Money, Bank Credit and Economic Cycles — Jesus Huerta de Soto

De Soto’s treatise Money, Bank Credit and Economic Cycles is one of the most comprehensive treatments in print of ideas on banking and the business cycle. It is highly recommended for those embarking on a serious study of the subject and for those who wish to dip into a scholarly treatment of the following subjects:

  • The legal nature of the monetary irregular deposit contract. Types of deposit contract including the deposit of fungible goods, such as money. The economic and social function of irregular deposits. The essential differences between the irregular deposit contract and the monetary loan contract. The emergence of general legal principles governing the irregular deposit contract.
  • Historical violations of the legal principles governing the monetary irregular deposit contract. Greece and Rome. The late Middle Ages: the Mediterranean, Florence, Medici and Catalonia. Banking under Charles V and the doctrine of the school of Salamanca. A new attempt at legitimate banking: the Bank of Amsterdam, David Hume, Adam Smith, the Banks of Sweden and Amsterdam, John Law and Richard Cantillon.
  • Attempts to legally justify fractional-reserve banking. The error of equating irregular deposit and loan contracts. Redefining the concept of availability. Deposits, repurchases and life insurance.
  • The credit expansion process. The bank’s role as a true intermediary in the loan contract. The bank’s role in the monetary bank-deposit contract. The effects produced by bankers’ use of demand deposits: individual banks of various sizes and the entire banking system. Simultaneous credit expansion by all banks. Deposit creation compared to unbacked bank notes. Credit tightening.
  • Bank credit expansion and its effects on the economic system. Capital theory. Effects on the productive structure of an increase in credit unbacked by voluntary saving. The circulation credit theory of the business cycle.
  • Additional considerations on the theory of the business cycle. Crises and real saving. Postponing crises. Consumer credit. The self-destructive nature of artificial booms and forced saving. Squandering capital. Credit expansion as the cause of massive unemployment. The inadequacies of national income accounting. Avoiding business cycles. The manic-depressive economy. Marx, Hayek and the view that economic crises are intrinsic to market economies. Empirical evidence for the theory of the business cycle.
  • A critique of monetarist and Keynesian theories. The mythical concept of capital. The mechanistic quantity theory of money. Rational expectations. Say’s law of markets. Keynes’ arguments on credit expansion. The marginal efficiency of capital. The Marxist tradition.
  • Central and free banking theory. A critical analysis of the Banking School. The Currency School and the Banking School. Central banking vs free banking. The impossibility of socialism and its application to the central bank. The failure of banking legislation. The concept of saving and the demand for money. The false debate between supporters of central banking and defenders of fractional-reserve free banking.
  • A proposal for banking reform.

Over the coming months, we will provide articles covering the scope of this work, supplementing de Soto with insights from across our base of literature.

The book is available in full as a PDF here. It can be purchased from the IEA or the Mises Institute.