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

732 Money, Bank Credit, and Economic CyclesA democratic, free-enterprise system implies, and requiresfor its effective functioning and survival, a stable frameworkof definite rules, laid down in legislation and subject tochange only gradually and with careful regard for thevested interests of participants in the economic game. 22Nevertheless Henry C. Simons defends a 100-percentreserve requirement with the basic purpose of restoring completegovernment control over the quantity of money in circulationand its value. He had announced his proposal one yearearlier, in a pamphlet entitled “A Positive Program for Laissez-Faire:Some Proposals for a Liberal Economic Policy,”published in 1934. As indicated in this pamphlet, at that timeSimons already believed that deposit banks which maintained100 per cent reserves, simply could not fail, so far as depositorswere concerned, and could not create or destroy effectivemoney. These institutions would accept deposits just aswarehouses accept goods. Their income would be derivedexclusively from service charges—perhaps merely frommoderate charges for the transfer of funds by check or draft.. . . These banking proposals define means for eliminatingthe perverse elasticity of credit which obtains under a systemof private, commercial banking and for restoring to thecentral government complete control over the quantity ofeffective money and its value. 2322 Simons, “Rules versus Authorities in Monetary Policy,” p. 181;reprinted as chapter 7, Economic Policy for a Free Society (Chicago: Universityof Chicago Press, 1948), pp. 181. It is highly significant thatSimons makes this legal-institutional analysis in precisely the article inwhich he offers his proposal for banking reform based on a 100-percentreserve requirement.23 Henry C. Simons, “A Positive Program for Laissez-Faire: Some Proposalsfor a Liberal Economic Policy,” originally published as “PublicPolicy Pamphlet,” no. 15, Harry D. Gideonse, ed. (Chicago: Universityof Chicago Press, 1934). It was reprinted as chapter 2 of Economic Policyfor a Free Society, pp. 64–65. On Henry Simons see Walter Block, “HenrySimons is Not a Supporter of Free Enterprise,” Journal of Libertarian Studies16, no. 4 (Fall, 2002): 3–36.