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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 71price of Florentine government bonds. In Florence, publicdebt had been financed by speculative new loans created outof nowhere by Florentine banks. A general crisis of confidenceoccurred, causing all of the above banks to fail between 1341and 1346. As could be expected, these bank failures weredetrimental to all deposit-holders, who, after a prolongedperiod, received half, a third, or even a fifth of their depositsat most. 54 Fortunately, Villani recorded the economic andfinancial events of this period in a chronicle that Carlo M.Cipolla has resurrected. According to Villani, the recessionwas accompanied by a tremendous tightening of credit(referred to descriptively as a mancamento della credenza, or“credit shortage”), which further worsened economic conditionsand brought about a deluge of industry, workshop, andbusiness failures. Cipolla has studied this economic recessionin depth and graphically describes the transition from economicboom to crisis and recession in this way: “The age of‘The Canticle of the Sun’ gave way to the age of the Dansemacabre.” 55 In fact, according to Cipolla, the recession lasteduntil, “thanks” to the devastating effects of the plague, whichradically diminished the population, the supply of cash andcredit money per capita approached its pre-crisis level andlaid the foundation for a subsequent recovery. 5654 Cipolla, The Monetary Policy of Fourteenth-Century Florence, p. 9.55 Ibid., p. 1. See also Boccaccio’s commentary on the economic effects ofthe plague, cited by John Hicks in Capital and Time: A Neo-Austrian Theory(Oxford: Clarendon Press, 1973), pp. 12–13; see footnote 60, chap. 5.56 Carlo M. Cipolla’s interpretive analysis of historical events reveals agreater knowledge and application of economic theory than otherauthors have displayed (such as A.P. Usher and Raymond de Roover,who both express surprise at medieval economic recessions, the originsof which are often “mysterious and inexplicable” to them). Still, hisanalysis, monetarist in nature, focuses on the stages of recession, whichhe attributes to a shortage of the money supply, resulting in turn froman overall tightening of credit. Remarkably, he ignores the prior economicboom, unconsciously lapsing into a “monetarist” interpretationof history and thus failing to recognize the artificial boom caused bycredit expansion as the true source of the ensuing, inevitable recessions.Cipolla’s thesis that it was the Black Death that eventually resolved the