In Defense of Mutual Banking

In his anthology of Liberty, Frank Brooks wondered, given the prevailing system of national banking and its effects on the availability of credit, whether anarchists such as Benjamin Tucker might actually be satisfied. The question is asked on the premise or assumption that many of the outcomes Tucker and his milieu hoped would be accomplished through free, mutual banking have been realized by today’s national, Federal Reserve banking system. Credit is widely available, perhaps too much so, argues Brooks, and it may therefore seem that those who doubted the predictions of Tucker and others on interest under free banking have been vindicated. But have they? While credit is indeed widely available, it was the availability of non-monopoly credit—to be issued at cost—that Tucker, Bilgram and Greene looked forward to, something that doesn’t yet exist today in spite of the existence of, for instance, the credit unions of the present (which Brooks points to as satisfying the goals of Tucker’s free banking). Today’s champions of free banking (e.g., economist George Selgin) argue, much as people like J. Greevz Fisher did in the pages of Liberty, that although free banking was indeed desirable, it would not see the evaporation of all interest on credit.

Monopoly and inordinate accumulation naturally attend one another, the inefficiencies and crises that stem from such a system requiring excessive reliance on debt. Under such a system, then, the commercial bank, trussed, needless to say, to the national banking network, becomes far more important, central to the character and to the functioning of the overall economy. Since the relationships at issue benefit the ruling class, a consequence by design, such institutions enjoy the use of all the easy state-created money they can ingest. Free banking crusaders of the Austrian style should know better than to think that such easy money as we have now is commensurate with the mutual money proposed by the individualist anarchists. Have the monopolistic restrictions on free banking, the privileges that prevent the laborer from capitalizing his wealth, actually been lifted, or have such privileges simply made way for the institutions that Professor Brooks seems to think have effectuated the dream of the anarchists? Are we to think that the existence and abundance of high-interest credit for the working poor is the vision that Tucker and Greene had with regard to credit? Even Rothbard understood that the first one to spend a counterfeit dollar enjoys the greatest boon, the rest finding their money depreciated. It therefore seems absurd to suggest that credit cards and payday advance loans for the working man, offered at a monopoly rate, are proof that widely available credit is incapable of destroying the tribute system called interest. There are hosts of products and services that are quite abundant, but are nevertheless priced far in excess of their true market value due to the interventions of just as abundant privileges.

Rothbard obscured a key argument of the “money-cranks” in ignoring the fact that Greene, Tucker and company did not advocate for inflation for its own sake, for simply splitting in two the money already in people’s hands and calling it doubled. Their argument was that restrictions on banking favored some people and fell disproportionately on others, so that access to credit was obstructed for most of the population. To merely inflate the money supply arbitrarily was not at all the goal, especially when the “easy money” we have under the existing banking system is “easy” only for politically connected institutions, particularly commercial banks—a fact that the Austrian, “End the Fed” crowd has quite right. As Tucker said of the greenback movement over one hundred years ago, national currency takes the money question and “degenerate[s] it into an unprincipled scramble for spoils by which the strongest would profit.”M It is difficult to understand why indeed workers, if allowed, would not offer one another credit at cost under a mutual banking system whereby they would all expect reciprocal treatment in kind somewhere down the line; such an agreement may be thought of as an insurance that credit will be available to the working community, the credit to be secured by all kinds of valuables. That such arrangement are not allowed doesn’t seem to bother those who bizarrely insist that if interest could ever be abolished, it would be so abolished by now. They must suppose that we have the free, competitive banking that Greene and Tucker recommended, which I suppose isn’t all that surprising. If individuals were left free to compete and organize, there’s no telling how many would enter the field of banking, or how many different schematics they would develop for that end. As John Beverley Robinson observed, banking is, after all, a “simple and safe business.”

With the capitalist banking apparatus as it is, crises like that of 2008, will not abate at least not for very long intervals. Capital and credit concentration gives way to complacency in business, to waste, to destitution for the people whose work hours drive industry forward even in spite of its unstable footing on which the economic system stands. That system works for the capitalists—is their great swindle—but only to the extent that it remains at all and doesn’t end up completely in ruins. Why those who defend some version of “free banking” should defend the tax—because that’s really what it is—of interest is utterly beyond my comprehension, but what it means is that it’s all the more important for libertarians to continue in the tradition of William B. Greene and Benjamin R. Tucker.