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

706 Money, Bank Credit, and Economic Cyclesbenign effects, since strictly theoretical procedures must beused to refute this theory. 155IGNORANCE OF LEGAL ARGUMENTSTheorists of fractional-reserve banking tend to excludelegal considerations from their analysis. They fail to see thatthe study of banking issues must be chiefly multidisciplinary,and they overlook the close theoretical and practical connectionbetween the legal and economic aspects of all socialprocesses.Thus free-banking theorists lose sight of the fact that fractional-reservebanking involves a logical impossibility from alegal standpoint. Indeed at the beginning of this book weexplained that any bank loan granted against demand-depositfunds results in the dual availability of the same quantity ofmoney: the same money is accessible to the original depositorand to the borrower who receives the loan. Obviously thesame thing cannot be available to two people simultaneously,and to grant the availability of something to a second personwhile it remains available to the first is to act fraudulently. 156155 With respect to methodology, we fully concur with Horwitz’s position(see his “Misreading the ‘Myth’, p. 167). However it is curious thatan entire school which emerged with the analysis of the supposedlybeneficial results of the Scottish free-banking system has been forced tostop relying on historical studies of the free-banking system. StephenHorwitz, commenting on Rothbard’s review of free-banking history,concludes:If Rothbard is correct about them, we should look more scepticallyat Scotland as an example. But noting the existence ofgovernment interference cannot by itself defeat the theoreticalargument. The Scottish banks were neither perfectly freenor a conclusive test case. The theory of free banking stillstands, and its opponents need to tackle it on both the historicaland the theoretical level to refute it. (p. 168)This is precisely what we have attempted in this book.156 Hoppe, “How is Fiat Money Possible?—or, The Devolution of Moneyand Credit,” p. 67.