[7. Historical Background to the Problem of Interest. Luther’s Polemic Against Interest Is Superior to That of Proudhon. The Concept of Interest Changes as a Result of the Evolution of Capitalist Relations]
Luther, who, lived prior to the development of industrial capital, only knew capital in its antediluvian forms of usury and merchant capital. He was writing at a time when medieval society was breaking down. On the one hand, towns were developing and growing. The old landed aristocracy, building up hoards from money rents, sought new, more exotic commodities to consume, and a growing merchant class, roaming and exploring the world to find them, also expanded world trade, as well as establishing colonial outposts from which they and the landed aristocracy could obtain additional rents, interest and commercial profit.
As these markets expand, the traditional role of usury, in reducing the producers to slavery, instead results in the producers losing their means of production, which can now be concentrated in the hands of capitalists, some of whom come from the ranks of the merchants and usurers themselves. Instead of the producers being reduced to slavery, they, instead, become wage labourers. By this process, capitalist production begins to take hold in the towns during the 15th century.
In the Mediterranean city states, capitalist production had started but was destroyed by the actions of merchant capital and usury. It is only when other conditions for capitalist production, of sufficiently large markets to make large-scale production possible, of sufficient development of science to make such large-scale production notably cheaper than small scale production, of a sufficiently large reserve of wage labourers, etc., that capitalist production becomes possible, so that usury instead of destroying it, becomes a precondition for it, by acting to dispossess the direct producers from their means of production.
But, once capitalist production gains sufficient strength, as it accumulates profits, and thereby frees itself to an extent from a dependence on interest-bearing capital, it then acts to subordinate interest-bearing capital to its needs. Usury had dispossessed large numbers of direct produces, turning them into wage slaves, and their scattered means of production into capital, but, now, usurious rates of interest drained surplus value from capitalist producers, and raised their cost of capital for expansion.
“Whereas in its early phase capitalist production, haying gained strength, seeks to subordinate interest-bearing capital to industrial capital by force—this was in fact done first of all in Holland, where capitalist production in the form of manufacture and large-scale trade first blossomed, and in England in the seventeenth century it was, partly in very naive terms, declared to be the primary requisite of capitalist production—on the other hand, during the transition to capitalist production, the first step is the recognition that “usury”, the old-fashioned form of interest-bearing capital, is a condition of production, a necessary production relation; in the same way as later on its justification is recognised by industrial capital, which regards it as flesh of its own flesh, as soon as industrial capital subordinates interest-bearing capital to itself (eighteenth century, Bentham).” (p 527-8)
Luther is superior to Proudhon, Marx says, because the difference between lending and selling does not confuse him. Luther observes usury both in the commercial profits of merchants as well as the interest of money lenders. Marx quotes extensively from Luther's writings on both commerce and usury, contained in his “Works”, to illustrate the point. In relation to commercial profits, Luther notes,
“But since such great unrighteousness and un-Christian thieving is rife throughout the whole world because of the merchants, and often enough amongst them themselves, why should we wonder if God wills it that such great wealth, gained by unrighteous means, is lost or stolen in its turn, and that because of it, the merchants are knocked on the head or arrested?” (p 528)
Luther quotes Cato,
“Little thieves are put into dungeons and in the stocks, but great thieves parade in gold and silk.” (p 528)
And, similarly, in relation to interest-bearing capital, Luther notes,
“Whoever in Leipzig now has 100 florins, takes 40 in a year, this means that he has eaten up a peasant or a burgher in a year. If he has 1,000 florins, then he takes 400 in a year, that is, he eats up a squire or a rich gentleman in a year. If he has 10,000, he takes 4,000, that is, he eats up a rich count in a year. If he has 100,000, as must happen in the case of the great merchants, then he takes 40,000 in a year, that is, he eats up a great, rich prince in a year. If he has 1,000,000, then he takes 400,000 in a year, that is, he eats up some great king in a year. And he suffers not any danger in so doing, neither to his body nor to his treasure, labours not, sits by the fire and roasts apples; thus a chair thief may sit at home and eat up a whole world in 10 years” (pp. 312-13).” (p 529)
Luther's description, here, shows how merchant's capital and usury could destroy the small producers. In the Mediterranean states, small producers, attempting to produce capitalistically, were squeezed by the large merchant capitalists like the Medici. The producers were dependent on merchants for materials and in order to sell their commodities, but the merchant monopolies enabled them to impose large profit margins, which meant that the producers found that not only were their profits wiped out, but that the merchants even ate into what was required for their own reproduction.
But, Luther's description also shows how the landed aristocracy is also undermined by this process. As labour rents, and rent in kind gave way to money rents, the landed aristocracy was also led to liquidate assets to fund its consumption, especially as new commodities from the Orient, and from the Americas, became available. The liquidation of assets came initially in the form of borrowing against collateral, rather than sale of assets, but usurious interest soon meant that collateral had to be surrendered. Not only did landlords and other rural dwellers face high prices for manufactured goods from the towns, but, when new gold discoveries reduced the value of gold, and caused inflation, this increased the prices landlords had to pay, whilst their money rents, fixed over long periods, remained constant, causing them to have to borrow further to finance their consumption.
“On the other hand, the usurer appropriates rent from the owners of rent, that is, from the prodigal, pleasure-seeking rich. Usury is a powerful means for establishing the preconditions for industrial capital—a mighty agency for separating the conditions of production from the producers, insofar as it has the twofold result, firstly, of establishing independent fortunes in the form of money, secondly, of appropriating the conditions of labour to itself, that is, ruining the owners of the old conditions of labour, just like the merchant. And both have the common feature that they acquire an independent fortune, that is, they accumulate in their hands in the form of money claims part of the annual surplus labour, [part] of the conditions of labour [and also part] of the accumulated annual labour.” (p 529-30)
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