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

Attempts to Legally Justify Fractional-Reserve Banking 155to cause inevitable spontaneous adjustments. At first theseadjustments manifest themselves as expansions in the moneysupply (via the creation of loans which do not correspond to anactual increase in voluntary saving), inflation, a generalizedpoor allocation of society’s scarce productive resources at amicroeconomic level, and ultimately, financial crisis, economicrecession, the rectification of errors caused in the productivestructure by credit expansion, and widespread unemployment.The next chapters will be devoted to examining all theseissues from the standpoint of economic theory. Nevertheless,first we should wrap up our legal study with the analysis ofsome other juridical institutions related to bank deposits.To conclude this section, the following table displaysseven possible ways to legally classify the bank-deposit contractfrom the perspective of the logic inherent in the institution(and naturally, not from the viewpoint of positive law, whichas we know, can give legal force to anything).4THE MONETARY IRREGULAR DEPOSIT,TRANSACTIONS WITH A REPURCHASE AGREEMENTAND LIFE INSURANCE CONTRACTSIn these first three chapters we have undertaken an analysisof the legal nature of the irregular deposit contract, and thisanalysis could serve, among other uses, as a reliable guide toidentifying (from among the rich variety of legal contracts inthe fast-changing real world) true loan contracts, irregulardeposits in which the safekeeping obligation is met and contractsof a contradictory or even fraudulent nature. This is animportant guide, as human ingenuity knows no bounds whenit comes to attempting to fraudulently circumvent traditionallegal principles for one’s own benefit and to the detriment ofothers.Moreover, this danger is especially acute when legal principlesare not adequately defined nor defended by publicauthorities, especially in a field, like that of finance, which isvery abstract and difficult to understand for most citizens.