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

134 Money, Bank Credit, and Economic Cycles1, it would have been very interesting to know what Garriguescould and should have said about the arguments againstequating the two contracts, a matter we will now consider ingreater depth. 15THE DISTINCT CAUSE OR PURPOSE OF EACH CONTRACTThe most significant and definitive argument in favor of adistinction between the irregular deposit contract and the loanor mutuum contract lies in the essential difference between thecause or purpose of each. These terms refer to a fundamental,15 Strangely, our top commercial law scholar rushes into an attemptedjustification of fractional-reserve banking while preserving the conceptof the irregular deposit through the artifice of a redefinition of availability,without pausing first to examine the factors that make it impossibleto equate the irregular deposit contract and the loan contract. It isas if Garrigues were ultimately aware that his redefinition implicitlyentails equating deposits and loan contracts—at least from the banker’s(the recipient’s) perspective. For this reason it does not behoove him toadvance a detailed argument against equating deposits and loans,because such an argument would backfire on the doctrine he laterdefends. This attitude is quite understandable in a famed scholar whosechief customers were the country’s banks and bankers and who wouldtherefore think twice before jeopardizing his prestige and academicstanding by questioning the legitimacy of such an influential institutionas fractional-reserve banking, which was rooted in practice and government-endorsed.In addition, during the years when Garrigues wasdeveloping his theories, he could only depend for support on an economictheory which, paralyzed by Keynesian doctrines (see footnote 20in ibid.), justified any system of credit expansion, no matter how expedient,on the mistaken assumption that this would benefit “economicactivity.” During those years of doctrinal poverty in economics, the onlypossible defense for the processes of social interaction against bankingpractices would have been strict observance of the basic principles governingthe irregular deposit, which unfortunately received very weaksupport from mainstream theorists and were quickly abandoned.Despite all of these adverse circumstances, the writings of Garriguesand others who concentrate on the same topic, an unmistakable impressionpersists: that in order to justify the unjustifiable, theorists carry outthe most forced legal reasoning and maneuverings to disguise as legalan activity that results from an unseemly, unlawful privilege granted bythe government.