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

780 Money, Bank Credit, and Economic Cyclesdifficult to believe that a gold standard costs less than apaper standard. 85In addition, we would add the high cost of maintaining theentire worldwide network of central banks and their well-paidemployees, and the substantial economic resources used ingathering statistics and financing “research” projects, internationalconferences and meetings (the International MonetaryFund, World Bank, etc.). We should also bear in mind the significantcost involved in the excessive provision of bankingservices; specifically, the exaggerated proliferation of newbranches and the sheer squandering of human and economicresources it entails. 86 Therefore it comes as no surprise thateven Milton Friedman, who for many years agreed with themajority that the cost of a pure gold standard was too high, haschanged his mind and now feels that economically speaking, apure gold standard poses no problem of opportunity cost. 87In short, we conclude that a monetary and banking systembased on a pure gold standard and a 100-percent reserverequirement for banking is a “social institution” essential tothe correct functioning of any market economy. A social institutioncan be defined as any set of behavior patterns which85 Ibid., p. 68.86 Furthermore, Roger W. Garrison reminds us that the cost in terms ofreal resources allocated for the production and distribution of gold is toa great extent inevitable, since people continue to devote a considerablevolume of economic resources to the extraction, refining, distributionand storage of the yellow metal, regardless of whether it forms the basisof the monetary standard. Ibid., p. 70.87 See Friedman and Schwartz, “Has Government any Role in Money?”pp. 37–62. Therefore it is clear that a pure gold standard and a 100-percentreserve requirement should strongly appeal to monetarists, sincethis arrangement would mean the equivalent of a relatively stable monetaryrule, and given the indestructible nature of the gold stock, itwould preclude sudden contractions in the money supply while at thesame time totally eliminating the government’s discretionary use ofauthority in the monetary field. From this standpoint, for reasons ofstrict coherence, it is unsurprising that monetarists like Friedman haveincreasingly been leaning toward a pure gold standard, a system theyhad always categorically disregarded in the past.