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

146 Money, Bank Credit, and Economic Cyclescause or purpose is the exchange of present goods for futuregoods plus interest, a true time “deposit” takes place. From alegal standpoint, this is unquestionably a mutuum or loanwhich can later be changed to or substituted for by a monetaryirregular deposit through an express agreement between theparties. 31In short, whichever way you look at it, the monetary irregular-depositcontract cannot be equated with the mutuum orloan contract. The two are essentially incompatible, and theexistence of the demand deposit in fractional-reserve banking,despite its being a “monster” or “legal aberration,” can only beaccounted for insofar as it was initially tolerated and later deliberatelylegalized by those exercising political power. 32 Nevertheless,the fact that such a “monstrous” (according to Clementede Diego) legal institution plays a role in the course of humaninteraction inevitably produces damaging economic and socialconsequences. In the following chapters we will explain whyfractional-reserve banking is responsible for the crises andrecessions that repetitively grip the economy, and this will constitutean additional argument against the legitimacy of thefractional-reserve bank-deposit contract, even when both partiesare in perfect agreement. Furthermore, this explains theimpossibility of at all times guaranteeing the repayment ofthese deposits without the creation of a whole governmentsuperstructure called the central bank. Once this organization31 We do not support the doctrine that time “deposits” are not loan ormutuum contracts from the legal perspective, since both their economicand legal natures reflect all the fundamental requirements we studied inchapter 1 for a loan or mutuum. Among the scholars who attempt to justifythe theory that time “deposits” are not loans, José Luis García-Pitay Lastres stands out with his paper, “Los depósitos bancarios de dineroy su documentación,” esp. pp. 991ff. The arguments García-Pita y Lastresoffers here on this topic fail to convince us.32 That is, fractional-reserve banking conflicts with traditional legal principlesand only survives as a result of an act of coercive interventionfound in a mandate or governmental statutory privilege, something thatother economic agents cannot take advantage of and which expresslystates that it is legal for bankers to maintain a fractional-reserve ratio(Article 180 of the Spanish Commercial Code).