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

A Critique of Monetarist and Keynesian Theories 587The fact that life insurance companies do not expand creditnor create money is obvious, especially if one compares thecontracts they market with banks’ demand deposit operations.The accounting entries typical of a life insurance companyare as follows:Once the company has convinced its customers of theimportance of initiating a long-term plan of disciplined saving,the customers pay a premium to the company each yearfor the duration of the life insurance contract. The premiumsare considered part of the insurance company’s income, asshown below:(76) Debit CreditCashLife insurance premiums(On the revenues side ofthe income statement)Life insurance companies use the premiums theyreceive to meet a series of operational costs, primarilyclaims costs, marketing and administrative expenses, andother expenses involved in the technical coverage of therisk of death, disability and survival. The entry which followsthe payment of these technical costs appears below:society. Thus Richard von Strigl makes explicit reference to the “lifeinsurance business, which is of such extraordinary importance in capitalformation.” Strigl indicates that, in order for voluntary saving in generaland life insurance in particular to prosper, it must be clear that the purchasingpower of the monetary unit will at least remain constant. SeeRichard von Strigl, Curso medio de economía, pp. 201–02. In addition, inhis classic article on saving, F.A. Hayek refers to life insurance and thepurchase of a home as two of the most important sources of voluntarysaving (see F.A. Hayek, “Saving,” originally published for the 1933 editionof the Encyclopedia of the Social Sciences, and reprinted as chapter 5of Profits, Interest and Investment, esp. pp. 169–70).