[I have wanted to quote the essay below (actually the second 3/5 of the essay, but independent of the first 2/5 of it) for some time, but whenever I re-read it, it is more Frenchly disjointed than I remember. I thought this was an appropriate time to make the extra effort.]
An economic system is not like a building, and economic ills are not like falling masonry.
In every domain accessible to human thought and activity the key is provided by a certain conception of equilibrium, and without it we only fumble in the dark; the mathematical symbol of equilibrium is proportion, beloved of the Pythagoreans. It was by conceiving a certain equilibrium proper to the human form as represented in marble and bronze that the Greeks invented sculpture, and their achievement was repeated by the Florentines of the fourteenth century. And the Florentines invented painting when they conceived the idea of pictorial composition. Bach is the purest of musicians because he seems to have set himself the task of studying every mode of equilibrium in sound. Archimedes became the creator of physics by his mathematical construction of the different kinds of lever. Hippocrates based his science of Pythagoreanism by assimilating health to equilibrium in the functioning of the different organs. The miracle of Greece, which was mainly due to the Pythagoreans, essentially consists in having recognised the virtue of the idea and the feeling of equilibrium.
Economic life has not yet been touched by the Greek miracle. We possess no conception of the equilibrium proper to an economy. Men have never conceived it; but it is true that the study of economics is not yet two hundred years old. It would be no exaggeration to say that all economic studies up to the present have been fruitless. Economics has not yet had a Thales, an Archimedes, or a Lavoisier. This failure is probably in large part to the revolutionary doctrines which appeared just over a century ago. The revolutionaries wanted to prove the bourgeois society had become unworkable and therefore they made no attempt to conceive an economic equilibrium for the given state of affairs; and as for the future, they took it for granted that the revolution would automatically solve all economic problems by abolishing them. No revolutionary has ever seriously attempted to define the conditions of economic equilibrium in the social regime he looks forward to. And as for non-revolutionaries, for polemical reasons they have become counter-revolutionaries, uninterested in studying the reality before their eyes and interested only to advertise its merits. All of us today, in all parties, are suffering the disastrous consequences of this intellectual dishonesty, which, moreover, we all more or less share.
We do, it is true, possess a sort of cheap substitute for the idea of economic equilibrium. It is the idea, if such can be called, of financial equilibrium. It is disarmingly simple. It consists of putting the ‘equal’ sign between resources and expenditure, each of them calculated in terms of accountancy. Until recently this criterion seemed to meet all requirements, whether applied to the State or to commercial and industrial undertakings or to private individuals. And it was at the same time a criterion of virtue. Like every other ideal, the bourgeois ideal of paying one’s debts has had its martyrs, of whom César Birotteau will always be the best representative; but even in the 5th century B. C. the aged Cephalus, to convince Socrates that he had always lived according to justice, made the claim: ‘I have told the truth and paid my debts.’ Socrates doubted if this was a satisfactory definition of justice. But Socrates was a troublesome person.
Today this criterion has lost much of its prestige, both economic and moral; but it still survives. People still apply Cephalus’ formula to the state, or at least one half of the formula; no one requires the State to tell the truth, but it is considered scandalous if it defaults on its debts.
It has not yet been understood that the good Cephalus’ formula is inapplicable on account of two phenomena, which go together and are almost as ancient as money itself: namely, credit and the remuneration of capital. In his luminous little book What is Property? Proudhon demonstrated not the injustice or immorality of property, but its impossibility; by property he did not mean the exclusive right to the use of goods, but the right to lend them at interest, whatever form the interest might take: rent, lease, or dividend of any kind. Yet this is in fact the fundamental right in any society in which wealth is normally thought of as investment income.
So soon as capital, whether in land or in any other form, is remunerated and this remuneration figures in a large number of public or private accounts, the attempt to achieve financial equilibrium becomes a permanent factor of disequilibrium. The evidence leaps to the eye. Capital invested at 4 per cent is quintupled in a hundred years; but if the income is reinvested there is a geometric progression so rapid, as always, that an interest of 3 per cent will multiply capital a hundredfold in two centuries.
No doubt the proportion of land or other goods put out to rent or interest has always been a small one; and no doubt the income is not all reinvested. But the figures given above do nevertheless indicate that it is mathematically impossible for a society based upon money and loans at interest to maintain financial probity for two centuries. If it were maintained, the fructification of capital would automatically ensure that the entire resources of the community passed into the hands of a few people.
A rapid glance at history is enough to show the subversive role consistently played, ever since money existed, by the phenomenon of debt. The cancellation of debts was the principal feature of the reforms of both Solon and Lycurgus. And later on the small Greek cities were more than once shattered by movements in favour of another cancellation. The revolt by which the Roman plebeians won the institution of the tribuneship had its origin in a widespread insolvency which was reducing more and more debtors to the condition of slavery; and even if there had been no revolt a partial cancellation of debts had become imperative, because with every plebeian reduced to a slave Rome lost a soldier.
The payment of debts is necessary for social order. The non-payment of debts is quite equally necessary for social order. For centuries humanity has oscillated, serenely unaware, between these two contradictory necessities. Unfortunately, the second of them violates a great many seemingly legitimate interests and it has difficulty in securing recognition without disturbance and a measure of violence.
[The Malthusian insight at the core of this, that a dependence on lending capital at interest at rates above the rate of overall economic growth is inherently unsustainable, seems to me pretty solid. What do you think?]