appendix i - on whether honest banking can cause business cycles

7/24/2019 Appendix I - On Whether Honest Banking Can Cause Business Cycles

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APPENDIXI: ONWHETHERHONESTBANKINGCAUSESBUSINESSCYCLES.WHEREWEREPLYTOTHECONTENTIONTHATHONESTBANKINGDOESALSOCAUSEBUSINESSCYCLES.

HENCE, THEIDEATHATFRAUDLIESATTHEROOTOFTHEBUSINESSCYCLEISINVALID.

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Garet Garrett

Introduction

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21*!"&** $'&*@.

Reply to the objection

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-&a' %!() ()&*& !#1m*(a"&*: ()& '/a" /# mutuum/"(#a(. T)!* '/a" /# m1(11m /"(#a( #&1!#&* ()a( 2/()

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... afi$ed term !* a" &**&"(!a' &'&m&"( !" ()& '/a" /# m1(11m /"(#a(, *!"& !( &*(a2'!*)&* ()& (!m& 4!/--1#!" %)!) ()& a3a!'a2!'!($ a"- /%"*)!4 / ()& //- /##&*4/"-* (/ ()& 2/##/%, a* %&'' a* ()&m/m&"( a( %)!) )& !* /2'!&- (/ #&(1#" ()& tantundem. )ithout the e$plicit or implicit esta#lishment of a fi$edterm, the mutuum contract orloan cannot e$ist*+

L&( 1* /"*!- /# a m/m&"( ()& 4#/4/*a' / a 4#/4/"&"( / #a(!/"a' #&*& #&& 2a"5!", 61*( (/ *&&%)&() ()& #a(!/"a' #&*& /"(#a( a* )& -&*#!2&* !( a" 2& 'a**!!&- a* a '/a" /"(#a(. I" ()& a#(!'& %& 61*(1/(&-, G&/#& S&'!" ma!"(a!"* ()a( #a(!/"a' #&*& 2a"5* !" a( &"a& !" a" IOU %!() ()&!# 1*(/m*:

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W& a" "/% /m& (/ a !#*( !m4/#(a"( /"'1*!/", "am&'$ ()a( ()& 2/"a !-& 2a"5 %)/ %/#5* %!()#a(!/"a' #&*&* !* neither a depositary, nor a de#tor. T)& 4!&&* / 4a4 )& %#!(&* /1( (/ )!* 1*(/m* !"&+)a"& /# ()&!# m/"&$ a#& "/( -!#&('$ &+)a"&a2'& 4#/4($ (!('&* ?-&4/*!( #&&!(*@, "/# (!('&* /##&!m21#*&m&"( a( a 4#&3!/1*'$ *&( (m ?'/a" #&&!(*@. B1( %)a( a" ()&$ 2& ()&"J B&'/% %& *)/%, !" '!"& %!() -&S/(/, ()a( ()& /"'$ #&ma!"!" 4/**!2!'!($ /# a 4#a(!& %)&2$ 2/() ()& #a(!/"a' )a#a( / ()& #&*&*, a*

%&'' a* ()& 2/"a !-& )a#a( / ()& /"(#a( #&ma!" !"(a(, !* ()a( ()& 4a4 #&&!3&- 2$ ()& 1*(/m* 2&am2'& (!5&(*.

L&( 1* 2&!" 2$ #&4&a(!" ()a( a #a(!/"a' #&*& 2a"5 !* 2$ -&!"!(!/" ?&+a('$ 2&a1*& !( -/&* "/( )/'- a

8>> 4&"( #&*&@ "/( a2'& (/ #&4a$ a( a'' (!m&* ()& *1m* / m/"&$ ()a( a44&a# /" ()& 2a"5"/(&*. T)!* m&a"*()a( 1*(/m* / ()!* )/"&*( 2a"5, %)&" ()&$ '/*& a" a#&&m&"( %!() ()& 2a"5, m1*( 2& 1''$ a%a#& ()a( ()&$"/( /"'$ !3& 14 ()& 1'' /%"*)!4 / ()& m/"&$ )a"-&- /3, 21( m/#&/3 ()a( ()&$ &+4'!!('$, em#edded in thea&reement, a5"/%'&-& ()a( ()& !* a #&a' a"- *!"!!a"( )a"& ()a( ()&$ %!'' "/( *&& ()& *1m / ()&!#!"3&*(m&"( aa!". I ()& 2a"5 a#&* %&'' a"- ! ()& 1*(/m &+)a"&* )!* 2a"5 "/(& !" (!m&, ()& 'a(( a"ma5& a //- 4#/!(. H/%&3 ! ()& 2a"5 &"-* 14 !" -!#& *(#a!(* /# ! ()& 1*(/m !" 1&*(!/" !* 4#&&-&- 2$(// ma"$ /()* !" &+)a"!" )!* "/(&*, ()&" )& %!'' '//*& )!* &"(!#& !"3&*(m&"(. G!3&" ()& a( ()a( %& )&a**1m& 1'' (#a"*4a#&"$, 2/() 4/**!2!'!(!&* m1*( a'*/ 2& '&a#'$ -&*#!2&- !" ()& /"(#a( 2&(%&&" ()& )/"&*(#a(!/"a' #&*& 2a"5 a"- )!* 1*(/m*. I" /() %/#-*, !( *)/1'- 2& 4&('$ '&a# /# ()& 1*(/m ()a( )&-/&* "/( 21$ ()& *!& / *a&5&&4!" ?()a( %/1'- 2& a -&4/*!(@, a"- "&!() -/&* )& 21$ 1(1#& //-* ?()!* !*()& a*& %!() a '/a"@, 21( #a() %)a( !* 2/1)( !* ()& chance(/ %!" 2a5 a 'a# *1m ()a" )!* /#!!"a' !"3&*(m&"(.

T)!* *)/1'- 2& ma-& '&a# (/ )!m !" %)a( !* /mm/"'$ a''&- a" /4(!/" 'a1*&.9

Etymolo&ies "omplete En&lish Translation, ?C)a#'/((&, Vm/"(: ;&-!&3a' ;S, =>>@, 3.=.8. I" */ -/!", )& /''/%&- ()& ="- &"(1#$R/ma" 61#!*( Ga!1*. T)& m/-" !"(#&(a(!/", )/%&3, !* ()a( mutuum-!3&* #/m m1(a#&, %)!) m&a"* (/ )a"&, (/*%/4, a"- %)!) !* #&'a(&- (/ m1"1*, a #!&"-'$ (1#". F/# a /mm&"(a#$ /" ()& &($m/'/$ a"- )!*(/#$ / ()& mutuum/"(#a(, *&& R&!")a#- !mmma", The -aw of .#li&ations Roman %oundations of the "ivilian Tradition, ?N&% Y/#5: O+/#- U"!3*!($P#&**, 899@, 44. 88. S&& a'*/ &** H1(a -& S/(/* a1()/#!(a(!3&Money, an! "redit, and Economic "ycles, 44. = ?*&(!/";1(11m@ a"- 44. 8898 ?*&(!/" W)$ !( !* Im4/**!2'& (/ E1a(& ()& I##&1'a# D&4/*!( %!() ()& L/a" /# ;1(11m C/"(#a(.

&** H1(a -& S/(/,Money, an! "redit, and Economic "ycles, 44. . I(a'!* !" /#!!"a'.

G&/#& S&'!", S)/1'- W& L&( Ba"5* C#&a(& ;/"&$J, The Independent Review, 3.V, ".8, S1mm =>>>, ISSN 8>8, 4.9. I" ()& IOU ?I /%& $/1@ a* 4#/4/*&- 2$ S&'!", ()& -&2(/# a" 4/*(4/"& )!* #&4a$m&"( !"-&!"!(&'$ a"- ()1* -/&* "/(a(1a''$ /%& a"$()!" (/ ()& 2&"&!!a#$. A'*/ %)&" *&&" #/m a m/#& &"a' 61-!!a' 4*4&(!3&, %& a" *a$ ()a( ()& /"(#a(S&'!" -&*#!2&* -/&* "/( /1"( a* a (#1*(, %)!) %& -&!"&- a* a" a( ?/# *!&* / a(*@ ()a( !* #&a#-&- a* 2&"&!!a' !" ()& &$&* /()& (#1*(/#, !" #&(1#" /# /"& /# m/#& a3/1#* #/m ()& 4a#( / ()& (#1*(/#. I ()& (#1*(&& a" 4/*(4/"& ()& a3/# )& /%&* ()&(#1*(&& !"-&!"!(&'$, ()& !* "/ ?!-1!a#$@ dutya"- ()1* "/ (#1*(. T)& /"(#a( S&'!" 4#/4/*&* !* a m&a"!"'&** a#&&m&"(2&a1*& !( !* 1"#&a'!7a2'&, a"- ()1* "1'' a"- 3/!- 2$ m&a"* / a" error in ne&otio. F/# a -&(a!'&- -!*1**!/" /" ()& error in ne&otio#&'a(&- (/ -&4/*!( a"- mutuum/"(#a(*, *&& aa!"Money, an! "redit, and Economic "ycles, 4. 8=8.


4/5

I( *)/1'- 2& '&a# ()a( a 2a"5 *1) a* %&3& 61*( -&*#!2&- %/1'- 2& ?a* a# a* %& 5"/%@ a" 1"*&&" a"/ma'$.H/%&3, !( !* /"'$ !" ()!* %a$ ()a( a 2a"5 /4a(!" %!() #a(!/"a' #&*&* a" #&ma!" a" )/"&*(21*!"&**ma": "&!() ()& -&4/*!( /"(#a( "/# ()& '/a" /"(#a( *1!& (/ -&*#!2& ()& 4#a(!& / #a(!/"a'#&*& 2a"5!". A" !-&a'!*(! /# //')a#-$ &"(#&4#&"&1# ()a( %/1'- a((&m4( (/ &*(a2'!*) a 2a"5 /" ()& 2a*!* /()& /"(#a( a* -&*#!2&- a2/3&, %/1'- 4#/2a2'$, *//" #a() ()a" 'a(, !"- )!m*&' (&m4(&- (/ -#a% a 3&!'/3 ()& /"(&"(* / ()& /"(#a(, (/ m!"!ma'!7& ()& #!*5* !" !(* -&*#!4(!/", /# (/ 1"61*(!!a2'$ 4#&*&"( ()&*&&m!"'$ 4ma"&"( a3a!'a2!'!($ / ()& //-* &"(#1*(&- (/ )!m a* #&a'. H/%&3, 2$ -/!" */, )& %/1'-

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%!""!" 2a5 ()& *1m / )!* !"3&*(m&"(, 4'1* a 4#&m!1m. C1*(/m* / ()& )/"&*( #a(!/"a' #&*& 2a"5 ()1*5"/% 4&('$ %&'' ()a( ()!* 2a"5 !* "/( ()& 2&*( 4'a& (/ #&'$ /" /# ()&!# /'- -a$, !" ()& *am& %a$ a* ()a( 4&/4'&1*1a''$ -/ "/( 41( a'' ()&!# '!& *a3!"* /" ()& 2&((!" (a2'& !" ()& "&+( a*!"/. B&a1*& ()& 1*(/m* / /1# 2a"5a#& "/( -&&!3&- /# m!*1!-&-, ()& a#& a'*/ "/ -&&!(1''$ !"'a(&- &+4&(a(!/"* a"- "/ ma'!"3&*(m&"(* ?/" (/4/ ()& 1*1a' &"(#&4#&"&1#!a' #/#*@ ()a( (a5& 4'a&. A( ()& 4/!"( / a &"a' 2a"5 #1", ()& '/** ma$ 2&-!*a44/!"(&-, 21( ()&$ a#& "/( &+4!&"!" a"$()!" 2&$/"- ()&!# #&a*/"a2'& &+4&(a(!/"*. I" *)/#(, honest

fractional reserve #an!in& does not produce the familiar effects that lead to #oom, crisis, and depression0 it does not #rin& a#out#usiness cycles*

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9 F/# &** H1(a -& S/(/* -!*1**!/" / ()& /4(!/" 'a1*&, *&& )!*Money, an! "redit, and Economic "ycles, 4. 8>8=, a"- ()&4a**a& 1/(&- a2/3& !" //("/(& 9.

8>Money, an! "redit, and Economic "ycles, 4. 8=.

88 L1-%! 3a" -&" Ha1%&, %oundations of usiness "ycle Research, 4. 8=9. T)!* !* ()& 1'' 1/(&:

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5/5

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I" a(, /# *&3a' #&a*/"* !( a""/( 2& #&-!2'$ ma!"(a!"&- ()a( #a(!/"a'#&*& #&& 2a"5!" %/1'-4a** ()& ma#5&( (&*(0 !" /() %/#-*, #a(!/"a'#&*& 2a"5!" a""/( 2& /"&4(1a'!7&- a* 2&'/"!" (/ ()& *&(/ !"*(!(1(!/"* %)!) %/1'- &m& a* ()& /1(/m& / a" !"3!*!2'&)a"- 4#/&**, ()a( !*, a 4#/&** !" ()& /1#*&/ %)!) ()& !"-!3!-1a' #!)(* / 4#/4($ a"- /"(#a( / a'' ma#5&( 4a#(!!4a"(* %/1'- 2& /##&('$ -&!"&- a"-*(#!('$ &"/#&-. L1-%! 3a" -&" Ha1%&, T)& U"&a*$ Ca*& /# F#a(!/"a'R&*& Ba"5!" ?Munich 1ersonalRe1Ec Archive, ;PRA Pa4 N/. 8=>@, 4. .

appendix i - on whether honest banking can cause business cycles

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