Mises is most emphatic in laying at the door of governmentally installed central banks the ultimate responsibility for the distortions (and eventually the depressions) which arise out of the expansion of fiduciary media. He refers, in particular, to the practice of considering it the duty of central banks of issue “to shield the banks which expanded circulation credit from the consequences of their conduct,” in order to soften the economic hardships experienced during the crisis. Mises was caustic in his condemnation of such public policy attitudes. The “practice of intervening for the benefit of banks, rendered insolvent by the crisis, and of the customers of these banks, has resulted in suspending the market forces which could serve to prevent a return of the expansion. If the banks emerge from the crisis unscathed . . . what remains to restrain them from embarking once more on an attempt to reduce artificially the interest rate on loans and expand circulation credit . . .?”
In “Human Action,” Mises developed the thesis that, in the absence of central bank control over the banking system, competition between private banks in the market would tend to limit credit expansion (and thus remove the source of the business cycle aberrations). “Government interference” in the banking sector is therefore held ultimately responsible for credit expansion.