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

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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
740 Money, Bank Credit, and Economic CyclesA SYSTEM OF COMPLETE BANKING FREEDOMThis second element of our proposal refers to the necessityof revoking banking legislation and eliminating central banksand in general any government agency devoted to controllingand intervening in the financial or banking market. It shouldbe possible to set up any number of private banks with completefreedom, both in terms of corporate purpose and legalform. As the distinguished Laureano Figuerola y Ballesterstated in 1869, it is necessary to leave “the choice of bankingforms to each individual, who will know how to choose thebest ones, according to particular circumstances of time andplace.” 39 Nevertheless the defense of free banking does notimply permission for banks to operate with a fractionalreserve. At this point it should be perfectly clear that bankingshould be subject to traditional legal principles and that thesedemand the maintenance at all times of a 100 percent reservewith respect to demand deposits at banks. Hence free bankingmust not be viewed as a license to infringe this rule, since itsinfringement not only constitutes a violation of a traditionallegal principle, but it also triggers a chain of consequenceswhich are highly damaging to the economy. The legal andeconomic aspects of such affairs are intimately related, and itis impossible to violate legal and moral principles withoutcausing grave, harmful consequences for the spontaneouswere 100-percent warehouse certificates for gold. (MiltonFriedman, “Has Gold Lost its Monetary Role?” in MiltonFriedman in South Africa, Meyer Feldberg, Kate Jowel, andStephen Mulholland, eds. [Johannesburg: Graduate School ofBusiness of the University of Cape Town, 1976])On the economic theory of gold see chapter 8 (“The Theory of CommodityMoney: Economics of a Pure Gold Standard”) of Mark Skousen’sbook, The Structure of Production, pp. 265–81.39 Laureano Figuerola, Escritos económicos, preliminary study by FranciscoCabrillo Rodríguez, ed. (Madrid: Instituto de Estudios Fiscales,1991), p. 268. This assertion, which even Mises and Hayek themselvescould not have worded more accurately, appears in the report LaureanoFiguerola delivered to the Spanish Constituent Assembly on February22, 1869.
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MONEY,BANK CREDIT,ANDECONOMIC CYCLE
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CONTENTSPREFACE TO THE THIRD ENGLIS
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xiiMoney, Bank Credit, and Economic
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xivMoney, Bank Credit, and Economic
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xviMoney, Bank Credit, and Economic
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xviiiMoney, Bank Credit, and Econom
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PREFACE TO THESECOND ENGLISH EDITIO
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Preface to the Second English Editi
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PREFACE TOTHE THIRDSPANISH EDITIONI
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Preface to the Third Spanish Editio
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xliiMoney, Bank Credit, and Economi
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INTRODUCTIONThe economic analysis o
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Introductionxlviiand foreign exchan
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IntroductionxlixThis book comprises
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Introductionrecurrent phenomenon. I
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Introductionand Professors Hans-Her
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2 Money, Bank Credit, and Economic
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4THE CREDITEXPANSION PROCESSThis ch
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6ADDITIONALCONSIDERATIONSON THE THE
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7A CRITIQUE OFMONETARIST ANDKEYNESI
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A Critique of Monetarist and Keynes
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8CENTRAL AND FREEBANKING THEORYThis
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Central and Free Banking Theory 603
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BIBLIOGRAPHYAbrams, M.A., Money in
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Bibliography 815Bajo Fernández, M.
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Bibliography 817Borch, K.H., Econom
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Bibliography 819Coronel de Palma, L
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Bibliography 821N. Durlauf and Lawr
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Bibliography 823Galiani, F., Della
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Bibliography 825Graham, F.D., “Pa
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Bibliography 827——, Prices and
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Bibliography 829translation by N. K
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Bibliography 831——, “Keynes
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Bibliography 833Russian edition by
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Bibliography 835Keeler, J., “Empi
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Bibliography 837——, “On Crisi
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Bibliography 839——, “Professo
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Bibliography 841Miller, H.E., Banki
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Bibliography 843Neira, Alonzo, M.A.
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Bibliography 845Raguet, C., “Repo
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Bibliography 847——, “The Myth
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Bibliography 849——, “Banking
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Bibliography 851M.C. Marcuzzo (Chel
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Bibliography 853——, “A Critiq
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Bibliography 855Walker, A., The Sci
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INDEX OF SUBJECTSAccelerator princi
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Index of Subjects 859Banking reform
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Index of Subjects 861objection to t
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Index of Subjects 863Goal, concept
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Index of Subjects 865See also Fract
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Index of Subjects 867Plan, definiti
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Index of Subjects 869Tragedy of the
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