From Simons' 1934 A Positive Program for Laissez Faire:
The proposals with reference to banking and currency arise out of the conviction that extreme fluctuations of production and employment may be prevented by rather simple (if drastic) measures with respect to money and credit. The proposals may be defined tentatively in terms of the following measures:NEXT UP: Simons' view on taxation.
There will be wide differences of opinion as to what the specific rule of monetary policy within such a system would be, but this is not the place to discuss the relative merits of different possible rules. Two observations, however, may be submitted dogmatically: (1) that the adoption of one among the several definite and unambiguous rules proposed by competent students is more important than the choice among them and (2) that rigid stabilization of exchange rates on other (gold-standard) countries is totatly inadequate and undesirable as a rule of national currency policy. . . .
- Outright federal ownership of the Federal Reserve banks.
- Annulment of all existing bank charters (as of a date, say, two years in the future), and enactment of new federal legislation providing for complete separation, betwen different classes of corporations, of the deposit and lending function of existing deposit banks.
- Legislation requiring that all institutions which maintain deposit liabilities and/or provide checking facilities (or any substitute therefor) shall maintain reserves of 100 per cent in cash and deposits with the Federal Reserve banks.
- Provision during the transition period for gradual displacement of private-bank credit as circulating medium by credit of teh Federal Reserve banks. [parenthetical ommitted]
- Displacement by notes and deposits of the Reserve banks of all other forms of currency in circulation, thus giving us a completely homogeneous national circulating medium. [parenthetical ommitted]
- Prescription in legislation of an explicit, simple rule or principle of moneytary policy, and establishment of an appointive body ("National Monetary Authority"), charged with carrying out the prescribed rule, and vested with no discretionalry powers as regards fundamental policy.
- Abolition of reserve requirements against notes and deposits of the Reserve banks, and broad grants of powers in the "National Monetary Authority" for performance of its strictly administrative function. [parenthetical ommitted]
The proposals with reference to banking contemplate displacement of existing deposit banks by at least two distinct types of institutions. First, there would be deposit banks which, maintaining 100 per cent reservers, simply could not fail, so far as depositors were concerned, and could not create or destroy effective money. These institutions would accept deposits just as warehouses accept goods. Their income would be derived exclusivel from service charges . . .
A second type of institution, substantially in the form of the investment trust, would perform the lending functions of existing banks. Such companies would obtain funds for lending by sale of their own stock; and their ability to make loans would be limited by the amount of funds so obtained . . .
These banking proposals define means for eliminating the perverse elasticity of credit which obtains under a system of private, commercial banking and for restoring to the central governmetn complete control over the quantity of effective money and its value . . .