On Interest, Rent, and Profit (1872)

In the 1870s in Germany, due to industrialization, peasants from the countryside were pouring into the cities, leading to heated discussions about the ensuing “housing shortage.” Many socialists responded by presenting to the public their solutions to the crisis. Friedrich Engels intervened in this dispute by writing a series of polemic articles for Der Volkstaat attacking some of these other socialists for their bad suggestions. These were later arranged into the famous document titled “The Housing Question.” ^[1]

Due to the nature of Engels’s answer, however, this original title can be somewhat misleading. Engels’s concern was precisely to oppose rivals within the socialist movement who argued that the housing question was primary, and that it could be solved by passing regulations — “decrees” — targeting “rentiers”; by “reducing the rate of interest to one per cent”:

“If this polemic serves for nothing else it has the value in any case of having provided proof of how impractical these so-called ‘practical’ socialists really are.” ^[2]

For Marx and Engels this general approach to social problems was symptomatic of “petty-bourgeois socialism” in at least two ways: Firstly, its exponents, because they were affected directly, tended to see the matter of access to housing and credit as more pressing and important than critique of the wage relation as such. Secondly, they invited everyone to entertain relatively simple solutions, such as oversight and regulation of money transfers, to limit “usury.”

For Engels, if this misguided thinking gained ground, its effect would be to drag backwards the budding revolutionary consciousness of German workers:

“The theoretical standpoint of the German workers is fifty years ahead of that of Proudhonism, and it will be sufficient to make an example of it in this one question of housing in order to save any further trouble in this respect.”

Engels advanced instead the communist point of view: that housing “shortages” ultimately derived from the wage relation at the core of capitalism, and could never be solved or seriously ameliorated by patching up the underlying human relationships with decrees. It was important to draw attention to and raise consciousness about the fact of the perfectly ordinary, everyday, systematic appropriation of surplus value — an objective economic fact in every society economically organized around the purchase of labour-power. ^[3] After all, that was the real bedrock, atop which all the loud capitalist “squabblings and mutual swindling” about the distribution of the booty took place.

Marx and Engels called the standpoint of petty-bourgeois socialism “Proudhonism,” after the French socialist Pierre-Joseph Proudhon, against whom Marx famously polemicized throughout his career. ^[4] The target of Engels’s polemic, Mülberger, rejected the charge, but Engels ably demonstrated that his and Proudhon’s way of thinking — and the solutions they propose — were identical in content, and so identically lousy.

To highlight the general and enduring relevance of Engels’s argument today — an era when many self-avowed Marxists also try to claim fidelity to “Modern Monetary Theory” and Michael Hudson — I’ve combined into the document below some fragments of “How Proudhon Solves The Housing Question.”
 — R. D.

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Contents

• The Cornerstone of the Capitalist Mode of Production
• The Revolutionary Proletariat and the Proudhonist Counter-Revolution
• “Productivity of Capital”
• Laws on Usury and the Abolition of Interest
• On Credit, State Debts, Private Debts, Taxes… and Wages

The Cornerstone of the Capitalist Mode of Production

The cornerstone of the capitalist mode of production is the fact that our present social order enables the capitalists to buy the labour power of the worker at its value, but to extract from it much more than its value, by making the worker work longer than is necessary in order to reproduce the price paid for the labour power. The surplus value produced in this fashion is divided among the whole class of capitalists and landowners together with their paid servants — from the Pope and the Kaiser down to the night watchman and below. All those who do not work can live only from the fragments of this surplus value, which reach them in one way or another.

The distribution of this surplus value among the non-working classes, produced by the working class and taken from it without payment, proceeds amid extremely edifying squabblings and mutual swindling. Insofar as this distribution takes place by means of buying and selling, one of its chief methods is the cheating of the buyer by the seller. In retail trade, particularly in the big towns, this has become an absolute condition of existence for the sellers. Now, although the worker is cheated by his grocer or his baker, either in regard to the price or the quality of the commodity, this does not happen to him in his specific capacity as a worker. On the contrary, as soon as a certain average level of cheating has become the social rule in any place, it must in the long run be leveled out by a corresponding increase in wages. The worker appears before the small shopkeeper as a buyer, that is, as the owner of money or credit, and hence not at all in his capacity as a worker, that is, as a seller of labour power. The cheating may hit him, and the poorer class as a whole, harder than it hits the richer social classes, but it is not an evil which hits him exclusively or is peculiar to his class.

This housing shortage similarly hits the worker harder than it hits any more prosperous class, but it is just as little an evil which burdens the working class exclusively as the cheating of the shopkeeper.

The tenant is cheated only when he is compelled to pay for the dwelling above its value. It is, therefore, a complete misrepresentation of the relation between landlord and tenant to attempt to make it equivalent to the relation between worker and capitalist. On the contrary, we are dealing here with a quite ordinary commodity transaction between two citizens, and this transaction proceeds according to the economic laws which govern the sale of commodities in general, and in particular the sale of the commodity land property.

It is with just such sufferings as these, which the working class endures in common with other classes, and particularly the petty bourgeoisie, that petty-bourgeois socialism, to which Proudhon belongs, prefers to occupy itself. And thus it is not at all accidental that our German Proudhonist occupies himself chiefly with the housing question, which he declares to be a true, exclusively working class question.

The Revolutionary Proletariat and the Proudhonist Counter-Revolution

In order to create the modern revolutionary class of the proletariat, it was absolutely necessary to cut the umbilical cord which still bound the worker of the past to the land. The hand weaver who had his little house, garden and field along with his loom, was a quiet, contented man “in all godliness and respectability” despite all misery and despite all political pressure; he saluted the rich, the priests and the officials of the state and inwardly was altogether a slave.

It is precisely modern large-scale industry, which has turned the worker, formerly chained to the land, into a completely propertyless proletarian, liberated from all traditional fetters and free as a bird. It is precisely this economic revolution which has created the sole conditions under which the exploitation of the working class in its final form, in the capitalist mode of production, can be overthrown.

And now comes this tearful Proudhonist and bewails the driving of the workers from hearth and home as though it were a great retrogression, instead of being the very first condition for their intellectual emancipation.

That the situation of the workers has in general become materially worse since the introduction of capitalist production on a large scale is not in doubt (the bourgeoisie notwithstanding). But should we therefore look backward longingly to the (likewise very meager) flesh-pots of Egypt? To rural small-scale industry, which produced only servile souls? Or to “the savages”? On the contrary.

Only the proletariat created by modern large-scale industry, liberated from all inherited fetters, including those which chained it to the land, driven in herds into the big towns, is in a position to accomplish the great social transformation which will put an end to all class exploitation and all class rule. The old rural hand weavers with hearth and home would never have been able to do it; they would never have been able to conceive such an idea, much less able to desire to carry it out.

For Proudhon, on the other hand, the whole industrial revolution of the last hundred years, the introduction of steam power and large-scale factory production which substituted machinery for hand labour and increased the productivity of labour a thousandfold, is a highly repugnant occurrence, something which really ought never to have taken place.

The petty-bourgeois Proudhon demands a world in which each person turns out a separate and independent product that is immediately consumable and exchangeable in the market. Then, as long as each person only receives back the full value of his labour in the form of another product, “eternal justice” is satisfied, and the best possible world created.

But this best possible world of Proudhon has already been nipped in the bud and trodden underfoot by the advance of industrial development which has long ago destroyed individual labour in all the big branches of industries, and which is destroying it daily more and more in the smaller and smallest branches. ^[5] It has set social labour supported by machinery and the harnessed forces of nature in its place. The finished product immediately exchangeable or consumable is now the joint work of the many individuals through whose hands it has to pass.

And it is precisely this industrial revolution which has raised the productive power of human labour to such a high level that — for the first time in the history of humanity — the possibility exists, given a rational division of labour among all, to produce not only enough for the plentiful consumption of all members of society and for an abundant reserve fund, but also to leave each individual sufficient leisure, so that what is really worth preserving in historically inherited culture — science, art, human relations — is not only preserved, but converted from a monopoly of the ruling class into the common property of the whole of society, and further developed.

And here is the decisive point: as soon as the productive power of human labour has developed to this height, every excuse disappears for the existence of a ruling class. Was not the final reason with which class differences were defended always: there must be a class which need not plague itself with the production of its daily subsistence, in order that it may have time to look after the intellectual work of society? This talk, which up to now had its great historical justification, has been cut off at the root once and for all by the industrial revolution of the last hundred years. The existence of a ruling class is becoming daily more and more a hindrance to the development of industrial productive power, and equally so to science, art and especially cultural human relations. There never were greater boors than our modern bourgeois.

But all this is nothing to friend Proudhon. He wants “eternal justice,” and nothing else. Each shall receive in exchange for his product the full proceeds of his labour, the full value of his labour. But to reckon that out in a product of modern industry is a complicated matter, for modern industry obscures the particular share of the individual in the total product, which in the old individual handicraft was obviously represented by the finished product. Further, modern industry abolishes more and more the individual exchange on which Proudhon’s whole system is built up — namely direct exchange between two producers, each of whom takes the product of the other in order to consume it.

Consequently a reactionary character runs throughout the whole of Proudhonism; an aversion to the industrial revolution, and the desire — sometimes overtly, sometimes covertly expressed — to drive out of the temple the whole of modern industry, steam engines, mechanical looms, and the rest of the swindle. To return to the old, respectable hand labour. That we would then lose nine hundred and ninety-nine thousandths of our productive power, that the whole of humanity would be condemned to the worst possible labour slavery, that starvation would become the general rule… What does all that matter if only we succeed in organising exchange in such a fashion that each receives “the full proceeds of his labour,” and that “eternal justice” is realized? Fiat justitia, pereat mundus! ^[6]

And the world would perish in this Proudhonist counter-revolution if it were at all possible to carry it out.

It is, moreover, self-evident that, with social production conditioned by modern large-scale industry, it is possible to assure each person “the full proceeds of his labour,” so far as this phrase has any meaning at all. And it has a meaning only if it is extended to mean not that each individual worker becomes the possessor of “the full proceeds of his labour,” but that the whole of society, consisting entirely of workers, becomes the possessor of the total proceeds of its labour, which it partly distributes among its members for consumption, partly uses for replacing and increasing the means of production, and partly stores up as a reserve fund for production and consumption.

“Productivity of Capital”

The “productivity of capital” is an absurdity that Proudhonism takes over uncritically from the bourgeois economists. The bourgeois economists, it is true, also begin with the statement that labour is the source of all wealth and the measure of value of all commodities; but they also have to explain how it comes about that the capitalist who advances capital for an industrial or handicraft business receives back at the end of it not only the capital which he advanced, but also a profit over and above it. In consequence they are compelled to entangle themselves in all sorts of contradictions and also to ascribe to capital a certain productivity. Nothing proves more clearly how deeply Proudhon remains entangled in the bourgeois ideology than the fact that he has taken over this phrase about the “productivity of capital.”

The so-called “productivity of capital” is nothing but the quality attached to it — under present-day social relations, without which it would not be capital at all — of being able to appropriate the unpaid labour of wage workers. However, Proudhon differs from the bourgeois economists in that he does not approve of this “productivity of capital,” but, on the contrary, finds it a violation of “eternal justice.” It is this which prevents the worker from receiving the full proceeds of his labour. It must therefore be abolished. But how? By lowering the rate of interest by compulsory legislation and finally by reducing it to zero. And then, according to our Proudhonist, capital would cease to be productive.

The interest on loaned money capital is only a part of profit; profit, whether on industrial or commercial capital, is only a part of the surplus value taken by the capitalist class from the working class in the form of unpaid labour. The economic laws which govern the rate of interest are as independent of those which govern the rate of surplus value as could possibly be the case between laws of one and the same social form. But as far as the distribution of this surplus value among the individual capitalists is concerned, it is clear that for those industrialists and business men who have large quantities of capital in their businesses advanced by other capitalists, the rate of their profit must rise — all other things being equal — to the same extent as the rate of interest falls. The reduction and final abolition of interest would therefore by no means really take the so-called “productivity of capital” “by the horns”; it would do no more than re-arrange the distribution among the individual capitalists of the unpaid surplus value taken from the working class; it would not, therefore, give an advantage to the worker as against the industrial capitalist, but to the industrial capitalist as against the rentier.

The Proudhonist finds it a crime against eternal justice that the house owner can without working obtain ground rent and interest out of the capital he has invested in the house. He decrees that this must cease, that capital invested in houses shall produce no interest, and so far as it represents purchased landed property, no ground rent either.

Now we have seen that hereby the capitalist mode of production, the basis of present-day society, is in no way affected. The pivot on which the exploitation of the worker turns is the sale of labour power to the capitalist and the use which the capitalist makes of this transaction in that he compels the worker to produce far more than the paid value of the labour power amounts to. It is this transaction between capitalist and worker which produces all the surplus value which is afterwards divided in the form of ground rent, commercial profit, interest on capital, taxes, etc., among the various sub-species of capitalists and their servants.

And now our Proudhonist comes along and believes that if we were to forbid one single sub-species of capitalists to receive profit or interest, and at that of such capitalists who purchase no labour power directly and therefore also cause no surplus value to be produced, it would be a step forward! The mass of unpaid labour taken from the working class would remain exactly the same even if house owners were to be deprived tomorrow of the possibility of receiving ground rent and interest. However, this does not prevent our Proudhonist from declaring:

“The abolition of rent dwellings is thus one of the most fruitful and magnificent efforts which has ever sprung from the womb of the revolutionary idea and it must become one of the primary demands of Social-Democracy.”

This is exactly the type of market cry of the master Proudhon himself, whose cackling was always in inverse ratio to the size of the eggs laid.

Laws on Usury and the Abolition of Interest

Proudhon, from his legal standpoint, explains interest, as he does all economic facts, not by the conditions of social production, but by the state laws in which these conditions receive their general expression. From this point of view, which lacks any inkling of the inter-relation between the state laws and the conditions of production in society, these state laws necessarily appear as purely arbitrary orders which at any moment could be replaced just as well by their exact opposite.

Nothing is therefore easier for Proudhon than to issue a decree — as soon as he has the power to do so — reducing the rate of interest to one per cent. And if all the other social conditions remained as they were, then indeed this Proudhonist decree would exist on paper only. The rate of interest will continue to be governed by the economic laws to which it is subject today, despite all decrees. Persons possessing credit will continue to borrow money at two, three, four, and more per cent, according to circumstances, just as much as before, and the only difference will be that the financiers will be very careful to advance money only to persons from whom no subsequent court proceedings might be expected. Moreover this great plan to deprive capital of its “productivity” is as old as the hills; it is as old as the usury laws which aimed at nothing else but limiting the rate of interest, and which have since been abolished everywhere because in practice they were continually broken or circumvented, and the state was compelled to admit its impotence against the laws of social production. And the reintroduction of these mediaeval and unworkable laws is now “to take the productivity of capital by the horns”? One sees that the closer Proudhonism is examined the more reactionary it appears.

When, now, in this fashion, the rate of interest has been reduced to zero, and interest on capital therefore abolished, then “nothing more would be paid than the labour necessary to turn over the capital.” This means that the abolition of interest is equivalent to the abolition of profit and even of surplus value. But if it were possible really to abolish interest by decree, what would be the consequence? The class of rentiers would no longer have any inducement to loan out their capital in the form of advances, but would invest it industrially themselves or in joint-stock companies on their own account. The mass of surplus value extracted from the working class by the capitalist class would remain the same; only its distribution would be altered, and even that not much.

In fact, our Proudhonist fails to see that, even now, no more is paid on the average in commodity purchase in bourgeois society than “the labour necessary to turn over the capital” (it should read, necessary for the production of the commodity in question). Labour is the measure of value of all commodities, and in present-day society — apart from fluctuations of the market — it is absolutely impossible that on a total average more should be paid for commodities than the labour necessary for their production. No, no, my dear Proudhonist, the difficulty lies elsewhere: it is contained in the fact that the labour necessary for the production of the commodity in question is not fully paid! How this comes about you can look up in Marx. ^[7]

But that is not enough. If interest on capital is abolished, house rent is apparently also abolished with it; for, “like all other products, houses and dwellings are naturally also included within the framework of this law.” It was reserved for Proudhon to imagine that his new usury law would without more ado regulate and gradually abolish not only simple interest on capital, but also the complicated house rents of dwellings!

On Credit, State Debts, Private Debts, Taxes… and Wages

One who has achieved so much feels he has the right to deliver the following serious exhortation to the German workers:

“In our opinion, such and similar questions are well worth the attention of Social-Democracy. […] Let them therefore, as here in connection with the housing question, seek to become clear on other and equally important questions such as credit, state debts, private debts, taxation,” etc.

Thus, our Proudhonist here faces us with the prospect of a whole series of articles on “similar questions,” and if he deals with them all as thoroughly as the present “so important subject,” then the Volksstaat will have copy enough for a year. But we are in a position to anticipate it all amounts to what has already been said: interest on capital is to be abolished and with that the interest on public and private debts disappears, credit will be gratis, etc. The same magic formula is applied to every subject and in each separate case the same astonishing result is obtained with inexorable logic: namely, that when interest on capital has been abolished no more interest will have to be paid on borrowed money.

They are fine questions, by the way with which our Proudhonist threatens us:

• “Credit!” What credit does the worker need apart from that from week to week, or the credit he obtains from the pawnshop? Whether he gets this credit free or at interest, even at the usurious interests of the pawnshop, how much difference does that make to him? And if he did, generally speaking, obtain some advantage from it, that is to say, if the costs of production of labour power were reduced, would not the price of labour power necessarily fall also? But for the bourgeois, and in particular for the petty bourgeois, credit is an important matter and it would therefore be a very fine thing for them, and in particular for the petty bourgeois, if credit could be obtained at any time and, in addition, without payment of interest.
• “State debts!” The working class knows very well that it did not make the state debt, and when it comes to power it will leave the payment of it to those who did make it.
• “Private debts!” See credit.
• “Taxes!” Matters that interest the bourgeoisie very much, but the worker only very little. What the worker pays in taxes goes in the long run into the costs of production of labour power and must therefore be compensated for by the capitalist.

All these things which are held up to us here as highly important questions for the working class are in reality of essential interest only to the bourgeoisie, and in particular to the petty bourgeoisie, and, despite Proudhon, we assert that the working class is not called upon to look after the interests of these classes.

Our Proudhonist has not a word to say about the great question which really concerns the workers: that of the relation between capitalist and wage worker. The question of how it comes about that the capitalist can enrich himself from the labour of his workers. His lord and master it is true, did occupy himself with it, but introduced absolutely no clearness into it, and even in his latest writings he has got essentially no farther than he was in his The Philosophy of Poverty, which Marx disposed of so conclusively in all its emptiness in 1847.

It was bad enough that for twenty-five years the workers of the Latin countries had almost no other socialist mental nourishment than the writings of this “Socialist of the Second Empire,” and it would be a double misfortune if Germany were now to be inundated with the Proudhonist theory. However, there need be no fear of this. The theoretical standpoint of the German workers is fifty years ahead of that of Proudhonism, and it will be sufficient to make an example of it in this one question of housing in order to save any further trouble in this respect.