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

Attempts to Legally Justify Fractional-Reserve Banking 123mutatis mutandis, to all other deposits of fungible goods; andin particular, to deposits of securities as goods indistinguishablefrom one another. Hence we must emphasize that anypossible doctrinal analysis against the legality of a completetransfer of ownership and availability in an irregular deposit ofsecurities also ultimately constitutes a powerful case againstthe use of a fractional reserve in the monetary irregulardeposit. The great Spanish mercantilist Joaquín Garrigues hasrecognized this fact. He states:The reasoning thus far leads us to the affirmation that whena customer entrusts his shares to the bank he intends to contracta bank deposit; however, immediately after makingthis assertion, we become aware of another contract with asimilar financial purpose. This contract also involves theentrusting to the bank of a fungible good (money) andcashier services are provided by the bank. This—defendersof the checking account will say—is another unique contractwhich is not called a loan nor a deposit in bank documentsand which has the same legal effects as the securitiescurrent account; namely, the transference of ownership tothe bank and the bank’s return of the tantundem. 6Despite Garrigues’s forced and unconvincing attempt topersuade us that these two deposits are different, it is obviousthat both contracts of irregular deposits of fungiblegoods (of money and of securities) are essentially identical,and therefore if we accept the transfer of full availability ofthe good in one case (the deposit of money), we must alsoaccept it in the other. Consequently, there is no denying thelegality of one (the deposit of securities) without denying the6 On this topic see pp. 194ff. in the “Dictamen de Joaquín Garrigues,”included in the book, La cuenta corriente de efectos o valores de un sector dela banca catalana y el mercado libre de valores de Barcelona, pp. 159–209. Inthis remarkable book, many of the arguments against the thesis that fullavailability is transferred in the irregular deposit of securities as fungiblegoods are therefore also directly applicable to criticism of the sametheory with respect to the irregular deposit of money as a fungible good.We will incorporate these arguments into our study whenever appropriate.