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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 765themselves actually bear the full cost (explicitly or implicitly)of these benefits.As to the explicit interest often available on deposits, suchpayments are usually compensated for by the continualdecline in the purchasing power of depositors’ monetary units.In the proposed system, which includes a 100-percent reserverequirement, the purchasing power of deposited monetaryunits would not only not decline, but, as we have seen, wouldgrow gradually and constantly. This enormous benefit to all citizenswould be remarkably superior to the supposed “advantage”of receiving explicit interest which hardly compensatesfor the devaluation of money. Hence today in most cases thereal interest rate on deposits (after deducting the drop in thepurchasing power of money) is almost null or even negative.In a society with a pure gold standard and a 100-percentreserve requirement, all citizens would gain from the gradual,continuous increase in the purchasing power of their monetaryunits. They would receive interest on effective savingsand be openly and explicitly obliged to pay the market pricefor those legitimate banking services they chose to use. Theproposed system would thus be much more coherent andalmost certainly more advantageous to the people in generalthan the present financial and banking system. 65As to the argument that governments and bankers wouldbe unable to continue profiting from the current system,more than a defect and motive for criticizing our proposal,this would be a positive result which would offer prima faciejustification for it. Indeed, above we emphasized the great65 Il n’y a pas lieu de rendre gratuitement des services qui en tout étatde cause ont un coût qu’il faut bien supporter. Si un déposant estaffranchi des frais relatifs à la tenue de son compte, la banquedoit les supporter. Dans la situation actuelle elle peut le faire,car elle bénéficie des profits correspondants à la création demonnaie par le mécanisme du crédit. Qui en supporte réellementle coût?: l’ensemble des consommateurs pénalisés par lahausse des prix entraînée par l’accroissement de la massemonétaire. (Allais, “Les conditions monétaires d’uneéconomie de marchés,” p. 351)