This justification of the attitude of the State does not of itself demonstrate that the capitalist has a right to accept interest. The civil law tolerates many actions which are morally wrong in the individual; for example, the payment of starvation wages, the extortion of unjust prices, and the traffic in immorality. Obviously legal toleration does not per se nor always exonerate the individual offender. How, then, shall we justify the individual receiver of interest?
As already pointed out more than once, those persons who would not save without interest are justified on the ground of sacrifice. So long as the community desires their savings, and is willing to pay interest on them, the savers may take interest as the fair equivalent of the inconvenience that they undergo in performing this social service. The precise problem before us, then, is the justification of those savers and capitalists who do not need the inducement of interest, and whose functions of saving and conserving capital are sufficiently compensated without interest.
It is a fact that the civil law can sometimes create moral rights and obligations. For example; the statute requiring a person to repair losses that he has unintentionally inflicted upon his neighbour is held by the moral theologians to be binding in conscience, as soon as the matter has been adjudicated by the court. In other words, this civil regulation confers on the injured man property rights, and imposes on the morally inculpable injurer property obligations. The civil statutes also give moral validity to the title of prescription, or adverse possession. When the alien possessor has complied with the legal provisions that apply, he has a moral right to the property, even though the original owner should assert his claim at a later time. Some moral theologians maintain that a legal discharge in bankruptcy liberates the bankrupt from the moral obligation of satisfying his unpaid debts. Several other situations might be cited in which the State admittedly creates moral rights of individual ownership which would have no definite existence in the absence of such legal action and authorisation.[148]
This principle would seem to have received a particularly pertinent application for our inquiry in the doctrine of præmium legale as a title of interest on loans. In the "Opus Morale" of Ballerini-Palmieri can be found a long list of moral theologians living in the seventeenth and eighteenth centuries who maintained that the mere legal sanction of a certain rate of interest was a sufficient moral justification for the lender.[149] While holding to the traditional doctrine that interest was not capable of being justified on intrinsic grounds, these writers contended that by virtue of its power of eminent domain the State could transfer from the borrower to the lender the right to the interest paid on a loan. They did not mean that the State could arbitrarily take one man's property and hand it over to another, but only that, when it sanctioned interest for the public welfare, this extrinsic circumstance (like the other "extrinsic titles" approved by moralists) annulled the claim of the borrower in favour of the lender. In other words, they maintained that the money paid in loan-interest did not belong to either borrower or lender with certainty or definiteness until the matter was determined by economic conditions and extrinsic circumstances. Hence legal authorisation for the common good was morally sufficient to award it to the lender. More than one of them declared that the State had the same right to determine this indeterminate property, to assign the ownership to the lender, that it had to transfer property titles by the device of prescription. And their general position seems to have been confirmed by the response of the Congregation of the Poenitentiaria, Feb., 1832, to the Bishop of Verona, the substance of which was that a confessor might adopt and act upon this position.[150]
And yet, neither this nor any of the other precedents cited above, are sufficient to give certain moral sanction to the practice of interest-taking by those persons who would continue to save if interest were abolished. All the acts of legal authorisation that we have been considering relate to practices which are beneficial and necessary to society. Only in such cases has the State the moral authority to create or annul property rights. In the seventeenth and eighteenth centuries the legal authorisation of a certain rate of interest made that rate morally lawful simply because this legal act gave formal and authoritative testimony to the social utility of interest-taking. The State merely declared the reasonableness, and fixed the proper limits of the practice. The beneficent effect of interest-taking upon society was its underlying justification, was the ultimate fact which made it reasonable, and which gave to the action of the State moral value. Had the taking of interest on loans not been allowed the bulk of possible savings would either not have been saved at all, or would have been hoarded instead of converted into capital. And that money was badly needed in the commercial and industrial operations of the time. Hence the owners of it were in the position of persons who regarded saving and investing as a sacrifice for which interest was a necessary and proper compensation. To-day, however, there are millions of persons who would continue to perform both these functions without the inducement of interest. Therefore, the public good does not require that they should receive interest, nor that the State should have the power to clothe their interest-incomes with moral lawfulness. Inasmuch as the State is not certain that the abolition of interest would be socially expedient or practically possible, it is justified in permitting the institution to continue; but it has no power to affect the morality of interest-taking as an individual action.
How the Interest-Taker Is Justified
Although the interest received by the non-sacrifice savers is not clearly justifiable on either intrinsic or social grounds, it is not utterly lacking in moral sanctions. In the first place, we have not contended that the intrinsic factors of productivity and service are certainly invalid morally. We have merely insisted that the moral worth of these titles has never been satisfactorily demonstrated. Possibly they have a greater and more definite efficacy than has yet been shown by their advocates. In more concrete terms, we admit that the productivity of capital and the service of the capitalist to the community, are possible and doubtful titles to interest. A doubtful title to property is, indeed, insufficient by itself. In the case of the interest receiver, however, the doubtful titles of productivity and service are reinforced by the fact of possession. Thus supplemented, they are sufficient to justify the non-sacrifice saver in giving himself the benefit of the doubt as regards the validity of his right to take interest. To be sure, this indefinite and uncertain claim would be overthrown by a more definite and positive title. But no such antagonistic title exists. Neither the consumer nor the labourer can show any conclusive reason why interest should go to him rather than to the capitalist. Hence the latter has at least a presumptive title. In the circumstances this is morally sufficient.
To this justification by presumption must be added a justification by analogy. The non-sacrifice savers seem to be in about the same position as those other agents of production whose rewards are out of proportion to their sacrifices. For example; the labourer of superior native ability gets as much compensation for the same quality and quantity of work as his companion who has only ordinary ability; and the exceptionally intelligent business man stands in the same relation to his less efficient competitor; yet the sacrifices undergone by the former of each pair is less than that suffered by the latter. It would seem that if the more efficient men may properly take the same rewards as those who make larger sacrifices, the non-sacrifice capitalist might lawfully accept the same interest as the man whose saving involves some sacrifice. On this principle the lenders who would not have invested their money in a productive enterprise were nevertheless permitted by the moralists of the post-mediæval period to take advantage of the title of lucrum cessans. Although they had relinquished no opportunity of gain, nor made any sacrifice, they were put on the same moral level as sacrificing lenders, and were allowed to take the same interest.
As a determinant of ownership, possession is the feeblest of all factors, and yet it is of considerable importance for a large proportion of incomes and property. In the distribution of the national product, as well as in the division of the original heritage of the earth, a large part is played by the title of first occupancy. Much of the product of industry is assigned to the agents of production mainly on the basis of inculpable possession. That is; it goes to its receivers automatically, in exchange for benefits to those who hand it over, and without excessive exploitation of their needs. Just as the first arrival on a piece of land may regard it as a no-man's territory, and make it his own by the mere device of appropriation, so the capitalist may get morally valid possession of interest. Sometimes, indeed, this debatable share, this no-man's share of the product of industry, is secured in some part by the consumer of the labourer. In such cases their title to it is just as valid as the title of the capitalist, notwithstanding the doubtful titles of productivity and service which the latter has in his favour. First occupancy and possession are the more decisive factors. In the great majority of instances, however, the capitalist is the first occupant, and therefore the lawful possessor of the interest-share.
The general justification of interest set forth in the immediately preceding paragraphs is supplemented in the case of the great majority of capital owners by the fact that their income from this source is relatively insignificant. The average income of the farmers of the United States is only 724 dollars per year, and of this 322 dollars is interest on the capital invested in the farm.[151] Even when we make due allowance for the high purchasing power of farm incomes, due to the lower cost of foodstuffs and house rent, the total amount of 724 dollars provides only a very moderate living. Consequently the great majority of farmers can regard the interest that they receive as a necessary part of the remuneration that is fairly due them on account of their labour, sacrifices, and risks. So far as they are concerned, the justification of interest, as interest, is not a practical question. The same observation applies to the majority of urban business men, such as small merchants and manufacturers. Their interest can be justified as not more than fair wages and profits.