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

728 Money, Bank Credit, and Economic CyclesMAURICE ALLAIS AND THE EUROPEAN DEFENSEOF A 100-PERCENT RESERVE REQUIREMENTIn Europe, the Frenchman Maurice Allais, who receivedthe Nobel Prize for Economics in 1988, has championed theproposal of a banking system subject to a 100-percent reserverequirement. As Allais has stated:The credit mechanism as it currently operates, based on thefractional coverage of deposits, the ex nihilo creation ofmoney, and the long-term lending of short-term-loan funds,substantially aggravates the disruptions mentioned. Indeed,all major crises in the nineteenth and twentieth centuriesstemmed from an excessive expansion of credit, from promissorynotes and their monetization, and from the speculationthis expansion fueled and made possible. 16he passed away unexpectedly on January 7, 1995. Other importantworks in which Rothbard deals with the topic include: What Has GovernmentDone to Our Money?, 4th ed. (Auburn, Ala.: Ludwig von MisesInstitute, 1990); The Mystery of Banking; Man, Economy, and State, pp.703–09; and the articles, “The Myth of Free Banking in Scotland,” pp.229–45, and “Aurophobia: or Free Banking on What Standard?”pp.99–108. Besides Murray Rothbard, in the United States current advocatesof a 100-percent reserve requirement for banking include: Hans-Hermann Hoppe, The Economics and Ethics of Private Property (Dortrecht,Holland: Kluwer Academic Publishers, 1993), pp. 61–93, and “How isFiat Money Possible?—or The Devolution of Money and Credit,” pp.49–74; Joseph T. Salerno, “Gold Standards: True and False,” Cato Journal:An Interdisciplinary Journal of Public Policy Analysis 3, no. 1 (Spring, 1983):239–67, and also “Mises and Hayek Dehomogenized,” pp. 137–46; WalterBlock, “Fractional Reserve Banking: An Interdisciplinary Perspective,”pp. 24–32; and Skousen, The Economics of a Pure Gold Standard. Thislast work is a doctoral thesis on a 100-percent reserve requirement forbanking, and it contains an especially valuable, exhaustive review of allrelated sources to date. Like Rothbard, the above theorists belong to thelong line of American thinkers (beginning with Jefferson and Jackson)who assert that banking should be rigorously governed by legal principlesand a 100-percent reserve requirement. The most important nineteenth-centurytheorist of this movement was Amasa Walker, The Scienceof Wealth, pp. 138–68 and 184–232.16 Maurice Allais, “Les conditions monétaires d’une économie demarchés: des enseignements du passé aux réformes de demain,” Revue