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

The Legal Nature of the Monetary Irregular-Deposit Contract 9To sum up, the logic behind the institution of irregulardeposit is based on universal legal principles and suggests thatthe essential element of custody or safekeeping necessitates thecontinuous availability to the depositor of a tantundem equal tothe original deposit. In the specific case of money, the quintessentialfungible good, this means the safekeeping obligationrequires the continuous availability to the depositor of a 100-percent cash reserve.RESULTING EFFECTS OF THE FAILURE TO COMPLYWITH THE ESSENTIAL OBLIGATION IN THE IRREGULAR DEPOSITWhen there is a failure to comply with the obligation ofsafekeeping in a deposit, as is logical, it becomes necessary toindemnify the depositor, and if the depositary has actedfraudulently and has employed the deposited good for hisown personal use, he has committed the offense of misappropriation.Therefore, in the regular deposit, if someone receivesthe deposit of a painting, for example, and sells it to earnmoney, he is committing the offense of misappropriation. Thesame offense is committed in the irregular deposit of fungiblegoods by the depositary who uses deposited goods for hisown profit without maintaining the equivalent tantundemavailable to the depositor at all times. This would be the caseof the oil depositary who does not keep in his tanks a quantityequal to the total deposited with him, or a depositary whoreceives money on deposit and uses it in any way for his ownbenefit (spending it himself or loaning it), but does not maintaina 100-percent cash reserve at all times. 9 The criminal law9 Other related offenses are committed when a depositary falsifies thenumber of deposit slips or vouchers. This would be the case of the oildepositary who issues false deposit vouchers to be traded by third parties,and in general, of any depositary of a fungible good (includingmoney) who issues slips or vouchers for a larger amount than that actuallydeposited. It is clear that in this case we are dealing with theoffenses of document forgery (the issue of the false voucher) and fraud (ifin issuing the voucher there is an intention to deceive third parties andobtain a specific profit). Later on we will confirm that the historicaldevelopment of banking was based on the perpetration of such criminalacts in relation to the “business” of issuing banknotes.