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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 781has spontaneously evolved over a very prolonged period oftime, as a result of the contributions multiple generations ofpeople have made to social processes through their participationin them. Thus such institutions, like the pure goldstandard, private-property law, and the family, carry withthem an enormous volume of information and have beensuccessfully proven in the most varied historical contextsand circumstances of time and place. That is why we cannotinnocuously dispense with these institutions, nor can we sacrificemoral principles without incurring inordinate socialcosts. For behavior patterns, traditions, and moral principles,far from being “repressive or inhibitory social traditions” (asauthors like Rousseau and, in general, “scientistic” theoristshave irresponsibly called them), have made the developmentof civilization possible. When human beings deify reasonand come to believe they can modify and “improve” socialinstitutions or even reconstruct them ex novo (Keynesiansand monetarists have most fostered this attitude among economictheorists), they lose sight of vital guidelines andpoints of reference and invariably rationalize their mostatavistic and primitive passions, thus jeopardizing society’sspontaneous processes of cooperation and coordination. Thegold standard and the principle of a 100-percent reserve ratioconstitute an integral part of those vital social institutionswhich must act as an autopilot or guide for practical humanbehavior in the processes of social cooperation. The irresponsibleelimination of these institutions generates excessive,unpredictable costs in the form of social tensions andmaladjustments which endanger the peaceful, harmoniousprogress of civilization and humanity.8. “The establishment of a system like the one proposed wouldleave the world too dependent on countries which, like South Africaand the former Soviet Union, have always been the largest producersof gold.” The danger that a pure gold standard might cometo rely too heavily on the gold production of South Africa andthe nations which today make up the former Soviet Union hasbeen highly exaggerated. Furthermore such warnings arebased on a mistaken disregard for the fact that though thesecountries mine a substantial proportion of the new gold