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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 79THE DEVELOPMENT OF BANKING IN SEVILLERamon Carande deserves credit for uncovering in somedetail the development of private banking in Seville duringthe reign of Charles V. 70 According to Carande, his researchwas aided by the discovery of a list of bankers compiled priorto the confiscation of precious metals by Seville’s Casa de Contratación(Trading House) in 1545. An impoverished treasuryprompted Charles V to disregard the most basic legal principlesand seize funds where he could find them: i.e., depositedin the vaults of Seville’s bankers. Granted, these bankers alsoviolated the basic legal principles governing the monetaryirregular deposit and employed in their own private dealingsa large share of the money deposited. However, the emperor’spolicy of directly confiscating whatever funds remained intheir vaults incited bankers to routinely loan to third partiesmost money on deposit. If there was ultimately no guaranteethat public authorities would respect bank reserves (andbankers’ own experience taught them that, when short ofmoney, the emperor had no qualms about forcibly appropriatingthose funds in the form of compulsory loans to theCrown), it seemed wiser to invest most deposited money inloans to private industry and commerce, thus evading expropriationand earning higher profits.The practice of confiscating deposits is perhaps the mostextreme example of public authorities’ traditional tendency tocapitalize on banking profits by expropriating the assets ofthose who have a legal duty to better guard the deposits ofothers. It is therefore understandable that rulers, being themain beneficiaries of bankers’ dubious activities, ended upjustifying them and granting bankers all kinds of privileges toallow them to continue operating with a fractional reserve, onthe fringes of legality.In his chief work, Carlos V y sus banqueros, Ramón Carandelists the most important bankers in the Seville of Charles V,namely the Espinosas, Domingo de Lizarrazas, and Pedro de70 Ramón Carande, Carlos V y sus banqueros, 3 vols. (Barcelona andMadrid: Editorial Crítica, 1987).