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

742 Money, Bank Credit, and Economic CyclesTHE OBLIGATION OF ALL AGENTS IN A FREE-BANKING SYSTEMTO OBSERVE TRADITIONAL LEGAL RULES AND PRINCIPLES,PARTICULARLY A 100-PERCENT RESERVE REQUIREMENT ONDEMAND DEPOSITSThere remains little for us to add here on the recommendationof a 100-percent reserve requirement for banking. Wehave devoted this book’s entire analysis to justifying this thirdelement in our proposal, a point logically and intimatelylinked to the other two. Indeed the only way to eradicate thestate central-planning agency related to money and the financialsystem (i.e., the central bank) is to permit society to resumethe use of that form of private money which in an evolutionarymanner has emerged throughout history (gold, and to a lesserextent, silver). Moreover a free market economy can only operatebased on the framework provided by the rules of substantivelaw. When applied to banking, these rules demand theestablishment of a completely free banking system, but one inwhich bankers consistently observe the principle of maintaininga 100 percent reserve on demand-deposit contracts.Combined, the three above elements comprise the core ofa proposal to definitively reform and privatize the modernbanking and monetary system, to free it from the obstacleswhich now disrupt it, especially central-bank interventionand state-granted privileges enjoyed by the most importantagents in the financial sector. This reform would permit thedevelopment of banking institutions truly appropriate to areturn the property, or who denies having received it. . . .These penalties will be increased by 50 percent in the case ofa necessary deposit, an irregular or monetary bank deposit, orany other operation which, in evasion of the law, masks a monetaryirregular deposit.These simple modifications to the Commercial and Penal Codeswould make it possible to abolish all current banking laws in Spain. Itwould then fall to ordinary law courts to evaluate the behavior ofindividuals who might be suspected of breaking any of the prohibitionsmentioned. (This process would logically include all the guaranteescharacteristic of a constitutional state, guarantees conspicuously absenttoday in many administrative actions of the central bank.)