This is Part 2 of a 10-part series on public banking and economic justice. Read Part 1 here.
In London in 1361, Bishop Michael Nothburg bequeathed “1000 marks of silver” to create a “Mount of Piety,” an interest-free lending bank where borrowers could leave items for pawn-collateral. As Ellen Brown notes in The Public Bank Solution, the bank failed, but clergy around Europe kept at it, later charging modest interest to pay the workers and administrators of the banks while still serving the poor.
Six hundred fifty seven years later, on April 10, 2018, the Los Angeles County Democratic Party, representing 2.4 million registered Democrats in L.A. County, voted to endorse “socially and environmentally responsible, state-chartered public banks.” Countless struggles for financial democracy have happened in the seven centuries separating the creation of Mounts of Piety and the contemporary call for public banks on both U.S. coasts.
Advocates from the past have a lot in common with those in the present. Last year, participating in a divestment and public banking workshop in Santa Cruz, Calif., I met Maureen Smith. Now 79 years old and a busy activist, Smith was the Peace and Freedom Party’s chairperson, a one-time presidential candidate, and a California State Treasurer candidate in the 1980s. She ran on a public banking platform long before the Occupy movement and two books by Ellen Brown re-articulated the concept for the mainstream. She says she learned about public banking from a more experienced party member who’d advocated it in his campaigns. “And I spoke with an employee of [the Bank of North Dakota] to get some information," Smith said.
I’m no historian, but I think we can construct three reasonable conclusions from studying the centuries-long history of public banking activism against the backdrop of various forms of capitalism. First, the most notable and successful public banking campaigns reflected a passion for economic justice, not just economic efficiency. Second, in those few instances when public banks have failed or become corrupt, one cause is the abandonment of those principles of economic justice, with elected or appointed individuals in it for themselves. Third, not everyone who attacks banks does so with the same motives, and some do so from grotesque and fundamentally unjust positions. Put together, these conclusions serve as important lessons for current activists.
Always With an Eye Towards Justice
The most inspiring proponents of public banking have recognized that wealth inequality is arbitrary and dehumanizing. Religious banking advocates emphasized equality under the sovereignty of a deity. Islamic scholars see charging interest as contrary to the general moral direction of Islam, which emphasizes equality under a God who is the ultimate provider. Christianity has a similar conclusion: Everyone is equal in the Body of Christ. The mons pietatis described above existed with other Christian institutions. In their essay on the history of credit, Elise Dermineur and Yane Svetiev say that church structures “(abbeys, convents, Mons pietatis) could extend credit and recorded the transactions in their own account books. Parish wards also extended credit.” And it’s no surprise that the Quakers introduced public banking to the young American republic.
If capitalism undermined and exploited the moral authority of religion, radical anticapitalist movements took up the Churches’ egalitarian mantle and a model of cooperative banking along with it. One faction of the Paris Commune, following the theories of Pierre-Joseph Proudhon, wanted to create “people's cooperatives and exchange banks” to finance a new, communal economic order. Had this faction and others like it prevailed, the Communards might also have seized the Bank of France instead of letting the Versailles government assert control over the Bank and, promising money from it, bribe soldiers into crushing the Commune.
Then came the Nonpartisan League in North Dakota in 1915. Michael Magliari calls the rise of NPL “one of the most astounding episodes in the annals of American radicalism," and the NPL’s platform, which it implemented nearly plan-for-plan after scoring a clean sweep of the legislative and executive branches of state government, “the most appealing reforms previously championed by North Dakota’s Populist and Socialist parties.” NPL’s founder, A.C. Townley, a farmer, had been a Socialist organizer. Minneapolis and Saint Paul banks had destroyed Townley and other North Dakota farmers. Along with the public bank, the NPL government created the North Dakota Mill and Elevator, also the only institution of its kind currently in the country.
California’s trajectory towards public banking is similarly motivated, from the Peace and Freedom Party’s support of public banks in the 1980s and earlier, to the California Democratic Party’s vote earlier this month. In the 1980s, PFP socialists were concerned not necessarily with banking “scandals,” but with the democratic and ecologically sustainable potential of public banks. “Scandals did not play a part in the conversation,” Maureen Smith told me. “The issue was control of investments and resources.” PFP fliers read: “A public banking system to encourage and support housing, jobs, and equality...discourage ecologically destructive policies and actions...[and] offer people a sound place for their money.”
Thirty years later, activities across California include L.A.’s successful efforts to get the city council to back the concept after divesting from big banks like Wells Fargo, and getting the County Democrats to endorse public banks on the part of over 2 million members. Similar movement has occurred in San Francisco, Oakland and across the greater Bay Area, where activists like Shelly Browning in Santa Rosa have persistently organized residents to convince their city council to consider the idea.
These examples paint pictures not of bankers, economics professors or politicians creating public banks, but people from all walks of life motivated by a deep sense of interconnectedness, mutual responsibility and, in many cases, ecological sustainability.
Done in by Corruption?
There were a lot of state-run bank experiments in the United States during the first half of the 19th century. Some of those ended up falling under corrupt management. Opponents of public banking often conflate the types of banks created – many were public-private partnerships and only two, in Vermont and Kentucky, were wholly government-owned – and exaggerate the implications of those failures. But the more important takeaway is that when the people we entrust to run public financial utilities behave like private entrepreneurs or investors, the results are predictably bad.
The Vermont State Bank, created in 1806 and dissolved in 1812, serves as a useful case study. The Governor of Vermont initially opposed the bank, but later admitted that it “saved many of our citizens from great losses, and probably some from total ruin...” The bank should have been viable; profits were $11,000 in 1808, $22,000 in 1809, $33,000 in 1810, and $44,000 in 1811.
The problems facing the bank were caused by bad actors. Thus, “[t]he moneyed of Boston, who ruled the whole of Massachusetts,” writes Jim Hogue, “waged uncommon war against the country banks, and especially against the Vermont State Bank.” Hogue adds that “[f]ederal lawyers and merchants...borrowed large sums of money from the bank, conspired to discredit the bills, and, when the bills were discredited, they bought them at a large discount and then paid their debts, pocketing the extra money that they had bought up cheap.”
The Vermont State Bank is an argument for better regulation of public utilities, not an argument against public banking. Moreover, it’s impossible to make any generalization about government-involved banking in early American history, because, as Susan Hoffmann explains in her book Politics and Banking: Ideas, Public Policy, and the Creation of Financial Institutions, there were countless ways a state could incorporate a bank.
The most egregious failures of public banks can't compare in impact to the damage done by private banks both when they fail and when they “succeed.” Since 2008 this has included tanking the economy and ruining millions of lives, creating foreclosure crises that increased crime and violence in cities across the nation, and devastating state and municipal budgets often by subjecting those budgets (and public pension plans) to the legalized gambling of derivatives and interest rate swaps. Such schemes devastated Chicago and Denver public school districts, thrust Detroit into undemocratic “emergency management,” and entrenched racist housing and development patterns in Baltimore and other big cities. It’s difficult to imagine a public bank, subject to transparency and legislative checks, doing that kind of damage even on its worst day.
It Matters Why You Criticize the Bankers
Not everyone who attacks powerful private banks does so from a position of justice or a desire for economic democracy. Nazis, racists and ethnonationalists have also scapegoated big banks, and this has caused a lot of confusion, tragedy and defeat for those interested in real emancipation.
Nazis, and racist Christians before them, constructed their criticisms of banking practices as anti-Semitic attacks on “international bankers.” Inevitably some of these people gravitated towards the public banking movement, and the post-Occupy iteration of the movement was not as careful as it should have been in distancing itself from these anti-Semitic and conspiratorial rabbit holes. This opened the door to engaging with fans of G. Edward Griffin, a John Birch Society member and co-facilitator of a notorious 2009 conference on Jekyll Island off the coast of Georgia that the Southern Poverty Law Center said helped re-ignite the patriot/militia movement.
I’ve personally had to deal with these people when offering media support to the public banking movement. At the 2013 Public Banking Institute conference, amidst throngs of progressive, centrist and thoughtful conservative attendees, there was a small handful of wide-eyed, white, 60-something men, a couple of whom asked me whether I’d read Griffin’s work in the way John Stuart asked Guillermo Díaz in “Half-Baked” whether he’d “ever seen the back of a twenty-dollar bill on weed.” While managing PBI’s media operations, I periodically had to flick off and disclaim the anti-Semitic or white supremacist messages of one or two social media followers. While I was happy to do it, I often wished that some of the most prominent standard-bearers of the movement would have taken more proactive anti-racist positions.
It’s not just the violence and genocidal thinking of Nazism that makes me concerned, although that’s a key part of it. Such rhetoric also jeopardizes our politics, turning systemic critique of political economy into conspiratorial mumbo jumbo where democratic deliberation is needed. You can’t liberate one group from oppression by scapegoating another group. Systems based on hatred and hierarchy thrive only through excess and extraction. They last only so long as they can buy people off. Once the resources run out, the individual acts of violence that maintain those systems give way to genocide. The Trump campaign’s constant rhetoric of interpersonal violence illustrates this. Public banking is cooperative, and so requires denouncing violent nationalism and racism rather than quietly accepting it.
Fortunately, the young leaders of the California divestment and public banking movement have no time for G. Edward Griffin or Donald Trump or the lingering remnants of white nationalists who support them. But the danger of racist appropriation of revolutionary economics is real, and activists need to be constantly on their guard against it.
“Things are More Desperate Today”
Maureen Smith, the veteran Peace and Freedom Party leader, told me her party saw public banks as part of a larger vision of economic justice. “We have been a socialist-feminist party since 1974,” she said. But since then, “the gap between rich, poor and middle class has increased. Things are more desperate today. We are in much more need of public banking today as well as real tax reform that closes all loopholes used by the wealthy.”
Smith's use of that word – “desperate” – reminds me that security, shared vulnerability and cooperation have motivated activists from the early experiments in interest-free banking, to the revolutionary communes and farmer-socialist parties of the last two centuries, to contemporary divestment and public banking movements. Despite some distractions, the movement has always been about justice for people.
Matt Stannard is a legal and policy advocate for cooperative economics and sustainable farming. He is the former policy director of Commonomics USA and served on the board of directors of the Public Banking Institute. His blog is Cowboys on the Commons.