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

642 Money, Bank Credit, and Economic Cyclesthe only way to eradicate them. 65 Tellkampf, who had visitedthe U.S. as a young man, witnessed the abuses and highlydamaging effects of fractional-reserve banking there and wasimbued with the rigorous monetary doctrine being developedin America at the time. When he returned to Germany andwas appointed professor of economics at Breslau, he wroteseveral papers in which he called for a ban on banks’ issuanceof fiduciary media. 66 Otto Hübner also shared some of the65 An outline of the evolution of this school in the United States during thefirst half of the nineteenth century appears in James E. Philbin’s article,“An Austrian Perspective on Some Leading Jacksonian Monetary Theorists,”The Journal of Libertarian Studies: An Interdisciplinary Review 10, no. 1(Autumn 1991): 83–95. Another book which covers the different Bankingand Monetary Schools which emerged in the first half of the nineteenthcentury in the United States is Harry E. Miller’s Banking Theory in theUnited States Before 1860 (1927; New York: Augustus M. Kelley, 1972).66 Johann Ludwig Tellkampf, Essays on Law Reform, Commercial Policies,Banks, Penitentiaries, etc., in Great Britain and the United States of America(London: Williams and Norgate, 1859). See also his Die Prinzipien desGeld- und Bankwesens (Berlin: Puttkammer and Mühlbrecht, 1867). Asearly as 1912 Mises made reference to Tellkampf’s (and Geyer’s) proposalsin the following rather puzzling passage:The issue of fiduciary media has made it possible to avoid theconvulsions that would be involved in an increase in the objectiveexchange value of money, and reduced the cost of the monetaryapparatus. (Mises, The Theory of Money and Credit, p. 359)This does not seem to square with other comments made by Mises, whoat the end of the book proposes a return to a 100-percent reserve ratioand a ban on the creation of new fiduciary media, just as Tellkampf andGeyer (among the defenders of a central bank), and Hübner andMichaelis (among the defenders of free banking) do. As we observed inchapter 7, a parallel contradiction exists between the Hayek of MonetaryTheory and The Trade Cycle (1929) and that of Prices and Production (1931).The only explanation lies in the process of intellectual development followedby the two authors, who were at first reluctant to vigorouslydefend the implications of their own analysis. Moreover we must keep inmind that, as we will see in the next chapter, Mises defends the establishmentof a 100-percent reserve requirement, but only on newly-created banknotesand deposits, in the same vein as Peel’s Bank Charter Act. Thereforeit is somewhat comprehensible that he should mention the“advantages” of the past issuance of fiduciary media, though it is surprisingthat he neglects to explain why the system he considers most suitable