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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 75of its assets fell into the hands of its creditors. The bank’s competitorsfailed for the same reasons: the unavoidable effects ofthe artificial expansion and subsequent economic recessioninvariably generated by the violation of the traditional legalprinciples governing the monetary irregular deposit.BANKING IN CATALONIA IN THE FOURTEENTH AND FIFTEENTHCENTURIES: THE TAULA DE CANVIThe emergence of private banks in Barcelona coincidedwith the development of private banking in large Italian businesscenters. During the reign of Jaime I, the Conqueror,(1213–1276), the Gothic and Roman laws governing businesswere repealed and replaced by the Usos de Barcelona. In addition,a thorough, detailed set of regulations to control bankingwas established by the Cortes of 1300–1301. It set down thepowers, rights, and responsibilities of bankers, and stipulatedrequirements with respect to guarantors. Some of the rulesadopted are quite relevant to our topic.For example, on February 13, 1300 it was established thatany banker who went bankrupt would be vilified throughoutBarcelona by a public spokesman and forced to live on a strictdiet of bread and water until he returned to his creditors thefull amount of their deposits. 63 Furthermore, on May 16, 1301,one year later, it was decided that bankers would be obligedto obtain collateral or guarantees from third parties in order tooperate, and those who did not would not be allowed tospread a tablecloth over their work counter. The purpose wasto make clear to everyone that these bankers were not as solventas those using tablecloths, who were backed by collateral.Any banker who broke this rule (i.e., operated with a tableclothbut without collateral) would be found guilty of fraud. 64In view of these regulations, Barcelona’s banking system mustinitially have been quite solvent and banks must have largelyrespected the essential legal principles governing the monetarybank deposit.63 Usher, The Early History of Deposit Banking in Mediterranean Europe, p.239.64 Ibid., p. 239.