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«Besley for inviting me, Professor Philip Booth and the Institute of Economic Affairs for allowing me to also use this as an opportunity to introduce ...»

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and fully matched with prior voluntary savings. And I would add to Hayek’s statement the most important fact that 100 percent banking is the only system compatible with the general principles of the law of property rights that are indispensable for the capitalist system to work: there is no reason to treat deposits of money differently from any other deposit of a fungible good, such as wheat or oil in which nobody doubts the need to keep the 100 percent reserve requirement.

In relation to this first step of the proposed reform it is most encouraging to see how two Tory mps, Douglas Carswell and Steve Baker, were able to introduce in the British Parliament on September the 15th and under the 10 minute rule the first reading of a Bill to reform the banking system extending the prescriptions of Peel’s Bank Act to demand deposits. This «Customer Choice Disclosure and Protection Bill» will be discussed in its second reading, three weeks from now, on November the 19th, and has two goals: first to fully and effectively defend citizens’ right of ownership over money they have deposited in checking accounts at banks; and second, to once and for all put an end to the recurrent cycles of artificial boom, financial crisis and economic recession.

Of course this first draft of the bill still needs to be completed with some important details, for instance the time period (let us say a month) under which all deposits should be considered demand deposits for storage and not for investment, and the need to clarify that any contract that guarantees full availability of its nominal value at any moment should be considered at all effects a demand deposit for storage. But the mere discussion of these matters in the British Parliament and by the public at large is, in itself, of huge importance. In any case it is exciting that a handful of mps have taken this step against the tangle of vested interests related to the current privileged fractional-reserve banking system. If they are successful in their fight against what we could call the current «financial slavery» that grips the world they will go down in history like William Wilberforce —with the abolition of the slave trade— and other outstanding British figures to which the whole world owes so much.

Second, if we wish to culminate the fall of the Berlin wall and get rid of the real socialism that still remains in the monetary and 336 NOTICIAS credit sector, a priority would be the elimination of Central Banks, which would be rendered unnecessary as lenders of last resort if the above 100 percent reserve reform is introduced, and harmful if they insist on continuing to act as financial central-planning agencies.

And third, who will issue the monetary base? Maurice Allais, the French Nobel Prize winner who passed away two weeks ago, proposed that a Public Agency print the public paper money at a rate of increase of 2 percent per year. I personally do not trust this solution as any emergency situation in the state budget would be used, as in the past, as a pretext for issuing additional doses of fiduciary media. For this reason, and this is probably my most controversial proposal, in order to put an end to any future manipulation of our money by the authorities, what is required is the full privatization of the current, monopolistic, and fiduciary state-issued paper base money, and its replacement with a classic pure gold standard.

There is an old Spanish saying: «A grandes males, grandes remedios». In English, «great problems require radical solutions».

And though of course any step toward these three measures would significantly improve our current economic system, it must be understood that the reforms proposed and taken by governments up to now (including Basel II and III) are only nervously attacking the symptoms but not the real roots of the problem, and precisely for that reason they will again miserably fail in the future.

Meanwhile, it is encouraging to see how a growing number of scholars and private institutions like the «Cobden Centre»

under the leadership of Toby Baxendale, are studying again not only the radical reforms required by a truly honest private money, but also very interesting proposals for a suitable transition to a new banking system, like the one I develop in chapter 9 of my book on Money, Bank Credit, and Economic Cycles. By the way, in this chapter I also explain a most interesting by-product of the proposed reform, namely the possibility it offers of paying off, without any cost nor inflationary effects, most of the existing public debt which in the current circumstances is a very worrying and increasingly heavy burden in most countries.


Briefly outlined, what I propose and the Cobden Centre has developed in more detail for the specific case of the United Kingdom, is to print the paper banknotes necessary to consolidate the volume of demand deposits that the public decides to keep in the banks. In any case, the printing of this new money would not be inflationary, as it would be handed to banks and kept entirely sterilized, so to speak, as 100 percent asset collateral of bank liabilities in the form of demand deposits. In this way, the basket of bank assets (loans, investments, etc.) that are currently backing the demand deposits would be «freed», and what I propose is to include these «freed» assets in mutual funds, swapping their units at their market value for outstanding treasury bonds. In any case, an important warning must be given: naturally, and one must never tire of repeating it, the solution proposed is only valid in the context of an irrevocable decision to re-establish a freebanking system subject to a 100 percent reserve requirement on demand deposits. However, no matter how important this possibility is considered under the current circumstances, we must not forget it is only a by-product (of «secondary» importance) compared to the major reform of the banking system we have outlined.

And now to conclude, should in this 21st century a new Robert Peel be able to successfully push for all these proposed reforms, this great country of the United Kingdom would again render an invaluable service not only to itself but also to the rest of the world.

Thank you very much.


HAYEK, F.A. (1937): «Investment that Raises the Demand for Capital», Review of Economics and Statistics, 19, n.º 4. Reprinted in Profits, Interest and Investment, pp. 73-82.

— (1948): «The Ricardo Effect» in Individualism and Economic Order, Chicago: University of Chicago Press, pp. 250-54.

— (1975): «The “Paradox” of Saving» in Profits, Interest and Investment and other Essays on the Theory of Industrial Fluctuations, Clifton, N.J.: Augustus M. Kelly.

338 NOTICIAS — (1978): «Three Elucidations of the Ricardo Effect» in New

Studies in Philosophy, Politics and the History of Ideas, London:

Routledge and Kegan Paul, pp. 165-78.

— (1984): «The Monetary Policy of the United States after the Recovery from the 1920 Crisis», Chapter 1 in Money, Capital

and Fluctuations: Early Essays, R.M. McCloughry, ed., Chicago:

University of Chicago Press.

— (1990): The Fatal Conceit: The Errors of Socialism, W.W. Bartley, III (ed.), London: Routledge and Chicago, Il.: The University of Chicago Press.

HUERTA DE SOTO, J. (2009): Money, Bank Credit, and Economic Cycles, Auburn, Al.: Mises Institute (2 nd English edition). First Spanish edition 1998.

— (2010a): The Theory of Dynamic Efficiency, London and New York: Routledge.

— (2010b): Socialism, Economic Calculation and Entrepreneurship,

Cheltenham, UK and Northampton, Massachusetts, USA:

Edward Elgar.

MISES, L. von (1980): The Theory of Money and Credit, Indianapolis, Ind.: Liberty Classics. First German edition 1912, 2nd German edition 1924.

Jesús Huerta de Soto, Doctor Honoris Causa por la Universidad «Alexandru Ioan Cuza» de Ias i, El pasado viernes 22 de octubre de 2010 el prof. Huerta de Soto fue investido Doctor Honoris Causa por la Universidad Alexandru Ioan Cuza de Iasi (Rumanía) con motivo del 150 aniversario, de su fundación.

A continuación se reproduce la Laudatio pronunciada por el Rector Prof. Dr. Vasile Isan.


–  –  –

All academic institutions have the goal of keeping, transmitting and enhancing knowledge. But a traditional academic institution has an additional mission: that of acknowledging those who keep the tradition of knowledge and enrich it with a wide variety of intellectual reflection fields.

Today, our university pays homage to one of the most notorious and valuable representatives of the Austrian School of Economics, Professor Jesús Huerta de Soto from Rey Juan Carlos University in Madrid. The fact that the words tradition, transmission and translation have a common root in the Latin language may not be a simple coincidence. Their equivalents in today’s society might be the acceptance, dissemination and enhancement of the gifts of knowledge that were given to us. Professor Huerta de Soto 340 NOTICIAS illustrates a powerful and inspiring European academic tradition by means of a prodigious activity as scholar, publicist, investigator of history’s labyrinth and present economic ideas and also as teacher of many generations of students, whom he educated in the spirit of personal liberty. In its wide range of connotations, this personal liberty comprises the economic thought of the Austrian School, which has been considered from the very beginning as an alternative to mainstream economics. Professor Jesús Huerta de Soto’s history is interesting on the one hand and challenging and full of instructive lessons on the other, placing above any social relations or alleged historical laws the human action, the liberty to exercise it and the economic thought he is representing, with the loyalty of a temple’s keeper and the vocation of renovator of the valuable intellectual inheritance that was passed on to him. As this kind of thinking, placed outside the neoclassic – Keynesian synthesis, is less known to the economic academic environment, it is necessary to make a short presentation of its rather sinuous trajectory.

The «superbia of ignorance», manifested by today’s economic school, makes the concise reiteration of this history to be more than necessary. To a certain extent, we are still «caught» in the Wighist idea of the progress of history – today’s thought is the most advanced because all the results of the intellectual investigations and reflections have been included in the one-way (or the socalled teleological) evolution towards the present stage. However, many scientific and cultural theories proved this to be wrong.

In the field of the history of economic thought, the argument of the non-linear progress, from an analytical and intellectual point of view, was offered by at least two great scholars: Joseph A.

Schumpeter and Murray N. Rothbard. Simply put, what is new is not automatically an evolution of the economic science, just as the ideas from the past are not necessarily obsolete or rudimentary just because they had been produced in a world that lacked high technologies.

Professor Jesús Huerta de Soto is the creative protagonist of the economic thought that was initiated, some centuries ago, by the Jesuit and Dominican scholars belonging to The School of Salamanca. Out of all the economic ideas that they left behind, at least some of them are worth mentioning: the role of the


entrepreneur in economics, the subjective nature of value, the establishment of the «just» price on the free market, the great importance that «healthy» currency has for the financial and economic stability and the beneficial effects of the free trade.

During the second half of the 19th century, remarkable professors from the University of Vienna, such as Carl Menger, Eugen BöhmBawerk and Friedrick von Wieser recovered and developed the traditions of the scholastic thought, in addition to the ideas of the classic liberalism. Their philosophic vision and scientific methodology laid the foundations of a general economic theory, where the subjective value represents the universal category found at the basis of all economic concepts (entrepreneur and enterprise, free competition and monetary price, currency and capital, free trade of goods and services).

The brilliant followers of the above mentioned professors, Ludwig von Mises and Friedrich A. von Hayek systematized and renewed the tradition of the Austrian School and disseminated it across the globe, from London, New York and Chicago to CapeTown and Tokyo. A few generations of North American economists, among whom Murray N. Rothbard and Israel Kirzner stand out, have decisively contributed to the development of the Austrian School as an alternative to the mainstream economics. Paradoxically, the tradition of the Austrian economic thought came back to its European spiritual origin by means of American channels. Still, some inspired erudite European economists, such as Pascal Salin, Jesús Huerta de Soto and Guido Hülsmann who brought an extraordinary contribution to the invigoration and development of the Austrian School of Economics.

It is in this context that we express our admiration and gratitude for the scientific and educational contributions of Professor Jesús Huerta de Soto. His reputation as «Austrian economist» is the result of almost four decades of perseverant and coherent efforts.

His passion for economy was born in his adolescent years, since he was raised and educated in a family with a century tradition in the private life insurance sector. As he was to confess later, in an interview for the Ludwig von Mises Institute in Auburn, Alabama

- USA, his intellectual journey was marked by the early discovery of the works of the Austrian economists that were translated 342 NOTICIAS into Spanish, especially Ludwig von Mises’s «Human Action».

During the autumn of 1973, when he was still a high school student, his father suggested him to join the weekly seminar of «Austrian Economics», taught by the brothers Joaquin and Luis Reig Albiol, in the house of the latter.

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