Sunday, August 15, 2010

Reponse to Five Proposals for Distributist Agricultural Reform: Part II

Campbell's fifth proposal is Interest-Free Loans for Equipment. This topic is addressed in Hazlitt's Economics in One Lesson available here (or buy a $12 hardcover version here).

Distributists often suggest interest free loans on the grounds that, as Campbell says, "One factor that keeps entrepreneurs from getting into agriculture is prohibitively large expenses up front." That is true, modern large-scale agriculture is expensive. His proposal is for direct or subsided government interest free loans "on the purchase of agricultural equipment, livestock or any of the implements needed for the management of a farm."

Let us turn from Chesterton to Hazlitt for a moment in his Credit Diverts Production chapter of Economics in One Lesson. (Emphasis is mine)

At first glance the case for this type of loan may seem a strong one. Here is a poor family, it will be said, with no means of livelihood. It is cruel and wasteful to put them on relief. Buy a farm for them; set them up in business; make productive and self-respecting citizens of them; let them add to the total national product and pay the loan off out of what they produce. Or here is a farmer struggling along with primitive methods of production because he has not the capital to buy himself a tractor. Lend him the money for one; let him increase his productivity; he can repay the loan out of the proceeds of his increased crops. In that way you not only enrich him and put him on his feet; you enrich the whole community by that much added output. And the loan, concludes the argument, costs the government and the taxpayers less than nothing, because it is "self-liquidating.


This argument will seem plausible only as long as we concentrate our attention on the particular borrowers whom the government supplies with funds, and overlook the people whom its plan deprives of funds. For what is really being lent is not money, which is merely the medium of exchange, but capital. (I have already put the reader on notice that we shall postpone to a later point the complications introduced by an inflationary expansion of credit.) What is really being lent, say, is the farm or the tractor itself. Now the number of farms in existence is limited, and so is the production of tractors (assuming, especially, that an economic surplus of tractors is not produced simply at the expense of other things). The farm or tractor that is lent to A cannot be lent to B. The real question is, therefore, whether A or B shall get the farm.


In any case the net result of government credit has not been to increase the amount of wealth produced by the community but to reduce it, because the available real capital (consisting of actual farms, tractors, etc.) has been placed in the hands of the less efficient borrowers rather than in the hands of the more efficient and trustworthy.
There we have it, interest-free loans take capital by force from one and deliver it to another. Does this meet the definition of theft?

Campbell clearly understands and is concerned about the poor state of US agriculture. I would suggest that the wealth destructive subsidies already distort the market. Why attempt to cure a disease with more disease?

I'm convinced that the hearts of distributists are good, even if their proposals and actions may not be. When (if?) distributists give up the threat of force for the responsibility of contracts, I suspect that they will find free market Austrians their only defenders. On economics, put Chesterton gently aside and pick up St. Thomas Aquinas and the Spanish Monks of Salamanca.

Bring the free market back to agriculture. Eliminate the US farmer's addiction to government programs and credit.

Personal Note:
The subject of agriculture is dear to me as I grew up on a family farm. Even suggesting that farmers are welfare dependents are fighting words in that state and county. Our family never participated in the heavily advertised and "encouraged" programs ("just sign your soul away here"). That means they can't legally grow wheat even for non-grain animal consumption! I'll save the vitriolic words of my father for later.

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