Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

xxxMoney, Bank Credit, and Economic CyclesIn chapter 9 of this book (pages 789–803), I design aprocess of transition toward the only world financial orderwhich, being fully compatible with the free-enterprise system,can eliminate the financial crises and economic recessionswhich cyclically affect the world’s economies. The proposalthe book contains for international financial reform hasacquired extreme relevance at the present time (November2008), in which the disconcerted governments of Europe andAmerica have organized a world conference to reform theinternational monetary system in order to avoid in the futuresuch severe financial and banking crises as the one that currentlygrips the entire western world. As is explained in detailover the nine chapters of this book, any future reform will failas miserably as past reforms unless it strikes at the very rootof the present problems and rests on the following principles:(1) the reestablishment of a 100-percent reserve requirementon all bank demand deposits and equivalents; (2) the eliminationof central banks as lenders of last resort (which will beunnecessary if the preceding principle is applied, and harmfulif they continue to act as financial central-planning agencies);and (3) the privatization of the current, monopolistic, andfiduciary state-issued money and its replacement with a classicpure gold standard. This radical, definitive reform wouldessentially mark the culmination of the 1989 fall of the BerlinWall and real socialism, since the reform would mean theapplication of the same principles of liberalization and privateproperty to the only sphere, that of finance and banking,which has until now remained mired in central planning (by“central” banks), extreme interventionism (the fixing of interestrates, the tangled web of government regulations), andstate monopoly (legal tender laws which require the acceptanceof the current, state-issued fiduciary money), circumstanceswith very negative and dramatic consequences, as wehave seen.I should point out that the transition process designed inthe last chapter of this book could also permit from the outsetthe bailing out of the current banking system, thus preventing