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

Central and Free Banking Theory 645intentions with which it was drafted, failed to ban the expansionarycreation of fiduciary deposits as it did with banknotes.Mises also condemns the use of the law to constitute and reinforcea central-bank system which, as we know, was eventuallyused to justify and promote policies of monetary chaosand financial excess much more damaging than the ones itwas designed to prevent.Mises’s essential contribution to the study of money andeconomic cycles appears in his work, The Theory of Money andCredit, first published in 1912. 70 It was not until eight years70 Mises, Theorie des Geldes und der Umlaufsmittel. H.E. Batson translatedthe work into English, and Jonathan Cape published the first Englishedition (in London) in 1934. Thus it may have influenced Vera Smith’sdoctoral thesis, which was published two years later. It is interesting tonote that Smith includes Mises, along with Hübner, Michaelis, and Cernuschi,in the double-entry table on pp. 144–45 of her book. She liststhem in the section corresponding to the strictest Currency School theorists,who nevertheless defend a free-banking system as the best route toa 100-percent reserve ratio, given the circumstances. Perhaps one of themost valuable aspects of Smith’s book is that it reveals that the BankingSchool and Free-Banking School do not exactly and automatically coincide,nor do the Currency School and Central-Banking School. Insteadtheorists fall into four distinct groups which can be outlined in a double-entrytable. Because Vera Smith’s table is relevant and illuminating,we include a revised version here.TABLE VIII-1