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

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Attempts to Legally Justify Fractional-Reserve Banking 119without backing. We will also discuss the corrupting influenceexerted on the insurance business by the recent trend (mostapparent in government legislation) toward clouding andobscuring the traditional legal and technical boundaries betweenthe two types of institutions (life insurance and banking).2WHY IT IS IMPOSSIBLE TO EQUATE THE IRREGULAR DEPOSITWITH THE LOAN OR MUTUUM CONTRACTTHE ROOTS OF THE CONFUSIONThe attempts to legally equate the monetary irregulardepositcontract with the loan or mutuum contract are particularlyattractive to those who most benefit from banking practices(bankers and authorities). Indeed, in chapter 1, whichcontained an explanation of the legal nature of both institutions,we indicated that a loan implies the transfer not only ofownership of the lent item, but of its full availability as well,and therefore the borrower can make full use of it, by investingit, spending it, etc. Considering that this is ultimately whata banker does when appropriating demand deposit funds, theideal legal solution for him is clearly to equate the irregulardeposit contract with the loan contract. Moreover, a worn-outlegal pretext has persistently been used to reinforce the argumentfor equating the two. Lax and superficial, it is as follows:Since the irregular deposit contract consists of the deposit offungible goods, the very essence of which implies theinevitable transfer of ownership of individual items deposited(because they are indistinguishable from one another), thedeposit and the loan are naturally one and the same, as bothinstitutions entail the transfer of ownership.In chapter 1 we saw that this line of reasoning is fallacious,superficial, and abstruse. In fact, even if ownership is transferredin both cases, the two contracts still differ radically concerningthe availability of the item (an essential feature of thecontracts). Indeed, whereas in the loan contract full availabilityof the item is transferred along with ownership, the veryessence of the irregular deposit contract demands that the
120 Money, Bank Credit, and Economic Cyclespurpose of safekeeping or custody predominate. Accordingly,although we might in theory consider that ownership istransferred, in practice such a transference is negligible, sincethe safekeeping or custody of the fungible good requires theconstant availability of the tantundem to the depositor. Therefore,even if ownership were transferred in the same sense inboth institutions, an essential legal difference would still existbetween them: the contrast in availability.It may come as a surprise that the jurists who have chosento equate the deposit contract with the mutuum or loan contracthave overlooked such an obvious difference. The associationbetween the contracts is so forced and the arguments soweak that it is amazing that a certain group of theorists havetried to defend them. However, their attempt has a historical,theoretical explanation: the depositum confessatum, a legal artificewhich arose in the Middle Ages from attempts to avoidthe canonical ban on interest. Although we have alreadyshown that the canonical prohibition on interest and thedevelopment of fractional-reserve banking shared very littledirect connection, the depositum confessatum acted as a strong,indirect link between them. We already know that from thetime of Roman law, if a depositary violated the essence of thedeposit contract, based on safekeeping, and appropriateddeposits and was not able to immediately return the fundswhen the depositor demanded them, then the depositary wasobliged to pay interest. Then, irrespective of any other foreseeablecivil or criminal actions (the actio depositi and the actio furti),as is logical, an additional suit was filed to obtain interest forlate payment and the loss of availability to the depositor up tothe point when the depositary returned his funds. 3 Thus, it iseasy to understand how convenient it was in the Middle Ages3 As we know, the fact that the monetary irregular deposit is a depositcontract means the actio depositi directa applies to it. Roman jurists developedthis concept, which leaves it to the depositor to decide at anymoment when his deposit is to be returned to him. This availability is sopronounced that the depositor’s claim is considered equivalent to theownership of the money deposited (since the tantundem of the deposit isfully and immediately available to him).
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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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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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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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