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

806 Money, Bank Credit, and Economic Cycles6CONCLUSION: THE BANKING SYSTEM OF A FREE SOCIETYThe theory of money, bank credit, and financial marketsrepresents the greatest theoretical challenge confronting economistsas we enter the twenty-first century. In fact it is no stretchto claim that once the theoretical gap embodied by the analysisof socialism was filled, perhaps the most important, yet leastunderstoodfield was that of money. For, as we have attemptedto reveal in detail throughout this book, this area is fraught withmethodological errors, theoretical confusion and, as a result,systematic government coercion. The social relationships inwhich money is involved are by far the most abstract andobscure, and the knowledge generated through them is themost vast, complex, and difficult to grasp. Consequently thesystematic coercion of governments and central banks in thisfield is by far the most damaging. In any case the intellectualdelay in the theory of money and banking has severely affectedthe development of the world economy, as we see from theacute, recurrent cycles of boom and recession which continue togrip market economies at the dawn of the new millennium.Nevertheless economic thought on banking issues isquite long-standing, and as we have seen, can be traced backeven to the scholars of the School of Salamanca. Closer to ourtime, we find the controversy between the Banking and CurrencySchools, a debate which laid the foundation for thedevelopment of subsequent doctrine. We have made aneffort to demonstrate the absence of complete agreementbetween the Free-Banking School and the Banking School, onthe one hand, and between the Central-Banking School andby Stephen H. Hanke, Lars Jonung, and Kurt Schuler, Russian Currencyand Finance (London: Routledge, 1993). The authors of this book proposethe establishment of a currency-board system as the ideal model formonetary transition in the former Soviet Union. For reasons given infootnote 91, we deem this reform plan much less adequate than our proposalto institute a pure gold standard and 100-percent reserve requirementusing Russia’s substantial gold reserves.