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

The Credit Expansion Process 179transfer of ownership may be established, availability is nottransferred to the depositary, because in the irregular depositcontract he is obliged to continuously safeguard the tantundemof the deposit and therefore must always maintain available tothe depositor units of an equal quantity and quality as thoseoriginally received (though they may not be the same specificunits). Hence, the only justification a depositary has for enteringa deposit contract in his account books lies precisely in thetransfer of ownership entailed by the irregular deposit; however,it is important to point out that given the extremely limitedsense in which this transfer of ownership occurs (it is notat all equal to a transfer of availability), at most the informationshould be recorded in mere “memorandum accounts” withpurely informative purposes. Let us imagine that we havetraveled back in time to the dawn of fractional-reserve bankingand that a depositor, Mr. X, decides to deposit 1,000,000 m.u. inBank A (or if you prefer, any person today decides to open achecking account in a bank and deposit 1,000,000 m.u.). Thissecond case involves a true deposit contract, though an irregularone, given the fungible nature of money. In other words,the essential cause or purpose of the deposit contract is thedesire of Depositor X that Bank A safeguard the 1,000,000 m.u.for him. Mr. X believes that, despite having opened the checkingaccount, he retains the immediate availability of 1,000,000m.u. and can withdraw them at any time for whatever use hepleases, since he has made a “demand” deposit. From an economicstandpoint, for Mr. X the 1,000,000 m.u. are fully available tohim at all times and therefore contribute to his cash balances: that is,even though the monetary units were deposited in Bank A,from a subjective viewpoint they remain as available to Mr. Xas if he carried them in his pocket. The entry corresponding tothis irregular deposit is as follows:Bank A(7) Debit Credit1,000,000 Cash Demand deposit 1,000,000(made by Mr. X)(This should be a mere memorandum entry.)