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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 739Therefore our proposal of free choice in currency is clear.In the transition process which we will examine further on,money in its current form is to be privatized via its replacementby that form of money which, in an evolutionary manner,generation after generation, has prevailed throughout history:gold. 37 In fact it is pointless to attempt to abruptlyintroduce a new, widespread monetary unit in the marketwhile ignoring thousands of years of evolution in which goldhas spontaneously predominated as money. According to themonetary regression theorem, such a feat is impossible, sinceno form of money can be used in society as a generallyaccepted medium of exchange if it does not rest on a very prolongedhistorical process which begins with the originalindustrial or commercial use of the commodity in question (aswith gold and silver). Thus our proposal is based on privatizingmoney in its current form by replacing it with its metallic equivalentin gold and allowing the market to resume its free developmentfrom the time of the transition, either by confirming gold as the generallyaccepted form of money, or by permitting the spontaneous andgradual entrance of other monetary standards. 38Among the critics were Murray N. Rothbard, Hans-Hermann Hoppeand Joseph T. Salerno, “Mises and Hayek Dehomogenized.” The sameobjections can be made to the very similar proposal of Leland B. Yeager,“The Perils of Base Money,” p. 262.37 Silver could also be considered a secondary, parallel metallic standardwhich, if economic agents should wish, could coexist with gold at thefluctuating exchange rate determined by the market between the two atall times. Furthermore we must recognize that the decline in the use ofsilver as money was accelerated when nineteenth-century governmentsestablished fixed exchange rates between gold and silver which artificiallyundervalued the latter. See Rothbard, Man, Economy, and State, pp.724–26.38 The gold standard we propose does not remotely resemble the spuriousgold standard used until the 1930s, a standard based on the existenceof central banks and a fractional-reserve banking system. As MiltonFriedman indicates:A real honest-to-God gold standard . . . would be one inwhich gold was literally money and money literally gold,under which transactions would literally be made in termseither of the yellow metal itself, or of pieces of paper that