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

Attempts to Legally Justify Fractional-Reserve Banking 165(operations completely unrelated to life insurance) have beenincluded in the official statistics of life insurance premiums,and in the midst of the great confusion in the market, traditionallife insurance policies have become discredited andtheir definition blurred. 49Fortunately, normality is being restored, and both traditionalprivate insurers and public authorities are beginning torealize that nothing hurts life insurance more than blurringthe distinctions between it and bank deposits. This confusionhas been detrimental to everyone: traditional life insurance,which has lost many of its tax incentives and faced increasingintervention and control by the central bank and monetaryauthorities; clients, who have taken out life insurance thinkingthey were making bank deposits and vice versa; banks, whichon many occasions have attracted funds from true deposits(disguised as life insurance) and tried to make long-terminvestments with them, endangering their solvency; andfinally, supervising public authorities, who have graduallylost control over the institution of life insurance, which hasbecome blurred in its definition and to a great extent takenover by another institution (the central bank). Banks are acompletely separate type of institution, whose financial andlegal foundations leave much to be desired, as we are seeing.49 In short, the apparent boom in life insurance sales was an illusion,since the figures actually corresponded to radically different operations,i.e., fractional-reserve bank deposits. These figures completely lose theirsplendor if, instead of contrasting them with traditional life insurancesales (much more modest, since abnegation and a long-term commitmentto saving and foresight are required), we compare them to the totalof a country’s bank deposits, of which they make up only a small percentage.When only genuine life insurance sales are included in sectorstatistics, the situation is put back in perspective, and the mirage everyone(especially the government) strained to see vanishes.