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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 93Also, at the end of chapter 4 of Suma de tratos y contratos,Tomás de Mercado states that the bankers of Seville holddeposits of money and precious metals belonging to merchantswho traded with the New World, and that with such considerabledeposits they “make great investments,” obtaininghefty profits. Here he does not openly condemn these practices,but we must remember that the passage in question is,again, more a description of a state of affairs than a judgmenton its legitimacy. However, he does consider the issue of legitimacyin greater depth in chapter 14, which we have alreadycovered. Tomás de Mercado concludes as well that bankersare also involved in exchanging and charging; bankers inthis republic engage in an extremely wide range of activities,wider than the ocean, but sometimes they spread themselvestoo thin and all is lost. 95The scholastics most misguided in their doctrinal treatmentof the monetary irregular-deposit contract are Domingode Soto and (especially) Luis de Molina and Juan de Lugo.Indeed, these theorists allowed themselves to be influencedBecause the public banks in the markets of Medina delCampo, Rioseco and Villalón, and in the cities, towns and villagesof these kingdoms . . . [have engaged in business otherthan their specific task concerning money], they have as aresult suspended payments and failed; [in order to] avoid theabove-mentioned events, we decree that, from now on, theyconfine themselves to their specific duty, and that not just oneperson but at least two be required to establish these publicbanks . . . and that before they . . . [can practice their profession],they must provide sufficient guarantees. (italics added)Note that “public banks” refers here not to government banks but to privatebanks which may receive deposits from the public under certainconditions (at least two owners, sufficient guarantees, etc.). See JoséAntonio Rubio Sacristán, “La fundación del Banco de Amsterdam (1609)y la banca de Sevilla,” Moneda y crédito (March 1948).95 This is the quotation of Mercado which Ramón Carande includes invol. 1 of Carlos V y sus banqueros, in the introduction to his treatment ofbankers in Seville and the crisis that led them all to fail. See Mercado,Suma de tratos y contratos, vol. 2, pp. 381–82 of the 1977 edition of theInstituto de Estudios Fiscales and p. 321 of the Sierra Bravo edition.