Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

48 Money, Bank Credit, and Economic CyclesThis speech, delivered in 362 B.C., is the first to documentthat bankers made book entries of their clients’ deposits andwithdrawals of money. 14 Demosthenes also explains howchecking accounts worked. In this type of account, banksmade payments to third parties, following depositors’ instructions.15 As legal evidence in this specific case, Demosthenesadduced the bank books, demanded copies be made, andafter showing them to Phrasierides, I allowed him to inspectthe books and make note of the amount owed by this individual.16Finally, Demosthenes finishes his speech by expressing hisconcern at how common bank failures were and the people’sgreat indignation against bankers who went bankrupt.Demosthenes mistakenly attributes bank failures to men whoin difficult situations request loans and believe that creditshould be granted them based on their reputation; however,once they recover economically, they do not repay themoney, but instead try to defraud. 17We must interpret Demosthenes’s comment within thecontext of the legal speech in which he presents his arguments.The purpose of the speech was precisely to sue Timothyfor not returning a bank loan. It would be asking too muchto expect Demosthenes to have mentioned that most bank failuresoccurred because bankers violated their obligation tosafeguard demand deposits, and they used the money forthemselves and put it into private business deals up to thepoint when, for some reason, the public lost trust in them andtried to withdraw their deposits, finding with great indignationthat the money was not available.14 G.J. Costouros, “Development of Banking and Related Book-KeepingTechniques in Ancient Greece,” International Journal of Accounting 7, no.2 (1973): 75–81.15 Demosthenes, Discursos privados II, p. 119.16 Ibid., p. 112.17 Ibid., p. 120.