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

Central and Free Banking Theory 657and particularly difficult to obtain in the financial sector.Hence it is painfully obvious that the central bank cannot possiblyacquire all the information it would need to act in a coordinatedmanner, and its inability to do so is one more illustrationof the theorem of the impossibility of socialism, in thiscase applied to the financial realm.Knowledge of the different components of the supply ofand demand for money is never available for objective accumulation.On the contrary, it is of a practical, subjective, diffusenature and is difficult to articulate. Such knowledgearises from economic agents’ subjective desires, which changeconstantly and depend largely on the evolution of the moneysupply itself. We already know that any quantity of money isoptimal. Once any changes in the money supply have exertedtheir effects on the relative-price structure, economic agentscan take full advantage of the purchasing power of theirmoney, regardless of its absolute volume. It is when the quantityand distribution of money changes, via the expansion ofloans (unbacked by saving) or the direct spending of newmonetary units in certain sectors of the economy, that a seriousdisturbance occurs and widespread maladjustments anddiscoordination appear in the behavior of the different economicagents.Therefore it is unsurprising that the current central-banksystem is marked by having triggered the most severeintertemporal discoordination in history. We have seen thatthe monetary policies adopted by central banks, especiallythat of England and the Federal Reserve of the United States,with the purpose of “stabilizing” the purchasing power ofthe monetary unit, encouraged a process of great credit andmonetary expansion throughout the “roaring” twenties, aprocess which led to the most acute economic depression ofthe last century. Following World War II, economic cycleshave been recurrent, and some have approached even theGreat Depression in severity: for example, the recession ofthe late seventies and, to a lesser extent, that of the earlynineties. These events have occurred despite many politicaldeclarations concerning the need for governments and centralbanks to conduct a stable monetary policy, and despitethe massive efforts made, in terms of human, statistical, and