Chapter 67 of 68 · Money, Bank Credit, and Economic Cycles by Jesus Huerta de Soto
Index of Subjects
A | B | C | D | E
F | G | H | I | J
K | L | M | N | O
P | Q | R | S | T
U | V | Y | W
A
Accelerator principle, criticism of the, 565–70
Accounting
Continental accounting methods used for the irregular deposit, 184–94
in the English-speaking world, 194–200
in stages closest to final consumption, 367–68
losses in stages distant from consumption, 375–82
profits from production, 289
See also Bookkeeping; National income accounting
Actio depositi, 120
Actio furti, 120
Aleatory contract. See Contracts
Anglo-Saxon legal system. See Continental legal system
Argentina. See Banking reform
Assyria. See Banking
Austrian School of economics differences with monetarists, 580–82
differences with Keynesians, 580–82
See also Capital; Macroeconomic
Austrian theory of the business cycle, 347–84
empirical testing of, 477n, 500n
Marxist connections with, 468–74, 572
phases in the cycle, table of, 506–07
Availability
redefinition in the irregular deposit, 147–55
dual, 137–38
B
Babylon. See Banking
Bank deposits and bills, their economic equivalence, 252, 625–26
Bank mergers. See Bank
Bank multiplier. See Bank
Bank of Amsterdam, 98–106
and David Hume, 102–03
and James Steuart and Adam Smith, 103–06
and the 100-percent reserve requirement, 99
Bank of England, 107–09
its suspension of the Peel Act during crises, 485
Bank of Stockholm, 106–07
endowment of a Nobel Prize in Economics, 107n
Bank crises, and the superiority of the proposed system in counteracting them, 745–46
Bank failures
Bangkok Bank of Commerce (Thailand), 498n
Bank Korea First (Korea), 498n
Crédit Mobiliaire (France), 485
Hokkaido Takushoku (Japan), 498n
Jay Cook and Co. (United States), 486
Peregrine Bank (Hong Kong), 498n
See also Sanyo Securities; Yamaichi Securities
Bank
as financial intermediary, 168, 174–177
Callisto's, 54–55
isolated, and the capacity for credit expansion and deposit creation, 200–08
monopolistic, the capacity for expansion, 211–17
multiplier (case of isolation), 202, 215
simultaneous expansion by many, 231–38
system of small, capacity for credit expansion equal to that of a single, monopolistic bank, 223–31
very small (or Lilliputian), 208–11
Bankers
in late Middle Ages, 59–77
Jewish, 64
liability of, 33n
power of, 43
secrecy of, 69n
Templars, as medieval, 59
Banking
assets, how they decline in the crisis, 389–90
deregulation of, 740–41
Hellenestic, 51–53
in Assyria, 40n
in Babylon, 40n
in eighteenth century France, 109–10
in eighteenth and nineteenth century Scotland, 702–03
in Greece, 41–51
Jesus and, 56n
legislation, failure of, 671–75
Medicis and the business cycle, 72–75
Ptolemies and, 51–53
services, 168
sin in banking, 87–88
uncertainty and risk in, 289n, 385–95
See also Fractional-reserve banking; Fractional-reserve free banking; Free banking; Rome; School of Salamanca; Seville; Tragedy of the commons
Banking reform
in Argentina, 785–87
Perón, General Juan, critical analysis of his banking reform, 783–87
proposal to reform, advantages, 745–60
stages in, 789–91
strategy for reforming, essential principles, 788–89
to prevent economic cycles, 746–48
See also National debt
Banking School, 254n
debate with Currency School, 622–30
in the School of Salamanca, 601
Banking system
and the capacity for credit expansion, 200–23
compared with stock market, 460n
modern, beginning of, 109
system of small banks, 223–31
Banknotes, their issuance and their equivalence to deposit creation, 244–312, 625–26
Bayes's theorem, impossibility of application in economics, 386
Bookkeeping, double-entry, 59n
Boom, characteristics of, 352n
Budget deficit finance, 474–75
Bundesbank, 790
C
Call option (purchase), 159n
Capital good
and convertibility, 280
as future-oriented, 281
as temporary, 279–86
circulating, 299
definition of, 272
depreciation of, 280
effect of market price of on the productive structure, 325–28
fixed, 299
non-convertible, in the economic cycle, 414
Capital theory, 266–312
Capital
capitalist, concept of, 277
concept of, 282
Künstliches kapital, or “artificial capital” in Geyer, 643
marginal efficiency of, 555–57
monetarists' “mythical” concept of, 512–22
mythical concept of Austrian criticism, 512–22
productivity theory of, 516n
squandering of, 412
Carr v. Carr, 125n
Case probabilities, 386
Central bank, 629
artificial incentives for performance, 660–61
case for, 635–39
cooperation with private banks, 648–49
eradication of, 754–56
result of fractional-reserve banking, 638
Central banking vs. free banking, 631–46
Certificate or receipt of irregular deposit in Roman law, 29
Chicago School, its 100-percent reserve plan, 731–35
Chile
financial system in the nineteenth century, 703–04
failure of free banking, 705
Chirographis pecuniarum, or bank checks in the writings of Luis de Molina, 606
Circular flow
criticism of the model, 343n, 516
of income, 307n
Civil Code and the monetary deposit, 127
Commercial and Penal Codes, proposed reform of their articles, 741n
Commercial Code and the monetary deposit, 127
Commixtion (art. 381 of the Spanish Civil Code), 5n
Commodatum, definition, 2
Common law, doctrine of irregular deposit, 124–26
Contracts
deposit, 4
loan, 1–2
See also Monetary irregular deposit
Consumer credit, 316–17
and the theory of the cycle, 406–08
Consumption function, debate, 577n
Consumer Price Index, 420n
Continental accounting methods. See Accounting
Continental law system, 125–26
Coordination, intertemporal, intratemporal, 276, 290
Counterfeit currency, 710
Counterfeiting, effects equivalent to those of credit expansion, 710
Credit
insurance, 598
market, secondary, subsidiary importance to the general time market, 314–15
uninsurable nature of systematic risks, 599
tightening, process of, 254, 450–52
Credit cards, 640n
Credit expansion, its effects on the productive structure, 348–60
Crédit Lyonnais, 486
Credit Culture of easy money, fed by credit expansion, 753–54
Currency School
advocates of free banking, 639–46
debate with Banking School, 622–30
definition, 601n
in the School of Salamanca, 601
D
Danse macabre, 71
Defeatism, 160–61
Deflation
caused by credit squeeze, 255
deliberately induced by governments, 446–47
democracy and the credit system, 756–58
healthy, 750–52
in Great Britain after the Napoleonic Wars and in 1925, 447n
objection to the proposed system, 773–78
Demand deposit, repurchase agreement, operations that mask, 157–61, 597
Demoralization of economic agents, 262
Denationalization of money. See Money
Deposit
and loan differences, 15, 17–20, 135–136
banking in Mediterranean Europe, 61–63
contract of, concept and essence, 4
derivative, 188
economic difference from a loan, 14–16, 19, 35
guarantee systems, 656n
legal difference from loan, 13, 17–20, 67n
primary deposits, 187
secondary, 188
“time,” 20
Ulpian's definition, 27–28
Ulpian, difference in loans, 33
Depositi a discrezione, 72
Depositum confessatum
conceptual confusion, 66–67
spurious or simulated deposit, 16n, 32, 65–69, 120–22, 605
Depreciation of capital goods. See Capital good
Devaynes v. Noble,125
Digest, 27–29
Discrezione, interest paid by the Medici Bank, 72
Durable consumer goods. See Goods
E
Economic calculation
application to the theory of the cycle, 377n
error in, as a fundamental cause of the crisis, 377
impossibility under socialism, 650
Economic crisis
caused by error in economic calculation, 377
of the 1970s and 1990s, 494–99
Economic cycles in a market economy (their supposedly inherent nature), 469
Economic cycles, 88
banking reform capable of preventing, 746–48
empirical evidence and, 476–505
international nature of, 475
theory of, 347–84
psychological consequences of, 378, 456–59
Economic
goods of first order and higher order, 268
goods of intermediate stages or higher-order, 268
growth, and the proposed monetary system, 749–53
recession, as the recovery stage, 433
Economy
in regression, 344–46
“manic-depressive,” 456–59, 749
Employment. See Full employment
Entrepreneurial creativity, 276
Entrepreneurship, 421–24
its application to intertemporal discoordination, 422
salvaging of capital goods, 424
Error in negotio in the monetary deposit contract, cause of absolute invalidity, 140–41
European Monetary Union, 803–05
Exchange rates
fixed and flexible, 804–05
fixed, 802
F
Factor markets, making them flexible, 435
Factors of production, 273
Federal Reserve, 487–89
Fiduciary
commodity money, 198
demand for, regarded as an exogenous variable, 679–84
money, definition, 187
Filtration of the money supply out of the economic system, 239–41
Financial asset, 696
“Financial innovations,” criticism of, because they flout the reserve requirement, 772–73
Financial intermediaries
true, non-bank, 584–600
Fixed capital goods. See Capital good
“Flattening” of the productive structure following the crisis, 345, 380
Florence
fourteenth century banking in, 70–71
economic crisis and its triggers, 71, 479–80
crisis of the sixteenth century, 81–82, 481
Foley v. Hill, 125
Forced saving
and forced expropriation, 410n
in a broad sense, 409–11
in a strict sense, 411–12
Fractional-reserve banking, 115–65
in life insurance, 162
probability in, 150
See also Life insurance
Fractional-reserve free banking
Cantillon on, 616
contradictions in, 141–44
modern school of, 664–71
Fraud in the irregular deposit, 9n
de la Calle on, 86–87
Free banking
problem with historical illustrations of, 701–06
See also Fractional-reserve free banking; Central banking; Chile; Currency School
Fuero Real, 34–35
Full employment
in desperate circumstances, 454
assumption of, 440–43
G
General equilibrium, Walras's model of, 514
General price level stabilization, 424–31
and artificial lengthening of productive structure, 428
Goal, concept of, 266
Gold production, 750
Gold standard, effects of hoarding under, 550n
Goods,
durable consumer, 300, 316, 406
fungible good, 2
present and future, absence of exchange in the irregular deposit, 14–15
savers, or suppliers of present, 285–86
Great Depression, 491–93
Great Plague, 346
Gross
income, 304
investment, 302
market rate of interest, premium for expected inflation or deflation, 289
saving, 302
Gross Domestic Output (GDO), 420
Gross National Output (GNO), definition, 310n
H
Hoarding, or deflation provoked by an increase in the savings devoted to cash balances, 448–49
Holding companies, as true financial intermediaries, 597–98
Human action, 266–72
Hyperinflation, 404–05
I
Ideogram, monetarist equation of exchange as an, 531
Idle
capacity, 415
resources, 440–43
Impossibility of socialism, theorem of, and the central bank, 647–75
Incentives, redefinition of their structure for central-bank authorities, 659
Income redistribution and changes in relative prices caused by inflation, 533
Industrial Revolution, business cycles, 482–87
Input-output tables, 312n, 503
Institution, definition, 21
Interbank clearing house, Parnell's argument on the limit to issuance under free banking, 632
Interest
agreements of, in irregular deposit contract, 16
from a legal standpoint, 287
Interest rate, 284–91
definition of, 285
gross, 289
tendency to equalize, 291, 301–02
increase in, of loans, 371–74
technical interest used in life insurance, 590
under the proposed system, 762–64
Internal financing, 288
International monetary standard, 759–60
Internet, 640n
Intratemporal
discoordination, 662
discoordination created by credit expansion, 283–84, 352–53
equilibrium, incompatibility with monetary stabilization, 427–28
Inventories, 299
Irregular deposit
Cantillon's fraud (securities), 113–14
court decisions, 11–12
charges on, 17n
definition and difference with regular deposit, 4–6
forgery in, 9n
fraud in. See Fraud
misappropriation in, 9–10
of money, essential element of, 7–9
of securities and money, the equivalence of, 122–23
social function of, 6–7
See also Common law
Islamic law, regarding irregular deposits, 61n
J
Japan, speculative crisis of the 90s, 498
Jerusalem temple, 56n
Jews. See Bankers
Jurisprudence, 24–26
K
Keynes, John Maynard
criticism of his theory, 542–71
limited knowledge of economics, 543–44
ignorance of German, 544
arguments of the harmlessness of credit expansion, 546–54
liquidity preference, criticism of, 562n
influence on life insurance industry, 595n
marginal efficiency of capital, 555–57
on Mises and Hayek, 557
recognition that he lacked a capital theory, 561n
role in corruption of traditional life insurance principles, 164
Keynesian economics, 542–71
a “particular” theory, 553–54
Keynesians and monetarists, macroeconomic methodology, 576–78
Künstliches kapital, or “artificial capital” in Geyer, 643
L
Labor legislation, 169
Land, economic concept of, 273n
Language, as a social institution, 21
“Law of large numbers”
impossibility of application to banking, 385–95
impossibility of application to monetary deposit, 141
Law
on the 100-percent reserve requirement, 13–14
versus legislation, 671
See also Roman law
Legal principles
emergence of, and institutions, 21–24
general, traditional, and universal, 742–43
inevitable, 769–72
no contradiction with freedom of contract, 766–68
See also Fractional-reserve banking
Life insurance, 161–65
premiums, 588
exchange of present goods for future goods, 161
perfected savings, 162
companies, as true financial intermediaries, 586–90
as cover for fractional-reserve banking, 163–65
principles corrupted, 594–97
surrender clause, 591–93
surrender of life insurance policy, 163
Loan
definition and types, 1
market, as subset of time market, 287–88
real factors, influencing the demand, 372–74
Loose joint, between real and monetary sides of economics, according to Hayek, 580
M
Macroeconomic
aggregates, 438
policy, according to the Austrian School, 581–83
Macroeconomics, Hayek's criticism of, 564n
Malinvestment, 375
usefulness after the boom, 416n
resources in the boom prior to the economic crisis, 414
Mancamento della credenza, 71, 480
“Manic-depressive” economy. See Economy
Market rigidity, chief enemy of recovery, 435
Marxism, connections with Austrian theory of the trade cycle, 468–74, 572
Mathematical reserves, 588
Means, concept of, 266
Medicis. See Banking
Misappropriation
in irregular deposit, 9–10
in Spanish criminal law, 11n
Mississippi Trading Company, 110
Monetarism
critique of, 512–42
policy advocated by, against recessions, 534–35
theory of, 512–42
Monetarists and Keynesians
analytical and methodological similarities, 576–78
differences, 579–80
Monetarists' equation of exchange, 522–23, 530–33
Monetary constitutionalism, 756n
“Monetary equilibrium”
theory of, in White and Selgin, 677–79
Monetary irregular deposit contract, 4, 11
Azpilcueta on, 89
de la Calle on, 85
reasons for violation of, 39
Monetary reform, objections to Huerta de Soto's proposal for, and replies, 760–87
Monetary stabilization in periods of rising productivity, 424–31
Monetary system
costs of two systems compared, 779–81
in former Eastern bloc countries, 803–05
Monetization of national debt, 757
Money
as a perfectly liquid asset, 186n
as a social institution, 21
denationalization of, 736–39
“electronic,” 640n
Huerta de Soto's proposal to privatize money, 736–45
“plastic,” 640n
purchasing power, predictability of changes 583
supply in the United States, evolution in the 1920s, 487–88
See also Neutral money; Quantity theory of money; Regression theorem; Savings
Monopolistic bank. See Banks
Monstrua prodigia, Roman legal concept of, 143
Multiplier, criticism of, 558–64
Mutual fund banking. See Banking
Mutuum, definition, 2–4
N
National debt, conversion in reform of the banking system, 791–802
National income accounting
criticism of its measures, 305–12, 338–39n
inadequate to reflect different phases in the economic cycle, 418–20
“Needs of trade,” Old-Banking-School argument, 623, 678
Neo-Banking School, 675–12
Neo-Ricardians, 575n
Net income, 304
Net saving, 302
its theoretical impossibility, 581
New classical economics, 535, 748
New Keynesians, 576n
Novation, of contracts, 145
O
One-hundred-percent reserve requirement, 716–35
and irregular deposit, 11–12
critical analysis of, 760–87
Hayek's proposal, 723–25
history of the proposal, 716–35
Maurice Allais's proposal, 728–30
Mises's proposal, 716–23
Rothbard's proposal, 726–27
Chicago School proposal, 731–35
James Tobin's proposal, 735n
“Option clauses,” 710
Options, call, put, 159n
Overconsumption, 377
Paradox of thrift, 317–18n
theoretical solution to, 342–44
P
Partidas of Alfonso X, “the wise,” 34
Peace, 758–60
Peel's Bank Charter Act of July 19, 1844, 252, 484, 629
Pessimism, and the psychological effects of the bust, 378
Pigou effect, 775
Plan, definition, 267
Political pragmatism of daily affairs, 788
Political program, of least damage, 454–56
Positivism, 476–78
Prediction of the 1929 stock market crash, 429n
Prevention of crises, 432–40
Prices
that accompany inflation, 526–27, 618
rise of, in response to credit creation, 363–67
Prisoner's dilemma, 668n
Private property, and the attunement of the proposed system, 748–49
Probability
in life insurance, 162
See also Fractional-Reserve Banking
Productive structure, 291–96
chart of, 293
having changed permanently, 380
temporary effect on, produced by disparity of profits, 319–25
Productivity theory of capital. See Capital
Profit, rate of, 288
Ptolemies. See Banking
Public-choice School, 659, 663
Public works, 439–40
Purchasing power of money. See Money
Q
Quantity theory of money
critique of the mechanistic monetarist version, 522–35
formulated by Azpilcueta in 1556, 603–04
R
Rational expectations, 423n
criticism of, 535–42
Real factors. See Loan
Recession, advent of, 375–82
Recovery
counterproductive steps to it, 436–37
following a crisis, 433–34
Reflux
Fullarton's law of, 624
Mises's criticism of, 625
Reform of the banking system. See Banking reform
Regression theorem (Mises), 737n
Relative prices, the revolution that accompanies inflation, 526–27, 618
Repurchase agreement. See Demand deposit
Reserve ratio
different depending upon type of deposit (demand or time deposit), 243
maintenance of, above minimum requirement, 242
Reswitching controversy, 572–75
Ricardo effect, 329–32
its role in the crisis, 368–70, 407
Robinson Crusoe, 274–77
Riksbank, 106–07
Roman law, 24–27
certificate or receipt of irregular deposit in, 29
codification of, 27
fundamental principles of, 24
Rome
banking in, 53–54
fall of, 58
S
Safe-deposit box services, 768
Safekeeping, cause of the deposit contract, 4
Sanyo Securities, failed Japanese stock market firm, 498n
Savings
account records of, channeled into loans, 315–16
distinct from demand for money, 694–700
effects on the productive structure, 317–18
hoarding, 448–49
forms of, 313–15
perfect, 162
relinquishing of immediate consumption, 273–76
See also Forced saving
Say's law of markets, 544–46
School of Salamanca
and banking business, 83–97
the school's currency and banking viewpoints, 601
Scotland. See Banking
Scholastics, “Currency” and “Banking” Schools, 603–12
Secondary
deposits, 188
depression, 453–56
Securities, prices, relative to the interest rate, 327–28
Security mutual fund
characteristics and future role of, 791–803
true financial intermediary, 597–98
Seville
banking in, 79–83
and the business cycle, 81
Socialism
and the central bank, 651–74
its impossibility, 650
permanently in crisis, 472–73
Societates argentariae, 56–58
South Sea Bubble, 108n
Stagflation, 402
as universal phenomenon in the crisis, 402n
concept and causes, 379n, 399–405, 494
Stock market
concept and advantages, 459–60
in a crisis, 462–65
Stock market failures. See Sanyo Securities; Yamaichi Securities
Subjectivism, 510–11
Subjectivist
conception of economics, 478, 510–11
symbiosis with legal point of view, 135
Surprise, concept of, 386
T
Take-over bids, 754
custody or safekeeping of, 18
Taula de Canvi, 63
and Catalonian banking regulation, 76
Taula de Valencia, 60
Templars. See Bankers
Term, as an essential element of the loan, 17–18
Theft, 30–31
Time preference, 270–71
and Lessines, 271n
Time, economic concept of, 268
Tragedy of the commons, theory of and its application to banking, 394, 668–69
Trapezitei, 41–51
U
Ulpian. See Deposit
Uncertainty and risk in banking. See Banking
Underconsumption, 344
Unemployment
direct cause, 417
effects on the economic cycle, 440–43
indirect cause, 417–18
“involuntary,” 554n
Unspoken or implicit agreement, theory of the, in the monetary deposit, 139–47
Usury
canonical ban on, 64–65
institutional, 612
Utility, concept of, 266
V
Value of a goal, concept, 266
Y
Yamaichi Securities, failed Japanese stock market firm, 498n
W
War, and the credit system, 758–60
Money, Bank Credit, and Economic Cycles
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