The errors of J.R. Rallo’s Monetary Theory: Part I

Abstract

In his work Una crítica a la teoría monetaria de Mises, Juan Ramón Rallo (2019) criticizes Mises’s theory of money as developed in M ises’s (1971) Theory of Money and Credit. In this paper, I show that Rallo and his predeces-sor Antal Fekete do not advance Austrian monetary theory, but rather defend an idiosyncratic variant of the banking school. The neo-banking school approach suffers from the same shortcomings as the traditional banking school, most notably its failure to consider capital theory. To address the per-tinent issues, we need to return to and develop some of the foundations of eco-nomic theory. I will discuss the nature of money, ideal money, real savings, the demand for money, falling prices, the meaning of the interest rate and its determination, etc. I show that the credit expansion of a fractional reserve banking system based on real bills triggers an Austrian business cycle. More-over, I show that in a free market maturity mismatching does not trigger a busi-ness cycle.