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

A Proposal for Banking Reform:The Theory of a 100-Percent Reserve Requirement 799bank, which would occur in the fourth stage. Indeed, once privatebanking is made subordinate to legal principles, completebanking freedom should be demanded, and remainingcentral-bank legislation could be eliminated, as could the centralbank itself. This would require the replacement of today’sfiduciary money, which the central bank alone has the powerto issue, with a form of private money. It is impossible to takea leap in the dark and establish an artificial monetary standardwhich has not emerged through an evolutionaryprocess. Hence the new form of money should consist of thesubstance humanity has historically considered money parexcellence: gold. 104104 The impossibility of replacing today’s fiduciary money with artificial,private monetary standards follows from the monetary regressiontheorem, explained in footnote 35. This is why Murray N. Rothbard isespecially critical of authors who, like Hayek, Greenfield, and Yeager,have at times recommended the creation of an artificial monetary systembased on a basket of commodities. Rothbard states:It is precisely because economic history is path-dependentthat we don’t want to foist upon the future a system that willnot work, and that will not work largely because such indicesand media cannot emerge “organically” from individualactions on the market. Surely, the idea in dismantling the governmentand returning (or advancing) to a free market is to beas consonant with the market as possible, and to eliminategovernment intervention with the greatest possible dispatch.Foisting upon the public a bizarre scheme at variance withthe nature and functions of money and of the market, isprecisely the kind of technocratic social engineering fromwhich the world has suffered far too much in the twentiethcentury. (Rothbard, “Aurophobia: or Free Banking on WhatStandard?” p. 107, footnote 14)Rothbard chose this curious title for his article in order to call attentionto the obstinate efforts of many theorists to dispense with gold (historicallythe quintessential form of money) in their mental lucubrations onthe ideal form of private money. On Richard H. Timberlake’s critique ofthe monetary regression theorem (“A Critique of Monetarist and AustrianDoctrines on the Utility and Value of Money,” Review of AustrianEconomics 1 [1987]: 81–96), see Murray N. Rothbard’s article, “Timberlakeon the Austrian Theory of Money: A Comment,” printed in Reviewof Austrian Economics 2 (1988): 179–87. As Rothbard discerningly points