Two banking models have competed for dominance for thousands of years – public and private. In the public model, interest and profits belong to the community, and they are returned to the community. Credit is delivered to the economy in an organic way that sustains it and is sustainable.
Publicly-owned banks operate in the public interest by law. That means they must support the real, wealth-producing economy. Bank profits generated from the credit of the public are returned to the public.
The model was proven in the first half of the eighteenth century, in Benjamin Franklin’s colony of Pennsylvania. The provincial government printed its own money and operated a “land bank,” which issued low-interest loans to farmers. The interest returned to the government, funding the provincial budget. Except for import duties on liquor, the government collected no taxes at all. It also had no debt and paid no interest. There was abundant money for trade and the economy thrived.
In the competitor model prevailing today, privately-owned banks (sometimes called “usury” banks) operate for private gain. They are extractive rather than cooperative and supportive, focused on maximizing profits for their owners and executives. Classical economists called these financial profits unearned and said they should be heavily taxed; but today, with lawmakers captured by the profiteers, they are taxed only lightly if at all.
Neoliberal economic theory assures us that what is good for the big privately-owned banks is good for society – that private ownership produces better results in that sector as in all others; but the data tell a different story. Usury banking dominates in Western countries today, but 40 percent of banks globally are publicly owned. These are largely in the BRIC countries – Brazil, Russia, India and China – which also house 40 percent of the global population. In the first decade of the 21st century, the BRICs boasted growth in GDP of 92.7 percent, while Western economies limped along at a very modest 15.5 percent.
The BRICs moved into public, cooperative banking out of necessity. With massive populations that needed to be fed and housed, they could not afford to support a parasitic financial elite. The BRICs have problems, but they don’t have our problems. Unburdened by counterproductive financial sectors, they have strongly upward economic trajectories, while the West’s are stagnating.
The advantages of public over private banking are not rocket science. A government that owns its own bank can keep the interest and reinvest it locally, resulting in potential public savings of 35 percent to 40 percent. Costs can be reduced across the board; taxes can be cut or services increased; and market stability can be created for governments, borrowers and consumers. Banking and credit become public utilities, sustaining the economy rather than mining it for private gain. And banks again become safe places to store our monies, both our public revenues and our private savings.
Excerpt from “The Public Bank Solution,” by Ellen Brown.