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

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3ATTEMPTS TOLEGALLY JUSTIFYFRACTIONAL-RESERVEBANKINGThis chapter contains a critical examination of the differenttheoretical attempts to legally justify fractionalreservebanking. We will consider the proposed argumentsintended to legally support a monetary irregular depositcontract in which the depositary can make self-interested use ofmoney on demand deposit. In light of the legal doctrine presentedin chapter 1 and the economic analysis to be performedin the following chapters, we will critique two main lines ofdefense.1INTRODUCTIONThe legal doctrines aimed at justifying fractional-reservebanking have been formulated ex post facto. They have notbeen based on preexisting legal principles that have given riseto certain legal acts. On the contrary, as we explained in theprevious chapter, banking practices have long infringed uponbasic, universal legal principles and have done so in responseto specific circumstances which have conspired to make theseviolations possible (human avarice; inadequate regulation; governments’financial needs; systematic intervention of the115
116 Money, Bank Credit, and Economic Cyclesauthorities and confusion arising from the depositum confessatum,a product of the canonical ban on interest). As is logical,the lack of a legal basis for such a widespread practice soonprompted bankers and theorists alike to search for a fittinglegal justification. Moreover, this urge was reinforced by thefact that, on almost all occasions, the government or publicauthorities ended up being the main beneficiary of fraudulentbanking practices. Therefore it is not surprising, given the traditionalsymbiosis between political authorities and the intelligentsia,that the latter was driven by the former to search forlegal grounds to support the practices it permitted andencouraged. 1Finding adequate legal grounds was essential to the survivalof the whole network of vested interests which fractional-reservebanking generates. It was clear to any educatedperson that these practices should be based on somethingsounder than a mere de facto situation. It is not enough to realizeand affirm, as Shepard B. Clough does, thatIn fact, [goldsmiths] even lent money given them for safekeepingon the theory and experience that they needed tohave on hand only enough to meet the expected, currentdemand of depositors. This practice led them, at least by theseventeenth century, to the issuing of “promises to pay,”that is, “goldsmiths’ notes,” which, like modern banknotes,circulated from person to person. These “promises to pay,”which could be paid by using the deposits of customers,came actually to exceed the amount of money on deposit.When this happened credit had been actually created byissuing paper—a very major discovery. 2Nevertheless, no matter how “major” one considers the“discovery” that it is possible to make fraudulent use ofdepositors’ money or issue deposit receipts for a greater1 See Bertrand de Jouvenel, “The European Intellectuals and Capitalism,”in Friedrich A. Hayek, ed., Capitalism and the Historians (Chicago:University of Chicago Press, 1954).2 Shepard B. Clough, The Economic Development of Western Civilization (NewYork: McGraw-Hill, 1959), p. 109; italics added. See also chapter 4, n.7.
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MONEY,BANK CREDIT,ANDECONOMIC CYCLE
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CONTENTSPREFACE TO THE THIRD ENGLIS
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xiiMoney, Bank Credit, and Economic
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xivMoney, Bank Credit, and Economic
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xviMoney, Bank Credit, and Economic
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xviiiMoney, Bank Credit, and Econom
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PREFACE TO THESECOND ENGLISH EDITIO
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Preface to the Second English Editi
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PREFACE TOTHE THIRDSPANISH EDITIONI
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Preface to the Third Spanish Editio
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xliiMoney, Bank Credit, and Economi
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INTRODUCTIONThe economic analysis o
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Introductionxlviiand foreign exchan
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IntroductionxlixThis book comprises
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Introductionrecurrent phenomenon. I
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Introductionand Professors Hans-Her
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2 Money, Bank Credit, and Economic
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4THE CREDITEXPANSION PROCESSThis ch
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6ADDITIONALCONSIDERATIONSON THE THE
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7A CRITIQUE OFMONETARIST ANDKEYNESI
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A Critique of Monetarist and Keynes
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8CENTRAL AND FREEBANKING THEORYThis
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Central and Free Banking Theory 603
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9A PROPOSAL FOR BANKINGREFORM: THE
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A Proposal for Banking Reform:The T
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BIBLIOGRAPHYAbrams, M.A., Money in
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Bibliography 815Bajo Fernández, M.
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Bibliography 817Borch, K.H., Econom
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Bibliography 819Coronel de Palma, L
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Bibliography 821N. Durlauf and Lawr
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Bibliography 823Galiani, F., Della
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Bibliography 825Graham, F.D., “Pa
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Bibliography 827——, Prices and
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Bibliography 829translation by N. K
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Bibliography 831——, “Keynes
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Bibliography 833Russian edition by
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Bibliography 835Keeler, J., “Empi
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Bibliography 837——, “On Crisi
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Bibliography 839——, “Professo
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Bibliography 841Miller, H.E., Banki
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Bibliography 843Neira, Alonzo, M.A.
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Bibliography 845Raguet, C., “Repo
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Bibliography 847——, “The Myth
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Bibliography 849——, “Banking
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Bibliography 851M.C. Marcuzzo (Chel
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Bibliography 853——, “A Critiq
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Bibliography 855Walker, A., The Sci
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INDEX OF SUBJECTSAccelerator princi
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Index of Subjects 859Banking reform
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Index of Subjects 861objection to t
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Index of Subjects 863Goal, concept
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Index of Subjects 865See also Fract
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Index of Subjects 867Plan, definiti
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Index of Subjects 869Tragedy of the
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