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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 741process of social cooperation. Thus free banking should haveno other limit than that established by the framework of generallegal principles. This brings us to the third essential elementin our proposal; let us now consider it. 4040 In short, we recommend replacing the current web of administrativelegislation which regulates banks with a few simple articles to be establishedin the Penal and Commercial Codes. For instance, in Spain, theentire body of banking legislation could be eliminated and simplyreplaced with new Articles 180 and 182 of the Commercial Code. Thetext of these new articles might resemble the following (excerpts whichdiffer from the current phrasing are shown in italics):Article 180: Banks will hold in their vaults an amount of cashequal to the total value of deposits, checking accounts andbills in circulation.Article 182: The sum of the bills in circulation, together withthe amount corresponding to deposits and checking accounts,will in no case exceed the total of the cash reserves held by eachbank at any given moment.In our articles for the Commercial Code we need not make referenceto operations carried out in evasion of the law in order to mask a truedeposit contract (transactions with a repurchase agreement, or Americanput options, etc.), since the legal technique of the doctrine of lawevasion would render such operations null and void. However, to avoidthe possibility that a financial “innovation” might be converted intomoney prior to its legal annulment, it would be wise to add the followingto Article 180: “The same obligation must be fulfilled by all individualsand corporations which, in evasion of the law, conduct legal transactions whichmask a true monetary-deposit contract.”As to the Penal Code, in Spain the necessary reforms would be veryfew. Nevertheless in order to clarify even further the content of Article252 of the new Penal Code and make it compatible with the phrasing wesuggest for Articles 180 and 182 of the Commercial Code, it should beworded as follows:Article 252: The penalties specified will be applied to anyonewho, to the detriment of another, appropriates or embezzlesmoney, goods or any other movable property or patrimonialasset which he has received on deposit, irregular deposit ormonetary bank deposit, on consignment or in trust, or by wayof any other similar claim carrying the obligation to deliver or