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

182 Money, Bank Credit, and Economic CyclesAs we see, up to now there has been nothing unusual orsurprising about the economic events or accounting processesresulting from the monetary irregular-deposit contract. Thebank has made a small legitimate profit, derived from its roleas a renderer of services valued by its customer at 30,000 m.u.Moreover, there has been no change in the quantity of money,and after all of the transactions, the bank’s cash account hasonly increased by 10,000 m.u. This sum corresponds to thepure entrepreneurial profit derived by the bank from the differencebetween the price paid by the client for services (30,000m.u.) and the operating cost of providing them (20,000 m.u.).Finally, given that the depositor believes the money hedeposited in Bank A remains constantly available to him, a situationequal to or even better than his keeping the money inhis own pocket or at home, he need not demand any additionalcompensation, as in the case of the loan contract, whichis radically different. The loan contract required the lender torelinquish the availability of 1,000,000 m.u. of present goods(in other words, to lend) and to transfer the availability to theborrower in exchange for the corresponding interest and therepayment of the principal one year later. 64THE EFFECTS PRODUCED BYBANKERS’ USE OF DEMAND DEPOSITS:THE CASE OF AN INDIVIDUAL BANKNevertheless, as we saw in chapter 2, bankers were soontempted to violate the traditional rule of conduct requiring6 Mises, The Theory of Money and Credit offers this explanation:Therefore the claim obtained in exchange for the sum ofmoney is equally valuable to him whether he converts itsooner or later, or even not at all; and because of this it is possiblefor him, without damaging his economic interests, toacquire such claims in return for the surrender of money withoutdemanding compensation for any difference in value arisingfrom the difference in time between payment and repayment, such,of course, as does not in fact exist. (p. 301; italics added)