Abstract
This article refutes the view that Ludwig von Mises proposed freedom in banking as the most suitable means to render the issue of additional fiduciary media completely impossible and shows why Mises’s proposal should not be credited as such. Following in Joseph T. Salerno’s footsteps, this article interprets Mises’s thoughts in light of the nineteenth-century debate between the currency and banking schools in Britain. It finds that Mises’s free banking theory incorporates theoretical insights from both sides and as such represents an incomplete resolution to the old debate and presages the ultimate split in modern literature on free banking. This article also addresses the law of reflux of the banking school within Mises’s free banking theory. After a critical exposition on the law of reflux, it is revealed that the actual and common employment of standard sound money in exchange and cash holding is fundamental in order for the law to serve as a strong restriction on the supply of fiduciary media in a fractional reserve free banking industry.
Subject
General Economics, Econometrics and Finance
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