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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 111few decades later, as evidenced by the serious monetary chaosduring the revolutionary period and the uncontrolledissuance of assignats at that time. All these phenomena made apermanent impression on the collective psyche of the French,who are still aware today of the grave dangers of papermoney inflation and preserve the custom of storing considerableamounts of gold coins and ingots. In fact, France,together with India, is one of the countries whose people holdthe largest stock of gold on a private basis.All of the above notwithstanding, and in spite of his illfatedbanking experiment, John Law made some contributionsto monetary theory. Although we cannot accept his inflationistand proto-Keynesian views, we must acknowledge, asCarl Menger did, that Law was the first to formulate a soundtheory on the spontaneous, evolutionary origin of money.RICHARD CANTILLON AND THE FRAUDULENT VIOLATIONOF THE IRREGULAR-DEPOSIT CONTRACTIt is a remarkable fact that three of the most noted monetarytheorists of the eighteenth and early nineteenth centurieswere bankers: John Law, Richard Cantillon, 120 and HenryOeconomy, by Sir James Steuart (pp. 235–91). An enlightening and theoreticallysolid analysis of the financial, monetary, and banking systemsin eighteenth-century France is found in F.A. Hayek’s article “FirstPaper Money in Eighteenth Century France,” first published as chapter10 in the book, The Trend of Economic Thinking: Essays on Political Economistsand Economic History, vol. 3 of The Collected Works of F.A. Hayek,W.W. Bartley III and Stephen Kresge, eds. (London and New York: Routledge,1991), pp. 155–76. The best biography of John Law is by Antoin E.Murphy, John Law: Economic Theorist and Policy Maker (Oxford: ClarendonPress, 1997).120 Richard Cantillon was the first to maintain that “safe” banking couldbe conducted with only a 10 percent reserve ratio: “Dans ce premierexemple la caisse d’un Banquier ne fait que la dixième partie de soncommerce.” See p. 400 of the original edition of Essai sur la nature ducommerce en général, published anonymously (and falsely) in London,Fletcher Gyles in Holborn, 1755. Incredibly, Murray Rothbard does notmention this in his brilliant study on Cantillon. See Rothbard, EconomicThought Before Adam Smith, pp. 345–62.