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

714 Money, Bank Credit, and Economic Cyclesfractional-reserve banking and from which a central bank(lender of last resort) will inevitably emerge and control theentire financial system.These are the only two theoretically and practically viablealternatives. Up to this point we have examined the economiceffects of fractional-reserve banking, both orchestrated by acentral bank and in a free-banking system. In the next andlast chapter we will carefully analyze a free-banking systemsubject to traditional legal principles, i.e., a 100-percentreserve requirement. 164164 Leland Yeager seems to have (at least tacitly) accepted my thesis onthe unworkability of a fractional-reserve free-banking system, when heproposes a monetary system based only on bank money in which allbank reserve requirements are abolished and no outside or base moneyis used at all. Yeager’s system would be prone, of course, to all the cyclicalproblems we have analyzed in detail in this book. See Yeager, “ThePerils of Base Money.” See also footnote 104 of chapter 9.