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

784 Money, Bank Credit, and Economic Cyclesadministrative expenses, and now that recipient banks canno longer use deposits in the absence of an agreement withthe central bank, those deposits have ceased to “weigh on”banks, so to speak, and they have stopped impelling banksto expand loans beyond useful limits. This is the road tohealthy credit, credit geared more to long-term economicgoals than to banks’ accomplishment of purely financialpurposes. 90Nevertheless despite this apparently sound rhetoric,Perón’s banking reform was condemned to failure from thestart. In fact, the reform was based on a complete nationalizationof the monetary and banking sector, such that the responsibilityfor granting new loans fell on the central bank, andcentral bank officials depended directly on the government. Inother words, not only did the state not completely privatizefinancial and monetary institutions and permit credit to spontaneouslycoincide with the country’s rate of saving; but thecentral bank actually embarked on a reckless campaign ofexpansionary loans to privileged recipients. These loansreached the economic system through open-market operationson the stock exchange, and especially through thediscount rate offered those banks most in tune with theadministration.The reform gave the central bank the power to carry outopen-market operations each year for an amount of up to 15percent of the total money supply. It also entirely divested theArgentinian currency of its gold backing and abolished thepreexisting relationship between this currency and gold. In1949, law 13571 modified the constitution of the central bank’scouncil of directors and designated the finance minister himselfpresident of this council, thus converting the institutioninto a mere appendage of the government. Finally, the reformestablished that from that point on, credit would be granted90 A brief, clear description of the banking system General Perón establishedappears in José Heriberto Martínez’s article, “El sistema monetarioy bancario argentino,” in Homenaje a Lucas Beltrán (Madrid: EditorialMoneda y Crédito, 1982), pp. 435–60. We find the above excerpt onpp. 447–48.