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

786 Money, Bank Credit, and Economic Cyclesexpansion for the government, and hence to prevent privatebanks from profiting from a substantial portion of this expansion,as had been the norm until then. In any case, the intentionwas never to privatize the monetary system and do awaywith the central bank. The Peronist reform confirms a fact wehave acknowledged here, i.e., that a 100-percent reserve ratiocombined with a central-bank monopoly on the issuance ofcurrency and loans can distort the economy just as seriously ifmonetary authorities decide for political reasons to embark ona policy of credit expansion (either by directly creating andgranting loans or by making open-market purchases on thestock exchange). Therefore the failure of Argentina’s experimentunder General Perón does not constitute any historicalillustration of the disadvantages of a 100-percent reserve ratio.Rather, it confirms the need to consistently couple such areform with a complete privatization of money and the eliminationof the central bank.In short, Perón’s system was aimed at precluding theexpansionary creation of loans by private banks. However, itreplaced this activity with an even greater expansion ofunbacked loans at the hands of central bankers and the governmentitself, and thus it ultimately harmed the country’smonetary, financial, and economic system even more seriously.Therefore nothing is gained by eliminating one processof credit expansion (that of private fractional-reserve banking)if the very state applies another directly and on an evenlarger scale. 9210. “The proposed reform could not be accomplished by any singlecountry, but would require a difficult and costly international92 Perón’s experiment revealed the failure not of a 100-percent reserveratio, but of the nationalization of credit, and it produced all the adverseeffects Ludwig von Mises had predicted in his 1929 article on the topic:Die Verstaatlichung des Kredits: Mutalisierung des Kredits (Bern, Munich,and Leipzig: Travers-Borgstroem Foundation, 1929). This paper waslater translated into English with the title, “The Nationalization ofCredit?” It appeared in A Critique of Interventionism: Inquiries into the EconomicPolicy and the Economic Ideology of the Present (New York: ArlingtonHouse, 1977), pp. 153–64.