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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 113Cantillon tried to defend himself by claiming that the stocksdeposited with him as unnumbered fungible goods had notactually constituted a true deposit, but a loan implying thefull transference of ownership and availability to the banker.Thus, Cantillon considered his operations perfectly “legitimate.”Nevertheless, we know his legal argument wasunsound and even though the deposit of securities was consideredan irregular deposit of fungible goods, the obligationto safeguard the shares and maintain continual possession ofall of them remained. Therefore, when Cantillon sold theshares to the detriment of his customers he clearly committedthe criminal act of misappropriation. F.A. Hayek explainsCantillon’s attempt to justify his fraudulent actions:His point of view was, as he later explained, that the sharesgiven to him, since their numbers had not been registered,were not a genuine deposit, but rather—as one would saytoday—a block deposit so that none of his customers hadclaim to specific securities. The firm actually made anextraordinary profit in this way, since it could buy back atreduced prices the shares sold at high prices, and meanwhilethe capital, for which they were charging high interest,lost nothing at all but rather was saved and invested inpounds. When Cantillon, who had partially made theseadvances in his own name, asked for repayments of theloans from the speculators, who had suffered great losses,and finally took them to court, the latter demanded that theprofits obtained by Cantillon and the firm from their sharesbe credited against these advances. They in turn took Cantillonto court in London and Paris, charging fraud and usury.By presenting to the courts correspondence between Cantillonand the firm, they averred that the entire transaction wascarried out under Cantillon’s immediate direction and thathe therefore bore personal responsibility. 122In the next chapter we will explain that the violation of theirregular deposit of securities is just as corrupt from a legalstandpoint as the violation of the irregular deposit of moneyand gives rise to very similar economic and social evils. A perfectexample in the twentieth century was the failure of the122 See Hayek, “Richard Cantillon (1680–1734),” chapter 13 of The Trendof Economic Thinking, pp. 245–93, esp. p. 284. And also the report by