by Frank Shostak
Mises.org
Resources that are utilized to promote economic prosperity in normal times become underutilized during recessions. Some experts are of the view that what is required are policies which will increase the availability of credit to make greater use of underutilized resources. On this Ludwig von Mises wrote,
Here, they say, are plants and farms whose capacity to produce is either not used at all or not to its full extent. Here are piles of unsalable commodities and hosts of unemployed workers. But here are also masses of people who would be lucky if they only could satisfy their wants more amply. All that is lacking is credit. Additional credit would enable the entrepreneurs to resume or to expand production. The unemployed would find jobs again and could buy the products. This reasoning seems plausible. Nonetheless it is utterly wrong.1
The credit that is lacking is productive credit. Briefly, productive credit emerges when a wealth generator lends some of his wealth to another wealth generator. By giving up the use of the loaned wealth at present, the lender is compensated in terms of interest that the borrower agrees to pay.