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

672 Money, Bank Credit, and Economic Cyclescommands which dictate exactly how the supervised economicagent should behave. Thus to the extent that privilegesand institutional coercion spread and develop, traditionallaws cease to act as standards of behavior for individuals, andthe role of these laws is taken over by the coercive orders andcommands of the regulatory agency, in our case, the centralbank. In this way the law gradually loses its scope of implementation,and as economic agents are robbed of the criteriaof substantive law, they begin to unconsciously alter their personalitiesand even lose the custom of adapting to general,abstract rules. Under these conditions, to “elude” commandsis in many cases simply a matter of survival, and in others itreflects the success of corrupt or perverse entrepreneurship.Hence, from a general standpoint, people come to see deviationfrom the rules as an admirable expression of humaningenuity, rather than a violation of a regulatory system whichseriously jeopardizes life in society.The above considerations are fully applicable to bankinglegislation. Indeed the fractional-reserve banking system,which has spread to all countries with a market economy, primarilyentails (as we saw in the first three chapters) the violationof an essential legal principle in relation to the monetarybank-deposit contract and the granting of an ius privilegium tocertain economic agents: private banks. This privilege allowsbanks to disregard legal principles and make self-interesteduse of most of the money citizens have entrusted to them viademand deposits. Banking legislation mainly constitutes theabandonment of traditional legal principles in connectionwith the monetary demand-deposit contract, the heart ofmodern banking.Furthermore banking legislation takes the form of a tangledweb of administrative orders and commands whichemanate from the central bank and are intended to strictlycontrol the specific activities of private bankers. This welter ofinjunctions has not only been incapable of preventing thecyclical appearance of bank crises, but (and this is much moresignificant) it has also fostered and aggravated recurrentstages of great artificial boom and profound economic recession.Such stages have regularly seized western economiesand entailed a great economic and human cost. Thus: