Opinion from a Libertarian ViewPoint

Mises’s Proposals for a 100-Percent Reserve Requirement | Mises Wire

Posted by M. C. on February 2, 2019

Long article. Mises is a tough read.

Bottom line = banks are allowed to keep only a few per cent of savings. The rest is lent out.

In a bank panic you will be out of luck. Get your cash out.

Ludwig von Mises was the first twentieth-century economist to propose the establishment of a banking system with a 100-percent reserve requirement on demand deposits. Mises made his recommendation in the first edition of his book, The Theory of Money and Credit, published in 1912. At the end of this first edition, in a section literally reproduced in the second, which was printed in 1924, Mises draws the following conclusion:

Fiduciary media are scarcely different in nature from money; a supply of them affects the market in the same wayas a supply of money proper; variations in their quantity influence the objective exchange value of money in just thesame way as do variations in the quantity of money proper. Hence, they should logically be subjected to the same principles that have been established with regard to money proper; the same attempts should be made in their case as well to eliminate as far as possible human influence on the exchange ratio between money and other economic goods.

The possibility of causing temporary fluctuations in the exchange ratios between goods of higher and of lower orders by the issue of fiduciary media, and the pernicious consequences connected with a divergence between the naturaland money rates of interest, are circumstances leading to the same conclusion. Now it is obvious that the only way of eliminating human influence on the credit system is to suppress all further issue of fiduciary media. The basic conception of Peel’s Act ought to be restated and more completely implemented than it was in the England of his time by including the issue of credit in the form of bank balances within the legislative prohibition.

Mises adds:

It would be a mistake to assume that the modern organization of exchange is bound to continue to exist. It carries within itself the germ of its own destruction; the development of the fiduciary medium must necessarily lead to its breakdown…

Be seeing you




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