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

592 Money, Bank Credit, and Economic Cyclesoption, which is generally included in all types of life insurance,with the exception of those which cover solely the risk ofdeath or survival, can be exercised whenever the policyholderdesires, following the initial period stipulated in the policy(normally two or three years). This contractual clause couldgive the impression that a life insurance policy could alsoserve as a tool for legally implementing a monetary demanddepositcontract. Nevertheless we know that demanddepositcontracts are characterized by their essential cause,which lies in the safekeeping obligation and in the depositor’sability to withdraw the money deposited at any time.Therefore life insurance differs fundamentally from demanddeposits. The following factors prevent any confusionbetween the two: 106First, life insurers have traditionally sold their products aslong-term saving tools. Hence when customers buy life insurancethey are undoubtedly motivated by a desire to begin settingaside and saving a portion of their income for the longterm, in order to build up capital for use when their familiesneed it most. From the standpoint of the contract’s cause, aswell as the policyholder’s subjective ends, present goods are106 [T]he cash surrender values of life insurance policies are notfunds that depositors and policy holders can obtain andspend without reducing the cash of others. These funds are inlarge part invested and thus not held in a monetary form.That part which is in banks or in cash is, of course, includedin the quantity of money which is either in or out of banksand should not be counted a second time. Under presentlaws, such institutions cannot extend credit beyond sumsreceived. If they need to raise more cash than they have onhand to meet customer withdrawals, they must sell some oftheir investments and reduce the bank accounts or cashholdings of those who buy them. Accordingly, they are in noposition to expand credit or increase the nation’s quantity of moneyas can commercial and central banks, all of which operate on a fractionalreserve basis and can lend more money than is entrusted tothem. (Percy L. Greaves, in his Introduction to Mises’s book,On the Manipulation of Money and Credit, pp. xlvi–xlvii; italicsadded)