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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 737elimination of legal tender regulations which oblige all citizens,even against their will, to accept the state-issued monetary unitas a liberatory means of payment in all cases. The revocationof legal tender laws is therefore an essential part of anyprocess of deregulation of the financial market. This “denationalizationof money,” in Hayek’s words, would allow economicagents, who possess far more accurate, first-hand informationon their specific circumstances of time and place, todecide in each case what type of monetary unit it would mostbenefit them to use in their contracts.It is not possible to theorize a priori about the future evolutionof money. Our theoretical analysis must be limited tothe observation that money is an institution which emergesspontaneously, like law, language, and other legal and economicinstitutions which involve an enormous volume ofinformation and appear in an evolutionary manner throughouta very prolonged period of time in which many generationsof human beings participate. Moreover, as with language,certain institutions which in the social process of trialand error best fulfill their function tend to predominate. Trialalone, throughout the spontaneous, evolutionary marketprocess, can lead to the predominance of those institutionsmost conducive to social cooperation, without the possessionby any one person or group of the intelligence and informationnecessary to create these types of institutions ex novo.These reflections are fully applicable to the emergenceand evolution of money, 35 and hence in this field we must be35 On the theory of the emergence of institutions, specifically money, seeMenger, Untersuchungen über die Methode der Socialwissenschaften und derPolitischen Ökonomie insbesondere and “On the Origin of Money,” pp.239–55. We should also remember Mises’s monetary regression theorem,according to which the price or purchasing power of money isdetermined by its supply and demand, which is in turn determined notby its purchasing power today, but by the knowledge the actor formedon its purchasing power yesterday. At the same time, the purchasingpower of money yesterday was determined by the demand for moneywhich developed based on the knowledge of its purchasing power theday before yesterday. We could trace this pattern back to the moment