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

Attempts to Legally Justify Fractional-Reserve Banking 131positive law requires bankers to maintain continuously availableto depositors the entire amount of their deposits (tantundem);that is, to maintain a 100-percent reserve ratio. Thesejudgments (such as the Spanish Supreme Court decision ofJune 21, 1928 and others cited in chapter 1) have been basedon case-law interpretations of Spanish positive law and havebeen pronounced well into the twentieth century.Finally we must mention Articles 7 and 8 of the Bank ofSpain’s bylaws, which concern deposits. The first two paragraphsof Article 7 establish that “authorized offices mayreceive deposits of local currency or of notes from the bankitself.” Article 8 states that “the responsibility of the bank as adepositary is to return the same amount in local currency as isdeposited in cash.” Article 10, which relates to checkingaccounts, has more or less the same content:Moreover, whereas the Banco Bilbao-Vizcaya, in reference to thedemand deposit represented by the so-called “savings passbook,” classifiedthe latter as “the justificatory claim representing the right of theholder to request and obtain full or partial repayment of the balance inhis favor,” the Banco Hispano-Americano went even further, establishingthat the passbook “constitutes the nominative and non-negotiabledocument which is evidence of the holder’s ownership.” As we see, inthe latter case, the bank, without realizing it, attributes ownership statusto the deposit contract; incidentally, this classification is much closerto the true legal nature of the institution (given the continuous availabilityin favor of the depositor) than that of a mere loan claim on thedeposited sum. On this subject, see Garrigues, Contratos bancarios, pp.368–79, footnotes 31 and 36. Garrigues notes that private bankers do notrefer directly to monetary deposit contracts by name, but instead usuallycall demand deposits checking accounts, as revealed by an examinationof deposit slips and general terms of accounts, as well as by bankstatements, balance notices, etc. Moreover, this reluctance to speak of“monetary deposits” is evident even on bank balance sheets where thereis never any mention of such a heading and where monetary irregulardeposits are instead entered under “Checking Accounts” in the correspondingliabilities column under “Creditors.” Thus from a legal andcontractual standpoint, with the consent of financial authorities,bankers purposefully contrive to conceal the true legal nature of theiractivities, especially from third parties and clients. The effects of theconfusion created by banks are studied by Jörg Guido Hülsmann in hisarticle, “Has Fractional-Reserve Banking Really Passed the MarketTest?” The Independent Review 7, no. 3 (Winter, 2003): 399–422.