This law he speaks of as “the great, admirable, comforting, necessary, and inflexible law of capital.”
The proof is very simple—too simple, perhaps. It rests entirely upon the law concerning the lowering of the rate of interest, noted by Turgot and other economists long before Bastiat’s time. If capital, instead of asking 5 per cent., only demands 3 per cent., then its share is diminished, and any further diminution of its share must mean an increase of the proportion available for labour.
But a relative diminution of this kind will not prevent capital drawing an absolutely greater share, provided the total produce goes on increasing, as is the case in every progressive community. Its total share, though on the increase, may be decreasing relatively to the share which goes to labour. For example, the total product may be tripled, capital’s share having doubled in the meantime, while labour’s portion is quadrupled. Unfortunately this is a purely sophistical argument. The figures given in the table are simply invented to meet the needs of the case. Even the universality of the law concerning the lowering of the rate of interest is open to dispute. Economic history seems to point to a series of periodic oscillations of the rate, and quite recently it has risen very considerably.
The so-called “law” becomes more than doubtful if, following Bastiat, we include under the term interest, not merely net interest, but also profits and dividends and all kinds of returns from capital.
But, even admitting that such a law is thoroughly established, does that prove that capital’s share is decreasing? A lowering of the rate of interest cannot affect the capital already invested in factories, mines, railways, State funds, etc. The latter will not draw a penny less, and a fall in the rate of interest will increase the value of all old capital. Every capitalist knows this and speculates on the chance of its happening.[723]
Only in the case of new capital, then, will a lower rate of interest reduce the capitalist’s share. If by any chance this new capital should prove less productive than the old it may then happen that the reduced rate of interest will mean an equal or even a greater rise in the remuneration of labour. This is quite a probable contingency, and the proof advanced by economists who believe in a gradual lowering of the rate of interest is just this very fact that new capital is generally less productive than old.
In short, the problem presented by the rate of interest, implying as it does a certain connection between the value of the capital and the value of the revenue, is entirely different from the question as to what share of the produce will eventually fall to the lot of the capitalist and what to the workers.[724]
Not only is the demonstration which Bastiat thought he had given false, but the thesis itself is very doubtful when tested by the facts. Statistics seem to show quite clearly—Bastiat’s law notwithstanding, and not depreciating the influence of other powerful factors, such as trade unions, strikes, and State intervention—that during the course of the nineteenth century the share of the social revenue which falls to the lot of capital has increased more rapidly than labour’s.[725]