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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 731THE OLD CHICAGO-SCHOOL TRADITION OF SUPPORTFOR A 100-PERCENT RESERVE REQUIREMENTThe Chicago School prescription of a 100-percent reserverequirement dates back to March 16, 1933, when Henry C.Simons, Lloyd W. Mints, Aaron Director, Frank H. Knight,Henry Schultz, Paul H. Douglas, Albert G. Hart and others circulatedan anonymous six-page document called “Bankingand Currency Reform.” 18 Albert G. Hart later expanded onthis program in his article, “The ‘Chicago Plan’ of BankingReform,” published in 1935. Here Hart expressly recognizesProfessor Ludwig von Mises as the ultimate father of the proposal.19 Later, in November of 1935, James W. Angell publisheda comprehensive article in which he defends this positionand analyzes its different aspects. His article is entitled“The 100-Percent Reserve Plan,” 20 and was followed by apaper by Henry C. Simons, “Rules versus Authorities in MonetaryPolicy,” which appeared in 1936. 21Of the Chicago theorists, Henry C. Simons comes closestto the thesis that a 100-percent reserve requirement is not amere economic-policy proposal, but an imperative of theinstitutional framework of rules which is vital for the correctfunctioning of a market economy. Indeed Simons asserts:18 See Ronnie J. Phillips, The Chicago Plan and New Deal Banking Reform(Armonk, N.Y.: M.E. Sharpe, 1995), pp. 191–98.19 Albert G. Hart, “The ‘Chicago Plan’ of Banking Reform,” Review ofEconomic Studies 2 (1935): 104–16. The reference to professors Mises andHayek appears at the foot of p. 104. Another interesting precedent forthe Chicago Plan is found in a book by Frederick Soddy, a recipient ofthe Nobel Prize for Chemistry: Wealth, Virtual Wealth and Debt (NewYork: E.P. Dutton, 1927). Knight wrote a favorable review of Soddy’sbook that same year: “Review of Frederick Soddy’s Wealth, VirtualWealth and Debt,” Saturday Review of Literature (April 16, 1927): 732.20 James W. Angell, “The 100 Percent Reserve Plan,” The Quarterly Journalof Economics 50, no. 1 (November 1935): 1–35.21 Henry C. Simons, “Rules versus Authorities in Monetary Policy,” Journalof Political Economy 44, no. 1 (February 1936): 1–30.