What you call wages, practically, is the quantity of food which the possessor of the land gives you to work for him. There is, finally, no capital but that. If all the money of all the capitalists in the whole world were destroyed — the notes and bills burnt, the gold irrecoverably buried, and all the machines and apparatus of manufacture crushed, by a mistake in signals, in one catastrophe — and nothing remained but the land, with its animals and vegetables, and buildings for shelter — the poorer population would be very little worse off than they are at this instant; and their labor, instead of being limited by the destruction, would be greatly stimulated. They would feed themselves from the animals and growing crop; heap here and there a few tons of ironstone together, build rough walls round them to get a blast, and in a fortnight they would have iron tools again, and be ploughing and fighting, just as usual. It is only we who had the capital who would suffer; we should not be able to live idle, as we do now, and many of us — I, for instance — should starve at once; but you, though little the worse, would none of you be the better eventually for our loss — or starvation. The removal of superfluous mouths would indeed benefit you somewhat for a time; but you would soon replace them with hungrier ones; and there are many of us who are quite worth our meat to you in different ways, which I will explain in due place; also I will show you that our money is really likely to be useful to you in its accumulated form (besides that, in the instances when it has been won by work, it justly belongs to us), so only that you are careful never to let us persuade you into borrowing it and paying us interest for it. You will find a very amusing story, explaining your position in that case, at the one hundred and seventeenth page of the Manual of Political Economy, published this year at Cambridge, for your early instruction, in an almost devotionally catechetical form, by Messrs. Macmillan.(56 ¶ 1)

Perhaps I had better quote it to you entire; it is taken by the author from the French.(56 ¶ 2)

There was once in a village a poor carpenter who worked hard from morning till night. One day James thought to himself, With my hatchet, saw, and hammer I can only make coarse furniture, and can only get the pay for such. If I had a plane, I should please my customers more, and they would pay me more. Yes, I am resolved I will make myself a plane. At the end of ten days James had in his possession an admirable plane which he valued all the more for having made it himself. While he was reckoning all the profits which he expected to derive from the use of it, he was interrupted by William, a carpenter in the neighboring village. William, having admired the plane, was struck with the advantages which might be gained from it. He said to James:(56 ¶ 3)

You must do me a service; lend me the plane for a year. As might be expected, James cried out, How can you think of such a thing, William? Well, if I do you this service, what will you do for me in return?(56 ¶ 4)

W. Nothing. Don’t you know that a loan ought to be gratuitous?(56 ¶ 5)

J. I know nothing of the sort; but I do know that if I were to lend you my plane for a year, it would be giving it you. To tell you the truth, that was not what I made it for.(56 ¶ 6)

W. Very well, then; I ask you to do me a service; what service do you ask me in return?(56 ¶ 7)

J. First, then, in a year, the plane will be done for. You must therefore give me another exactly like it.(56 ¶ 8)

W. This is perfectly just. I submit to these conditions. I think you must be satisfied with this, and can require nothing further.(56 ¶ 9)

J. I think otherwise. I made the plane for myself, and not for you. I expected to gain some advantage from it. I have made the plane for the sake of improving my work and my condition; if you merely return it to me in a year, it is you who will gain the profit of it, during the whole of that time. I am not bound to do you such a service without receiving anything in return. Therefore, if you wish for my plane besides the restoration already bargained for, you must give me a new plank as a compensation for the advantages of which I shall be deprived.(56 ¶ 10)

These terms were agreed to, but the singular part of it is that at the end of the year, the plane came into James’s possession, he lent it again; recovered it, and lent it a third and fourth time. It has passed into the hands of his son, who still lends it. Let us examine this little story. The plane is the symbol of all capital, and the plank is the symbol of all interest.(56 ¶ 11)

If this be an abridgment, what a graceful piece of highly-wrought literature the original story must be! I take the liberty of abridging it a little more.(56 ¶ 12)

James makes a plane, lends it to William on 1st of January for a year. William gives him a plank for the loan of it, wears it out, and makes another for James, which he gives him on 31st December. On 1st January he again borrows the new one; and the arrangement is repeated continuously. The position of William therefore is that he makes a plane every 31st of December, lends it to James till the next day, and pays James a plank annually for the privilege of lending it to him on that evening. This, in future investigations of capital and interest, we will call, if you please, The Position of William.(56 ¶ 13)

You may at the first glance not see where the fallacy lies (the writer of the story evidently counts on your not seeing it at all).(56 ¶ 14)

If James did not lend the plane to William, he could only get his gain of a plank by working with it himself and wearing it out himself. When he had worn it out at the end of the year, he would, therefore, have to make another for himself. William, working with it instead, gets the advantage instead, which he must, therefore, pay James his plank for; and return to James what James would, if he had not lent his plane, then have had — not a new plane, but the worn-out one. James must make a new one for himself, as he would have had to do if no William had existed; and if William likes to borrow it again for another plank, all is fair.(56 ¶ 15)

That is to say, clearing the story of its nonsense, that James makes a plane annually and sells it to William for its proper price, which, in kind, is a new plank. But this arrangement has nothing whatever to do with principal or with interest. There are, indeed, many very subtle conditions involved in any sale; one among which is the value of ideas; I will explain that value to you in the course of time (the article is not one which modern political economists have any familiarity with dealings in), and I will tell you somewhat also of the real nature of interest; but if you will only get for the present; but if you will only get for the present a quite clear idea of The Position of William, it is all I want of you.(56 ¶ 16)