1. Introduction

In the last chapter we presented the clear, coherent legal nature of the monetary irregular-deposit contract. Undoubtedly, those who from the beginning received money from their fellow citizens for safekeeping knew the obligations they were taking on, specifically, to guard the tantundem like a good parent, to keep it constantly available to the depositor. This is precisely the meaning of safekeeping in a deposit contract of a fungible good. However, while the legal nature of the irregular deposit contract is clear and easy to understand, human nature is imperfect and weak. Therefore it is comprehensible that those receiving monetary deposits were tempted to violate the safekeeping obligation and use for themselves money that should have been kept available to others. The temptation was very strong: without depositors realizing it, bankers could handle large amounts of money; and if they used it well, it could generate substantial profit or interest, which bankers could keep without openly harming anyone.¹ Given the weakness of human nature and the almost irresistible temptation felt by bankers, it is comprehensible that the traditional principles of safekeeping on which the monetary irregular-deposit contract is based were violated from the very beginning in a concealed manner. In addition, given the abstract, confusing nature of monetary relations, most citizens and the majority of authorities in charge of enforcing moral and legal principles failed to notice this phenomenon, except in rare instances. And once abuses and cases of fraud began to surface and became better understood, the institution of banking had already been in operation so long and had acquired such power that it was practically impossible to effectively curb corruption. Moreover, the gradual discovery authorities made of banks' immense power to create money explains why, in most instances, governments ended up becoming accomplices to banking fraud, granting privileges to bankers and legalizing their improper activity, in exchange for the opportunity to participate, directly or indirectly, in their enormous profits. In this way they established an important alternative source of state funding. Furthermore, this corruption of the state's traditional duty to define and defend property rights was encouraged by governments' enormous, recurrent need for resources, due to their historical irresponsibility and lack of financial control. Thus, a more and more perfect symbiosis or community of interests was formed between governments and bankers, a relationship which to a great extent still exists today.

However, despite the complexity of the above situation, certain shrewd thinkers long ago began to understand it. Doctor Saravia de la Calle, in his book, Instrucción de mercaderes, attributes the destructive effects of banking to the fact that

man's insatiable greed has so thoroughly banished his fear of God and sense of shame, and I even believe it is due to the neglect of the republic's spiritual and temporal leaders.²

If Saravia de la Calle shows any weakness, it is an excess of charity toward the leaders. He correctly attributes fraud in the irregular deposit to men's frailty or greed, but he only holds the leaders responsible for their “neglect” in not being able to end abuses. Historical events reveal that, apart from demonstrating undeniable neglect, on many occasions governments have clearly and explicitly taken advantage of the large profits of the banking “business.” In addition, we will see that, in other instances, authorities have not only granted the bankers privileges so they could carry out their activities with impunity in exchange for specific favors, but they have even created government banks in order to directly take advantage of the corresponding profits.

Although banking activities developed long ago and practically coincided with the appearance of money, the dawn of trade, and the first steps in the division of labor³, we will present and illustrate the violation of traditional legal principles in the irregular deposit by bankers and authorities in three different historical instances: the Greco-Roman world; the Mediterranean trading cities of the late Middle Ages and the beginning of the Renaissance; and finally, the emergence of the first important government banks beginning in the seventeenth century. Moreover, the evolution of banking in these three separate historical instances produced to a large extent the same characteristic results. Indeed, in each case we observe that as people began to violate traditional legal principles, harmful effects followed, not only in the shape of bank failures, but also profound financial and economic crises. In the following historical examples the same frauds are committed, followed by the same typical stages and results, and the same failed attempts to enforce traditional principles of safekeeping. The same damaging effects then inexorably follow, and this process is repeated again and again, up to the present day. Let us now examine the violation of legal principles and authorities' complicity in banking frauds and abuses throughout history.