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

804 Money, Bank Credit, and Economic Cyclesand medium term would consist of the introduction throughoutEurope of complete freedom of choice in currencies, bothpublic and private and from both inside and outside theUnion. The national currencies still in use due to traditionwould be placed in a system of fixed exchange rates 108 whichwould adjust the monetary policy of each country to the mostsolvent and stable policy among all the countries at any pointin time. Thus the door would at least remain open to the possibilitythat nation-states in the European Union might in thefuture advance in the three fundamental areas of monetaryand banking reform (freedom of choice in currency, free banking,and a 100-percent reserve requirement on demanddeposits). In doing so, states would oblige the other Unionmembers to follow their strong monetary leadership, as MauriceAllais maintains.Once the European Central Bank was created on June 1,1998, it became important that criticism of it and the singleEuropean currency center around the distance between thissystem and the ideal of a pure gold standard and 100-percentreserve requirement. Many libertarian theorists (mainly thoseof the Chicago School) mistakenly focus their criticism on thefact that the new arrangement does away with the former systemof monetary nationalism and flexible exchange rates.However, a single European monetary standard which is asrigid as possible would represent a healthy step toward a puregold standard. Furthermore it would complete the institutionalframework of the European free-trade system, since it108 The prescription of fixed exchange rates is traditional among Austriantheorists who consider it second best in the pursuit of the idealmonetary system, which would consist of a pure gold standard and inwhich economic flows would be free of unnecessary monetary disturbances.The most exhaustive Austrian analysis of fixed exchange ratesappears in Hayek’s book, Monetary Nationalism and International Stability.Mises also defends fixed exchange rates (see his book, OmnipotentGovernment: The Rise of the Total State and Total War [New York: ArlingtonHouse, 1969], p. 252, and also Human Action, pp. 750–91). A valuableanalysis, from an Austrian point of view, of the economic theory behindfixed exchange rates can be found in José Antonio de Aguirre’s book, Lamoneda única europea (Madrid: Unión Editorial, 1990), pp. 35ff.