Money, Bank Credit, and Economic Cycles by Soto, Jesús Huerta de -- Read -- Imperial Library of Trantor

Index

Cover Image Title Page Copyright Contents Preface to the English-Language Edition Preface to the Second Spanish Edition Introduction Chapter 1: The Legal Nature of the Monetary Irregular-Deposit Contract

1. A Preliminary Clarification of Terms: Loan Contracts (Mutuum and Commodatum) and Deposit Contracts

The Commodatum Contract The Mutuum Contract The Deposit Contract The Deposit of Fungible Goods or "Irregular" Deposit Contract

2. The Economic and Social Function of Irregular Deposits

The Fundamental Element in the Monetary Irregular Deposit Resulting Effects of the Failure to Comply with the Essential Obligation in the Irregular Deposit Court Decisions Acknowledging the Fundamental Legal Principles which Govern the Monetary Irregular-Deposit Contract (100-Percent Reserve Requirement)

3. The Essential Differences Between the Irregular Deposit Contract and the Monetary Loan Contract

The Extent to Which Property Rights are Transferred in Each Contract Fundamental Economic Differences Between the Two Contracts Fundamental Legal Differences Between the Two Contracts

4. The Discovery by Roman Legal Experts of the General Legal Principles Governing the Monetary Irregular-Deposit Contract

The Emergence of Traditional Legal Principles According to Menger, Hayek and Leoni Roman Jurisprudence The Irregular Deposit Contract Under Roman Law

Chapter 2: Historical Violations of the Legal Principles Legal Principles Governing the Monetary Irregular-Deposit Contract

1. Introduction 2. Banking in Greece and Rome

Trapezitei, or Greek Bankers Banking in the Hellenistic World Banking in Rome The Failure of the Christian Callistus's Bank The Societates Argentariae

3. Bankers in the Late Middle Ages

The Revival of Deposit Banking in Mediterranean Europe The Canonical Ban on Usury and the "Depositum Confessatum" Banking in Florence in the Fourteenth Century The Medici Bank Banking in Catalonia in the Fourteenth and Fifteenth Centuries: The Taula de Canvi

4. Banking During the Reign of Charles V and the Doctrine of the School of Salamanca

The Development of Banking in Seville The School of Salamanca and the Banking Business

5. A New Attempt at Legitimate Banking: The Bank of Amsterdam. Banking in the Seventeenth and Eighteenth Centuries

The Bank of Amsterdam David Hume and the Bank of Amsterdam Sir James Steuart, Adam Smith and the Bank of Amsterdam The Banks of Sweden and England John Law and Eighteenth-Century Banking in France Richard Cantillon and the Fraudulent Violation of the Irregular-Deposit Contract

Chapter 3: Attempts to Legally Justify Fractional-Reserve Banking

1. Introduction 2. Why it is Impossible to Equate the Irregular Deposit with the Loan or Mutuum Contract

The Roots of the Confusion The Mistaken Doctrine of Common Law The Doctrine of Spanish Civil and Commercial Codes Criticism of the Attempt to Equate the Monetary Irregular-Deposit Contract with the Loan or Mutuum Contract The Distinct Cause or Purpose of Each Contract The Notion of the Unspoken or Implicit Agreement

3. An Inadequate Solution: The Redefinition of the Concept of Availability 4. The Monetary Irregular Deposit, Transactions with a Repurchase Agreement and Life Insurance Contracts

Transactions with a Repurchase Agreement The Case of Life Insurance Contracts

Chapter 4: The Credit Expansion Process

1. Introduction 2. The Bank's Role as a True Intermediary in the Loan Contract 3. The Bank's Role in the Monetary Bank-Deposit Contract 4. The Effects Produced by Bankers' Use of Demand Deposits: The Case of an Individual Bank

The Continental Accounting System Accounting Practices in the English-speaking World An Isolated Bank's Capacity for Credit Expansion and Deposit Creation The Case of a Very Small Bank Credit Expansion and Ex Nihilo Deposit Creation by a Sole, Monopolistic Bank

5. Credit Expansion and New Deposit Creation by the Entire Banking System

Creation of Loans in a System of Small Banks

6. A Few Additional Difficulties

When Expansion is Initiated Simultaneously by All Banks Filtering Out the Money Supply From the Banking System The Maintenance of Reserves Exceeding the Minimum Requirement Different Reserve Requirements for Different Types of Deposits

7. The Parallels Between the Creation of Deposits and the Issuance of Unbacked Banknotes 8. The Credit Tightening Process

Chapter 5: Bank Credit Expansion and Its Effects on the Economic System

1. The Foundations of Capital Theory

Human Action as a Series of Subjective Stages Capital and Capital Goods The Interest Rate The Structure of Production Some Additional Considerations Criticism of the Measures used in National Income Accounting

2. The Effect on the Productive Structure of an Increase in Credit Financed under a Prior Increase in Voluntary Saving

The Three Different Manifestations of the Process of Voluntary Saving Account Records of Savings Channeled into Loans The Issue of Consumer Loans The Effects of Voluntary Saving on the Productive Structure First: The Effect Produced by the New Disparity in Profits Between the Different Productive Stages Second: The Effect of the Decrease in the Interest Rate on the Market Price of Capital Goods Third: The Ricardo Effect Conclusion: The Emergence of a New, More Capital-Intensive Productive Structure The Theoretical Solution to the "Paradox of Thrift" The Case of an Economy in Regression

3. The Effects of Bank Credit Expansion Unbacked by an Increase in Saving: The Austrian Theory or Circulation Credit Theory of the Business Cycle

The Effects of Credit Expansion on the Productive Structure The Market's Spontaneous Reaction to Credit Expansion

4. Banking, Fractional-Reserve Ratios and the Law of Large Numbers

Chapter 6: Additional Considerations on the Theory of the Business Cycle

1. Why no Crisis Erupts when New Investment is Financed by Real Saving (And Not by Credit Expansion) 2. The Possibility of Postponing the Eruption of the Crisis: The Theoretical Explanation of the Process of Stagflation 3. Consumer Credit and the Theory of the Cycle 4. The Self-Destructive Nature of the Artificial Booms Caused by Credit Expansion: The Theory of "Forced Saving" 5. The Squandering of Capital, Idle Capacity and Malinvestment of Productive Resources 6. Credit Expansion as the Cause of Massive Unemployment 7. National Income Accounting is Inadequate to Reflect the Different Stages in the Business Cycle 8. Entrepreneurship and the Theory of the Cycle 9. The Policy of General-Price-Level Stabilization and its Destabilizing Effects on the Economy 10. How to Avoid Business Cycles: Prevention of and Recovery from the Economic Crisis 11. The Theory of the Cycle and Idle Resources: Their Role in the Initial Stages of the Boom 12. The Necessary Tightening of Credit in the Recession Stage: Criticism of the Theory of "Secondary Depression" 13. The "Manic-Depressive" Economy: The Dampening of the Entrepreneurial Spirit and Other Negative Effects Recurring Business Cycles Exert on the Market Economy 14. The Influence Exerted on the Stock Market by Economic Fluctuations 15. Effects the Business Cycle Exerts on the Banking Sector 16. Marx, Hayek and the View that Economic Crises are Intrinsic to Market Economies 17. Two Additional Considerations 18. Empirical Evidence for the Theory of the Cycle

Business Cycles Prior to the Industrial Revolution Business Cycles From the Industrial Revolution Onward The Roaring Twenties and the Great Depression of 1929 The Economic Recessions of the Late 1970s and Early 1990s Some Empirical Testing of the Austrian Theory of the Business Cycle Conclusion

Chapter 7: A Critique of Monetarist and Keynesian Theories

1. Introduction 2. A Critique of Monetarism

The Mythical Concept of Capital Austrian Criticism of Clark and Knight A Critique of the Mechanistic Monetarist Version of the Quantity Theory of Money A Brief Note on the Theory of Rational Expectations

3. Criticism of Keynesian Economics

Say's Law of Markets Keynes's Three Arguments On Credit Expansion Keynesian Analysis as a Particular Theory The So-Called Marginal Efficiency of Capital Keynes's Criticism of Mises and Hayek Criticism of the Keynesian Multiplier Criticism of the "Accelerator" Principle

4. The Marxist Tradition and the Austrian Theory of Economic Cycles: The Neo-Ricardian Revolution and the Reswitching Controversy 5. Conclusion 6. Appendix on Life Insurance Companies and Other Non-Bank Financial Intermediaries

Life Insurance Companies as True Financial Intermediaries Surrender Values and the Money Supply The Corruption of Traditional Life-Insurance Principles Other True Financial Intermediaries: Mutual Funds and Holding and Investment Companies Specific Comments on Credit Insurance

Chapter 8: Central and Free Banking Theory

1. A Critical Analysis of the Banking School

The Banking and Currency Views and the School of Salamanca The Response of the English-Speaking World to these Ideas on Bank Money The Controversy Between the Currency School and the Banking School

2. The Debate Between Defenders of the Central Bank and Advocates of Free Banking

Parnell's Pro-Free-Banking Argument and the Responses of McCulloch and Longfield A False Start for the Controversy Between Central Banking and Free Banking The Case for a Central Bank The Position of the Currency-School Theorists who Defended a Free-Banking System

3. The "Theorem of the Impossibility of Socialism" and its Application to the Central Bank

The Theory of the Impossibility of Coordinating Society Based on Institutional Coercion or the Violation of Traditional Legal Principles The Application of the Theorem of the Impossibility of Socialism to the Central Bank and the Fractional-Reserve Banking System

(a) A System Based on a Central Bank Which Controls and Oversees a Network of Private Banks that Operate with a Fractional Reserve (b) A Banking System which Operates with a 100-Percent Reserve Ratio and is Controlled by a Central Bank (c) A Fractional-Reserve Free-Banking System

Conclusion: The Failure of Banking Legislation

4. A Critical Look at the Modern Fractional-Reserve Free-Banking School

The Erroneous Basis of the Analysis: The Demand for Fiduciary Media, Regarded as an Exogenous Variable The Possibility that a Fractional-Reserve Free-Banking System May Unilaterally Initiate Credit Expansion The Theory of "Monetary Equilibrium" in Free Banking Rests on an Exclusively Macroeconomic Analysis The Confusion Between the Concept of Saving and that of the Demand for Money The Problem with Historical Illustrations of Free-Banking Systems Ignorance of Legal Arguments

5. Conclusion: The False Debate between Supporters of Central Banking and Defenders of Fractional-Reserve Free Banking

Chapter 9: A Proposal for Banking Reform: The Theory of a 100-Percent Reserve Requirement

1. A History of Modern Theories in Support of a 100-Percent Reserve Requirement

The Proposal of Ludwig von Mises F.A. Hayek and the Proposal of a 100-Percent Reserve Requirement Murray N. Rothbard and the Proposal of a Pure Gold Standard with a 100-Percent Reserve Requirement Maurice Allais and the European Defense of a 100-Percent Reserve Requirement The Old Chicago-School Tradition of Support for a 100-Percent Reserve Requirement

2. Our Proposal for Banking Reform

Total Freedom of Choice in Currency A System of Complete Banking Freedom The Obligation of All Agents in a Free-Banking System to Observe Traditional Legal Rules and Principles, Particularly a 100-Percent Reserve Requirement on Demand Deposits What Would the Financial and Banking System of a Totally Free Society be Like?

3. An Analysis of the Advantages of the Proposed System 4. Replies to Possible Objections to our Proposal for Monetary Reform 5. An Economic Analysis of the Process of Reform and Transition toward the Proposed Monetary and Banking System

A Few Basic Strategic Principles Stages in the Reform of the Financial and Banking System The Importance of the Third and Subsequent Stages in the Reform: The Possibility They Offer of Paying Off the National Debt or Social Security Pension Liabilities The Application of the Theory of Banking and Financial Reform to the European Monetary Union and the Building of the Financial Sector in Economies of the Former Eastern Bloc

6. Conclusion: The Banking System of a Free Society

Bibliography Index of Subjects Index of Names

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