In view of the difference of opinion regarding the subject of interest among the followers of Henry George, and the contention of some (a minority) that he was wrong, it seems important that this matter should be gone into deeply, his position thoroughly examined, and if possible definite conclusions arrived at.

In this brief comment I cannot do more than outline a practical phase which may help to clear the situation.

George's position is stated in Progress and Poverty, pages 173 to 203, inclusive, and should be carefully reread and particular attention paid to the chapter on "Spurious Capital." I emphasize this chapter because as soon as one eliminates all spurious capital much that confuses thought on interest is also eliminated and leaves only the products of labor as capital. In this way if a full and clear title is given to labor, to the product which labor produces, we might give thought to the idea that the producer should, in equity, be compensated if he foreswears enjoyment and grants temporary title, viz., lends to another. It is beside the point to contend that if every one received the full product of his labor there would be little borrowing and much to lend. The much to lend, and the lack of borrowers might reduce loans to zero and consequently no interest and no interest rate whatsoever. In all probability under just and equitable conditions this would prove to be the case, but the point to consider is, if borrowing takes place under any conditions, is interest as a principle just?

In Progress and Poverty, page 187, in the last paragraph regarding interest, George concludes: "It is therefore just." If interest is just it ought to prove out now in practice without waiting for the millennium or any other future development. But it is most essential that we find out what George meant by interest which he upholds and not confuse it in any way with the return from capitalized privilege, or that basic privilege, land monopoly and its concomitant, over-capitalization. Nor should our thought be confounded with sentiment, viz., whether it is permissible for one man to do no labor and another labor to pay him interest. It should be considered as a principle, whether in all ways it is just and equitable or the opposite.

Let us take the self-evident truth that all wealth is the product of labor applied to land and hold in abeyance "assisted by capital." Let us consider the return wages and rent and prove out if possible that interest is the just return of capital. Disregarding economic theory entirely, what is meant by interest in the ordinary processes of production and distribution? It is a payment additional to the amount of a loan. Note that it is interest we are considering, not the rate by which the amount is determined.

A bird's-eye view of production and distribution, viz., business processes, may be obtained by examination of the main elements of a typical balance sheet. A balance sheet gives the condition of a corporation or other form of business at a given time and is the result of income account and supporting data over a previous period. On the debit side note fixed and current assets, on the credit side liabilities and balancing items. In the net current positions we have movables, such as cash, goods, etc. These are labor products (cash is equivalent) and constitute legitimate capital. In the fixed asset position we have a different picture, land and buildings and other immovables. The last two are labor products and therefore legitimate capital. Land is another thing entirely; labor did not create it nor has any one ever had the right to exclusive ownership. Land is the source of wealth and while it may be capitalized it is not capital. To the extent that economic rent is not taken in taxation it may be and is capitalized and it is this value that appears in the balance sheet. Conversely if all economic rent were taken in lieu of taxation, or, which amounts to the same thing, if all land (capitalized) value were taxed to the amount of the economic rent, that capitalized value would be approximately zero in the balance sheet. This is the "spurious capital" referred to and would any follower of Henry George consider interest on such as other than spurious?

On the other hand, consider labor products as appearing in the balance sheet. In the case of buildings would any one question this interest return? If so, would they question as expense payment on the use of the buildings if ownership were retained by the builders and used by the operators whose balance sheet we are considering? Or take the machinery produced by manufacturers of machinery who retain ownership, would any one question an expense account as in the use of the buildings? The net return on either is interest. It is compensation for loss of what is termed in law "enjoyment," viz., use by the makers. It is payment for use (in time) of labor products, legitimate capital, and it is therefore natural and just and if not paid must be charged to charity instead of equity.

NOTE BY JOSEPH DANA MILLER

We want to add a few words to what Mr. Kendall has written. With much that is confused as interest-payments swept away, or clearly identified as rent, and with increase of lenders and decrease of borrowers -- a condition resulting from more equitable distribution it seems clear that the rate of interest payments for the loans of capital will decline.

But does this mean that interest itself will decline (interest being the result of added efficiency due to capital), or, as George contended, rise as wages rise? There is no real contradiction here, since, under more equitable distribution there will be a great increase in the number of owners of capital, with results that are easily predictable.

So whether George is right or his critics are right makes little difference. If interest goes to the owners of capital and everybody has capital, it would seem that the matter is bound to work out satisfactorily under the natural laws of equity.

If to go into business, or to make additions to existing businesses, men borrow capital, and by reasons of such loans prosper, equity demands a return to the lender. If the right to such a return is denied the transaction, as Mr. Kendal happily suggests, is one of charity.

What seems to worry many of those who question the justice of interest is its supposed perpetuity. Thus our friend Mr. Stewart in a communication received subsequent to the letter which appears in these columns, writes: "I have just sold two Lehigh Valley R. R. bonds granting that for all time the owner will receive four and a half per cent interest." That this is pure interest we have to deny.

These two Lehigh Valley R. R. bonds are bearer receipts for capital lent by Mr. Stewart to the railroad. The Lehigh Valley R. R. uses that capital in transportation services (production). There is no perpetuity in the contract that can be carried out unless the railroad is allowed its land value capitalization in perpetuity, in which case it takes more than its present bond interest out of the public.

Conversely, should the land value be taken in taxation it destroys the capitalization set-ups by the railroad. Improvement values go back to the land within thirty years, and, like any other contract, this one depends upon the ability to perform.

Perpetuity on any loan simply does not exist. The explanation why it does not is the changing character of investment, the disolutions that follow new set-ups in industry, the mutations of ownership, and the fact that capital wastes faster than the rate of interest.

Our aim is, and Henry George's remedy will secure it, work for all, production for all, capital for all. If interest then rises it will go to the owners of capital who will then be (with poverty abolished) all the people. If it declines it makes no difference either, for it will have been absorbed as wages.