Host, a system of fractional reserve, controlled by an impartial central bank does work. The economy will always naturally go up and down, but you can control it. Banning fractional reserve banking will NOT make things better, it will make things worse. Generally, going from one extreme to another isn't likely to help very much.
If you disagree, please feel free to disprove the "nightmare scenario" in my previous post. Do tell me what you think will happen.
By the way, I found an interesting article in the <a href="http://www.britannica.com/eb/article-234444/Great-Depression">Encyclopędia Britannica</a>, which suggests that the gold standard was to blame for America's depression being spread world-wide. It also suggests that (return to) the gold standard has led to large economic problems in other countries. I'd say it's not as great as some people here seem to think.
And another link (perhaps less reputable) about <a href="http://www.amatecon.com/gd/gdcandc.html">the great depression</a> has this to say about your "malinvestment":
Quote:
Malinvestment
"Malinvestment" is a term coined by the Austrian school of economics to sum up their explanation of the causes of business cycles. According to this theory, all business cycles are caused by government intervention in the market. Specifically, the central bank (the Fed in the case of the U.S.) artificially lowers the interest rate, flooding the economy with money. This money is then invested in capital goods that would not be justified at a market level of interest rates. The low interest rate cannot be sustained forever without an increase in inflation, so the Fed inevitably has to raise interest rates. When this happens, the investments that were "justified" under a lower interest rate must be liquidated. Any prevention of this liquidation by further government intervention will simply prolong the re-adjustment and thus exacerbate the recovery. <b>This view is held by very few economists.</b>
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I happen to be one of the economists that disagree.
