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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 759had not been for states’ mounting influence in monetary mattersand, ultimately, their acquired control over credit expansionand the creation of money. Indeed, governments haveconcealed the true cost of military conflicts from their citizensby largely financing these costs using inflationary procedureswhich, under the pretext of each particular military emergency,states have employed with absolute impunity. Therefore we canconfidently assert that inflation has fueled wars: if in each casethe citizens of the nations engaged in battle had been aware ofthe true cost involved, either hostilities would have beenaverted in time by the corresponding democratic mechanisms,or citizens would have required governments to negotiate asolution long before the destruction and damage to humanityreached the immense degrees which, sadly, they have reachedin history. Thus we conclude with Ludwig von Mises:One can say without exaggeration that inflation is an indispensableintellectual means of militarism. Without it, therepercussions of war on welfare would become obviousmuch more quickly and penetratingly; war-wearinesswould set in much earlier. 60At the same time, the establishment of a pure gold standardwith a 100-percent reserve requirement would amount toa de facto adoption of a single, worldwide monetary standard.There would be no need for an international central bank, and60 Ludwig von Mises, Nation, State and Economy: Contributions to the Politicsand History of Our Time (New York and London: New York UniversityPress, 1983), p. 163; and also Human Action, p. 442. The former isLeland B. Yeager’s translation of Mises’s Nation, Staat, und Wirtschaft,which was originally published in 1919, in German (Vienna and Leipzig:Manzsche Verlags Buchhandlung, 1919). On this important topic, seealso Joseph T. Salerno, “War and the Money Machine: Concealing theCosts of War Beneath the Veil of Inflation,” chapter 17 of The Costs of War:America’s Pyrrhic Victories, John V. Denson, ed. (New Brunswick and London:Transaction Publishers, 1997), pp. 367–87. Nevertheless the first topoint out the close connection between militarism and inflation was,again, Father Juan de Mariana, in his book, De Monetae Mutatione, publishedin 1609. See Tratado y discurso sobre la moneda de vellón, p. 35(English edition, A Treatise on the Alteration of Money).