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

652 Money, Bank Credit, and Economic CyclesIndeed the modern financial and banking system of marketeconomies is entirely based on systematic coercion againstthe free exercise of entrepreneurship in the financial sectorand on the concession to private banks of privileges whichconflict with traditional legal principles and allow banks tooperate with a fractional reserve.We need not dwell on the juridical nature of the “odious”privilege involved in fractional-reserve banking, since westudied this aspect in detail in the first three chapters. As tothe systematic exercise of coercion in the field of banking andfinance, it is easy to understand that such manipulation is carriedout via the legal tender regulations which compel theacceptance, as a liberatory medium of exchange, of the monetaryunit issued by the monopolistic central bank. 77 The institutionalcoercion the central bank applies also manifests itselfin an entire network of administrative banking legislationdesigned to rigorously control the operations of banks and, ona macroeconomic level, to define and implement the monetarypolicy of each country. 78In short we can hardly avoid concluding that “the organizationof the banking system is much closer to a socialisteconomy than to a market economy.” 79 Therefore in banking77 For example, see article 15 of autonomy statute 13/1994 of the Bank ofSpain, July 1. The statute reads:The Bank of Spain shall have exclusive authority to issue billsin pesetas, which, notwithstanding the status applied tocoinage, shall be the only legal tender with full, unlimited liberatorypower in Spanish territory. (Spain’s Official Gazette, July 2,1994, p. 15404; italics added)Logically, with Spain’s entrance into the European Monetary Union asof January 1, 2002, the euro and the European Central Bank havereplaced the peseta and the Bank of Spain, respectively.78 See, for example, the general list of central-bank duties included inarticle 7 of the above autonomy statute of the Bank of Spain.79 See the paper written by our student Elena Sousmatzian Ventura,“¿Puede la intervención gubernamental evitar las crisis bancarias?”Revista de la Superintendencia de bancos y otras instituciones financieras 1(April–June 1994): 66–87. In this paper Elena Sousmatzian adds that