EXPLOITATION AND INTEREST

‘Exploitation’ is a word often used but rarely defined. In its most literal meaning — I exploit you if I in some way benefit from your existence — it is the reason human society exists. We all benefit from one another’s existence. We all exploit each other. That is why we associate with each other. But as the word is usually used, it carries the implication of one person benefiting by harming another or at least of one person’s benefiting unfairly at the expense of another. This usage may derive from Marx’s theory of the exploitation of labor. Whether or not that is its origin, by rebutting this theory I can answer one of the most frequent charges of exploitation made against capitalism and capitalists.

Marx argued as follows: Goods are produced by workers using tools (machines, factories, and so forth). The tools were themselves made by earlier workers. All production is done by workers, either current workers or past workers. But the capitalist claims some of the return from the production. His justification is that he has provided the tools; this is invalid since the tools were actually produced by previous workers. The capitalist who, having contributed nothing to production, takes part of the product is obviously stealing from — exploiting — the real producers, the workers.

The trouble with this argument is that it does not recognize that paying for tools today and waiting for years to get the money back is itself a productive activity and that the interest earned by capital is the corresponding payment.

Consider a specific situation. A factory built during 1849 produces from 1850 to 1900. Having cost $1 million, it generates for its owner an income of $100,000 a year. This, according to Marx, is either wealth produced by the workers who built the factory, which should go to them, or wealth stolen from the workers working in the factory, who in that case are being paid less than they really produce.

Assume that the workers who built the factory were paid $1 million, the total cost of building it. (For simplicity’s sake I will ignore other costs of construction. According to Marx, such costs ultimately can be traced back to the cost of the labor of other workers at an earlier time.) The money provided by the capitalist will be returned to him in the first ten years. After that the income is, from the Marxist standpoint, pure exploitation.

This argument depends on regarding the $1 million paid in 1849, when the work was done, as being equal to $1 million received over the next decade. The workers themselves would not agree with this; they would not have done the job if they expected to have to wait ten years for their pay. If they had been willing and able to work on those terms, the capitalist would indeed have been superfluous; the workers could have built the factory themselves, working for free, received their pay over the next ten years and continued to receive it for forty years more. It is the function of the capitalist to pay them wages in advance. If he were not available to pay them, the factory would not be built and the goods would not be produced. He himself bears a cost, since he too would rather have the money to do with as he wishes in 1850 instead of having it tied up and released slowly over a period of time. It is perfectly reasonable that he should receive something for his contribution.

Another way of making this point is to see money as representing a bundle of alternatives. If I have ten dollars now I can either spend it taking my girlfriend to a restaurant, or use it as bus fare somewhere, or … Having additional alternatives is always desirable, since I then have a wider range from which to pick the most attractive. Money is easily stored, so I do not haveto spend it when I get it; ten dollars today can either be saved until tomorrow and spent on one of the alternatives possible for ten dollars tomorrow or it can be spent today if I see an alternative more attractive than any I expect to see later. Thus ten dollars today is worth more than ten dollars tomorrow. This is why interest rates exist, why, if I borrow ten dollars from you today, I must give back a little more than ten dollars tomorrow.

The advantage of money today over money tomorrow is tiny, as is the interest accumulated by ten dollars in one day. When the time involved is a substantial portion of a man’s life, the difference in value is also substantial. It is not a matter of indifference to me whether I can buy a house for my family today or ten years from now. Nor is the ten years insignificant to the man who lends me the money now and expects to receive something in exchange. The Marxist is wrong to regard interest received by a capitalist or paid by a debtor to a creditor as stolen money. It is actually payment for value received.

The same error is one reason many people consider inheritance unjust. They assume that if a father earns money and leaves it to his son, who lives off the interest, the son is really living at the expense ofthe people around him. As one person with whom I argued this put it, the stock market — shares, bonds, bank accounts, and the like — are merely symbols or facades. One must see through them to the real things that are happening to real objects. This reality is that someone is producing nothing and consuming something and that someone else must be paying for it.

It is his father who pays for it. If the son were literally living on food produced and stored by his father this would be obvious, and few would object. But the situation is really the same when the father chooses to invest wealth instead of consuming it or turning it into stores of food. By buying a factory instead of a yacht, he is increasing the productivity of the society. Workers are able to produce more, using that factory, than they could without it. It is that additional production which feeds his son.

To the true egalitarian, who regards equality as itself a paramount end, this is no defense. Inheritance is unequal, thus unjust. His is a view with which I have no sympathy. I see no reason better than greed for claiming that I deserve a share of someone else’s wealth, which I have had no part in producing, when he dies. I see no reason nobler than jealousy for objecting to another man’s good fortune in being left an unearned inheritance.