Public Banking: A Saving Grace?

In a recent article published in Asia Times Ellen Brown characterizes as “a saving grace” the Japanese government’s resistance to privatizing its public bank. If public banking is a saving grace, presumably we, who affirm that grace is saving, ought to support it. In doing theology we will perhaps also want to ask whether or not we concur with this (or any) spiritual characterization of a secular public policy.

What is public banking?

The Public Banking Institute (PBI) web site notes that the Quakers in the colony of Pennsylvania first introduced public banking, and other colonial governments also established public banks. Today only the state of North Dakota has its own bank. Noteworthy, perhaps, North Dakota is the only state with a significant budget surplus. It also has the lowest unemployment and default rates in the country. These facts support the inference that having a state-owned bank does not impede economic wellbeing and may even help to sustain a healthy economy during a time of general recession.

A public bank may be established by the representative government of a state or nation and thus is owned by the people it serves. 

“Public banking is distinguished from private banking in that its mandate begins with the public's interest. Privately-owned banks, by contrast, have shareholders who generally seek short-term profits as their highest priority. Public banks are able to reduce taxes within their jurisdictions, because their profits are returned to the general fund of the public entity. The costs of public projects undertaken by governmental bodies are also greatly reduced, because public banks do not need to charge interest to themselves. Eliminating interest has been shown to reduce the cost of such projects, on average, by 50%.” 

In North Dakota, for instance, the assets of the state are used to capitalize the Bank of North Dakota, and the revenues of the state are deposited in the Bank.

The Bank of North Dakota, because it is a public bank, pays its dividend to the people of the state, who are its only shareholder. Although North Dakota has a small population and therefore only a modest economy, the Bank of North Dakota has in the past decade returned to the state’s general fund over $300 million, which has provided the state with annual surpluses and helped it avoid tax increases or spending reductions for public services.

How is this different for states using private banks?

Other states deposit their tax revenues in private Wall Street banks, which not surprisingly use these deposits of the public’s money for their own profit. With a public bank, however, this money can be deposited in the state's own bank and can then be used to fund activities that benefit the public. 

In Australia, for example, the publicly-owned Commonwealth Bank of Australia was the nation’s central bank for most of the twentieth century. In Alberta, Canada, the Alberta Treasury Branches, which are publicly-owned, provide a shared system of credit for most communities in the province of Alberta. In many countries, including Brazil, Germany, India, Japan, and Switzerland, public and private banks continue to operate effectively together.

What about Japan’s enormous debt?

Japan’s debt is over 200% of gross domestic product (GDP), which is the highest debt to GDP ratio in the world. This is not, however, the huge problem it would be, if the debt were privately held. Brown argues that Japan “can afford its debt because the interest it pays is extremely low.” If, however, the government were to privatize Japan’s public Post Bank by selling it off to private investors, interest rates would likely rise, “plunging the government into the debt trap it has so far largely escaped.” 

In addition, unlike the US, Japan’s public debt is not owed to private creditors, other nations, or an international fund, but only to its people. In fact, a “large public debt owed to the Japanese people means Japanese industries have the money to rebuild.” With a public bank, a public debt is not a drain on a state’s resources, but is money invested in the community. 

What might this mean for doing theology?

The phrase “saving grace” has a secular as well as a religious meaning. In Christian theology saving grace may mean “a state of sanctification by God” or “the state of one who is under such divine influence,” a conception of grace that historically “developed alongside the conception of sin." As a secular phrase it may mean “a redeeming quality or characteristic,” as in "her sense of humor has to be a saving grace," or "the saving grace for both developments is that they are creating jobs." 

This last example seems the closest to Brown’s use of the phrase. Brown seems to be asserting that the activity of banks may have a “redeeming” quality – to use another word with both sacred and secular connotations – rather than simply being necessary for a society or even detrimental to the common good.

Phrases, such as “a saving grace” and “a redeeming quality,” suggest a dynamic relationship between the sacred and the secular, at least in everyday speech. Might we infer from these examples that the sacred and secular realms meet (and even overlap) in our discourse about what is right or better? 

In moral philosophy, an action may be defended as ethical on the grounds that it is our rational duty or right, or because the action will have better consequences. The first way of reasoning uses deontological arguments to justify rules, reasoning that also characterizes the theological defense of divine commands. 

The second way of reasoning, which emphasizes results rather than rules, was developed by utilitarian philosophers over against the claim that some rules are commands from God and thus are right even when it seems likely that new rules will yield better outcomes. We should recognize here the ethical argument, supporting a democracy of citizens, made over against the assertion that kings have a divine right to rule their subjects, a self-serving claim long defended as biblical by church leaders and royal families. 

Utilitarian reasoning does not recognize any rules as intrinsically right, but instead argues that rules should be based on foreseeable results. Stop signs, liquor laws, the clean air act, and many other public policies are justified with evidence that, over a period of time, the consequences have been better than was the case without such limitations on our personal freedom. In theory, decision-makers rely on the social and natural sciences to predict the public policies most likely to generate beneficial outcomes for the society as a whole. In practice, of course, such policies may result in largely benefitting those with greater power.

In discussing banking and money, I think we are in the realm of language, activity and reality concerning rules based on consequential reasoning. Less helpful, from this perspective, in deciding what we should actually do are clichés – often stated as ethical or theological principles – such as: “The love of money is the root of all evil,” or “Render unto Caesar what is Caesar’s and unto God what is God’s,” or “You cannot serve both God and money.” These assertions of what is intrinsically right are true in a sense, but do not offer practical guidance for public policy concerning the economy and other complex social issues.

Brown relies on consequential reasoning to assert that public banking is the right choice, because it produces economic results that are better for the society as a whole. Some may argue that Brown errs in her description of public banking as “a saving grace,” because this (and any?) secular policy does not concern divine justice or spiritual well-being. Yet, public banking seems to be effective in constraining banking practices that I would characterize as more sinful than redeeming, which is no small gain. 

Therefore, as people of faith, shouldn’t we join with those who, for secular reasons, support public banking? And might we dare to hope that public banking will be “a saving grace” for us, too? 

May 31, 2011 © Robert Traer 2016