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

The Credit Expansion Process 169differential between the rate they receive on loans they grantand the one they agree to pay to customers who initially giveloans to them. None of these operations constitutes a monetarybank-deposit, a transaction we will examine in the followingsections. As we will see, this contract undoubtedlyrepresents the most significant operation banks carry outtoday and the most important from an economic and socialstandpoint.As we have already pointed out, an economic analysis ofthe monetary bank-deposit contract provides one more illustrationof Hayek’s profound insight: whenever a universallegal principle is violated, either through systematic statecoercion or governmental privileges or advantages conferredon certain groups or individuals, the spontaneous process ofsocial interaction is inevitably and seriously obstructed. Thisidea was refined in parallel with the theory of the impossibilityof socialism and has spread. Whereas at one point it wasonly applied to systems of so-called real socialism, it has nowalso come to be associated with all parts or sectors of mixedeconomies in which systematic state coercion or the “odious”granting of privileges prevails.Although the economic analysis of interventionismappears to pertain more to coercive governmental measures, itis no less relevant and illuminating with respect to those areasin which traditional legal principles are infringed via thegranting of favors or privileges to certain pressure groups. Inmodern economies there are two main areas where thisoccurs. Labor legislation, which thoroughly regulates employmentcontracts and labor relations, is the first. Not only arethese laws the basis for coercive measures (preventing partiesfrom negotiating the terms of an employment contract as theysee fit), they also confer important privileges upon pressuregroups, in many ways allowing them to act on the fringes oftraditional legal principles (as unions do, for instance). Thesecond area in which both privileges and institutional coercionare preponderant is the general field of money, banking,and finance, which constitutes the main focus of this book.Although both areas are very important, and thus it is urgentthat both be theoretically examined in order to introduce and