Capital and Interest (Illustrated)

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Frederic Bastiat was a French political economist, statesman, classical liberal theorist, and the French Assembly. He coined the important economic concept of opportunity cost. His ideas have become the foundation for libertarian and the Austrian schools of thought.

Most of Bastiat’s political writings were done during the years just before and immediately after the Revolution of February 1848 when France was rapidly turning to complete socialism. As a Deputy to the Legislative Assembly, Bastiat explained each socialist fallacy as it appeared and how socialism must inevitably degenerate into communism that it must fail.

The same situation exists in China today as in the France of 1848 after China became the second power house by GDP. The China Model and the China Specialized Socialism and planed economy that were then adopted in France are now sweeping China with a peak confidence.

In this essay, Mr. Bastiat explained how the interest on capital declines as it becomes more plentiful. His key contribution to Austrian capital theory is his explanation how the accumulation of capital results in the enrichment of the workers by raising marginal productivity of workers. Capital accumulation would also result in cheaper and better quality consumer goods and raise real wages. Thus, the interests of capitalists and labor are aligned together. Bastiat also explained in the essay why in a free market no one can accumulate capital unless he uses it in a way that benefits others.

The Essay is already read more than a hundred years and it will still be read for another century due to its truths.