Inter-est versus Interest
“Ora et labora” – pray and work. Hegel translated this early Benedictine injunction as “pray and imprecate” because under certain historical social conditions work and labour are equal to a curse, to toil, thus inducing our imprecations and profanities. But labour as toil is not a fate. In the worldview of Classical Political Economy, labour is not only the essential expression of human living activity, of creativity and fulfilment: labour is also the source of all produced wealth, and therefore of economic exchange value. Even for the Protestant Work Ethic, although labour is still the divine punishment for the original sin and the expulsion of Adam and Eve from the Garden of Eden, labour is the source of all wealth and the road to salvation. Hegel’s philosophy, and Marx’s critique of it, are in one sense the apotheosis of the Christian-bourgeois exaltation of “labour”. (On the concept of “Christian-bourgeois society”, see K. Lowith, From Hegel to Nietzsche.)
It is with Schopenhauer that the Central European bourgeoisie begins to demolish this late-mediaeval and early-bourgeois glorification of labour as a relic of European aristocratic Absolutism. Schopenhauer is the true riposte of the new European industrial bourgeoisie to the traditions of mediaeval Catholicism. Ricardo and Marx could still be seen as the last of the Schoolmen (cf. R.H. Tawney, Religion and the Rise of Capitalism). But it is Schopenhauer who heralds the rise of Neoclassical economic theory, especially with the more explicitly philosophical elaborations of economic theory in Karl Menger and the Austrian School.
The original sin of bourgeois politico-economic ideology is already contained in its founding document – in its “Bible”, as it were – that is, in Adam Smith’s Wealth of Nations. Smith’s proton pseudon (first mistake) comes as early as Chapter Two of that work dedicated to “The Division of Labor”. For here Smith fails to perceive that there is no “division of labor”, as if “labor” existed independently of human co-existence, but rather there is a “division of social labor”, because all “labor” must necessarily entail the existence of human interdependence. Smith’s appalling fallacy in that chapter is to attribute the “division of labor” to the “natural tendency” of human beings “to truck, barter and exchange”. In reality, instead, it is the institution of market exchange that is made possible by the division of social labor together with the institution of private property. What is “natural” – indeed utterly essential for human being – is the total dependence of individual human beings on social labor. Exchange arises only once private property is added epiphenomenally and arbitrarily on the division of social labor. Thus, whereas social labor is the ineluctable aspect of human being, Smith surreptitiously and mistakenly assumes that human beings can exist and produce in isolation or independently of one another! Smith is still the economic equivalent of Kant’s philosophy of the Enlightenment (cf. the latter’s “What Is Enlightenment?”), whereas Ricardo and Marx develop a theory of value strictly aligned with Hegel’s Phenomenology of Spirit. (On this complex theoretical link see M. Tronti, Operai e Capitale, section on “Ricardo e Hegel”.)
(To clarify, Adam Smith treats “labour” as a commodity whose price is determined by “the market”, and then contradicts himself by arguing that “labour” is the source of value and the determinant of market prices. Here value and labour remain in an antinomical relation of passivity and activity, respectively, as in Kant’s critical idealist opposition of Reason and Object [see G. Lukacs on “The Antinomies of Bourgeois Thought”]. Ricardo, instead, sees that “labour” cannot be a commodity like all others, and thereby overcomes the opposition of value and labour. But then, like Hegel, he is unable to distinguish between concrete labour as the basis of all human expression and communion and abstract labour as the specific historical expression of capitalist command over human living activity, and therefore as the source of “market” value and indeed of “surplus value”. Hegel and Ricardo do not see that “concrete labour” is the use value upon which the capitalist constructs the exploitative institution of quantifiable “abstract labour” and therefore of all exchange values.)
Adam Smith’s fallacious conception of “labor” as individual exertion rather than as social construction of reality, as the necessary extrinsication of human being, and his replacement of it with a mistaken notion of social labor – what he calls “specialization” - as a by-product of exchange between isolated individuals with private property rights over the products to be exchanged – this “original sin” of Smith’s politico-economic theory opened the door to Neoclassical economic theory. In the Neoclassical vision of economic theory, capital replaces labor as the source of human wealth: capital is seen as merely a “technical-neutral” instrument of production which allows human beings to provide for their “infinite wants” through their labor. Human beings therefore do not “create” wealth through their labor: labor is not and cannot be “the source and substance of wealth” as it was for Classical Political Economy. Wealth is not a human construct, a common pursuit or “inter-est” (from the Latin, inter homines esse, to be common to humans). Rather, wealth is seen only as a “satis-faction” or satiation of “indefinite wants” – that is to say, of wants that are simply inexhaustible and unfulfillable – and therefore as the unavoidable product of inevitable conflict between human beings. Consequently, for Neoclassical economic theory, wealth is not a common human goal or inter-est, but rather always as a subjective notion defined by an individual’s ability to exclude others from its enjoyment!
In the economical world man finds himself a being of infinite want, confronted with a universe full of potential wealth but with no tools except hands and brains to give him possession of it. Incapable of creating anything, he yet finds himself endowed with a power of moving things, which, as he masters the secrets of nature's working, gradually enables him to imprison, impress, or suspend the action of her powers, and so make her his servant In various concrete ways he adapts or rearranges nature—never, of course, changing her laws or acting contrary to them, but varying the causal connection of natural processes in such a way that, to a large extent, he remakes the natural world to suit his purposes. Thus, between man and his natural environment there gradually grows up a third term, a machinery for the fuller satisfaction of man's life, and to this, in general terms, we give the name Capital.
Far from the Classical view of wealth as a common human pursuit created by humans through their labor, in this Neoclassical vision of economics, human beings do not transform nature so as to humanize their world: No. Quite to the contrary, individual human beings are unfillable and non-communicating wells of “wants” or avidity that can only be limited or constrained by the equally “infinite wants” of other human beings. In the Neoclassical vision, the instrument of production is not a necessary tool employed by humans, indistinguishable from and truly an extension of their bodies (cf. Hannah Arendt, The Human Condition) to fulfil their constructive common social needs and projects. Instead, tools as capital are seen as an extraneous possession, a “third term” intervening between nature and labor, and that is the fruit of the renunciation by some humans of instant gratification so that other, less ascetic humans can gratify their wants instantly. Capital is, as it were, the by-product of this struggle between the “infinite wants” of selfish human beings and “nature”, so that in the end those who can master their wants and delay their satisfaction earn the benefit or “interest” from their renunciation of immediate gratification at the expense of the “future” gratification of those who find this immediate gratification irresistible – the workers.
In the Classical version, of course, capital is not an instrument at all because the tools of production are an ineluctable “means” in the process of production – not a “third term”!! There is no “natural” antagonism between “infinite want” on the part of selfish human beings and “provision” on the part of “nature”! If anything, in the Classical version of economic theory, human beings co-operate with “nature” through the division of social labour. This inseparable link between labor and tools is disturbed and upset by capital, which, far from being “an instrument of production”, is viewed by Classical Political Economy as a social relation whereby the capitalists extract “surplus value” from the labor of workers precisely by separating workers violently from their means of production. Capital is therefore a “detraction” or “subtraction” from the wealth that ought to belong to workers because all value is “created” through the labor of workers. In this view, capital is not a “tool” that intervenes between labor and nature: it is instead a social relation of production that violates the intrinsic connection between labor and instrument.
Where the Neoclassics see value as a “natural” struggle between equal and self-interested individuals, the Classics see value instead as a product of political violence by one class against another over the distribution of the fruits of social labour, - not, again, as the inevitable by-product of human competition with nature and with one another! The Neoclassics see value as inevitable: the Classics see value as an accident of history. Right throughout, therefore, the bourgeois Neoclassical theory sees human beings in a deadly combat against “nature”, where “nature” includes other selfish individuals. The result of this infinite struggle between selfish individuals is the assignment of “price or exchange value” to present goods in relation to their future discounted utility.
Thus value has no absolute level; it is neither intrinsic nor relative to any personal or material average: it is always found in the relation of these two determinants of Want and Provision. Price, or Exchange Value, again, is a superstructure on this subjective value, determined by the competition of buyers and sellers with each other and among themselves.
Value and Interest
Uber Wert, Kapital und Rente…. brought time, in some aspects at least, into the previously timeless theory of value and income distribution. When Wicksell began to work on the explanation of what determines the general level of money prices and of how the changes of this level come about, he did not turn his back on the theory of the ‘real’ economic forces and start afresh, but on the contrary the theory of the ‘real’ interest rate, which he had developed in Uber Wert, Kapital und Rente on Bohm-Bawerkian foundations, became a central and essential element. (Schackle, Foreword to K. Wicksell, Value, Capital and Rent, p.7).
But what is “interest”? How is it possible? Interest is the rate of increase of capital over a determinate period of time. Because capital “yields” interest, it is empirically evident that capital is the true source of value – market value – because it introduces a temporal component to the calculation of value. The very notion of “capital” implies that human productive activity can and indeed must (!) give rise to the phenomenon of “interest” – that is to say, to the otherwise inexplicable periodic increase of the value of capital. If all market exchanges took place simultaneously, without a temporal component, the value of goods exchanged would never change and all exchange would cease together with the market. It is capital that allows the projection of market exchange into the future by making “interest” possible.
The most obvious fact here is that the payment of interest has some very definite connection with the time when payment is made. This suggests the general question: What is the place and influence of time on the value of goods. And the answer is: It is an empirical fact of undoubted universality that present goods are valued more highly than future goods of like kind and amount. (Transltr’s Preface to K. Wicksell, Interest and Prices.)
By contrast, labour, far from having utility, has dis-utility because its only aim is the immediate gratification of infinite wants. Here, then, is the Arbeit (labour) conceptualized by Schopenhauer: the telos of labour is purely negative; labor does not create wealth, it merely transforms nature to maintain itself in existence: labor is mere survival, sheer struggle for present immediate consumption. For Neoclassical economic theory, the real source of value, and therefore of wealth, is the renunciation of labor, and therefore of immediate consumption, on the part of the capitalist who transforms immediate consumption into “capital” or tools that make “future consumption” less labour-intensive, and therefore makes labour more “productive”.
If, then, interest is so purely a natural phenomenon, why has it met with so much covert dislike, and so much scientific opposition? There are at least three reasons. First, the element on which all interest is based, namely time, has come to be a peculiarly important
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factor in modern production. All things come to him who waits, and, in economic life, this describes the capitalist. But this fact involves that the labouring classes who cannot wait, and cannot compete with the productiveness of lengthy processes, are put in a position of peculiar dependence: hence the possibility of exploitation of wage, of usurious rates of interest, of unjust rents. Second, from a moral point of view, there is much that is objectionable in the fact that interest allows certain classes to live without working and to make this possibility hereditary in their families. Third, in this income there is no ratio between gain and desert. Those who have little must accept Savings Bank interest for their hard-earned shillings; those who have much have all the chances of bonds, mortgages, joint-stock investments and the like. All the same, so long as men do put a different valuation on present and future goods, interest cannot be prevented. Even a Socialist state could not prevent it: if by forcible means it were stopped between individuals, it would still obtain between commune and labourer. The state in this case would replace the capitalist, and " exploit" the worker in the same way— although, it may be hoped, with a clearer view to the wellbeing of the exploited—but no organisation could make interest into wage.