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

760 Money, Bank Credit, and Economic Cyclesthus no risk that such a bank would manipulate the worldwidesupply of money and credit. In this way, we would enjoy allthe advantages of a single, international monetary standard,yet suffer none of the disadvantages of intergovernmentalagencies related to money. Furthermore this system would notprovoke suspicion concerning a loss of sovereignty to the correspondingstates, while all nations and social groups wouldbenefit from the existence of a sole monetary unit which noone would govern nor manipulate. Therefore a pure goldstandard and a 100-percent reserve requirement would promoteinternational economic integration within a harmoniousjuridical framework of mutual satisfaction, a frameworkwhich would minimize social conflicts, thus encouragingpeace and voluntary trade between all nations.4REPLIES TO POSSIBLE OBJECTIONSTO OUR PROPOSAL FOR MONETARY REFORMAlthough no integrated, coherent, systematic critique ofour plan to reform the banking system has yet been produced,61 there have been certain isolated, unsystematic objectionsto the proposal to establish a banking system with a 100-percent reserve requirement. We will now present and analyzethese challenges one by one.1. “Banks would disappear, because they would lose their raisond’être and main source of income.” Such criticism isunfounded. All that banks would lose by adopting a 100-percentreserve requirement is the possibility of creating loansex nihilo; i.e., loans unbacked by a rise in voluntary saving.The suggested reform would make it impossible for thebanking system as a whole to expand credit artificially, and61 “Exhaustive research, however, fails to uncover any published critiquesin this regard.” Walter Block, “Fractional Reserve Banking,” p. 31.Leland Yeager’s brief critical comments on our proposal have alreadybeen answered in this section. See “The Perils of Base Money,” pp.256–57.