3.7 Public banking: A cornerstone of a green social democracy

"I care not what puppet is placed on the Throne of England to rule the Empire on which the sun never sets. The man who control's Britain's money supply controls the British Empire, and I control the British money supply."

- Nathan Rothschild, who controlled the Bank of England after 1820, quoted by Ellen Hodgson Brown, J.D. (2010, Third Millennium Press) Web of Debt: The shocking truth about our money system and how we can break free.

There can be no economic democracy without ownership by the public of their financial institutions. Any other arrangement - as acknowledged by some of history's most notorious bankers - leads inexorably back to an economy and government that may be of the people and by the people, but it is one that serves those who own and control the financial institutions. 

Ellen Brown's research and writing on the origins and character of our present financial system and on the centuries of struggle for publicly owned and controlled financial institutions provides indispensable knowledge for those who prefer a green social democracy. For a brief review of Brown's Web of Debt, see "The only navigable roads to a just sustainable future are those paved with publicly owned banks", a review by the authors that can be found at http://www.greensocialdemocracy.org/reviews/83-reviews/131-the-only-navigable-roads-to-a-just-sustainable-future-are-those-paved-with-publicly-owned-banks. Readers are also encouraged to consult Ellen Brown's (2013, Third Millennium Press) The Public Bank Solution: From Austerity to Prosperity for contemporary examples of successful public banks, practical guidance and supporting argumentation in support of legislating these into existence in communities throughout the world.

Primary obstacles to the creation of public banks are the common misconceptions about how private-for-profit financial institutions work. Here, briefly, are some common misconceptions, each contrasted with a brief description of how financial institutions actually work, based on Ellen Brown's research.

Can money be created by banks? Is the result inflationary?

Misconceptions: Banks only loan the money that they receive in the form of deposits. Their loans are not inflationary.

Scientific conceptions: Banks create money by extending credit. The borrower is then obliged to pay back the loan with interest. The borrower can purchase goods or services to the amount of the loan. If only the principal were owed, demand would equal supply; there would be no inflation from this source. However, the amount of the interest has no equivalent in additional goods and services, that is, there are no additional goods and services to cover the amount of the interest; hence an interest bearing loan is inflationary. 

It is worth noting some of the consequences. If all bank loans were fully paid back, the banks would have no further claims on future production. The self-interest of the owners of banks (and all other financial assets!), therefore, is in creating debt, the more the better. Government debts to private banks are a principal source of the wealth of bank owners (most notably including their largest share-holders, directors and senior executives).

In all of the above, substitute for "banks" the term "finance capital" (including banks, investment houses, insurance companies and other companies engaged in financial investment and speculation) and you then have a broader conception of the nature of modern finance capitalism, including the importance of government debt in maintaining a system based on interest-bearing debt.

Can money be created by governments? Is the result inflationary?

Misconceptions: Money created and spent by governments is inflationary.

Scientific conception: When governments create the money they spend on goods and services, the result is not inflationary. Supply and demand are in balance as long as the labor and materials required are available. 

It is likewise worth noting a fundamental consequence of this understanding of money creation. An obvious alternative to a neoliberal capitalist system is one in which the people, through their governments, create and spend interest free money to put labor and materials to work for the people's purposes. For an historical account of how a wealthy elite of finance capitalists have prevented the United States (and similarly the rest of the capitalist world) from yet succeeding in establishing and maintaining such an alternative system, see Ellen Brown's fundamental work on this matter, cited above. 

The alternative to the rule of financial capital is an economic democracy where the people make the fundamental economic policy decisions through democratic deliberation. These include what to produce and whether to expand, contract or maintain the size of the economy. This right of the people can only be secured by taking from the private banks the right to issue credit, assigning this right instead to publicly owned banks. On the other hand, if they continue to exist, private banks could then be required to maintain a reserve of 100% of the funds they are entitled to invest. In other words, they could only lend the money they actually have. If their fees were publicly regulated to cover no more than their labor and material costs in providing financial services, privately owned banks could no longer expand, contract or inflate the economy. 

Governments could also perform the role of banks directly, but we argue that a green social democracy is one that is operationally decentralized, in which governments of the people, by the people and for the people limit their role to setting broad policy goals and then license autonomous bodies the task of realizing those policy goals. Centralized bodies can serve the purpose of coordination, but decentralization is the method of engaging the knowledge, talent, energy and initiative of the people in achieving the democratically determined policy goals. 

Every economic sector of such a society, at the community level right up to the national and federal levels, might consist of a large number of organizations competing to serve the public's purposes, while cooperating in sharing the knowledge gained in doing so. Engagement of the people would be the advantage of such a genuine social democracy over the authoritarian, top-down rule that characterizes neo-liberal capitalist, state-capitalist and state-socialist systems. A system with such an advantage is needed if we are to steer a course away from the black hole of environmental and social catastrophe that less democratic systems have led us towards and are continuing to do. 

While a market sector continues to exist in a society moving towards a green social democracy, the taxation system could also continue to play a role in re-allocating resources, taking capital from where the people no longer want it applied (for example, fossil fuel exploration and extraction and the military-industrial complex) and redirecting it to sustainable development (for example, energy conservation, renewable energy development, health care and education). The taxation system could also be used to eliminate poverty and support the right of every person to food, water, shelter, healthcare and education. We contend that such transitional measures are needed to save humanity and nature from the ravages of an out-of-control neoliberal capitalist system that now threatens both. In the process of expanding the non-market economic sector until it totally displaces the market one, the people would be building a more secure and fulfilling society, one that could exist long into the future. 

Welcome!

This website was launched September 1, 2010 in support of a green social democratic alternative to neoliberal capitalist policy and practice. The primary result is a work by Charles and Karen McFadden of seven chapters, grouped under the title, Towards a Green Social Democratic Alternative to Capitalism available here in pdf and html formats.

Below under the heading What’s New can be found the most recent materials posted on this website, including opinion pieces, book reviews, articles and selections from the 2017 edition of the main work.  For the interest of new and returning visitors, new materials will be included quarterly.

What's New

NEW & REVISED

Authors' Preface

1.6 The epochal nature of the period we are entering

6.0 The socialism we need against the "socialism" of the 20th century

6.8 Additional concerns about 20th century variants of "socialism"

6.9 The people united!

7.1 Policy alternatives and political movements to advance them

OPINION

Charles and Karen McFadden, Is revolutionary transformation on the agenda

Charles and Karen McFaddenHumanity on the Brink

Charles and Karen McFaddenMovements of Resistance to Movements for System Change

Charles McFaddenTranslating Green Principles into Education Policy and Practice

Charles and Karen McFadden, The Role of Revolutionaries in the Labor Movement

REVIEWS

Charles McFadden, The People United for a More Just Sustainable Future

Karen and Charles McFaddenCan emergent early 21st century neo-fascism be defeated without coming to grips with late 20th century restructuring of capitalism into a global system

Karen and Charles McFaddenA Dominant Capitalism or a Sustainable Environment? Why we can't have both.

US CORNER

William I. RobinsonThe Crisis of Global Capitalism and Trump's March to War

William I. RobinsonTrumpism, 21st Century Fascism, and the Dictatorship of the Transnational Capitalist Class

CANADA CORNER

George HewisonWINNIPEG 1919 & THE COLD WAR

George HewisonArt Manuel - "Unsettling Canada

George HewisonThe NDP and LEAP

RECOMMENDED

Albert Einstein, David Swanson, Jill Stein, Chris Hedges, William I. Robinson, and others Selected articles for Winter 2018

FEATURED WORK

ECONOMICS

1.7 The dynamics of capitalism as a system and the limits of single issue reforms

2.11 The economy in transition towards a new deal for labor and the community

3.1 The challenge of a moribund economic system

3.7 Public banking: A cornerstone of a green social democracy

4.7 Economics and culture

6.5 Using the non-market economy as an opportunity to begin moving beyond capitalism

HISTORY

1.6 The epochal nature of the period we are entering

2.0 Theoretical Perspective: Defining Green Social Democracy

2.5. Socialism and green social democracy in historical materialist theory

4.3 Culture in historical perspective

5.1 Contrasting a green social democratic world with the currently prevailing, but challenged neo-liberal one

6.2 Socialism and capitalism as coexisting social systems

LABOR

2.11 The economy in transition towards a new deal for labor and the community

5.7 Defeating neo-liberal capitalism: The role of social movements

7.3 Justice: Creating a just society, based on the right of all to a dignified, secure existence

Creative Commons License

Creative Commons License: Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) applies to all work posted on this website except that which appears with authors whose last name is other than McFadden, in which case standard copyright should be assumed to apply.