Historical Violations of the Legal Principles Governing the Monetary Irregular-Deposit Contract<blockquote>'Let us now examine three particular cases which together illustrate the development of medieval banking: Florentine banks in the fourteenth century; Barcelona’s Bank of Deposit, the
Taula de Canvi, in the fifteenth century and later; and the Medici Bank. These banks, like all of the most important banks in the late Middle Ages, consistently displayed the pattern we saw in Greece and Rome: banks initially respected the traditional legal principles found in the
Corpus Juris Civilis, i.e., they operated with a 100-percent reserve ratio which guaranteed the safekeeping of the
tantundem and its constant availability to the depositor. Then, gradually, due to bankers’ greed and rulers’ complicity, these principles began to be violated, and bankers started to loan money from demand deposits, often, in fact, to rulers. This gave rise to fractional-reserve banking and artificial credit expansion, which in the first stage appeared to spur strong economic growth. The whole process ended in a general economic crisis and the failure of banks that could not return deposits on demand once the recession hit and they had lost the trust of the public.'
– Jesús Huerta de Soto,
Money, Bank Credit, and Economic Cycles, page 68 and 69</blockquote>
'To prevent business cycles, Röpke argued, requires a free market, a gold standard, and no government-created monetary inflation..'<blockquote>'In his textbook,
The Economics of a Free Society, first published in German in 1937, he further clarified his point. For such overinvestment to occur, he wrote, "some sort of compulsion will be required to loosen the bond which ties capital goods production to the voluntary savings of the population, and to raise the relative restriction of consumption above the point which the populations itself is prepared to undergo via its savings." In short, the boom of the boom-bust trade cycle will not occur on the free market; it is the result of state intervention in credit markets skewing investment decisions.
A developed division of labor and capital overinvestment can also exist in a planned economy, he argued, so socialism would not be immune to economic downturns. In fact, such a system would be even more unstable. "In a socialistic society it [forced saving] may be replaced by open force exerted by the state, with the effect that the population would be driven, directly and authoritatively, to forego possibilities of consumption in favor of accumulation." Additionally, a collectivist economy will not have a mechanism by which unwise investments are liquidated, causing economic disruptions to persist. "The economic disharmony which promises to become a chronic ailment of the socialist economy will be markedly different from the temporary disharmonies of the capitalist economy."
To prevent business cycles, Röpke argued, requires a free market, a gold standard, and no government-created monetary inflation..'
- Shawn Ritenour,
Biography of Wilhelm Röpke (1899-1966): Humane Economist</blockquote>
Context<blockquote>Direction: (Gold) The new Northern Euro currency
Banking Reform'..fostering societies where people can live more humane lives..'</blockquote>