The Theory of interest
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By: Silvio Gesell
Mai 5th, 1920
A STORY OF ROBINSON CRUSOE
To introduce the theory of interest here expounded, and to facilitate the removal of old
prejudices, which are nowhere stronger than in connection with the subject of interest, I shall
begin with a story of Robinson Crusoe. *
Robinson Crusoe, as is well known, built his house, from motives of health, on the south side
of the mountain, whereas his crops grew on the damp but fruitful northern slopes. He was
therefore obliged to carry his harvests over the mountain. To eliminate this labour he decided
to construct a canal around the mountain. The time required for this enterprise which, to avoid
silting, would have to be continued without interruption, he estimated at three years. He had
therefore to lay in provisions for three years.
He slaughtered some pigs and cured their flesh with salt; he filled a deep trench with wheat,
covering it carefully with earth. He tanned a dozen buckskins for suits and nailed them up in a
chest, enclosing also the stink-glands of a skunk as a precaution against moths. In short, he
provided amply and, as he thought, wisely, for the coming three years.
As he sat calculating for the last time whether his "capital" was sufficient for the projected
undertaking, he was startled by the approach of a stranger, obviously the survivor of a
"Hallo, Crusoe!" shouted the stranger as he approached, "my ship has gone down, but I like
your island and intend to settle here. Will you help me with some provisions until I have
brought a field into cultivation and harvested my first crops?"
At these words Crusoe's thoughts flew from his provisions to the possibility of interest and
the attractions of life as a gentleman of independent means. He hastened to answer "yes."
"That's splendid ! " replied the stranger, "but I must say at once that I shall pay no interest. I
would prefer to keep myself alive by hunting and fishing, for my religion forbids me to pay, or to
* To save space I have not subjected the loan-contract here described to the regulating
effect of competition. If the conditions of the loan were determined by competition in the form
of several loan-givers (Crusoes) to one loan-taker (the Stranger) the contract would be still
more favourable to the loan-taker. It is also assumed that both parties are guided by the
principles of Free-Land, for otherwise the outcome would be, not a loan contract, but a fight.
An admirable religion! But from what motive do you expect me to advance
you provisions from my stores if you pay me no interest?
From pure egoism, my dear fellow, from your self-interest rightly understood.
Because you gain, and gain enormously.
That, stranger, you have yet to prove. I confess that I can see no advantage in lending
you my provisions free of interest.
I shall prove it in black and white, and if you can follow my proof, you will agree to a
loan without interest, and thank me into the bargain. I need, first of all, clothes, for, as you
see, I am naked. Have you a supply of clothes?
That chest is packed with buckskin suits.
My dear Crusoe! I had more respect for your intelligence. Just fancy nailing up clothes
for three years in a chest - buckskins, the favourite diet of moths! And buckskins must be
kept aired and rubbed with grease, otherwise they become hard and brittle.
That is true, but I have no choice in the matter. They would be no safer in my clothes-cupboard
- less safe, indeed, for it is infested by rats and mice as well as by moths.
The rats and mice will get them in any case. Look how they have already started to
gnaw their way in!
Confound the brutes! I am helpless against them.
What! A human being helpless against mice! I will show you how to protect yourself
against rats and mice and moths, against thieves and brittleness, dust and mildew. Lend
me these clothes for one, two or three years and I agree to make you new clothes as
soon as you require them. You will receive as many suits as you have lent me, and the
new suits will be far superior to those you would have taken from the chest. Nor will you
regret the absence of the particular perfume you have employed! Do you agree?
Yes, stranger, I agree to lend you the chest of clothes; I see that in this case, the loan,
even without interest, is to my advantage. *
Now show me your wheat; I need some for bread and seed.
It is buried in this mound!
Wheat buried for three years! What about mildew and beetles?
I have thought of them and considered every other possibility but
this is the best I can do.
Just bend down a moment. Observe this beetle crawling on the surface
of the mound. Note the garbage and the spreading patch of mildew. It is high
time to take out the wheat and air it.
This capital will be my ruin! If only I could find some method of protecting myself against
the thousand destructive forces of nature!
Let me tell you, Crusoe, how we manage at home. We build a dry and
airy shed and shake out the wheat on the boarded floor. Every three weeks the
whole mass is turned over with wooden shovels. We also keep a number of cats;
we set mouse-traps and insure against fire. In this way we keep the annual
depreciation down to 10%.
But the labour and expense!
Exactly! You shrink from the labour and expense. In that case you have
another course. Lend me your wheat and I shall replace it, pound for pound,
sack for sack, with fresh wheat from my harvest. You thus save the labour of
building a shed and turning over the wheat; you need feed no cats, you avoid
the loss of weight, and instead of mouldy rubbish you will have fresh,
With all my heart I accept your proposal.
That is, you will lend me your wheat free of interest?
Certainly: without interest and with my best thanks.
But I can use only part of the wheat, I do not need it all.
Suppose I give you the whole store with the understanding that for
every ten sacks lent you give me back nine sacks?
* This obvious fact has been overlooked by every writer upon interest up
to the present day, even by Proudhon.
I must decline your offer, for it would mean interest - not indeed positive, but negative
interest. The receiver, not the giver of the loan, would be a capitalist, and my religion
does not permit usury; even negative interest is forbidden. I propose therefore the
following agreement. Entrust me with the supervision of your wheat, the construction of
the shed, and whatever else is necessary. In return you can pay me, annually, from every
ten sacks two sacks as wages.
It makes no difference to me whether your service comes under the heading of usury or
labour. The agreement is, then, that I give you ten sacks and that you give me back eight
But I need other articles, a plough, a cart and tools. Do you consent to lend them, also,
without interest? I promise to return everything in perfect order, a new spade for a new
spade, a new, unrusted, chain for a new chain, and so forth.
Of course I consent. All I have at present from my stores is work.
Lately the river overflowed and flooded the shed, covering everything with
mud. Then a storm blew off the roof and everything was damaged by rain. Now
we have drought, and the wind is blowing in sand and dust. Rust, decay,
breakage, drought, light, darkness, dry-rot, ants, keep up a never-ending
attack. We can congratulate ourselves here upon having, at least, no thieves
and incendiaries. I am delighted that, by means of a loan, I can now store my
belongings without expense, labour, loss or vexation, until I need them later.
That is, you now see the advantage you gain by lending me your
provisions free of interest? *
* Knut Wicksell, Wert, Kapital und Rente, p.83, "Böhm-Bawerk asserts
that present goods are at least equal to future goods, since, if need be, they
can simply be 'stored for use in the future.' This is certainly a great
exaggeration. Böhm-Bawerk does, indeed, mention that perishable goods, such
as ice, fruit, etc., are an exception. But this exception applies more or
less to all foodstuffs. Perhaps, indeed, all goods except precious stones and
precious metals, if kept for future consumption, require special labour and
attention to which must be added the danger of loss through accidents such as
(Banks now provide, for private use special store-rooms for gold, precious
stones and securities. For the use of these rooms, rent must be paid. The
"present goods" are here inferior to the "future goods", by at least the
amount of this rent.)
Of course I do. But the question now occurs to me, why do similar
stores of provisions at home bring their possessors interest?
The explanation lies in money which is there the medium of such
What? The cause of interest lies in money? That is impossible,
for listen to what Marx says of money and interest:
"The change of value of money that converts it into capital cannot be derived
from the money itself, since money in its function of medium of payment does
no more than pay the price of the commodity it purchases, and, as hard cash
it is value petrified, never varying. Just as little can the change occur in
the second act of circulation, the re-sale of the commodity. [For in both
cases] equivalents are exchanged, and the commodity is paid for at its full
value. We are therefore forced to the conclusion that the change originates
in the use-value of the commodity, after its purchase and before its sale."
(Capital I. VI).
How long have you been on this island?
I thought so! You still appeal to the theory of value. My dear sir, that theory is dead and
buried. At the present day it has no defenders.
What ?, Marx's theory of interest dead and buried. Even if no one
else defends it - I defend it
Well then, defend it not only with words but also in practice if
you wish, in relation to me! I hereby break off the bargain we have just made.
From their nature and destination your goods are the purest form of what is
usually called capital. But I challenge you to take up the position of a
capitalist towards me. I need your stuff. No worker ever appeared before a
capitalist as naked as I stand before you. Never has there been so clear an
illustration of the relation between the owner of capital and the individual
in need of capital. And now make the attempt to exact interest ! Shall we
begin our bargaining again from the beginning?
I surrender ! Rats, moths and rust have broken my power as a capitalist. But tell
me, what is your explanation of interest?
The explanation is simple enough. If there were a monetary system on
this island and I, as a shipwrecked travelled needed a loan, I should have to
apply to a money-lender for money to buy the things which you have just lent
me without interest. But a money-lender has not to worry about rats moths, rust
and roof-repairing, so I could not have taken up the position towards him that
I have taken up towards you. The loss inseparable from the ownership of goods
(there the dog running off with one of your - or rather my -buckskins!) is
born, not by money-lenders, but by those who have to store the goods. The
money-lender is free from such cares and is unmoved by the ingenious arguments
that found the joints in your armour. You did not nail up your chest of
buckskins when I refused to pay interest; the nature of your capital made you
willing to continue the negotiations. Not so the money-capitalist; he would
bang the door of his strong room before my face if I announced that I would
pay no interest. Yet I do not need the money itself, I need it only to buy
buckskins. The buckskins you lend me without interest but on the money to buy
buckskins I must pay interest!
Then the cause of interest is to be sought in money? And Marx was
Of course Marx was mistaken, and as he was mistaken about money, the
nervous system of economic life, he was mistaken about everything. He and his
disciples excluded money from the scope of their enquiry; he was fascinated by
the shining 'metal disks', otherwise he could never have written: "Gold and
silver are not by nature money, but money is by nature gold and silver,
witness the coincidence of their natural properties and its functions."
Practice certainly doesn't confirm Marx's theory, that has been
clearly shown by our negotiations. For Marx money is simply a medium of exchange,
but money does more, it seems, than "merely pay the price of the commodities
it purchases," as Marx asserted. When the borrower refuses to pay interest,
the banker can close the door of his safe without experiencing any of the
cares wich beset the owner of goods - that is the root of the matter.
Rats, moths and rust are powerful logicians! A single hour of economic
practice has taught you more than years of study of the text books.
From Silvio Gesell's "Natural Economic Order", Mai 5th 1920