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

78 Money, Bank Credit, and Economic Cycles4BANKING DURING THE REIGN OF CHARLES V AND THEDOCTRINE OF THE SCHOOL OF SALAMANCA 69Banking during the reign of Charles V is a good exampleof the scenario we have been describing. First, the massiveinflux of precious metals from the Americas shifted the economicfocus, at least temporarily, from the Northern Italiantrading cities to Spain; specifically, Seville and the other Spanishbusiness centers. Second, due to his imperial policy,Charles V was in constant need of funds, and he turned to thebanking system for a continual source of financing. In thisway, he unscrupulously took advantage of the liquidity it providedhim and powerfully reinforced the traditional complicitybetween authorities and bankers. A more disguised collaborationbetween the two was already the norm at that time.Furthermore, Charles V was unable to keep the royal treasuryfrom going bankrupt, which, as could be expected, had verynegative effects on the Spanish economy and on the bankerswho had financed his projects. All of these events motivatedthe most brilliant minds of the time, the scholars of the Schoolof Salamanca, to reflect on the financial and banking activitiesthey witnessed. These theorists left us with some very valuableanalyses worthy of being studied in detail. We will nowexamine each of the historical events in order.Western Europe, p. 49. At any rate, the reserve ratio progressively worseneduntil the suspension of payments in 1468. Following its reorganizationat that time, Barcelona’s Bank of Deposit managed a fragile financialexistence for the next 300 years, due to the privileges it enjoyed withrespect to judicial deposits and the limits established on loans to the city.Shortly after Barcelona was captured by the Bourbons on September 14,1714, the bank was taken over by a new institution with statutes draftedby the Count of Montemar on January 14, 1723. These statutes were thebank’s backbone until its final liquidation in the year 1853.69 Another English version of this section appeared in Jesús Huerta deSoto, “New Light on the Prehistory of the Theory of Banking and theSchool of Salamanca,” Review of Austrian Economics 9, no. 2 (1996):59–81.