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

Attempts to Legally Justify Fractional-Reserve Banking 121to disguise a loan as a deposit in order to make the paymentof interest legal, legitimate and socially acceptable. For thisreason, bankers started to systematically engage in operationsin which the parties openly declared they were entering into adeposit contract and not a loan contract. However, as the Latinsaying goes, excusatio non petita, accusatio manifesta (an unsolicitedexcuse is tantamount to a self-accusation). Indeed, witha true deposit it was not necessary to make any express declaration,and such a declaration, when made, only revealed anattempt to conceal a loan or mutuum contract. The purpose ofdisguising a loan as a deposit was to evade the strict canonicalprohibitions on interest-bearing loans and to permit manytrue credit transactions highly necessary, both economicallyand socially.The depositum confessatum clouded the decidedly clearlegal boundaries between the irregular deposit contract andthe loan or mutuum contract. Whatever a scholar’s stance onthe canonical prohibition of usury, the depositum confessatumalmost inevitably led to the “natural” identification of depositcontracts with mutuum contracts. To a theorist who wished todiscover and expose all violations of the canonical prohibitionand each case of concealment of interest, anything thatsounded like a “deposit” was sure to appear suspicious fromthe start, and the most obvious and efficient solution from thispoint of view was to automatically equate deposits with loansand condemn the payment of interest in all cases, regardless ofthe operation’s outer legal appearance. Paradoxically, themore “liberal” moralists did not stop at defending the legalexistence of deposits and the consequent legitimacy of interestfor late payment; they went on to indicate that such depositswere ultimately loans, and hence the banker could use orinvest the money. These authors sought not only to justify thepayment of interest, but also to legitimize an institution thatpermitted the same acts of investment, or exchange of presentgoods for future goods, that the loan contract had traditionallymade possible. Furthermore, this type of exchange wasquite necessary to industry and trade. Throughout the MiddleAges, most jurists who commented on law texts held this position.As we saw in the last chapter, it was also the opinion of