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

168 Money, Bank Credit, and Economic Cyclesthought. This body of economic knowledge has followed therelevant events (the development of fractional-reserve bankingand the recurring cycles of boom and recession) and correspondinglegal formulations with great delay. As we haveseen, the study of legal principles, the analysis of their loopholesand contradictions, the search for and correction of theirlogical defects, etc. took place much earlier in history and caneven be traced back to classical Roman legal doctrine. In anycase, in keeping with the evolutionary theory of institutions(legal, linguistic, and economic), according to which institutionsemerge through a lengthy historical process and incorporatea huge amount of information, knowledge, and experience,the conclusions we will reach through our economicanalysis of the monetary bank-deposit contract in its currentform are hardly surprising. They largely coincide with andsupport inferences the reader may have already drawn (froma purely legal standpoint) in preceding chapters.Our analysis of banking will be limited to the study of themonetary deposit contract, which in practice applies to socalleddemand checking accounts, savings accounts and timedeposits, whenever the last two permit the de facto withdrawalof the balance by the customer at any time. Hence, our studyexcludes numerous activities private banks presently engagein which are in no way related to the monetary irregulardepositcontract. For example, modern banks offer their customersbookkeeping and cashier services. They also buy and sellforeign currencies, following a money-changing tradition thatdates back to the appearance of the first monetary units. Inaddition, banks accept deposits of securities and on behalf oftheir clients collect dividends and interest from the issuers,informing customers of increases in owner’s equity, stockholders’meetings, etc. Moreover, banks buy and sell securitiesfor their clients through discount houses and offer safe depositbox services at their branches. Likewise, on many occasionsbanks act as true financial intermediaries, attracting loans fromtheir customers (that is, when customers are aware they areproviding a loan to the bank, as holders of bonds, certificates,or true time “deposits”) and then lending those funds to thirdparties. In this way, banks derive a profit from the interest rate