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

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Attempts to Legally Justify Fractional-Reserve Banking 129whenever the depositary, with the consent of the depositor,uses the goods deposited, either for himself or his businessactivities, or in operations ordered by the depositor, therights and obligations of depositor and depositary shallcease, in favor of the rules and provisions applicable to thecommercial loan, the commission or the contract carried outinstead of the deposit.It seems, therefore, that some parallels exist between Article309 of the Spanish Commercial Code and Article 1768 ofthe Civil Code. However, Article 307 of the Commercial Code,which regulates cash deposits, states thatwhen cash deposits are made in unmarked currency or in anopen, unsealed package, the depositary shall be responsiblefor their preservation and safety according to the termsestablished in paragraph 2 of Article 306.And Article 306, paragraph 2 reads as follows:in the safekeeping of deposits, the depositary shall beaccountable for any damage to the deposited goods resultingfrom malice or negligence, as well as from the nature of thegoods or defects in them, if in such cases he fails to take necessarymeasures to avoid or repair the damage, notifying thedepositor as soon as the damage becomes obvious. (Italics added)Thus, if we consider the last paragraph of Article 307together with the second paragraph of Article 306, the SpanishCommercial Code itself fully allows for the concept of themonetary irregular deposit contract and imposes a very clearsafekeeping obligation on the depositary in the depositor’sfavor, and even requires that, should any damage occur to thefungible money deposited, the depositary immediately notifythe depositor. Nevertheless, Article 310 of the CommercialCode grants bankers a statutory privilege which legalizes theappropriation of funds deposited with them. This article specifiesthatregardless of the provisions laid down in the preceding articles,deposits made in banks, public warehouses, credit associationsor any other company shall be governed first by that
130 Money, Bank Credit, and Economic Cyclescompany’s statutes, then by the prescriptions of this codeand last by common law rules applicable to all deposits.The nature of the “odious” privilege enjoyed by banks andother similar associations is obvious. Even from the standpointof Spanish positive law, it could be argued that, accordingto Article 306 (cited above) of the Commercial Code, anyperson who is not a banker or similar professional and usesthe money entrusted to him through an irregular depositwould violate the safekeeping obligation and therefore committhe crime of misappropriation. Bankers, however, areexempt from this possibility if their company’s statutes determinethat they may use and appropriate depositors’ funds fortheir own business activities. Nevertheless bank statutes andcontracts are not at all easy to understand. On the contrary,documents of this type are usually ambiguous and confusing,13 which explains court decisions stating that Spanish13 Curiously Spanish banks, when specifying the general conditions fortheir different checking account contracts, avoid using the word“deposit” for fear of the legal repercussions of such a contract (especiallycharges of misappropriation). They also avoid the words “loan”and “credit” because, although they would be legally covered if theycalled monetary irregular deposits “loans,” it is obvious that businesswise,it would be much harder to attract deposits from customers ifthey were generally aware that in opening a checking account theyare actually loaning money to the bank rather than making a deposit.Consequently, bankers prefer to maintain the current ambiguity andconfusion, since the existing contractual obscurity benefits them as longas they enjoy the privilege of using a fractional-reserve ratio and arebacked by the central bank in the event of a liquidity crisis. However,bankers’ own legal classifications of their operations sometimes givethem away. For example, the sixth general condition established by theBanco Bilbao-Vizcaya for draft discounting reads as follows:Regardless of the different accounts and operations of theassignor, whether in cash, securities, collateral, guarantees oranother type of document representing them, and notwithstandingthe manner in which they are itemized . . . the bank isauthorized to offset them by the loans it chooses to contract forany entitlement, including any type of deposit . . . this conditionshall apply even to operations and loans which theassignor holds against the bank prior to the current transaction.
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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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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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