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 743market economy, institutions which would facilitate sustainableeconomic development and the accumulation of wiselyinvested capital, while preventing the maladjustments andcrises which the current, rigorously controlled and centralizedfinancial system causes.WHAT WOULD THE FINANCIAL AND BANKING SYSTEMOF A TOTALLY FREE SOCIETY BE LIKE?We agree with Israel M. Kirzner that it is impossible toknow today what information and institutions entrepreneurswho participate in the financial and banking system of thefuture will freely and spontaneously create tomorrow, assumingthey suffer no institutional state coercion and are subjectmerely to the legal framework of substantive rules required bythe operation of any market. As we know, the most importantof all such rules in banking is the principle of a 100 percentreserve. 41Despite the above, we can conjecture with F.A. Hayek 42that under these circumstances a variety of mutual fundswould spontaneously emerge, 43 in which people would invest41 We are not able to chart the future of capitalism in any specificity.Our reason for this incapability is precisely that whichassures us . . . the economic future of capitalism will be one ofprogress and advance. The circumstance that precludes ourviewing the future of capitalism as a determinate one is thevery circumstance in which, with entrepreneurship at work,we are no longer confined by any scarcity framework. It istherefore the very absence of this element of determinacy andpredictability that, paradoxically, permits us to feel confidencein the long-run vitality and progress of the economyunder capitalism. (Israel M. Kirzner, Discovery and the CapitalistProcess [Chicago and London: University of Chicago Press,1985], p. 168)42 Hayek, Denationalisation of Money, pp. 119–20.43 On the development of this network of mutual funds, see the articleby Joseph T. Salerno, “Gold Standards: True and False,” pp. 257–58. Theperception that shares in these mutual funds would eventually becomemoney is incorrect, since such shares are merely titles to real investmentsand would not guarantee the recovery of the nominal value of suchinvestments, which would always be subject to trends in the market
744 Money, Bank Credit, and Economic Cyclesa portion of current “deposits.” These mutual funds would behighly liquid, due to the existence of widespread secondaryfinancial markets. However, as is logical, they would notguarantee their participants the recovery at any time of thenominal value of their investments. As with the value of anyother security in the secondary market, this would be subjectto changes in the market value of the corresponding shares.Thus a sudden change (albeit improbable) in the social rate oftime preference would cause generalized fluctuations in thevalue of shares. Such oscillations in value would only affectthe holders of the corresponding shares and not, as nowoccurs, all citizens, who, year after year, see a significant dropin the purchasing power of the state-issued monetary unitsthey are obliged to use.Quite possibly, this widespread system of mutual fundswould be accompanied by an entire network of institutionsdevoted to providing their customers with such services aspayments, transfers, bookkeeping, and cashier services ingeneral. These companies would operate in an environment offree competition and would charge the corresponding marketprices for their services.Also conceivable is the appearance of a number of privatefirms with no connection whatsoever to credit, companies dedicatedto the extraction, design, and supply of the differentforms of private money. Such firms would also receive a profit(most likely a modest one) for their services. We say “extraction”because we have no doubt that in an environment ofprices of the corresponding capital goods, stocks and/or bonds. In otherwords, despite the high degree of liquidity these investments mightreach, this liquidity would neither be immediate nor would it correspondto the nominal value attached to monetary units by definition. In fact anyperson with a need for liquidity would be obliged to find someone in themarket willing to provide that liquidity by paying in gold the marketvalue of the corresponding mutual-fund shares. Hence mutual funds canguarantee neither the value of the capital invested at the time the share isacquired, nor the interest rate of the investment. Any “guarantee” of liquiditysimply refers to the relative ease with which the fund’s shares canbe sold on the market (though there is no legal guarantee that the sale willbe possible under all circumstances nor much less at a set price).
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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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The Credit Expansion Process 169dif
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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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A Proposal for Banking Reform:The T
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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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