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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 727Nevertheless we deem Rothbard’s main contribution to bethe strong legal foundation on which he builds his proposal.In fact he accompanies his economic analysis with an essentiallylegal, though multidisciplinary, study aimed entirely atshowing that banking with a 100 percent reserve is simply thelogical result of applying traditional legal principles to thebanking field. Hence, on this particular point, in the presentbook we merely try to develop and extend Rothbard’s originalthesis. Specifically, Rothbard compares the banker who operateswith a fractional reserve with the criminal who commitsthe crime of misappropriation:[H]e takes money out of the company till to invest in someventures of his own. Like the banker, he sees an opportunityto earn a profit on someone else’s assets. The embezzlerknows, let us say, that the auditor will come on June 1 toinspect the accounts; and he fully intends to repay the“loan” before then. Let us assume that he does; is it reallytrue that no one has been the loser and everyone has gained?I dispute this; a theft has occurred, and that theft should beprosecuted and not condoned. Let us note that the bankingadvocate assumes that something has gone wrong only ifeveryone should decide to redeem his property, only to findthat it isn’t there. But I maintain that the wrong—the theft—occurs at the time the embezzler takes the money, not at thelater time when his “borrowing” happens to be discovered. 14Although Rothbard has correctly presented the legalaspects of the issue, he has followed the Anglo-Saxon legaltradition without realizing that even stronger legal supportfor his thesis lies in the continental European legal tradition,based on Roman law, as we explained in the initial chapters. 1514 Murray N. Rothbard, The Case for a 100 Percent Gold Dollar (Auburn,Ala.: Ludwig von Mises Institute, 1991), pp. 44–46.15 In September 1993, for the first time, we personally shared with MurrayN. Rothbard the results of our research on the legal-Roman foundationof the bank deposit and the position of Salamancan theorists on theissue, and Rothbard was enthusiastic. He later encouraged us to publisha brief summary of our conclusions in an article for Review of AustrianEconomics. Unfortunately he was unable to see the article published, as