AUSTRIAN SCHOOL OF ECONOMICS’ PRESCRIPTIONS FOR MONETARY REFORMS WILL CAUSE COMPLETE CHAOS IN THE ECONOMY AND RUIN THE ECONOMIC SYSTEM

Austrian School suggests that if money creation is followed strictly with the commodity (gold) standard then loan can be given only by using the savings and there will be no possibility of increase in the money-supply as existing money that is saved will be used for lending purposes.Therefore, no question of inflation due to increase in money-supply (fiat money that is created out of nothing) will arise.It will be simply impossible to deal with all the prescriptions and suggestions of the Austrian School in this paper and to suggest how those prescriptions may be developed further so as to make them function flawless or more correctly.It also becomes imperative to explain in which way the diagnosis and prescriptions of other Schools are wrong.It seems me that the differences of opinion among these Schools are mostly due to the absence of any universally accepted definition and function of money and how money should be oriented to suit our purpose of achieving a sustainable economic growth unhampered by occasional visit of boom-bust cycles.Therefore, the purpose of this paper is to suggest that while it is correct that money should be anchored to commodity, yet more thoughts are necessary as to how the growing demand for money with the expanding monetary activities could be met.If we can arrive at a correct definition of money and how we can orient the money to function in the way to eliminate those harmful effects that, the Austrian School of Economics has shown, occur in the present economic system.Therefore, primary aim of this paper is to examine how far the assertion that money must be any commodity is workable in the economic and financial systems of a country.