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

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2HISTORICAL VIOLATIONSOF THE LEGAL PRINCIPLESGOVERNING THE MONETARYIRREGULAR-DEPOSITCONTRACTIn this chapter we will present various examples to showhow bankers have throughout history violated traditionallegal principles in the irregular deposit, and we will considerthe reasons behind the failure of society’s regulatorymechanisms to put a stop to these abuses. We will also contemplatethe role of governments in this process. Far fromendeavoring to scrupulously defend property rights, theysupported bankers’ improper activity almost from the beginningand granted exemptions and privileges in order to takeadvantage of this activity for their own uses. Thus the intimatecomplicity and solidarity traditionally present (and still existent)in relations between state and bank institutions. Tounderstand why the different attempts to legally justify abuseshave failed, we must first properly understand the legally corruptorigin of fractional reserves in monetary bank deposits.We will examine attempts at justification in chapter 3.1INTRODUCTIONIn the last chapter we presented the clear, coherent legalnature of the monetary irregular-deposit contract. Undoubtedly,37
38 Money, Bank Credit, and Economic Cyclesthose who from the beginning received money from their fellowcitizens for safekeeping knew the obligations they weretaking on, specifically, to guard the tantundem like a good parent,to keep it constantly available to the depositor. This is preciselythe meaning of safekeeping in a deposit contract of afungible good. However, while the legal nature of the irregulardeposit contract is clear and easy to understand, humannature is imperfect and weak. Therefore it is comprehensiblethat those receiving monetary deposits were tempted to violatethe safekeeping obligation and use for themselves moneythat should have been kept available to others. The temptationwas very strong: without depositors realizing it, bankerscould handle large amounts of money; and if they used it well,it could generate substantial profit or interest, which bankerscould keep without openly harming anyone. 1 Given the weaknessof human nature and the almost irresistible temptationfelt by bankers, it is comprehensible that the traditional principlesof safekeeping on which the monetary irregular-depositcontract is based were violated from the very beginning in aconcealed manner. In addition, given the abstract, confusingnature of monetary relations, most citizens and the majority ofauthorities in charge of enforcing moral and legal principlesfailed to notice this phenomenon, except in rare instances.And once abuses and cases of fraud began to surface andbecame better understood, the institution of banking had1 We are referring to the most obvious source of profit, which initiallymotivated bankers to misappropriate depositors’ money. In chapter 4we will examine a source of much greater earnings: the power ofbankers to issue money or create loans and deposits out of nowhere. Theresulting profit is immensely larger; however, as it arises from anabstract process, it is certain not even bankers were fully aware of ituntil very late in the evolution of finance. Nevertheless, the fact thatthey did not understand, but only intuited, this second type of profitdoes not mean they failed to take advantage of it completely. In chapter4 we will explain how bankers’ violation of traditional legal principlesthrough fractional-reserve banking makes it possible to create loans outof nowhere, the return of which is then demanded in hard cash (withinterest to boot!). In short, we are dealing with a constant, privilegedsource of funding in the shape of deposits bankers create out of nothingand constantly employ for their own uses.
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MONEY,BANK CREDIT,ANDECONOMIC CYCLE
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CONTENTSPREFACE TO THE THIRD ENGLIS
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xiiMoney, Bank Credit, and Economic
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xivMoney, Bank Credit, and Economic
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xviMoney, Bank Credit, and Economic
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xviiiMoney, Bank Credit, and Econom
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PREFACE TO THESECOND ENGLISH EDITIO
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PREFACE TOTHE THIRDSPANISH EDITIONI
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4THE CREDITEXPANSION PROCESSThis ch
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6ADDITIONALCONSIDERATIONSON THE THE
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7A CRITIQUE OFMONETARIST ANDKEYNESI
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A Critique of Monetarist and Keynes
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8CENTRAL AND FREEBANKING THEORYThis
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Central and Free Banking Theory 603
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9A PROPOSAL FOR BANKINGREFORM: THE
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BIBLIOGRAPHYAbrams, M.A., Money in
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Bibliography 815Bajo Fernández, M.
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Bibliography 817Borch, K.H., Econom
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Bibliography 819Coronel de Palma, L
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Bibliography 821N. Durlauf and Lawr
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Bibliography 823Galiani, F., Della
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Bibliography 825Graham, F.D., “Pa
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Bibliography 827——, Prices and
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Bibliography 829translation by N. K
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Bibliography 831——, “Keynes
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Bibliography 833Russian edition by
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Bibliography 835Keeler, J., “Empi
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Bibliography 837——, “On Crisi
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Bibliography 839——, “Professo
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Bibliography 841Miller, H.E., Banki
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Bibliography 843Neira, Alonzo, M.A.
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Bibliography 845Raguet, C., “Repo
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Bibliography 847——, “The Myth
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Bibliography 849——, “Banking
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Bibliography 851M.C. Marcuzzo (Chel
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Bibliography 853——, “A Critiq
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Bibliography 855Walker, A., The Sci
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INDEX OF SUBJECTSAccelerator princi
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Index of Subjects 859Banking reform
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Index of Subjects 861objection to t
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Index of Subjects 863Goal, concept
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Index of Subjects 865See also Fract
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Index of Subjects 867Plan, definiti
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Index of Subjects 869Tragedy of the
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