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

Central and Free Banking Theory 607Most of the transactions made in advance [are concluded]using signed documents, since there is not enough money topermit the huge number of goods for sale at the market to be paidfor in cash, if they must be paid for in cash, or to make so manybusiness deals possible. 8Finally, Molina distinguishes sharply between those operationswhich do involve the granting of a loan, since the paymentof a debt is temporarily postponed, from those carriedout in cash via check or bank deposit. He concludes:We must warn that an item cannot be considered purchasedon credit if the price is withdrawn from a bank account,even if an immediate cash payment is not made; for thebanker will pay the amount owed in cash when the marketis over, if not sooner. 9Juan de Lugo, for his part, strictly adheres to Molina’s doctrineand views the monetary bank deposit as a “precarious”loan or mutuum which the banker may use in his private businessdealings as long as the depositor does not claim it. 10Molina and Lugo are so confused as to the legal basis ofthe bank deposit contract that they actually claim it can havea distinct legal nature for each of the parties involved (i.e., thatit can simultaneously be a deposit to the depositor and a loanto the banker). These two theorists apparently see no contradictionin this position, and with respect to bankers’ activities,content themselves with cautioning bankers to act “prudently,”so that, in keeping with the law of large numbers,their liquidity will always be sufficient to allow them to satisfy“customary” requests for deposit returns. They fail to realize8 Ibid., p. 147; italics added.9 Ibid., p. 149.10 Quare magis videntur pecuniam precario mutuo accipere,reddituri quotiscumque exigetur a deponente. Communitertamen, pecunia illa interim negotiantur, et lucrantur, sine adcambium dando, sine aliud negotiationis genus exercendo.This is a direct quotation taken from p. 406, section 5, no. 60, “De Cambiis,”by Lugo Hispalensis, Disputationum de iustitia et iure.