. If it were to be asserted on principle, admitted in practice, sanctioned by law, that every man has a right to the property of another, the gift would have no merit—charity and gratitude would be no longer virtues."
"The right of inheritance, against which so much has been objected of late, is one of the forms of gift, and assuredly the most natural of all. That which a man has produced, he may consume, exchange, or give. What can be more natural than that he should give it to his children? It is this power, more than any other, that inspires him with the drive to labor and to save. Do you know why the principle of right of inheritance is thus called in question? Because it is imagined that the property thus transmitted is plundered from the masses. This is a fatal error. Political economy demonstrates, in the most peremptory manner, that all value produced is a creation which does no harm to any person whatever. For that reason it may be consumed, and, still more, transmitted, without hurting anyone."
"After much investigation it has been found, that in order to make the two services exchanged of equivalent value, and in order to render the exchange equitable, the best means was to allow it to be free. However plausible at first sight, the intervention of the State might be, it was soon perceived that it is always oppressive to one or other of the contracting parties. When we look into these subjects, we are always compelled to reason upon this maxim, that equal value results from liberty."
"it is not true that capital and money are the same thing. Before the discovery of the precious metals, there were capitalists in the world; and I venture to say that at that time, as now, everybody was a capitalist, to a certain extent. What is capital, then? It is composed of three things: First, of the materials upon which men operate, when these materials have already a value communicated by human effort, which has bestowed upon them the property of exchangeability—wool, flax leather, silk, wood, etc. Second, instruments that are used for working—tools, machines, ships, carriages, etc. Third, provisions that are consumed during labor—victuals, fabrics, houses, etc."
"If, then, I were to continue to work by the day, and to save part of my wages, as I have been doing, in the course of time I should be able to lend two sacks of corn; then three; then four; and when I should have gained a sufficient number to enable me to live on these additions of a half a bushel over and above and on account of every ten bushels lent, I shall be at liberty to take a little repose in my old age. But how is this? In this case, shall I not be living at the expense of others? No, certainly, for it has been proved that in lending I perform a service; I make more profitable the labor of my borrowers, and only deduct a trifling part of the excess of production, due to my lendings and savings. It is a marvelous thing that a man may thus realize a leisure that injures no one, and for which he cannot be reproached without injustice.”
"political economy, justice, good sense, are all the same thing."
"No necessity of life can be immediately satisfied with instruments of labor."
On conferring the advantages of labor gratuitously upon others who did not create those advantages:
"It would be to legalize, to organize, to systematize injustice itself, for it would be proclaiming that there are men born to render, and others born to receive, gratuitous services. Grant, then, that interest is just, natural, and expedient."
"Interest is not injurious to the borrower. I mean to say, the obligation in which the borrower finds himself, to pay a remuneration for use of capital, cannot do any harm to his condition. Observe, in fact, that James and William are perfectly free, as regards the transaction to which the plane gave occasion. The transaction cannot be accomplished without the consent of one as well as of the other."
"He borrows because he gains by borrowing."
"since capital goods can only be formed and increased by the stimulus and the prospect of remuneration, let this class understand the injury they are inflicting on themselves when they deny the lawfulness of interest, when they proclaim that credit should be gratuitous, when they declaim against the pretended tyranny of capital, when they discourage saving, thus forcing capital to become scarce, and consequently interest to rise."
"Hence you may understand that the interest from capital is as natural, as lawful, as useful, in the thousandth year, as in the first. We may go still further. It may happen that James lends more than a single plane. It is possible, that by means of working, of saving, of privations, of discipline, of activity, he may come to be able to lend a multitude of planes and saws; that is to say, to do a multitude of services. I insist upon this point—that if the first loan has been a social good, it will be the same with all the others; for they are all similar, and based upon the same principle."
"It may happen, then, that the amount of all the remunerations received by our honest operative, in exchange for services rendered by him, may suffice to maintain him. In this case, there will be a man in the world who has a right to live without working. I do not say that he would be doing right to give himself up to idleness—but I say that he has a right to do so; and if he does so, it will be at nobody’s expense, but quite the contrary. If society at all understands the nature of things, it will acknowledge that this man subsists on services that he receives certainly (as we all do), but that he receives lawfully in exchange for other services, that he himself has rendered, that he continues to render, and that are real services, inasmuch as they are freely and voluntarily accepted."
"It may happen, then, that the amount of all the remunerations received by our honest operative, in exchange for services rendered by him, may suffice to maintain him. In this case, there will be a man in the world who has a right to live without working. I do not say that he would be doing right to give himself up to idleness—but I say that he has a right to do so; and if he does so, it will be at nobody’s expense, but quite the contrary. If society at all understands the nature of things, it will acknowledge that this man subsists on services that he receives certainly (as we all do), but that he receives lawfully in exchange for other services, that he himself has rendered, that he continues to render, and that are real services, inasmuch as they are freely and voluntarily accepted."
"thanks to rent and its natural duration, leisure may arise from labor and saving. It is a pleasing prospect, which everyone may have in view; a noble recompense, to which each may aspire. It makes its appearance in the world; it distributes itself proportionately to the exercise of certain virtues; it opens all the avenues to intelligence; it ennobles, it raises the morals; it spiritualizes the soul of humanity, not only without laying any weight on those of our brethren whose lot in life makes severe labor necessary, but it relieves them gradually from the heaviest and most repugnant part of this labor. It is enough that capital should be formed, accumulated, multiplied; should be lent on conditions less and less burdensome; that it should descend, penetrate into every social circle, and that by an admirable progression, after having liberated the lenders from onerous toil, it should bring a similar liberation to the borrowers themselves. For that end, the laws and customs ought all to be favorable to economy, the source of capital. It is enough to say, that the first of all these conditions is not to alarm, to attack, to deny that which is the stimulus of saving and the reason of its existence—interest."
"By what law is the rate of these remunerative services established? By the general law that regulates the equivalent of all services; that is, by the law of supply and demand."
"It is not surprising, therefore, that the more abundant capital is, the lower is the interest. Is this saying that it will ever reach zero? No; because, I repeat it, the principle of a remuneration is in the loan. To say that interest will be annihilated, is to say that there will never be any motive for saving, for denying ourselves, in order to form new capitals, nor even to preserve the old ones. In this case, the waste would immediately create a void, and interest would soon reappear."
“The reduction in the rate of interest is proportional to the abundance of capital.”
"Upon this supposition, it is not the deprivation of wages that primarily works the mischief, but the scarcity of capital. Low wages are not the cause, but the effect of the evil. I may add that they are to a certain extent the remedy. It acts in this way: it distributes the burden of suffering as much as it can, and saves as many lives as a limited quantity of available sustenance permits."
"Accumulations of capital are good for those who possess them: who denies it? But they are also useful to those who have not yet been able to form them; and it is important to those who have them not that others should have them. Yes, if the laboring classes knew their true interests, they would seek to know with the greatest earnestness what circumstances are, and what are not favorable to saving, in order to encourage the former and to discourage the latter. They would sympathize with every measure that encourages the rapid accumulation of capital. They would be enthusiastic promoters of peace, liberty, order, security; the unity of classes and peoples, economy, moderation in public expenses, simplicity in the machinery of government; for it is under the sway of all these circumstances that saving does its work, brings plenty within the reach of the masses, invites those persons to become the owners of capital who were formerly under the necessity of borrowing under hard terms. They would repel with energy the war-like spirit, which diverts from its true course so large a part of human labor; the monopolizing spirit, that deranges the equitable distribution of riches, in the way by which liberty alone can realize it; the multitude of public services which attack our purses only to check our liberty; and, in short, those subversive, hateful, thoughtless doctrines, that alarm capital, prevent its formation, oblige it to flee, and finally to raise its price, to the especial disadvantage of the workers, who bring it into existence."
"does not paralysis of industry in turn lower wages?"
"A friend of mine, commissioned to make inquiry into Parisian industry, has assured me that the manufacturers have revealed to him a very striking fact that proves, better than any reasoning can, how much insecurity and uncertainty injure the formation of capital."
"Laboring men! They talk to you a great deal of the artificial organization of labor; do you know why they do so? Because they are ignorant of the laws of its natural organization; that is, of the wonderful organization that results from liberty. You are told that liberty gives rise to what is called the radical antagonism of classes; that it creates, and makes to clash, two opposite interests—that of the capitalists and that of the laborers.
"But, no; this radical antagonism, this natural opposition of interests, does not exist. It is only an evil dream of perverted and intoxicated imaginations. No; a plan so defective has not proceeded from the Divine Mind. To affirm it, we must begin by denying the existence of God. And see how, by means of social laws, and because men exchange amongst themselves their labors and their products, a harmonious tie attaches the different classes of society one to the other!"
"I shall sum up this whole dissertation with these words: Workmen, laborers, destitute and suffering classes, will you improve your condition? You will not succeed by strife, insurrection, hatred, and error. But there are three things that always result in benefit and blessing to every community and to every individual who helps to compose it; and these things are—peace, liberty, and security."
November 6, 2014
Capital and Interest validates the legitimacy of imposing interest on borrowed capital through voluntary exchange for equivalent value.
When capital is loaned to produce interest, this is no different if the capital takes the form of materials, instruments of labor or property provisions. The possessor ought to take full advantage of devoting time, knowledge and strength to creating the capital.
Interest is not injurious to the borrower because the exchange between both parties were completely free as to what the conditions are and can't be completed without the consent of both parties. When capital is borrowed, the regulation of interest rates are determined by the laws of supply and demand, for the higher supply of capital, the lower the interest rate and vice versa.
Overall, Bastiat explains expertly the importance of imposing interest on borrowed capital because it benefits both the lender and borrower, for scarce capital means less prosperity and more suffering.
When capital is loaned to produce interest, this is no different if the capital takes the form of materials, instruments of labor or property provisions. The possessor ought to take full advantage of devoting time, knowledge and strength to creating the capital.
Interest is not injurious to the borrower because the exchange between both parties were completely free as to what the conditions are and can't be completed without the consent of both parties. When capital is borrowed, the regulation of interest rates are determined by the laws of supply and demand, for the higher supply of capital, the lower the interest rate and vice versa.
Overall, Bastiat explains expertly the importance of imposing interest on borrowed capital because it benefits both the lender and borrower, for scarce capital means less prosperity and more suffering.
December 12, 2015
Raises a very good point with respect to the interest on capital and why it is not only justified it is a very good thing. I'm curious what the marxist response to this is, I will eventually also read the proudhon debates but I'm assuming Bastiat steps all over Proudhon based on this.
May 9, 2013
I would give this a 3.5. This taught me a lot about Capital and Interest while being something that was actually enjoyable to read, a discussion in writing.
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