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

Attempts to Legally Justify Fractional-Reserve Banking 117amount than is actually deposited, it is clear that these actsshare the same characteristic present in all other criminal actsof misappropriation which have always been the object of doctrinalanalysis by criminal law experts. The similarity betweenthe two sets of actions is therefore so obvious that theoristscould not remain impassive in the face of a legal irregularitysuch as this in the economy.Hence it is not surprising that great efforts have beenmade to justify what appears completely unjustifiable: that itis legitimate, from the standpoint of general legal principles,to misappropriate funds deposited for safekeeping and toissue deposit receipts for more money than is actuallydeposited. However, the interested parties (bankers and governments,mostly) have found it so important to find an adequatetheoretical justification beyond the easy solution of simplydeclaring legal a corrupt, criminal practice (which is whathas ultimately happened, despite all the doctrinal façades andconstructions), that many jurists are still at work trying to conferlegal respectability on a procedure that is commonplaceeven now.Doctrinal attempts to justify the use of a fractional reservein the irregular deposit can be classified into two large groups.The first group of doctrines was intended to settle the issue byequating the irregular deposit contract with the loan contract.We will analyze this group of theories in detail and show that,from a legal point of view, it is impossible to equate these twocontracts. Writers of the second and more recent set of doctrinesstart by acknowledging that there are fundamental differencesbetween the loan and irregular deposit contract.These theorists have focused their efforts on the constructionof a new legal concept of “availability” and hold that thisnotion should be taken “loosely,” meaning bankers shouldonly be required to carry out their investments “prudently”and to comply with regulations and bank legislation at alltimes. A detailed study of this second set of theories willdemonstrate that they ultimately entail a return to the failedattempt of the first group, i.e., to justify the use of a fractionalreserve in the irregular deposit by equating the deposit contractwith the loan contract. Thus, the doctrines of the second