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

610 Money, Bank Credit, and Economic Cyclesa thorough description of the practices of money changersand bankers. Here we do find explicit approval of creditcreation, though not with the formal appearance of createdcredit. Banks do business with the deposits of their clients,who at the same time do not give up the use of their ownmoney. Banks expand the means of payment through loans,trade-bill discounting and other economic activities theycarry out with the money of third parties. The final result isthat the purchasing power in the market is pushed farbeyond that represented by the cash deposits at its origin. 15Belda obviously concludes correctly that of all the scholastics’doctrines, those of Molina and Lugo are the most favorableto banking. Nevertheless we must criticize Father Belda for notexplaining the positions of the other members of the School ofSalamanca, for example Tomás de Mercado, and especiallyMartín de Azpilcueta and Saravia de la Calle, who as we know,are much harsher and more critical judges of the institution ofbanking. Furthermore Belda bases his analysis of the contributionsof Molina and Lugo on a Keynesian view of economics, aperspective which not only ignores all the damaging effectscredit expansion exerts on the productive structure, but alsopresents such practices as highly beneficial because theyincrease “effective demand” and national income. ThereforeBelda adopts the Keynesian and Banking-School view and onlyanalyzes the contributions of those members of the School ofSalamanca who are the least strict concerning the legal justificationfor the monetary bank deposit and, thus, the mostinclined to defend fractional-reserve banking.Nonetheless another prominent Jesuit, Father Bernard W.Dempsey, is the author of an economic treatise, entitled Interestand Usury, 16 in which he also examines the position of themembers of the School of Salamanca on the banking business.15 Ibid., p. 87. Belda refers to Juan de Lugo, Disputationum de iustitia etiure, vol. 2, provision 28, section 5, nos. 60–62.16 Dempsey, Interest and Usury. We must note that Father Belda actuallyintended his article to be a Keynesian criticism of the ideas FatherDempsey presents in this book. Our thanks to Professor James Sadowsky,of Fordham University, for supplying a copy of Dempsey’s book,which we were unable to find in Spain.