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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 77sorts of excuses, told them to “come back later” and wouldpay them (in the end, if the clients were lucky) only in smallcoins of little value and never in the gold which had originallybeen deposited. 66The bank crisis of the fourteenth century did not lead toincreased monitoring and protection of the property rights ofdepositors. Instead, it resulted in the creation of a municipalgovernment bank, the Taula de Canvi, Barcelona’s Bank ofDeposit. This bank was formed with the purpose of taking indeposits and using them to finance city expenditures and theissuance of government bond certificates for the city ofBarcelona. Hence, the Taula de Canvi fits the traditional modelof a bank created by public authorities to take direct advantageof the dishonest profits of banking. A.P. Usher studied thelife of this bank in detail. Predictably, it ended up suspendingpayments (in February 1468), because a large portion of itsreserves had been channeled into loans to the city of Barcelonaand the bank was unable to satisfy depositors’ demands forcash withdrawals. 67 From that point on, the bank was reorganizedand gradually given more and more privileges, suchas a monopoly on all deposits deriving from judicial attachmentsand seizures. This was an almost guaranteed source ofcontinuous income and acted as collateral for loans to financethe city’s projects. The Taula was also granted a monopoly onresources from all administrative deposits, guardianships andtestate proceedings. These funds were deposited and fixed inthe bank. 6866 Ibid., p. 244.67 In February 1468, after a long period of strain, the Bank ofDeposit was obliged to suspend specie payments completely.For all balances on the books at that date, annuities bearinginterest at 5 percent were issued to depositors willing toaccept them. Those unwilling to accept annuities remainedcreditors of the bank, but they were not allowed to withdrawfunds in cash. (Ibid., p. 278)68 Documents show that in 1433, at least 28 percent of deposits inBarcelona’s Taula de Canvi came from compulsory judicial seizures andwere very stable. See Usher, The Early History of Deposit Banking inMediterranean Europe, p. 339, and Kindleberger, A Financial History of