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

596 Money, Bank Credit, and Economic Cyclesand causes economic cycles and recessions. Furthermore thesecompanies have done serious harm to the insurance industryitself, which has been the object of increasing state and central-bankintervention and has lost many of the fiscal advantagesit had always enjoyed in the past, advantages justified inlight of the considerable benefit the institution produces infostering long-term saving among broad sectors of society. 109At any rate we intend the theoretical analysis performed inthis book to give life insurers back their self-confidence andtheir trust in the positive nature of the traditional institutionof which they form a part and to encourage a clear separationbetween life insurance and the banking “business,” which isforeign to it. As we know, this “business” not only lacks thenecessary juridical foundation, but also provokes economiceffects highly detrimental to society. In contrast the institutionof life insurance rests on an extraordinarily solid legal, technical-actuarial,and financial foundation. When life insurancecompanies are faithful to the traditional principles of the sector,not only do they not hamper peaceful economic growth;they are actually essential and extremely beneficial in terms of109 To the extent economic agents begin to subjectively view the surrendervalue of their policies as money available to them at all times, therecent “confusion” between the insurance and banking sectors warrantsconsidering surrender values (which are generally lower than insurers’mathematical reserves) as part of the money supply. This is the thesisMurray N. Rothbard presents in his article, “Austrian Definitions of theSupply of Money,” in New Directions in Austrian Economics, pp. 143–56,esp. pp. 151–52. Nevertheless we disagree with Rothbard’s opinion thatsurrender values should automatically be included in the money supply,since this ultimately depends on whether actors in general subjectivelyregard the surrender value of their policies as part of their immediately-availablecash balances, something which does not yet occur inmost markets. Moreover we should note that confusion between theinstitutions of insurance and banking has not been complete, and evenin those markets in which it was greatest, companies appear to bereturning to traditional insurance principles, in particular the radical separationbetween insurance and banking. Regarding new life insuranceoperations and their similarities with bank deposits, see the book byThierry Delvaux and Martin E. Magnee, Les nouveaux produits d’assurancevie(Brussels: Editions de L’Université de Bruxelles, 1991).