Front Page Titles (by Subject) Book VI, Chapter X: Interest Under Socialism - The Positive Theory of Capital
The Online Library of Liberty
A project of Liberty Fund, Inc.
Search this Title:
Book VI, Chapter X: Interest Under Socialism - Eugen von Böhm-Bawerk, The Positive Theory of Capital 
The Positive Theory of Capital, trans. William A. Smart (London: Macmillan and Co., 1891).
About Liberty Fund:
Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.
The text is in the public domain.
Fair use statement:
This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.
Book VI, Chapter X
Interest Under Socialism
Let us imagine the Socialist state perfectly realised; all private property in land and capital abolished; all instruments of production vested in the hands of the community; all citizens working as labourers in the service of the commonweal; and the national product distributed to all according to work done. How is it now with the action of those causes which produced interest under the individualist economy?
First of all, it must be made clear that the causes are still there. There is always a natural difference of value between present and future goods; and since under Socialism time does not stand still, future goods gradually become present ones, and bring a surplus value with theirs. The difference of value between present goods and future, I say, is always there. For its peculiar causes continue to exist;—the difference between the circumstances of provision in present and future, the partial underestimate of the future which is characteristic of man, the uncertainty and shortness of life. In the Socialist state no one will be allowed to be an undertaker on his own account, and, of course, the consideration of the greater technical productiveness of present goods employed as productive instruments ceases to be a motive for individuals: all the more strongly does this motive obtain as regards the great economic commonwealth which now conducts and guides the total national production.
Thus, even for the Socialist state, it is absolutely inconceivable that economic subjects, whether as individuals or as the powerful economic commonweal, should, in their economic judgment and their economic practice, treat present and future goods as on the same footing. How, for instance, could it be all the same to the Socialist worker whether he received his hard-earned wage by instalments of £1 a week, or in £52 at the end of a year, or in the shape, perhaps, of £52 five or ten or fifty years later? Or how is it conceivable that, under Socialism, a young oak sapling which will be an oak tree, with the value of an oak tree, in two hundred years, can be made equal in value to an oak full-grown now? The central authority directing the national production must base its entire arrangements and dispositions on a calculation of present and future goods having different values, if its dispositions are not to be quite inept and monstrous. If it do not put a less value on future goods it must find that a process which promises a greater number of products in the far future is more remunerative than a process which yields a small number in the present or near future, and it must, accordingly, always turn its productive powers to remote productive ends, however remote they are, as being, technically; the most fruitful. The natural consequence would be very much as we have already pictured it66 —misery and want in the present: and those in charge of the national economy would have no more pressing duty than to overturn this inept disposition, give the less amount of present goods the preference over the greater amount of future ones, and so prove that the difference in value between present goods and future is an elementary economic phenomenon independent of any human arrangements.
If it is now clear that, even in the Socialist state, present goods will, universally, be valued more highly, it goes without saying that, if there is an exchange between the two, it cannot be effected at par. Exactly as under the present economic organisation, present goods, as more valuable, will claim and will receive an agio. The emergence of this agio—and with it the emergence of interest in its most legitimate form—could only be repressed if every opportunity for it were repressed; in other words, if the exchange, or barter of present goods for future were removed out of the world altogether.
Now, of course, this would be attempted to a considerable extent in the Socialist state. All private ownership in the means of production being banished, all production on private account would be banished also, and all opportunity of buying the future commodities, Labour, Uses of Land, and Capital, would be taken away from private individuals. Since, then, in any case the loan at interest would also be forbidden, the two chief springs, from which interest flows to private persons in the present day, would be happily stopped up. But certain opportunities would still remain open if exchange transactions between individuals were not entirely forbidden. Suppose, for instance, that free exchange were allowed in durable goods, agio and interest would immediately slip in, as it were, by a back door. Say that a good lasts one hundred years, and that its (present) year's service is worth £100, £10,000 must be the price of the good if the hundredth year's service—rendered perhaps to some grandchild or great-grandchild—is to be paid full £100. No man would be willing to pay this price. But the moment that the purchase price is calculated at less than £10,000, the owner receives, in course of time, an income greater than the purchase price, and harvests the excess as true interest.
But much more important than any such sporadic obtaining of interest by private individuals is the fact that, in the Socialist state, the commonwealth itself, as against the citizens, would make use of the principle of interest which to-day it reviles as "exploitation" and deduction from the product of labour. The Socialist state, as possessing all means of production, gets all the citizens to work in its factories, and pays them a wage. It conducts, therefore, on the largest scale the buying—forbidden to private individuals—of the future good Labour. Now, on technical grounds, various portions of the labour it buys it necessarily sets to work simultaneously towards various productive ends widely removed in point of time. One group of labourers, for instance, it sets to baking; another it sets to sink mining shafts, which, perhaps, assist in turning out consumption goods only twenty years later; another it sets to replant a forest. The labour directed to distant ends, for reasons with which we are now familiar, obtains a greater technical product, and that product when ripe will possess also a greater value. While, for instance, the product that a baker turns out in a day is worth, perhaps, 4s., a labourer engaged in forestry may plant one hundred oak saplings in a day, and these saplings, without added labour, may mature in a hundred years' time to strong oak trees worth 20s. apiece.
Now how much can and should the Socialist state pay as wage to those workers whose labour it directs to these far-away but productive ends? Will it pay the foresters the whole value of their future product, say, £100 a day?—Impossible. That would be a glaring injustice to the workers of other departments. If the entrance to individual branches of employment were left free to all comers, everybody would be a forester and nobody would bake bread; the country would relapse to primeval forest; and the present, with its pressing needs, would remain unprovided for.67 If, on the other hand, the entrance was not free, and a very favoured minority were to be paid £100 a day, while the others received 4s. or 6s., a plutology would emerge again in optima forma; only that it would not be based, as now on property, but, more fatally, on favour and protection!
But if foresters are paid exactly like bakers at 4s. per day, they are exploited just as they are by the capitalist undertakers under the present system. In buying the future commodity, labour, an agio is put on present goods, and the labourer, instead of his future product of £100, is put off with a present wage of 4s., which represents the present value of the planted saplings. But the surplus value which these saplings take on as they grow into oak trees ready for cutting, the Socialist commonwealth puts into its pocket as real interest. Perhaps,—probably, it is to be hoped,—not to keep it in its pocket, but to employ it in a general bettering of the wages of its workers. But any such supplementary common purse distribution of the interest thus pocketed does not make any difference in the fact that interest, as interest, has been received. In this the Socialist state only acts like a capitalist in the present day, who accumulates a fortune from his surplus values, and then disposes of it for purposes of the general good. A wage earned can be disposed of egoistically or altruistically, and interest received can be disposed of egoistically or altruistically, but it would be as rash to assert that a wage becomes an interest by being egoistically spent, as to assert that an interest changes its nature, and turns into wage, when it is altruistically spent!
It is, too, well worthy of remark that an equal distribution of the interest obtained by the Socialist state does not establish the same economic conditions as if the interest had not been taken at all. In this distribution it is not the persons to whose labour and product the interest was due that get the interest, but entirely different people. The forester has an amount of £99: 16s. deducted from the value of his future product as interest. If, now, through the distribution of all the interests thus obtained, the average day's wage is raised from 4s. to 6s. per day, the forester gets a couple of shillings returned him of the £99:16s. taken from him; the remaining £99:14s. other people get, and get, indeed, just as at present, not by the title of wage, but by the title of property,—or rather of joint-property. The people who are employed in immediately remunerative production, such as baking, and create a day's product of 4s., could, as labourers, ask and receive a wage of only 4s. The other 2s. they receive only because they are at the same time joint owners in the national wealth, and because the Socialist state, which administers the common national wealth, as proprietor of this wealth, brings its entire right of property to bear on those workers whose labours are directed to more remote productive ends. In the Socialist state, therefore, exactly as in a capitalist society, interest is deserved by the proprietor of present goods as against those labourers who create only a future product by their labour. The only difference is that in the capitalist society property is unequally divided, and interest falls to a few proprietors in great amounts, while in the Socialist society all are joint owners to an equal amount, and all obtain an equally small quota of the total interest.
In the above analyses I have taken my illustration from forestry because it illustrates the circumstances in question in the most striking and unambiguous way. In the most striking way, because the difference of time between the forth-putting of labour and the receiving of the mature product, and, with it, the difference in value between labour and future product, is at its maximum: in the most unambiguous way, because here no additional labour of any sort is necessary, and, consequently, the calculation of the final product produced by a definite expenditure of labour is quite simple. But it surely needs no further demonstration that exactly the same relations occur, in more or less weakened degree, in the case of all labour which is directed to more remote goals of production. They are all technically more productive than those which yield their results on the moment. Their abundant future product, too, must always have a greater future value, because it could not, economically, have been produced at all if already its present value, reduced by perspective, were not equal to the otherwise normal value of a similar amount of labour:68 Since, finally, the wage for similar and similarly valuable labour cannot be assessed at different levels according as the Socialist state directs its labour to a near or a remote goal of production, the wage of those labourers who are put to more remote tasks must, necessarily, be measured under the full value of their future product,69 and this secures that, to a greater or less extent, there appears a surplus gain for the community which is the owner of the present goods.70
Nor does it require any demonstration that the phenomenon of interest must emerge to a still greater degree if the Socialist society be organised, not as one united community, but as a system of independent economic groups.71 For in this case, at every exchange between mature and immature commodities, each group would appropriate surplus value, not only as against its own workers employed to remote productive ends, but, in a much greater degree, as against the other groups, and would divide out this surplus value to the shareholders of the wealth belonging to the group, as dividend.
Thus we come to a very remarkable and noteworthy result. Interest, which to-day the Socialists abuse as a gain got by exploitation, a robbery from the products of labour, would not disappear even in the Socialist state, but would remain, in promise and potency, as between the community organised under Socialism and its labourers, and must so remain. The new organisation of society may make some change in the persons who receive it, and in the shares into which it is divided, by altering the relations of ownership; but the fact that the owners of present commodities, in exchanging them for future commodities, obtain an agio, it neither will nor can alter. And here, again, it is shown that interest is not an accidental "historico-legal" category, which makes its appearance only in our individualist and capitalist society, and will vanish with it; but an economic category, which springs from elementary economic causes, and therefore, without distinction of social organisation and legislation, makes its appearance wherever there is an exchange between present and future goods. Indeed, even the lonely economy of a Crusoe would not be without the basis of the interest phenomenon, the increasing value of goods and services preparing for the service of the future; only, of course, that, in the absence of exchange transactions, there would be wanting the chief occasion to put exact figures on the value of goods, and therewith almost the only opportunity of calling attention and giving fixity to the phenomenon.
THE RATE OF INTEREST
[66.]See above, p. 335.
[67.]It may, perhaps, be pointed out in reply that, owing to the increasing supply of wood, its value would be pressed down, and so, by and by, forestry would become only as remunerative as baking and such like. I would, however, suggest that this result would only be reached when the value of hundred-year-old timber had come down to a halfpenny; and to press down the value of wood so low, in the midst of a dense population, an enormous portion of the country would require to be turned into forest again!
[68.]See above, p. 310.
[69.]The levelling up of wages—that is, up to the value of the future product of the most remuneratively employed labour—is, of course, impossible, because the national product would not suffice for that.
[70.]I may remark in passing that the same position holds in the case of land rent. It is obvious that, even in the Socialist state, a labourer working on a peculiarly fruitful piece of land, e.g. in a Rüdesheim vineyard, will produce a greater or more valuable product than one who puts forth the same exertion and skill on a common piece of land or vineyard. But it is as evident that it would be insufferable "protection" to allow the former labourers their entire greater product as wage. To avoid injustice the wage here must be levelled down; that is to say, of the product of the more fruitful lands, the "land rent" must be first of all retained for the common purse, to be divided afterwards to all the citizens in their capacity as joint owners of the national land. Land rent, therefore, even in the Socialist state, would exist, would come into operation as against the labourers cultivating superior land, and would only be divided according to another plan than new, on account of the equal share of all in the nationalised land.
[71.]On these forms of organisation see Anton Menger, Das Recht auf den vollen Arbeitsertrag, Stuttgart, 1888, pp. 104, 112.