An entrepreneurial action is made anytime money is lent.  The moneylender is making an entrepreneurial action if he can’t see the future.  He stands to lose part of his wealth.  The saying “money begets money” has some truth.  Money doesn’t automatically yield interest.  The money must do something productive.  True, money does make money, but it can lose a lot too unless the moneylender makes a well-informed entrepreneurial decision.

There is never perfect security.  This isn’t less true in moneylending.  He can become insolvent if the money can’t be paid back.  The moneylender becomes a virtual partner in the debtor’s success.  This isn’t different from a business loan to a personal loan.  The debtor will pledge collateral for the loan, but this doesn’t matter if the collateral is worthless.  Whatever that loan is made for, it must have a return.

Money lent without proper consideration can lead to disastrous consequences.  The business cycle is set into motion if the politburo adjusts the interest rates.  This can’t be stopped or made easier by the politburo.  There is a cluster of errors among the moneylenders.   The entrepreneurs are particularly good at determining if the loan can be paid back.  Money is then lent to the state to bail out the businesses they like.

We must distinguish between private and public loans.  All loans are based on how likely they are to be paid back.  A private loan is paid back by the debtor.  A public loan is not.  A public loan is paid back by future tax aggression.  More public debt always means more taxes.  There is no way around that—unless the debt is repudiated.  The taxes can be shifted from now to the future, but taxes are still required.  More public debt always means more taxes.

It doesn’t matter why the money is lent.  The moneylenders will want to be paid back.  The money must be productive to pay back the loan plus interest.  This is always an entrepreneurial decision.  He is always subject to changing data and ideas.  There is certainly a possibility that this money can’t be paid back.  He can misinterpret data if the politburo changes the rates.  They all make errors at the same time when this happens.

Reference

Ludwig von Mises; Human Action