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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 789be coherent with them. This strategy alone will make politicallypossible in the medium- and long-term what today may seemparticularly difficult to accomplish. 95Let us now return to our topic: banking reform in marketeconomies. In the following sections, we will suggest aprocess for reforming the current system. In formulating ourrecommendation, we have taken into account the above strategyand the essential principles theoretically analyzed in thisbook.STAGES IN THE REFORM OF THE FINANCIAL AND BANKING SYSTEMChart IX-1 reflects the five basic stages in a reform processinvolving the financial and banking system. In our outline thestages progress naturally from right to left; that is, from themost controlled systems (those with central planning in thebanking and financial sector) to the least controlled ones(those in which the central bank has been abolished and completefreedom prevails, yet the banking industry is subject tolegal principles—including a 100-percent reserve requirement).The first stage corresponds to “central planning” for financialand banking matters; in other words, a system strictlycontrolled and regulated by the central bank. This type ofarrangement has predominated in most western countries up95 See William H. Hutt’s now classic work, Politically Impossible...? (London:Institute of Economic Affairs, 1971). A very similar analysis to thatpresented in the text, but in relation to the reform of the Spanish socialsecurity system, appears in Huerta de Soto, “The Crisis and Reform ofSocial Security: An Economic Analysis from the Austrian Perspective,”Journal des Économistes et des Études Humaines 5, no. 1 (March 1994):127–55. Finally, we have updated, developed and presented our ideason the best political steps to take to deregulate the economy in JesúsHuerta de Soto, “El economista liberal y la política,” Manuel Fraga: homenajeacadémico (Madrid: Fundación Cánovas del Castillo, 1997), vol. 1,pp. 763–88. English version entitled, “A Hayekian Strategy toImplement Free Market Reforms,” included in Economic Policy in anOrderly Framework: Liber Amicorum for Gerrit Meijer, J.G. Backhaus, W.Heijmann, A. Nentjes, and J. van Ophem, eds. (Münster: LIT Verlag,2003), pp. 231–54.