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

768 Money, Bank Credit, and Economic Cyclesto voluntarily establish a banking system based on a 100-percentreserve requirement and that their unwillingness is evidencedby the fact that nowadays they could freely agree to asimilar arrangement (but do not) by using the safe depositboxes banks rent out in the market. In contrast to this argument,we must point out that safe-deposit-box services are inno way associated with the contract governing the irregulardepositof a fungible good such as money (rather, they areconnected with a typical regular-deposit contract concerningspecific goods). In addition, the safe-deposit-box business(which entails a cost to customers, and in their subjectiveview, does not provide the same services as a monetary bankdepositcontract) could never really compete on equal termswith the current fractional-reserve deposit system. In factbanks commonly pay interest on deposits nowadays (whichsuggests improper use is made of them). Also, banks offervaluable services at no explicit cost, which makes it impossiblefor voluntary deposit contracts that include a 100 percentreserve to compete and prosper, especially in an inflation-riddenenvironment in which the purchasing power of moneydeclines continuously. A very similar counter-argument iscalled for concerning the public goods the state provides atno apparent direct cost to the consumer. It is notoriously difficultin a free-market environment for any private companywith plans to offer the same services at market prices to thrive,due to this unfair, privileged competition from governmentagencies. These agencies supply “free” benefits to citizens andgenerate heavy losses which we all ultimately cover with ourtaxes via the national budget (inflationary tax). 70that unbacked by real saving) exerts on the productive structure.Finally, there is a clear connection between a 100-percent reserverequirement and ethics in the operations of financial institutions. In factthe link is evident not only in the host of ethically irresponsible behaviorscharacteristic of the feverish speculation credit expansion provokes,but also in the unquestionable fact that economic crises and recessionsstem from the violation of an ethical principle which demands the maintenanceof a 100 percent reserve on monetary demand-deposit contracts.70 Furthermore, Hülsmann has explained that[T]he confusion between monetary titles and fractionalreserveIOUs brings into operation what is commonly known