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

The Legal Nature of the Monetary Irregular-Deposit Contract 15Therefore, in the monetary irregular deposit there is norelinquishment of present goods in favor of a larger quantityof future goods at the end of a time period, but rather simplya change in the manner of possessing present goods. Thischange occurs because under many circumstances the depositorfinds it more advantageous from a subjective standpoint(that is, more conducive to his goals) to make a monetaryirregular deposit in which the actual good deposited is mixedwith others of the same sort and treated indistinguishablyfrom them. Among other advantages, we have already mentionedan insurance against the risk of loss due to inevitableaccident and the opportunity to use the cashier services providedby banks to customers with a checking account. In contrast,the essence of the loan contract is radically dissimilar.The aim of the loan contract is precisely to cede today the availabilityof present goods to the borrower for his use, in order toobtain in the future a generally larger quantity of goods inexchange at the end of the term set in the contract. We say“generally larger” because, given the logical time preferenceinherent in all human actions, which indicates that, otherthings being equal, present goods are always preferable tofuture goods, it is necessary to add to the future goods a differentialamount in the form of interest. Otherwise, it wouldbe difficult to find anyone willing to give up the availability ofpresent goods, which is a requirement of every loan.Hence, from an economic viewpoint the differencebetween the two contracts is quite clear: the irregular depositcontract does not entail the exchange of present goods forfuture goods, while the loan contract does. As a result, in theirregular deposit the availability of the good is not transferred,but rather the good remains continuously available to thedepositor (despite the fact that in a sense “ownership” hasbeen shifted from a legal standpoint), while in the loan contractthere is always a transfer of availability from the lenderto the borrower. Furthermore, the loan contract usuallyincludes an interest agreement, whereas in the monetaryTheorie des Geldes und der Umlaufsmittel, published by Duncker and Humblotin Munich and Leipzig. The first edition was published in 1912.