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

674 Money, Bank Credit, and Economic Cycleskeeping with Mises’s view, the above proposal entails the substitutionof several clear, simple articles, to appear in the commercialand penal codes, for the current web of administrativebanking legislation, which has not achieved the objectives setfor it. 101It is interesting to note that modern defenders of fractional-reservefree banking wrongly believe, due in part totheir lack of legal preparation, that a 100-percent reserverequirement would amount to an unfair administrativerestriction of individual freedom. Nevertheless, as the analysisof the first three chapters shows, nothing could be furtherfrom the truth. For these theorists do not realize that such arule, far from being an example of systematic, administrativegovernment coercion, merely constitutes the recognition oftraditional property rights in the banking sector. In otherwords, theorists who endorse a fractional-reserve free-bankingsystem, which would infringe traditional legal principles,fail to see that “free trade in banking is synonymous with freetrade in swindling,” a famous phrase attributed to an anonymousAmerican and reiterated by Tooke. 102 Moreover if afree-banking system must ultimately be defended as a “lesserevil” in comparison with central banking, the motive should101 Mises, Human Action, p. 443.102 To be specific, Tooke remarked:As to the free trade in banking in the sense which it is sometimescontended for, I agree with a writer in one of the Americanpapers, who observes that free trade in banking is synonymouswith free trade in swindling. Such claims do notrest in any manner on grounds analogous to the claims offreedom of competition in production. It is a matter of regulationby the State and comes within the province of police.(Thomas Tooke, A History of Prices, 3 vols. [London: Longman,1840], vol. 3, p. 206)We agree with Tooke in that if free banking implies freedom to operatewith a fractional reserve, then essential legal principles are violated andthe state, if it is to have any function at all, should diligently attempt toprevent such violations and punish them when they occur. This appearsto be precisely what Ludwig von Mises had in mind when, in HumanAction (p. 666), he quoted this excerpt of Tooke’s.