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

164 Money, Bank Credit, and Economic CyclesTrue monetary-deposit operations have begun to appearon the market disguised as life insurance policies. The mainselling point presented to customers is that with these transactionsthey need not commit to a long-term savings operationinvolving regular payments, since the funds handed overto the insurance company may be recovered at any time withno penalty and no expense whatsoever (and may even includeinterest). One reason companies disguise these operations aslife insurance policies is to take advantage of the customarytax incentives almost every government in the developedworld grants insurance companies in recognition of their beneficialinfluence on society at all levels as promoters of voluntarysaving and foresight, and hence on the sustained, noninflationaryeconomic growth and development of the nation.Thus, bogus “life insurance” operations have been negotiateden masse and have really been nothing but camouflageddeposits made effortlessly by the public, who have held theidea that at any time their money could be recovered penaltyfreeif they needed it or simply wished to place it in anotherfinancial institution. This has generated a good deal of confusion.For instance, figures corresponding to bank depositsinsurance firm, John Maynard Keynes played a key role in the corruptionof traditional principles governing life insurance. During his chairmanship,he not only promoted an “active” investment policy stronglyoriented toward variable-yield securities (abandoning the tradition ofinvesting in bonds), but he also defended unorthodox criteria for thevaluation of assets (at market value) and even the distribution of profitsto policyholders through bonuses financed by unrealized stock market“earnings.” All these typical Keynesian assaults on traditional insuranceprinciples put his company in desperate straits when the stock marketcrashed in 1929 and the Great Depression hit. As a result, Keynes’s colleagueson the Board of Directors began to question his strategy anddecisions. Disagreements arose between them and led to Keynes’s resignationin 1938, since, as he put it, he did not think “it lies in my powerto cure the faults of the management and I am reluctant to continue totake responsibility for them.” See John Maynard Keynes, The CollectedWritings (London: Macmillan, 1983), vol. 12, pp. 47 and 114–54. See alsoNicholas Davenport, “Keynes in the City,” in Essays on John MaynardKeynes, Milo Keynes, ed. (Cambridge: Cambridge University Press,1975), pp. 224–25. See also footnote 108 of chapter 7.