The Freeman 1972 - The Ludwig von Mises Institute

1972 THE FEDERAL RESERVE SYSTEM 253Chapter VI, Section 1, .of theRegulation would radically changethe very nature of banking."N0 banking institution may makeany loan, extend any credit, or discountor purchase any obligation orevidence of debt, unless it is establishedand certified in writing by theborrower and a banking institutionthat the purpose is to pay (i) expensesor reconstruction costs vital tothe war effort, (ii) essential livingcosts, (iii) taxes, or (iv) payrolls, tothe end that the best interests of thewar effort and the public will beserved."It is ironic that the statedpurpose of the Regulation is "continuanceof operations and functions"of all banking institutions.Indeed, banks would be requiredto "remain open and continuetheir operations and functions."(Chapter IV, Section 1). In real..ity, the stated purpose should read"cessation of all banking operationsand assumption of the exclusivefunction of governmentfinance." After all, what is ba.nking?It is negotiating credit betweenlenders and .borrowers, andmaintaining cash balances for theconvenience of depositors. It isobvious that banking ceases toexist if credit can no longer be- negotiatedand ca.sh no longer bepaid upon demand by the depositors.The Emergency Regulationwould make all financial institutionsagencies of the U.S. Treasury,with the Federal Reserve Systemas a subtreasury that polices thebanking system. ~IDEAS ONLIBERTYTrade in Good FaithTHE ECONOMIC LIFE of the world in 1913 went on in an atmosphereof good faith. Men with liquid capital used the capitalthemselves confidently in business enterprises or loaned theircapital at market rates of interest to others who would use it inproductive operations. There were no billions of dollars of "hotmoney" such as characterized jhe decade of the 1930's, movingnervously. about from one financial· center to another·throughfear of confiscation or through fear of further currency debasement- moving from countries which their owners distrustedmore to countries which they distrusted less, but finding nowherea place which they could really trust.BENJAMIN M. ANDERSON,Economics and the Public Welfare