Credit diverts production

The congress want to give more credit to farmers, who cannot have enough "intermediate" credit; or the interest is too high; or the complaint is that private loans are made only to rich and well-established farmers.
But this kind of action stems form two acts of shortsightedness. (1)It only looks at the matter from the standpoint of the farmers that borrow. (2)It only thinks of the first of the transaction.
All credit is debt.
Analysis of the government loan to provide capital to farmers, which enables the farmers to buy a farm, produce food, pay off his loan by what he produce, and thus make contribution to the society.

There is a decisive difference between the loans supplied by the private lenders and the loans supplied by the government.


When people risk their own funds to invest something, they have to find the best one who can contribute and pay back their money. But government lenders will take risk with other people's money that private lenders will not take with their own money. What's lent is not money, but capital. When a capital is lent to A, for example, it cannot be lent to B. (Scarcity is everywhere.)


Credit, is something that a person already has. The bank gives you loan because it's confident that you can pay back the money. In general the people selected by the government is less likely to pay back than those selected by the private lenders. When government give a farm to A, a candidate who is more capable and has more credit B will be deprived of the chance to produce more. What's seen is that A is producing, what's not seen is what B could have produce.(more efficient)


Government loan may lead to favoritism: to the making of friends or someone who makes a bribe. It will also lead to the decrease of production and the increase of waste. The private money will be invested only where repayment with interest or profit is definitely expected. Besides, private lenders have more information and knowledge in who to lend because they have the comparative advantage of doing that after the cruel market test while government lacks that kind of knowledge.

When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business. Under certain emergency circumstances there may be a plausible argument for this, the merit of which we need not examine here. But in the long run it does not sound like a pay proposition from the standpoint of the country as a whole.