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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 39already been in operation so long and had acquired suchpower that it was practically impossible to effectively curbcorruption. Moreover, the gradual discovery authorities madeof banks’ immense power to create money explains why, inmost instances, governments ended up becoming accomplicesto banking fraud, granting privileges to bankers and legalizingtheir improper activity, in exchange for the opportunity toparticipate, directly or indirectly, in their enormous profits. Inthis way they established an important alternative source ofstate funding. Furthermore, this corruption of the state’s traditionalduty to define and defend property rights wasencouraged by governments’ enormous, recurrent need forresources, due to their historical irresponsibility and lack offinancial control. Thus, a more and more perfect symbiosis orcommunity of interests was formed between governmentsand bankers, a relationship which to a great extent still existstoday.However, despite the complexity of the above situation,certain shrewd thinkers long ago began to understand it. DoctorSaravia de la Calle, in his book, Instrucción de mercaderes,attributes the destructive effects of banking to the fact thatman’s insatiable greed has so thoroughly banished his fearof God and sense of shame, and I even believe it is due to theneglect of the republic’s spiritual and temporal leaders. 2If Saravia de la Calle shows any weakness, it is an excessof charity toward the leaders. He correctly attributes fraud inthe irregular deposit to men’s frailty or greed, but he onlyholds the leaders responsible for their “neglect” in not beingable to end abuses. Historical events reveal that, apart fromdemonstrating undeniable neglect, on many occasions governmentshave clearly and explicitly taken advantage of thelarge profits of the banking “business.” In addition, we willsee that, in other instances, authorities have not only granted2 Luis Saravia de la Calle, Instrucción de mercaderes (Medina del Campo:Pedro de Castro, 1544; Madrid: Colección de Joyas Bibliográficas, 1949),chap. 8, p. 179.