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

112 Money, Bank Credit, and Economic CyclesThornton. Their banks all failed. 121 Cantillon alone escapedrelatively unscathed, not only because he stopped his riskyspeculation in time, but also (and most importantly) becauseof the large profits he fraudulently obtained by violating theobligation to safeguard his customers’ assets.Indeed, Cantillon clearly violated the contract of irregulardeposit, however in this case the deposit was not of money,but shares of stock in the Mississippi Trading Company,founded by John Law. Cantillon’s fraudulent scheme was asfollows: he loaned large amounts of money to his customers toallow them to buy shares in the company, on the conditionthat the stocks act as collateral and remain at Cantillon’s bankas an irregular deposit, in this case of fungible and indistinguishableshares. Later Cantillon, unbeknownst to his clients,misappropriated the deposited securities, selling them whenhe thought their market price was high and keeping themoney from the sale. Once the shares had lost practically all oftheir value, Cantillon bought them back for a fraction of theirold price and restored deposits, securing a hefty profit.Finally, he demanded repayment of the loans he had initiallymade to his clients, who were unable to return the money,since the collateral they had at the bank was worth close tonothing. These fraudulent operations led to multiple criminalcharges and civil suits against Cantillon, who, upon beingarrested and briefly incarcerated, was forced to leave Francein a hurry and flee to England.Cantillon, in defense, put forward the same argument sooften used throughout the Middle Ages by writers determinedto confuse the irregular deposit with the loan. In fact,121 Admittedly, Thornton’s bank did not fail until after his death, inDecember 1825. See pp. 34–36 of F. A. Hayek’s “Introduction” to HenryThornton’s book An Inquiry into the Nature and Effects of the Paper Credit ofGreat Britain, originally published in 1802 and reissued by Augustus M.Kelley, 1978. A.E. Murphy also notes that Law and Cantillon share theunhappy “distinction” of being the only economists, apart from Antoinede Montchrétien, who were accused of murder and other crimes. See A.E.Murphy, Richard Cantillon: Entrepreneur and Economist (Oxford: ClarendonPress, 1986), p. 237. Thornton’s religious and puritanical reputation atleast protected him from being charged with such atrocities.