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

A Critique of Monetarist and Keynesian Theories 597fostering long-term saving and investment and hence, the sustainableeconomic development of society.OTHER TRUE FINANCIAL INTERMEDIARIES: MUTUAL FUNDSAND HOLDING AND INVESTMENT COMPANIESOther true financial intermediaries which would becomeeven more developed if the privileges currently enjoyed bybanks were eliminated are mutual funds, holding and investmentcompanies, leasing and finance corporations, etc. All ofthese institutions receive present goods from savers and, intheir capacity as intermediaries, transfer these goods to finalborrowers. Though none of these institutions has the ability oflife insurance to guarantee a substantial income from the firstmoment should a fortuitous event occur (death, disability, survival),it is obvious that they would all become more prominent,even more than they are now, if banks were obligated tomaintain a 100-percent reserve ratio, and thus were to lose theirpower to create deposits and grant loans from nothing. In particular,mutual funds would take on a very important role, inthe sense that economic agents would invest their excess cashbalances through them and would be able to obtain immediateliquidity by selling their shares, though at secondary-marketprices, never at their nominal value. The same applies to holdingcompanies and other financial and investment institutions,which have on many occasions gone through a process of corruptionand assault very similar to that of life insurance, aprocess of “innovation” consisting of the design of different formulasfor “guaranteeing” the corresponding “investors” theimmediate availability of their money, i.e., the possibility ofretrieving their “savings” at the nominal value at any time. Forinstance, as we saw in chapter 3 in connection with differenttypes of financial operations, clauses containing agreements ofrepurchase at a predetermined price are among the abusivelegal devices generally used to mask true “demand deposit”contracts in other institutions completely unrelated to banking.110 From an economic standpoint, as such procedures110 Economically speaking, it is easy to show that a financial operationwhich involves an agreement of guaranteed repurchase at any time at