SOME COMMON PITFALLS

the personal distress of the borrowers. The loan negotia-tions take place 'between two persons under isolated con-ditions without a regular market. The protection which amodern loan market affords against extortionate prices isabsent. Thus, there is, in many cases, a sound ethical basisfor the complaints against interest. But experience showsthat complete prohibition of interest cannot be made ef-fective. Interest, if not explicitly, will implicitly persist,despite all legal prohibitions. It lurks in all purchases andsales and is an inextricable part of all contracts.

Today the chief survival of the exploitation idea isamong Marxian Socialists . These assert that the capital-ist exploits the laborer by paying him for only part ofwhat he produces, withholding a portion of the productof labor as interest on capital. Interest is therefore con-demned as robbery. The capitalist is described as one whounjustly reaps what the laborer has sown.

Suppose that a tree twenty-five years old is worth $15,and was planted at a cost of $5 worth of labor. The laborerwas paid $5 when the tree was planted. The capitalistwho pays him receives the $15 twenty-five years later andthereby enjoys $10 increase of value, which is interest onhis $5 investment, the cost of planting the tree. Why doesnot the laborer who planted the tree get this increase of$10 instead of the capitalist?

The socialist exploitation theory of interest consistsvirtually of two propositions: first, that the value of anyproduct, when completed, usually exceeds the cost ofproduction incurred during the processes of its produc-tion ; and secondly, that the value of any product, whencompleted, “ought” to be exactly equal to that cost ofproduction. The first of these propositions is true, but thesecond is false; or, at anv rate, it is an ethical judgment

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