Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Government Socialist Intervention and the Distortion of Capital

Economics / Economic Theory Dec 09, 2009 - 02:40 AM GMT

By: Frederic_Bastiat

Economics

Best Financial Markets Analysis ArticleIn all times, but more especially of late years, attempts have been made to extend wealth by the extension of credit.

I believe it is no exaggeration to say, that since the revolution of February, the Parisian presses have issued more than 10,000 pamphlets, crying up this solution of the social problem.


The only basis, alas, of this solution, is an optical delusion — if, indeed, an optical delusion can be called a basis at all.

The first thing done is to confuse cash with produce, then paper money with cash; and from these two confusions it is pretended that a reality can be drawn.

It is absolutely necessary in this question to forget money, coin, bills, and the other instruments by means of which productions pass from hand to hand. Our business is with the productions themselves, which are the real objects of the loan; for when a farmer borrows fifty francs to buy a plow, it is not, in reality, the fifty francs which are lent to him, but the plow; and when a merchant borrows 20,000 francs to purchase a house, it is not the 20,000 francs which he owes, but the house. Money only appears for the sake of facilitating the arrangements between the parties.

Peter may not be disposed to lend his plow, but James may be willing to lend his money. What does William do in this case? He borrows money of James, and with this money he buys the plow of Peter.

But, in point of fact, no one borrows money for the sake of the money itself; money is only the medium by which to obtain possession of productions. Now, it is impossible in any country to transmit from one person to another more productions than that country contains.

Whatever may be the amount of cash and of paper which is in circulation, the whole of the borrowers cannot receive more plows, houses, tools, and supplies of raw material, than the lenders altogether can furnish; for we must take care not to forget that every borrower supposes a lender, and that what is once borrowed implies a loan.

This granted, what advantage is there in institutions of credit? It is that they facilitate, between borrowers and lenders, the means of finding and treating with each other; but it is not in their power to cause an instantaneous increase of the things to be borrowed and lent. And yet they ought to be able to do so, if the aim of the reformers is to be attained, since they aspire to nothing less than to place plows, houses, tools, and provisions in the hands of all those who desire them.

And how do they intend to effect this?

By making the state security for the loan.

Let us try and fathom the subject, for it contains something which is seen, and also something which is not seen. We must endeavor to look at both.

We will suppose that there is but one plow in the world, and that two farmers apply for it.

Peter is the possessor of the only plow which is to be had in France; John and James wish to borrow it. John, by his honesty, his property, and good reputation, offers security. He inspires confidence; he has credit. James inspires little or no confidence. It naturally happens that Peter lends his plow to John.

But now, according to the Socialist plan, the state interferes, and says to Peter, "Lend your plow to James, I will be security for its return, and this security will be better than that of John, for he has no one to be responsible for him but himself; and I, although it is true that I have nothing, dispose of the fortune of the taxpayers, and it is with their money that, in case of need, I shall pay you the principal and interest." Consequently, Peter lends his plow to James: this is what is seen.

And the socialists rub their hands, and say, "See how well our plan has answered. Thanks to the intervention of the state, poor James has a plow. He will no longer be obliged to dig the ground; he is on the road to make a fortune. It is a good thing for him, and an advantage to the nation as a whole."

Indeed, it is no such thing; it is no advantage to the nation, for there is something behind which is not seen.

It is not seen, that the plow is in the hands of James, only because it is not in those of John.

It is not seen, that if James farms instead of digging, John will be reduced to the necessity of digging instead of farming.

That, consequently, what was considered an increase of loan, is nothing but a displacement of loan. Besides, it is not seen that this displacement implies two acts of deep injustice.

It is an injustice to John, who, after having deserved and obtained credit by his honesty and activity, sees himself robbed of it.

It is an injustice to the taxpayers, who are made to pay a debt which is no concern of theirs.

Will anyone say, that government offers the same facilities to John as it does to James? But as there is only one plow to be had, two cannot be lent. The argument always maintains that, thanks to the intervention of the state, more will be borrowed than there are things to be lent; for the plow represents here the bulk of available capitals.

It is true, I have reduced the operation to the most simple expression of it, but if you submit the most complicated government institutions of credit to the same test, you will be convinced that they can have but one result; viz., to displace credit, not to augment it. In one country, and in a given time, there is only a certain amount of capital available, and all are employed. In guaranteeing the nonpayers, the state may, indeed, increase the number of borrowers, and thus raise the rate of interest (always to the prejudice of the taxpayer), but it has no power to increase the number of lenders, and the importance of the total of the loans.

There is one conclusion, however, which I would not for the world be suspected of drawing. I say, that the law ought not to favor, artificially, the power of borrowing, but I do not say that it ought not to restrain them artificially. If, in our system of mortgage, or in any other, there be obstacles to the diffusion of the application of credit, let them be got rid of; nothing can be better or more just than this. But this is all which is consistent with liberty, and it is all that any who are worthy of the name of reformers will ask.

Frédéric Bastiat was the great French proto-Austrolibertarian whose polemics and analytics run circles around every statist cliché. His primary desire as a writer was to reach people in the most practical way with the message of the moral and material urgency of freedom. See Frederic Bastiat's article archives. Comment on the blog.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in