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

76 Money, Bank Credit, and Economic CyclesNevertheless, there are indications to show that, in spite ofeverything, private bankers soon began to deceive theirclients, and on August 14, 1321 the regulations pertaining tobank failures were modified. It was established that thosebankers who did not immediately fulfill their commitmentswould be declared bankrupt, and if they did not pay theirdebts within one year, they would fall into public disgrace,which would be proclaimed throughout Catalonia by a towncrier. Immediately afterward, the banker would be beheadeddirectly in front of his counter, and his property sold locally topay his creditors. In fact, this is one of the few historicalinstances in which public authorities have bothered to effectivelydefend the general principles of property rights withrespect to the monetary bank-deposit contract. While it islikely that most Catalonian bankers who went bankrupt triedto escape or pay their debts within a year, documentary evidenceshows that at least one banker, a certain FranceschCastello, was beheaded directly in front of his counter in 1360,in strict accordance with the law. 65Despite these sanctions, banks’ liquid funds did not matchthe amount received on demand deposit. As a result, theyeventually failed en masse in the fourteenth century, duringthe same economic and credit recession that ravaged the Italianfinancial world and was studied by Carlo M. Cipolla.Though there are signs that Catalonian banks held out a bitlonger than Italian ones (the terrible penalties for fraudundoubtedly raised reserve ratios), documents show that inthe end, Catalonian banks also generally failed to meet theirobligations. In March 1397, further regulations were introducedwhen the public began to complain that bankers werereluctant to return money deposited, offered their clients all65 Ibid., pp. 240 and 242. In light of recent scandals and bank crises inSpain, one could jokingly wonder if it might not be a good idea to againpunish fraudulent bankers as severely as in fourteenth-century Catalonia.A student of ours, Elena Sousmatzian, says that in the recent bankcrisis that devastated Venezuela, a senator from the Social-ChristianParty Copei even “seriously” suggested such measures in a statement tothe press. Incidentally, her remarks were quite well-received amongdepositors affected by the crisis.