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

770 Money, Bank Credit, and Economic CyclesTo begin with, even if this objection were justified, itwould not constitute even a hint of an argument against theattempt to reach the ideal goal: a proper definition anddefense of traditional private-property-law principles in connectionwith demand deposits. In fact in many other contexts,for example that of criminal activities, we see that, althoughfrom a technical standpoint it is often very difficult to correctlyapply and defend the corresponding traditional legalprinciples, an all-out effort should still be made to appropriatelydefine and defend the legal framework. 73Furthermore, contrary to the view of some, fractionalreservebanking is not so “omnipresent” that it is impossibleto fight in practice. It is true that throughout this book wehave considered different legal forms of business which, inevasion of the law, have been devised in an attempt to disguisemonetary, irregular bank deposits as other contracts. Weinstruments which could represent money as a generally acceptedmedium of exchange, and thus there would only be a “continuum” ofdifferent degrees of liquidity, which would further complicate the challengeof determining when the traditional legal principles we defendhere are upheld and when they are not. We do not find this a solid argument.As Menger maintains, it is always possible in practice to adequatelydistinguish between money and all other highly liquid instrumentswhich, nevertheless, do not constitute immediate, generallyaccepted mediums of exchange. The distinction between these twotypes of goods lies in the fact that money is not only a highly liquidinstrument; it is the only perfectly liquid good. Therefore people are willingto demand it even if they receive no interest for keeping it, while theholders of other, borderline instruments which lack perfect liquiditydemand interest for possessing them. The essential difference betweenmoney and other peripheral “mediums” hinges on the existence of perfectliquidity (i.e., a loss of perfect, immediate availability). Gerald P.O’Driscoll elaborates on this point in his article, “Money: Menger’s EvolutionaryTheory,” pp. 601–16.73 For example, it is certainly possible to commit murder using increasinglysophisticated poisons which leave no trace and seriously hinderthe collection of evidence concerning the true source and nature of thehomicide. However no one has any doubt that murder is a violation offundamental legal principles, and that all efforts necessary to preventand punish this sort of conduct should be made.