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

796 Money, Bank Credit, and Economic Cycleswhich does not seem equitable. For if any group of economicagents has historically taken advantage of the privilege ofgranting expansionary loans unbacked by real saving, it hasprecisely been the stockholders of banks (to the extent that thegovernment has not at the same time partially expropriatedthe profits of this extremely lucrative activity, thus obligingbanks to devote a portion of their created monetary stock tofinancing the very state).The sum of private banks’ assets can and should be transferredto a series of security mutual funds, the management ofwhich would become the main activity of private bankinginstitutions following the reform. Who should be the holdersof the shares in these mutual funds, which at the time of theirconversion would have a value equal to the total value of all ofthe banking system’s assets (except those corresponding to theequity of its stockholders)? We propose that these shares in the newmutual funds to be created with the assets of the banking system beexchanged for the outstanding treasury bonds issued in all countriesoverwhelmed by a sizeable national debt. The idea is simpleenough: the holders of treasury bonds would, in exchange forthem, receive the corresponding shares in the mutual funds tobe established with the assets of the banking system. 101 Thiswe discuss in the text. Rothbard himself recognizes this weak point inhis reasoning when he states:The most cogent criticism of this plan is simply this: Whyshould the banks receive a gift, even a gift in the process ofprivatizing the nationalized hoard of gold? The banks, asfractional reserve institutions are and have been responsiblefor inflation and unsound banking. (p. 268)Rothbard appears to lean toward the solution from his book because hewishes to ensure that both bills and deposits receive 100 percent backing,and not merely bills, which would obviously be deflationary. Neverthelesshe does not seem to have thought of the idea we suggest in thetext. Moreover we should remember that, as we indicated at the end offootnote 89, just before his death, Rothbard changed his mind and proposedthat only bills in circulation be exchanged for gold (leaving outbank deposits).101 Ideally, the exchange would take place at the respective market pricesof both the treasury bonds and the shares in the corresponding mutual