Flürscheim – Interest

from Michael Flürscheim
Clue to the Economic Labyrinth

Chapter VII – Interest

“Usury bringeth the treasure of a realm into few hands, for the usurer, being at certainties, and the other at uncertainties, in the end of the game most of the money will be in the box, and a State ever flourisheth where wealth is more equally spread.”—Lord Bacon.

Interest Condemned

The taking of usury has been condemned by the ethical and often by the statutory laws of all nations and times, and only since a comparatively recent period, that of Elizabeth, has the term usury been confined to the taking of exorbitant increase, while the new term “interest” has been substituted for what before was called ”moderate usury.” So at least we are informed by R. G. Sillar, the indefatigable enemy of interest, who tells us that “when the first usury law was passed, it was necessary to coin a word for legal usury, and we find the word ‘interest’ was first used in a public document in 1623, in the Act of James I. … It was most likely used privately before this, for Shylock says: ‘My bargains and my well-won thrift, which he calls “interest,” ‘ and he apparently says this with a sneer.”

Usury—interest in our sense—was forbidden by Bible and canonical law. Philosophers attacked, and the baneful experience of history arraigned, the dangerous practice, until, in our times, the usual result of the popular adoption of a polity and of habit obtained—the man of science tried to justify what was universally practiced. Only in this way can we explain the defence of interest set up by political economists: threadbare sophistries of so flimsy a fabric that custom and prejudice alone prevent every observer from seeing through them. An untutored savage would laugh at such teachings, would think their exponents possessed by evil spirits. Try to make him understand, when he borrows one of his neighbour’s horses which the other does not need, but only keeps in reserve for an emergency, that this feeding of the horse is not a full equivalent for the loan, provided the use the animal is put to does not decrease its value. Try to make him see the possibility of a claim amounting to two horses after a certain number of years, both as young and good as the original horse was when he borrowed it, and that a time may arrive when, though the borrowed horse long since went the way of all flesh, the debt to his neighbour of his heirs shall have grown to the extent of a herd of horses—of more horses than are possessed by the whole tribe. A mere savage will never succeed in seeing the possibility, not to say the justice, of such a claim; it needs a civilised man to understand the effect of compound interest, and a professor of political economy or one of his guild, to defend the principle. And now let us see how they go about it.

Interest the Result of the Productivity In Capital

Prominent among their theories is that which ascribes to capital a certain inherent productivity, which is let with the capital, and is refunded to the lender in the shape of interest. The term “capital” is here used in the sense of “means of production,” but excepting land, the income from which is called “rent,” there is no means of production which will bring forth anything without being used by labour. This, by itself, would not invalidate a claim made for capital of part of the surplus which has been realised by its help; part of the surplus, for unless labour gets at least some of it, labour would have no advantage to use capital. How much of this surplus will have to go to the capitalist and how much to labour will generally depend on supply and demand under free conditions, A well-known example used by Bastiat in defence of interest represents capital by a plane and work by a carpenter. If there were only a limited number of planes in the world, not sufficient to supply the demand, Bastiat would be correct in maintaining that as a carpenter could produce more planed boards with the plane than he could with a more primitive tool, he would find it to his advantage to borrow the plane, though he had to give to the lender some of the surplus product due to the use of this plane. In Chapter IV., I have shown that the production of tools would outrun the demand if no artificial obstacles were in the way. In this case planes would be as plentiful as huckleberries, and plane-owners would have a larger stock of planes to lend or sell than there are cabinet-makers and carpenters willing to use them. Keeping these planes in stock would simply mean the gradual loss of the capital; for mould, rust, fire, earthquakes, war, robbery of any kind, cost of storage and cleaning, are all elements of depreciation; and at any time a new invention may make old patterns unsaleable altogether, or sale-able at a much reduced price. Thus it is evident that the plane-owner would do better in letting out the plane free of cost, provided the carpenter agreed, under a sufficient guarantee for the fulfilment of the agreement, to replace the plane after a certain time by another worth as much as the borrowed plane was at the time of lending. Even if, instead of paying interest, the worker demanded a certain percentage for the service rendered by him to the plane-owner, the latter might find it to his advantage to strike the bargain. This proves simply that the interest claim is not due to the productivity of capital but to supply and demand. Unfortunately, there are artificial obstacles in the way which prevent the unlimited supply of capital, and I shall presently show that interest takes the foremost place among these obstacles. We shall see that interest is mainly responsible for the unnatural conditions which put a bridle on the productivity of capital in the hands of labour; while the productivity of capital, when unfettered, kills interest; thus there is positively no filial relationship between the two powers. Stranger still than the attempt to trace such relationship are the errors of those economists who find the fatherhood in another source:

The Element of Time.

It is only by confusing cause and effect that this theory ever found favour, for, a priori, it ought to have been considered that, as far as the products of human labour are concerned, the work of time is more of a destructive than of a creative nature. Unless new labour is continually applied, all products tend to lose in value. Even where they are practically indestructible —as gold or platina, for instance— they must be guarded if the owner wants to conserve them; and guarding is labour, while storage means rent besides. Exceptions, such as the ripening of crops and the increase through breeding the domestic animals, are only apparent, and are caused by omitting the analysis of all the economic factors at work. In the first place, the additional value is due to the labour employed. Then we have the use of land, represented by rent in our calculations. If we also add interest, it is done only because interest is elsewhere obtainable for the capital thus invested, and consequently must be added to the price. If this capital were obtainable free of interest, the cost and proceeds of crops and cattle, of old wine and brandy (mentioned specially because their higher price due to age has been given as a proof of the interest-creating force of time), or any other product, would not exceed the cost of labour and rent combined. If profit is added besides, interest forms no part of it, unless interest has to be paid for the capital employed, in which case its addition to the price is an effect, and not a cause.

There are also economists who make use of the element of time in another sense, in that of putting a higher value on the present than on the future possession of an object. They are not so wise as the well-known boy who, when told that the early bird catches the worm, replied: “So much the worse for the worm; why did it get up so soon.’ ” He perceived both sides of the question; but those gentlemen cannot see that though the present use of something may be more valuable to one party than its future possession, the very reverse may be the case for another. For the hungry man a piece of meat to-day may be worth more than a beefsteak ready for him a week hence; but by the man with more meat on hand than he can eat within a fortnight, the taste of fresh meat, after a week has gone round, will certainly be preferred to the haut goût due to such a long storage. Whether the service rendered to him by the other party, who supplied him with fresh meat a week later in exchange for the meat lent to him immediately, will be as great, greater or less in value than the service rendered by him to the hungry man who might have starved if he could not have gotten the meat at once, is not to be gauged by the individual estimation of such value, but by the assessment which the market makes on the basis of supply and demand. The wanderer who loses his way and reaches a baker’s shop in a starving condition may be willing to give all his wealth for the piece of bread he buys, rather than miss it; but for all that he will have to pay only one single penny, because the market does not consider the personal feelings of the parties, but the general conditions of supply and demand. If the meat owner were the only party whom the hungry, meatless man could apply to, the case might be different; but if there are plenty of others who have more meat than they want, and to whom a service is rendered by giving them fresh meat a week hence for the meat of to-day, the mutual value of the services may not only be equal, but may even be reversed. Less meat may be demanded in return at a later period than has been given, for even half-a-pound of fresh meat is better than ten pounds of spoiled food.

In fact, this illustration does not differ in the least from that where the ready plane and one made after a certain period were in consideration; where the element of time plays exactly the same part. If I thought it worth while to discuss it separately, it was because some most intelligent men have not been able to get out of this special dilemma—Professor Boehm-Bawerk, for instance.

Force of Habit

The habit of seeing interest paid in the transactions of daily life has so confused others that they cannot lift their ideas from thisrut, and cannot gain a free outlook. This happened to one of the most clear-sighted men who ever lived—to my departed friend, Henry George. He could not see how a tailor would not invariably sell a coat cheaper for cash rather than accept for it a bill payable ten years later. The fact that, under present conditions, the cash received at once can be invested at interest, entirely hid from him the possibility that where such investment could not be made, and where any saver had to be content if he could invest his savings interest free, without being required to pay for the cost of preserving his capital, some good responsible customer agreeing to pay after a number of years, at a time when the money was needed, might be prefer able to one who paid at once. Though I was not successful in making my friend see the case in this light, I had the satisfaction to hear him state publicly in the Manhattan Single Tax Club, New York—where one of our discussions took place in April, 1893—that if I were right in asserting that interest would disappear with private rent, all he could say was:—”So much the better.” With these words he justified my attacks made in Rent, Interest and Wages, against his theory evolved in Progress and Poverty: that wages and interest rise and fall together, so that it is to the worker’s benefit if interest is high. The same force of habit is responsible for another theory often heard and just as false: the theory that

Interest is the Reward of Abstemiousness

and that its disappearance would stop saving. We need not enter into the question once touched by the great socialist leader, Lasalle; we need not inquire whose abstemiousness is meant, that of the capitalist or of those who work for him; we need not investigate whether the interest paid in this world of ours is not produced by the abstention of the interest-payers. We need not waste time in admiring the abstemiousness of our Rothschilds, Carnegies, Astors, Vanderbilts, and other interest lords of their class; but it might be worth our while to look a little into the second part of the wonderful thesis, that

Capital Production will stop if no more Interest is Obtainable.

It practically means that thinking and civilised man does not possess even the provident spirit of many animals, such as the bee, the ant, the squirrel, a number of birds, etc. Could the bee reason, it would deem itself very happy in finding all the honey it has gathered at the precise time when required for apiarian consumption; the idea to stop saving, because no automatic increase of the store can be expected, would certainly never enter its insect head. It needs the brains of a professor of political economy to breed such an idea. Take, for instance, the following from the writings of Th. Mithoff, professor at the University of Gottingen: “If he (the capitalist) did not cede the use of his capital to another, he would be able to use it himself for the purposes of production or consumption. In temporarily renouncing, therefore, the use of capital in favour of others, he makes a sacrifice for which an equivalent interest is due to him. Doing away with interest would cause a great part of the capital now lent out for productive purposes to lie idle or to be used for consumptive purposes; and the growing difficulty of a paying use for capital must very soon reduce the future creation of capital. But as the prosperity and the progressive development of economic life depend on the use of capital in production—doing away with the compensation for the use of capital in the shape of a part of the entrepreneur’s income and of interest would result in a deep and permanent retrogression of the economic development,” So many words, so many errors.

The Capitalist’s Personal Use of Wealth limited

To begin with, capitalists only lend out their capital when they cannot put it to better use for the purposes of production in their own business. There is a limit to such use. The capacity of supervising industrial or commercial undertakings is limited even in the case of the creator of the capital, and much more so with his heirs. There cannot be the least doubt that if the descendants of Astor and Rothschild had to use their capital in business, and could not invest in land, bonds and similar securities, they would have been ruined long ago. It is impossible for the most capable men to supervise such immense investments, risky in the best of cases; and if the supervision has to be left to others, it requires superhuman judgment or unusual luck to invariably select the right man for the right place. If our billionaires had to invest their wealth in this fashion, the opinion we often hear announced—that the big fortunes disperse as quickly as they were gained—might be justified. The heirs of capable business men are often destitute of those qualities which made their progenitors great; and mismanagement, as well as subdivision among the legatees, would soon dispose of the ancestral accumulations.

Accumulations rendered possible by secured Rent and Interest

Unfortunately, rent and interest on certain investments of a different nature have the double effect of not only securing a good income without any risk for the capital, but also of increasing the sum total of the capital much faster than the average number of heirs can diminish it, especially at the well-known low rate of family propagation of the rich. Facts have proved this. Each of the present Astors, Rothschilds, Vanderbilts, etc., is richer than was the founder of the family’s fortunes—through the mere accumulative power of interest and rent. We have already seen how pernicious such accumulations have proved to our economic development, and how the very reverse of our professor’s expectations in this direction has been verified by the facts of real life.

But not only a productive use in their own business is impossible for our greatest capitalists; even

Self-Consumption becomes almost Infeasible.

I remember the excitement of the press over an evening party given by a Vanderbilt. The festivity had cost as much as $200,000, probably far exceeding the expense of any Lucullus or Crassus revel reported in the annals of Rome’s worst times. Then, lately, attention was given to the wonderful bed-chamber costing $1,000,000 erected by one of the golden tribe, named Stephen Marchand; or the bath of another Vanderbilt costing an equal amount. I do not know anything about Mr. Marchand (who does not seem to be rich enough to deserve mention in Mr. Burnley’s millionaire list already referred to); I never heard his name to my remembrance; but I know that Vanderbilt might have given one such $200,000 party every week, or bought a million bath once a month without consuming his income—and only one such extravagance is reported. I leave entirely aside the usual moral drawn from such prodigalities in a world in which millions have not enough to fence them from hunger and cold, for the worst is that

Our Millionaires are not Extravagant enough.

If they consumed their incomes, the world would be better off. It is just because they save a great part of their revenues that the workers cannot find employment. It is because they have not enough appetite that others have to go without a meal. If they could wear thousands of suits at a time, thousands of poor toilers would be able to buy some clothing. If every penny of their money were wasted in palace building, the poor would be able to procure decent houses. It is just to their saving and investing their savings at interest—that we owe most of our misery, as I have shown in Chapter IV. That this is being recognised is evinced by the following remarks of John T. Gibson in the Indianapolis News:

“A few minutes’ thought will convince anyone that the industrious man who ‘lives up to his income,’ and saves nothing, is at least as large a factor in the accumulation of capital as the man who saves. Suppose, for instance, that we would all start in to-morrow and narrow down our expenses to the last notch, ‘cut off everything except oatmeal gruel, and make it thin at that,’ with the idea of saving ourselves rich, how long would it be before we should find that, instead of being on the highroad to greater wealth and higher civilisation, we should be on the back track to poverty and barbarism? There would be no demand for anything except oatmeal, and as no one could sell anything else that he happened to possess, he could not acquire the wherewith to buy oatmeal, and would have to produce it himself or steal it, or starve. There would be no trade; no use for all our fine business blocks, nor for the railroads, nor steamboats, nor factories, nor any of the arts of civilisation. The labour-saving principle of the ‘division of labour’ could not be utilised except on the smallest scale in co-operative oatmeal production. Altogether we should be in a very bad way—a good deal worse off than the Indians were, for they had elbow-room and a game-preserve at their back.”

If the rich spent their incomes, consumption of such immense amounts would give employment to millions who now are without work, and these millions could save, could gradually become owners of their own means of production, or could improve those now in their possession, and thus bring about a great increase of the present general production. Instead of this, we have seen how the investments of the rich reduce the circulation of credit money, reduce the credit building in which our commerce is carried on, and thus prevent production from keeping abreast of productive power. We cannot produce unless we consume; and the masses are bereft of their full purchasing power through the rent and interest tributes they have to pay to the rich, either directly, or indirectly by means of the tax-gatherer; while the rich, instead of consuming their share, invest it in the purchase of new tribute claims, the only paying investment in the long run, as new production is a losing business where there is not a corresponding consumption. The comparative prosperity of New Zealand’s people is partly due to the absence of millionaires and the greater purchasing power of the masses owing to better wages.

Millionaires and Poverty in the Union

The country which boasts the greatest number of millionaires must also boast of harbouring the greatest misery in its cities. One of the latest statistics is given by Charles Spohr, in The Division of Wealth in the United States (1900), in which he divides the population into four classes. The two, first consist of 1,500,000 families who own 56 billions of the 65 billion dollars at which he estimates the wealth of the country, or $37,333 each. The other 11,000,000 families own together 9 billions, or $820 each. He concludes that half of the population is without any property. Seven-eighths of it possess only one-eighth of the national wealth; and 1 per cent, possess more than the other 99 per cent, all together. I think the new census will give a largely increased wealth, and the trusts are precipitating a still stronger concentration. Rockefeller is said to have an income of over 30 million dollars; Carnegie one of over 24 millions a-year.

I shall go on with my analysis of the learned professor’s lucubrations, asking the reader’s pardon in thus seemingly wasting time; but it cannot be without profit to eradicate one of the most popular errors, to destroy at its root the idea that demon Interest is in reality a beneficent Ceres, out of whose cornucopia the incentive to all wealth-producing industry is poured over humanity.

The professor’s contention that interest is due as an equivalent for the sacrifice of the capitalist has already been dealt with, and so has the fear that without interest a great part of the capital would be used for consumptive purposes. Something has to be said, however, of the alternative given by the learned gentleman in the words

“Or to lie idle.”

I wonder how the way in which this capital would lie idle presented itself to his mind. He can hardly have been so naif as to imagine that the rich would put in a stock of gold or coins; for he probably knew that the whole gold stock of the world does not much exceed 800 million pounds, and that the savings of the rich in the United States alone outrun this amount more than ten-fold. And even supposing that there were gold enough to be got for the purpose, the supply of the useless stock would keep millions busy whose consumption and savings would fertilise industry in all other departments of production. Even under this impossible supposition, the wealth accumulations of the rich would do more good than they are doing under the dominion of interest.

How, then, are they to lie idle? As creditors in the books of the banks? In this case the banks would lend the money out. Even if they only got the risk premium they would make a profit, as they certainly would demand some compensation for becoming the storekeepers of their rich customers. As that part of gross interest which pays merely for the average risk of lending is not interest proper, the workers would obtain capital, interest free, and would make good use of it.

Or does the learned gentleman suppose that the savings are received in the shape of products of some sort? Were this so, the rich owners of these products would have to pay for their storage, and for the work required to keep the goods from deterioration. They would soon find that the best shape in which they could store their wealth would be in means of production of some sort, which the workers could utilise, and thus make self-sustaining. This certainly would not mean lying idle.

Nor could investments in land be meant, because they would bring a rental income, which means interest on the purchase capital; which cannot be called lying idle. Besides, the money paid for land as well as that spent for the other things, goes to somebody and thus circulates— does not remain idle.

Fortunately, not all our economists are of the professor’s calibre.

Turgot’s Simile

The following quotation from Turgot—one of the greatest financial authorities and economists of France— reveals the very opposite consideration of the part played by interest in our economic life:

“The rate of interest may be looked at as a kind of level below which all work, all culture, all industry, all trade ceases. It is like a sea spread over a vast country: the mountain tops rise over the waters, and form fertile and cultivated islands. As the sea level sinks, the declivities of the mountains, then the plains and valleys, appear, covering themselves with produce of all kinds. It is sufficient for the water to rise, or fall one foot to inundate extensive shores, or to render them back to culture. It is the superabundance of capital which enlivens enterprise, and the low rate of interest is at the same time the effect and the mark of the superabundance of capital.”

Interest holding back Civilisation

The most superficial glance around us will show how Turgot’s beautiful picture corresponds with reality. Thousands of useful enterprises everywhere, certain to benefit humanity at large, to increase its comforts, to cause a further advance of civilisation, to raise the productivity of labour many-fold— enterprises which would gradually pay back the outlay they caused, remain in the state of worthless projects, for the simple reason that a certain rate of interest cannot be got out of the capital invested. The Panama Canal would have been finished long ago, a tunnel would connect England and Ireland—perhaps also our two New Zealand islands—innumerable railways and canals would evolve into accomplished realities from the state of visionary schemes. Distant mountain-lakes and streams would quench the thirst of large cities now satisfied with impurer supplies; mountains over which the stage coach now winds its tedious way would be tunnelled; valleys would be spanned by viaducts; and rivers—which now are crossed in primitive fashion—by bridges. The whole face of the world would soon present an aspect differing in its progressiveness as much from the world we know as this is in advance of that remembered by our great-grandfathers. What is in the way? Why have we to leave all this work undone? Can we not spare the labour? Can we not produce the machinery required, the raw materials needed? In a time whose chronic complaint is known under the names of over-production, want of employment and markets, commercial depression, such an answer can certainly not be accounted satisfactory. All know that no greater boon could be offered to millions than the opportunity of setting to work their productive power for the accomplishment of these andgreater public works. No danger either of not finding food, clothing, shelter enough for the millions of workers needed to do the work. There is no department of production in which we could not multiply the output if there were a paying demand. In fact, nothing stands in the way except one seemingly insuperable obstacle: Interest. The projectors may furnish ever so convincing a truth that the income from the improvement will sooner or later repay the cost, besides keeping up repairs; as long as they cannot also prove that a certain rate of interest can be depended on for the capital invested, they will preach to deaf ears.

With the Disappearance of interest, these and Thousands of other great Works will be carried out

within a comparatively short time. Innumerable inventions will come forth to diminish the amount of labour required; and they will no more be fought by trades unions, justly frightened over the prospect of a still greater scarcity of employment for their members. The field of work will then grow with working facilities. There is not a department of production and distribution where the disappearance of interest would not effect wonders. What—even if he has the capital—makes the manufacturer build a shed lasting only a few years, where a stone building would outlast generations, besides affording better conditions of health for the workers? Interest. The stone house would be cheaper in the end if it were not for the interest it costs, which figures up higher than the waste caused by the periodical repair or replacement of the shed. It is interest which prevents the manufacturer or merchant from keeping more stock than is absolutely necessary, and thus precludes a more perfect division of work; as, for instance, in the case of a weaver who has continually to make expensive changes of patterns on his loom, because working for any length of time on one pattern will cause a too great accumulation of stock, and thus a too great interest loss. It is interest which may some day be mainly instrumental in the downfall of nations dependent on others for their food stuffs, because the fear of interest loss prevents us from storing wheat enough to last us over more than a very short period. We have means to fight moisture, rats, mice, and other vermin; and since wheat found in an Egyptian sarcophagus germinated after so many thousands of years, it is proved that good conditions may preserve grain indefinitely. But we cannot protect it against the destructive effects of interest, which increases its cost with every passing day; so that, finally, it does not pay to keep stock, at any price, as long as we cannot destroy interest.

Interest and Money Reform

The disappearance of interest will take out of the way the greatest obstacle to money reform, in its turn one of the most powerful weapons against the interest fiend. Nothing restricts more the quantity of money which can be kept in circulation, or of free deposits in the banks, than the fear of losing interest—as we express ourselves when we either have to pay interest or fail to obtain it from others. From the poor wage-worker who carries at once to the savings bank every penny he does not absolutely require that he may get interest, to the rich man who limits his ready money or bank account to his necessities, investing the balance as fast as he can to obtain interest—we witness a continuous restriction of the money stock held on hand. The disappearance of interest would entirely change all this, would largely increase the money stock which could be issued without any fall of its value, or which would be kept in the private banks as a security for depositors, or at the disposal of the State in the free deposits of the State banks.

Interest and Free Trade

The beneficial effect produced by the disappearance of interest would be felt everywhere, even in quarters where nobody would look for it at first sight. Who would think that it would be the most powerful means of introducing universal free trader by making free trade what its defenders suppose it to be, but what, as I have shown, it is not by any means: fair trade? It will not prevent the payment of imports by debt, but it will withdraw the self-multiplying power from this debt, which now often makes the cheapest market the dearest in the end. Debt, as has been said in Chapter V., will simply mean deferred payment by exportation. The delay, instead of causing loss, will only benefit the debtors who have the free use of the capital.

These will be the results of interest’s exit from this world of ours, not those foretold by the blind bookworm of Gottingen University, and others of his ilk. The simplest calculation should have shown him the stupidity of his prognostics, should have taught him that, instead of being a stimulant,

Interest is in Reality the greatest Obstacle to Saving.

If a man wants to retire on a yearly income of £500, he will save £10,000 if he can count on 5% interest, unless he buys a life annuity for even less money. The lower the rate of interest the more will he have to save, and if interest is unobtainable altogether he will have to save capital enough to last him for the balance of his life. He may have to go to an insurance company and pay in the sum corresponding to the average of years which statistics allow him, plus cost of administration. The calculation is much simplified by the absence of interest. If he wants to insure a certain capital to his family after his death, he will have to pay the yearly premium which corresponds to the sum, divided by the average number of years he is expected to live, according to statistics, plus a trifle for cost of administration. In either case he will have to save more than would be requisite where the interest obtained by the company enables it to be content with smaller payments. If a life annuity, to date from a certain age, or from invalidism, is desired, enough has to be paid in to correspond to the annuity multiplied by the number of years during which statistics promise him the enjoyment of the annuity, plus cost of administration. Whether he pays the money in by yearly installments while he is still working, or in one lump sum, will then make no difference, as interest no more enters into the calculation. Anyhow, he will have to save much more for such a purpose than he would in our interest paying world. Supposing he wants to retire at the age of fifty years, and to insure an annuity of £500 to his family up to the death of the last survivor. Let us say the number of years during which the annuity has to be paid is estimated as forty, the man will have to save something over £20,000, or at least double the amount he would need under present conditions. And even then he will have saved only for the living generation; if he wanted to commit the folly of saving also for unborn descendants, his accumulations would have to grow correspondingly, instead of needing only the insignificant increase of the interest regime. Thus much more would be saved than in our time, and such savings would become what our present savings are wrongly supposed to be: blessings, instead of curses—which the latter really are. They would result in an increase in our means of production and communication, as well as of all amenities of life. They would help to raise the general income and welfare. Until the saver consumes his economies they would take productive form, benefiting his fellow-men; and the world, as well as he, would be better off than if he had consumed at once what he produced. More would have to be saved to live without work, but much more could be saved in a world freed from the hampering effects of interest.

I have already drawn the picture presented by our present savings under the reign of interest. I have shown how the creation of generations of do-nothings is by far the smallest evil resulting from such accumulations, but that the constantly increasing obstacles they oppose to the maintenance of production at the level of productive power are the very root of the social problem of our time. In the next chapter I can more clearly show in what way interest is responsible for this state of things—which was infeasible as long as the real nature of interest remained in the dark. But so far, I have only shown what interest is not. I have proved that it is not the outcome of the productivity of capital. I have explained that it is not the product of capital, the child of the element of time, nor the just reward of abstinence. I have made clear that, instead of stimulating production, it keeps it back; but for all that, I have not yet shown its real nature and parentage. This we have now to elucidate.

Interest is a Tribute

due by one set of men to another. That this is its nature, that it is a tribute and not a product, is made clear by the simple fact that all men could as little live on their interest income as all could live by burgling or by taking in each others’ washing. Somebody has to pay interest, or others could not live by it. That interest is a tribute, and not a natural product of capital, time, or anything else, can also be demonstrated by simple

Arithmetical Proofs.

Proudhon says in Qu’est-ce que c’est la Propriété: “If men, united in equality, gave to one of their number the exclusive right of property, and if this single proprietor placed with humanity a sum of l00 francs at compound interest, repayable to his successors of the twenty-fourth generation after the lapse of 600 years—this sum of l francs would, if invested at 5 per cent, amount to the sum of 107,854,010,777,600 francs, a sum 2,696 times as large as the capital of France, estimated at 4,000 millions (50 years ago), or 20 times as large as the value of the whole globe with all movable and unmovable wealth. … The Fourierists, those irreconcilable enemies of equality, the partisans of which they look at as sharks, promise to satisfy all demands of capital, of work, and of talent in quadrupling production.

But even if they quadrupled production, if they increased it ten-fold; hundred-fold, property (he means land and capital, with secured rent and interest claims) by its power of accumulation and capitalisation very soon would swallow products, capital, the earth and even the workers.”

We know the old tale of the inventor of chess asking as his only reward that the Shah would give him a single grain of corn, which was to be put on the first square of the chess-board, and to be doubled on each successive square; which, to the surprise of the king, produced an amount larger than the treasures of his whole kingdom could buy. It is this kind of chess-game which capital is continually playing with labour. All exertions, all improvements in the methods and tools of labour, the strictest economy, the severest self-denial, are all powerless to compete with the rapidity of self-increase possessed by capital placed at compound interest, and they cannot keep up with its demands.

An Allegory

“Ages had gone by since sinful man was driven from Paradise. The curse (not unmixed with blessings—like all punishment coming from such a source), which forced man to earn his bread by the sweat of his brow, had weighed upon the race with a heavy pressure. The crime had been severely punished; mercy began to prevail. A loving angel was sent down by the Great Master, charged with the task of lightening the burden. The angel’s name was Spirit of Invention. He began his work by teaching man to make useful tools out of stone, wood, metal, and other formerly useless raw materials. He taught him to tame animals to work for him; and finally he made him master of the elements, pressing them into his service. The mountain stream rushing down to the ocean was forced to turns wheels, and to grind the flour needed for bread, or to saw the logs with which houses were built, or furniture made. The wind, the merry son of the air, had to stoop to the same work, where water power was not available. The curse was lightened, but not taken off; man’s wants had increased with the facility of satisfying them, and work was as hard as ever. But the hour had come when full mercy was to be granted to the children of Eve. Fire offered its service. The most powerful of the elements, though it had condescended hitherto to furnish some comforts to man, as often had proved his deadly enemy. It would have wrought him even more harm if a family feud it had with water had not enabled man to make use of the mutual hate of fire and water to fight one with the other. Now the time had come when the unrelenting antagonism between the two was to be used as a means of taking off the terrible weight of physical labour pressing upon mankind. The deadly foes were imprisoned together in bonds of iron and steel. A fearful struggle began. Water, maddened by the mighty embrace of its enemy, foaming with rage till it turned into steam, tried all its power to break loose from the iron bonds and to kill the fiery element. The angel taught man how to use the terrible power so engendered—to turn wheels, and to do all the heaviest work. Millions of iron giants were in this way pressed into his service, working for him night and day. Far down in the depths of the earth they moved their powerful arms to free the mine from destructive waters, and to lift the treasures of the deep.

“Imprisoned in iron cars, they moved these with a speed exceeding that of the fleetest deer; drawing heavier weights than could the strongest elephants, or hundreds of horses. Pent up in ships, they drove them forth through the waters faster, though heavily loaded, than the best oarsman ever impelled his light craft. But this was not all.

“The angel Spirit of Invention again waved his magical wand, and millions of iron and steel goblins came forth skilled in all kinds of work: spinning, weaving, knitting, sawing, grinding, printing, sewing, shoemaking, etc., etc. They were practised in all trades, and their delicate fingers went to work with lightning speed when the iron steam giants were put behind to force them on.

“It seemed that at last the golden era had come of which men had dreamed for ages past, without ever hoping to attain it. Without trouble, with almost no exertion, except that of supervision, man had it in his power to produce boundless wealth for the satisfaction of wants which, in former times, even the richest did not know or dream of. All the luxuries that art and refinement could invent were at the disposal of the poorest, if free scope was given to the wonderful giants and goblins, the numbers of which daily increased in astonishing varieties.

It seemed, I say, that the golden time had come; but it had not come. That envious spirit, that fallen angel, Satan, who once before, in the shape of the serpent, had driven man from Paradise by seducing him to sin, from the first moment had watched the work of the beneficent angel with continually increasing disgust and anger. He knew very well that, if the plans of the Holy One succeeded, Satan’s empire would be over for ever. Once freed from the cares and troubles of the struggle for existence and the battle of life, man would turn to higher aims the powers God had given him. Art, science, and ethics would celebrate their highest triumphs; more and more would man break loose from the fetters in which his higher spiritual being was held imprisoned by earthly cares, and, getting into nearer contact with the eternal source from which all spiritual life is emanating, would accomplish the great purpose for which he was created.

“The state of things looked desperate. All was lost if some stop could not be put to the work of God’s angel; but what was Satan to do? As he looked over the dark army of vices, sins, and follies which had done him such splendid service in past time, to see whether any one of his great warriors could take up the fight with the angel, he perceived nothing but dejected faces. They all knew that they were powerless to battle with the heavenly messenger. He despaired as he looked at that once valiant and victorious army; when, among the follies of man, he observed one little imp, who, instead of the despondent, mournful aspect all the others were wearing, looked at him in a self-conscious manner which attracted his attention.

“ ‘What is the matter with you. Interest?’ he asked the saucy imp. ‘You don’t seem to be so dejected as your comrades are?’

” ‘Why should I be dejected, master?’ replied the spirit, ‘Am I not one of your favourite soldiers? Haven’t I always been victorious under your august guidance? Why should I be less certain of victory now than I ever was before?’

” ‘Alas!’ answered Satan sadly, ‘you do not know the power of the enemy we are fighting now. You are no match for the Spirit of Invention’

” ‘Well, there will be no harm in seeing about that,’ answered the imp. ‘Suppose you allow me to try a duel with the fellow?’

” ‘You little imp! Fight the powerful angel who is defeating all my army?’ laughed Satan.

” ‘Yes, I alone; provided, of course, you allow my son, Compound Interest, to help me.’

” ‘Are your crazy? You, with your weak little arms, want to throttle that immense army of powerful giants, and that more numerous one of wary goblins, who have filled the world by the command of the mighty angel whose brains conceived them?’

” ‘I intend to do more than this, your majesty. I shall make them turn traitors to their duty. Instead of their being a source of blessing to mankind, I shall make them the producers of untold misery—worse than ever man suffered from thy hands. I shall make man curse them and the angel who sent them. He shall be made to consider them as the source of all his misery, and to use his best powers to fetter them and to keep them from their work by protective, military, and other repressive laws. He shall sigh for the good old times when machines did not yet take away the work from poor humanity!’

” ‘You will do all this?’ asked Satan, with an unbelieving smile.

” ‘Yes, and a good deal more, if you let me have my way,’ answered the imp, full of self-confidence.

“And Satan did let him have his way. The battle of giants began. Yes, it was a battle of giants, and yet only a game—a fight of titans, and yet only a noiseless sport in which the imp was the victor.

“Angel Spirit of Invention at first only laughed quite heartily when he saw the being who came to fight him.

” ‘Do you see those immense armies obeying my commands? asked he. ‘Well, I have only to open the gates of my skull, and just as many more will come forward to fight you, poor little imp. You had better return to the master who sent you, and tell him that his empire is ended for ever, even if he lets loose all the soldiers of hell he commands.’

” ‘There is no need for his doing that’ calmly replied the imp. ‘I alone, together with my son, Compound Interest, whom you see peeping from my pocket, can multiply our number to exceed any amount of iron and steel chaps from your empire. Look here, my friend; before we begin the fight, let us first muster our forces; and to end this business in a peaceful way, I will make you a proposal. Look at this chessboard. It seems just like any other chess-board, with sixty-four squares, but it has the peculiar quality of extending the dimensions of the squares, so as always to be large enough to accommodate all the soldiers we shall place upon them. Now, listen well to what I propose. I enter the first square with my son, and you match one of your warriors against us. We enter the second square doubled in number; you send two more warriors—and so on every succeeding square. We agree that we shall never more than double, and we further agree that when we arrive at the last square, and you have a single soldier left after occupying the same, we shall declare ourselves vanquished, and Satan with all his troops will leave this world for ever. If I win, you and your army are to be at the commands of my master. Are you agreed?’

” ‘Am I agreed!’ laughed the angel, as he glanced over the untold millions of his soldiers. ‘Why, certainly, my friend. You had better send word to your master to pack his luggage as quick as he can.’

” ‘All right, we shall see!’ said the imp, in calm, businesslike tones. And so the ominous game began.

“In the beginning the angel laughed, for, though twenty squares were passed, no noticeable diminution of his forces was perceptible. Demon Interest said nothing, but attended to business, quietly doubling his army on every succeeding square. At the thirtieth square the angel ceased to laugh, and a few squares farther on he had to open the gateways of his fertile brains as wide as he could, urging on his new troops with all his might. Only one field more, and he had to stop exhausted. He saw he was lost

” ‘I despised you, little fellow,’ he sighed despairingly, ‘and I am punished for my vanity. I see there is no use fighting against you. Demon Interest is more powerful than the Spirit of Invention. I am your slave. Command your servant!’

” ‘I am only the servant of my great master,’ dryly replied the demon. ‘Here I see him coming. He will give you his orders.’

“And Satan gave his orders. He commanded that the angel was to continue in his work with all his troops, which were to be increased with all possible exertion, so that humanity—which did not know the nature of the antagonist it had to fight against—would always keep in fresh hope of final success when the new troops were forthcoming. But as fast as they appeared. Demon Interest was to send forth a larger army to capture the new forces, to enslave them, and—instead of their benefiting man—make them increase the slave-chains which weigh him down.

“It was a devilish thought, as could rise only in such a head. Just what gave man new hope had to be the means of deepening his misery. What to every human eye appeared an unmixed blessing proved to be the incomprehensible source of greater need. Satan had been victorious far beyond his expectations, for those consequences of the battle of life, always more intensifying and growing wilder—poverty, ignorance, crime, vice, and hopeless misery—appeared more in evidence from day to day, and there was no hope of reform, because the wise men of the world proved the impossibility of indubitable facts, reasoning that blessings could not produce misery.”[1]

But all this only proves that compound interest is wrong; it does not prove anything against interest proper? An objection of this kind can hardly be maintained after one moment’s reflection. What is compound interest? Is it anything else than the fresh investment of earnings of capital? In what way does the lending of £100 paid to me as interest upon £2,000 differ from the lending of the original capital? If one is legitimate, the other is; if one is wrong, both must be wrong. This objection would not hold for a minute, and therefore the mathematical proof is furnished that labour does not earn enough to enable it to pay interest at current rates and obtain decent wages, or even get any wages at all.

Jonathan Duncan, in The Principles of Money Demonstrated, and Bullionist Fallacies Refuted, comes to the same results, 50 years ago, when he contrasts the increase of claims through interest and the increase of money in which the claims are due. I quote the passage, suggesting only the addition of the word “sufficiently” in the second line between “cannot” and “increase.” He calls Wealth or Merchandise real money.

“Neither is it just to charge metallic interest on the loan of metallic money, since the metal cannot increase, and therefore the interest can never be paid in kind. It must be commuted into labour, or the produce of labour, and infallibly leads to slavery. Suppose, for example, that England, at the present day, possessed the precious metals in coin to the amount of 28 millions, and having no paper money, were to require, as she does, increase on all loans of money at the rate of 5 per cent, every man who had borrowed £100 ought, at the end of the year, to be possessed of £105 in coin, or he cannot pay his debt with increase. One hundred thousand such men, having borrowed 10 millions of pounds, ought, at the end of the first year, to be in possession of half a million more, and in twenty years, not reckoning compound interest, their debt, with interest, could not be paid with less than 20 millions of pounds sterling. Now, where are these additional 10 millions to be found? Not in England, certainly—nor abroad, for all other nations take increase too, and their wants are in proportion to their capital. These men, therefore, go on for twenty years paying capital, by which time the whole of the money which they borrowed has been returned to their creditors; but the principal debt has not been paid, and now cannot be; they are insolvent to that amount. It may, however, be said that their creditors would have taken real money for increase if they could not get coin. But how can real money be paid under the present system without the intervention of coin? A further disadvantage naturally operates against the debtor; the country becomes more thickly peopled; young men of enterprise, in greater number, commence business; the money that was sufficient twenty years ago to give every man a ‘bellyful,’ will now scarcely suffice to give every man a ‘mouthful.’ Competition lowers profits; men cannot thrive on a decreasing trade, and he who borrowed when he commenced his career, with every prospect, as he thought, of returning his friends the loan with which he was assisted, finds himself, at the end of twenty years, he knows not how, farther removed than ever from the accomplishment of his wishes. He is, in fact, ruined by the utter inadequacy of a metallic currency to expand with the growing energies of the country.”

It is related that Napoleon Buonaparte, when shown an interest table, said, after some reflection: “The deadly facts herein revealed lead me to wonder that this monster Interest has not devoured the whole human race.” It would have done so long ago if bankruptcy and revolution had not been counter-poisons.

Private Land Ownership the Mother of interest

Having thus settled the nature of interest, let us look for its parentage. Even here we are not on untrodden paths, for one of the parents has already been found by Calvin. So long as 350 years ago the great reformer, answering the arguments of Aristotle, who thought the taking of interest unjustifiable, because money put aside cannot produce money, said:

“It is undoubted that money does not produce money; but with money land is bought, which produces more than the returns for the labour applied to it, and which gives a surplus income to the proprietor, after all expenses for wages and other things have been met. With money a house can be bought bringing a rent income. Objects with which things can be bought, producing incomes by themselves, can certainly be considered as bringing incomes themselves.”

If I have £100 worth of goods of any description, with which I can purchase a piece of land, bringing £3 worth of rental income, I should certainly be foolish if I lent this £100 in money or goods of any kind to anybody unless he paid me at least £3 a-year for the privilege of getting the use of my capital during that time.

Through making land an object of commerce, like boots and shoes, like watches and houses, we have given it a merchandise value; and rent has become the interest on the market price of land. Rent by itself is no tribute in the sense of an extortion; but an addition to labour’s product due to the ownership of land. It becomes an extortion only where this ownership is usurped by individuals, not where it belongs to the community; where the product goes into private pockets, instead of into the common purse. One wrong leads to others. Through allowing monopolists to usurp the common inheritance, through making the property of humanity an object of commerce, a merchandise, the income which this merchandise produces has infected all other articles of commerce, all kinds of merchandise; for if the interest income from land values is not a tribute, but an inherent property of one merchandise, why should it not be that of all others for which it can be bought? Thus rent, through appearing in the shape of interest on land values, became the progenitor of interest on all other mercantile values.

Land, though the principal and original source of incomes obtained without work, is not the only one. Every secure monopoly partakes of the same nature. If the State issues certain scrip’s called Government bonds, by the ownership of which can be secured the monopoly of claiming as private income a certain part of the taxes collected by the State, or in other words, the privilege of making use of the whole power of the State to force the workers into paying to the owner of the bond a certain portion of their earnings through the intervention of the tax-collector, then everyone who has capital in hand, which somebody wants to borrow, will demand and obtain as much interest for the same as can be secured by means of the State bond, with the addition or deduction of the risk premium resulting from a comparison of the securities offered on either side. Railway bonds and shares, canal securities, gas and water work investments, mortgages, etc., partake more or less of the same character.

When I said that the land monopoly was the father of all these monopolies, I meant that if the State had never parted with her rights in the land, there would never have been any Government debts. As the sole land-owner, the sole proprietor of the fountain of all material existence—the possession o( which entails the right of levying a tribute from all the inhabitants equivalent to the total of their earnings beyond their legitimate wages, and even more if found necessary—the State with such a power would always have been the greatest capitalist in the land, so far exceeding all others in the magnitude of her wealth that, instead of ever having to borrow, she would have become the principal lender. She would have been enabled to build the railroads and canals from her own capital; gas and water works, etc., would have been built by the community.

Gold and Silver Legal Tender the Father of Interest

All this under the supposition that she also created her own money; for as long we make one or two scarce products the sole legal tender, the monopolisers of these products can exact a tribute for their loan; and interest, with all its consequences, will continue to exist. This also is not a new discovery; in fact, many of the enemies of interest have recognised that the money made out of the precious metals is the father of interest. On the other hand, as I have shown, land was recognised as its mother centuries ago. The trouble only has been that reformers were usually satisfied with the finding of one parent, never supposing that there might be two progenitors, though such is the order of Nature. However, the parents are near relations; and this consanguinity may be responsible for the monstrosity of their offspring. The joint family name is Monopoly.

Gross Interest and Interest Proper

I cannot close this chapter without taking into consideration the great difference existing between gross interest and interest proper, i.e., between the interest actually paid and that quota of it which remains after the risk premium and wages of supervision are deducted. Even men who clearly understand the difference between the two kinds of interest often forget to apply their theory when they come to a practical application. Henry George, for instance, after having shown that he fully understands the difference, forgets it when he speaks of

Wages arid Interest rising and falling together,

generalising on the data of California, where the rate of interest and wages fell together. “When common wages were $5 a-day, the ordinary bank rate of interest was 24 per cent, per annum. Now that common wages are $2 or $2.50 a-day, the ordinary bank rate is from 10 to 12 per cent,” (Progress and Poverty, Book I., Chapter I.) This simply means that when wages or ordinary labour were high, wages of supervision were high too. Where—through higher cost of living, greater danger to life and property, and an entire absence of the amenities of life—a wage-worker obtains twice as much as in other countries, usually bank officials also receive a proportionately higher salary. To this, in the ease given by George, we have to add the greater risk run by capital. Distance from the investor by itself is an element of a certain importance, as every capitalist prefers to take less interest nearer home rather than more interest at a distance, where many months have to pass before he can hear from his agents, and many more months before he can pass them instructions. We must not forget that this was the case in California at the time when the 24% interest was obtained, when neither railroad nor telegraph connected the Pacific with the eastern cities, and when no cable was laid between these and the European capitals. The degree of security for property and life is another element not to be forgotten. In short, we may safely say that whatever an investor receives beyond the rate of interest obtainable in his country on best security is not interest proper, but risk premium and wages of supervision. For one man who, after paying agents’ commissions and other expenses, obtained four or five times as high a rate of interest for his Californian investments as he would have received at home—perhaps four others lost, or anyhow, might have lost, every penny they invested. The additional income thus obtained all round, if there was any, was not interest proper, but the reward of a clear foresight, of correct calculations, information and knowledge not available to the ordinary investor; in other words, wages of supervision at organisation, business profits. We might just as well say that the usurer in London who succeeds in obtaining 50% interest without losing his capital has really got so much interest; in a city where, at the same time, the Bank of England rate is 27o, and where money on call can be obtained on best security at 1%, as actually was the case about five years ago (1896). By far the greatest part of his 50% is risk premium, the risk comprising not only that of his money, but also of his good character, if he possesses such a thing; the balance was wages. His trade is not the only one where these wages are abnormally high through certain contingencies connected with the work. The wages earned by a successful burglar, pimp, blackmailer, etc., belong to the same category.

I should not have spent so much time upon this theme if it were one of merely theoretical importance, as I am no great friend of theories which have no particular influence upon practical life. The fact that undue weight has hitherto been attached to worthless disquisitions on categories and terms is responsible for the title of “dismal science” which Carlyle gave to political economy, and for its bad repute the world over. But this

 Distinction between Net interest, or interest proper, and Gross interest, is one of the most Momentous in practical Life.

For the producer and trader it matters very little at what rate bankers can get money upon good collaterals, but very much what he himself has to pay for it. And, strange as it sounds, the lower the rate at which the bank can obtain money upon good securities, the higher the rate usually is which the producer and trader will be forced to disburse; and when the interest paid by the banker is almost at zero, the ordinary producer and trader cannot obtain money on any terms. This paradox is easily solved.

We must keep in mind that business is usually not done with real money, but by means of credit; and whenever prices are falling through the sluggishness of the market, credit is reduced; or, as it is almost impossible to correctly place cause and effect in such a case, whenever credit becomes stiffer, prices fall. Anyhow, effect and cause react upon each other as they usually do. Whenever business investments tend to become more risky, capitalists prefer to retire their money from such investments, and temporarily place it where they can dispose of it at any time, even if they have to leave it interest free in their banks.[2]

The investments preferred under such conditions are consols, loans upon the deposit of good papers, or discounting of first-class bills of exchange. Smaller capitalists go to the savings banks, and deposit the maximum permitted; often opening accounts in the name of wife, children, and other relations to get around the maximum clause. The greater demand for this class of investments raises their price, or, which means the same thing in this case, depresses the interest rate. In this way the low interest rate of these investments and the increase of the larger savings bank deposits[3] usually is the sign of a stagnancy in business, of an increasing want of employment, and absence of confidence generally. It is natural that under such conditions the risk premiumrise, and thus the low rate of interest at exchange is generally accompanied by s high rate of the interest demanded for capital required for productive purposes. Thus we can safely say:

The lower the Net Interest the higher Is the Gross Interest

the interest paid by producers, and consequently the lower are wages. The case of California, at the time of which George speaks, was different; because that portion of the risk premium comprised under wages of supervision was particularly high, and for the very same reasons already mentioned which raised ordinary wages. In older countries this element is in the background; wages of supervision fall with other wages; but the risk premium rises through causes among which, as the next chapter will show, the low wages play a prominent part. Thus we can also safely say that, as a rule, wages are high where gross interest—the interest which the producer has to pay to the capitalist–is low; and wages are low where this interest is high. (See also p. 362.)

Laws against Interest useless

After what has been said in this chapter, it is hardly necessary to add that demon Interest will never be exorcised by legal enactments which forbid the taking of interest. Signal failure has accompanied all experiments in mis direction. Where the canonical laws prohibited the taking of interest in the Middle Ages, money was locked up, and, as the inevitable result where the money monopoly is given to scarce metals, trade languished. In such a case it was a choice between the deep sea of stagnation in all intercourse produced by the blocking up of the circulating medium of exchange and the devil Interest whose enticements allured the money back from its hiding-places. Under such circumstances, the privilege of taking usury which was conceded to the jews was not meant as a favour to them but was the result of an actual necessity.

No direct attack against the arch enemy has ever been of any use. Only by cutting off the roots: private land ownership and the legal tender monopoly given to a money made out of the precious metals, can we kill the noxious weed. A wellknown method by which the canonical laws were often circumvented has proved this. The borrower made a bill of sale of some land to his creditor for the debt, by which he became the tenant of the land whose rent represented the interest on the borrowed money. When the loan was repaid, the land reverted to the former proprietor.


[1] This allegory is taken from my Rent, Interest, and Wages.

[2] Arthur Fonda says in Honest Money (p. 109): “The accumulation of money in banks in times of depression indicates, not too much money, but a general belief that its value is rising, or a fear that it will rise—testifying, if to anything, to too little money, in fact. Men do not hold a thing that brings no income, unless they expect to profit by its rise.’’

[3] “Generally accompanied by the decrease or disappearance of many of the small deposits, a fact now hidden because generally deposit statistics are not classified, and thus its figures are made to prove the very reverse of their real meaning: prosperity instead of poverty. Our excellent New Zealand Registrar-General, Mr. E. J. von Dadelszen, to whom I am indebted for his Statistics of the Colony of New Zealand for the Year 1900, gives (p. 309) the first classified savings bank statistics I ever met with. It is true they only give the accounts of the Postal Saving Bank, but this bank does seven-eighths of the New Zealand savings bank business. Even here, however, there is room for further improvement. The lowest class, not exceeding;£20, ought to be further subdivided, and the average balances of each class should be given. Taking the medium figures of each class: £35 for the second “exceeding £20 and up to £50”, £75 for the third of £50-100, etc., £600 for the highest of amounts exceeding £500, and deducting the figures thus obtained from the total balance of £5,809,552, only £458,146 are left for the 142,368 depositors of the first class or an average of £3 4s. 5d. As there were in all 197,408 depositors, this would mean that 70% of the depositors only had an average balance of £3 4s. 5d. each, while 4 million pounds sterling of 6 millions were deposited by 19,003 people, one-tenth of the depositors, i,e. those with balances exceeding £100. Only 4% had balances exceeding £200. But, of course, no exact calculations are possible as long as we are left without the actual average of each class.