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

754 Money, Bank Credit, and Economic Cycleswild stock-market speculation would also be thwarted, andtake-over bids, which are harmless in themselves, would onlybe made in the presence of true, objective, economic reasonsfor them. They would not be a mere result of great ease inobtaining external financing due to ex nihilo credit expansionin the banking sector. In other words, as Maurice Allais indicates:Take-over bids are essentially useful, but the legislation governingthem should be revised. It should not be possible tofinance them using means of payment created ex nihilo by thebanking system or newly-issued junk bonds, as occurs inthe United States. 54In the market, the expansionary supply of loans unbackedby saving creates its own demand, which is often embodied inunscrupulous economic agents whose only intention is toobtain a short-term benefit from the enormous advantageswhich, to the detriment of all other citizens, they derive fromusing newly-created means of payment before anyone else.6. The Proposed System Reduces the Economic Functions of theState to a Minimum and, in Particular, Permits the Eradication ofthe Central Bank. The system we recommend would eliminatethe need for the Federal Reserve, the European Central Bank,the Bank of England, the Bank of Japan, and in general anyauthority, central bank or official, public or government bodywith a monopoly on the issuance of money and, as a centralcome to call “la cultura del pelotazo” [the culture of easy money], a trendwhich has undoubtedly been made possible and fed by the uncontrolledcredit expansion brought about by the financial system. Alan Greenspanhas popularized the expression “irrational exuberance” in reference tothe typical behavior of investors in the recent financial bubble.54 Allais, “Les conditions monétaires d’une économie de marchés,” p.347. The original text reads:Les offres publiques d’achat sont fondamentalement utiles, maisla législation les concernant doit être réformée. Il n’est passouhaitable qu’elles puissent être financées par des moyensde paiement créés ex nihilo par le système bancaire, ou parl’émission des junk bonds, comme c’est le cas aux États-Unis.