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| "No one can serve two masters; for either he will hate the one and love the other, or else he will be loyal to the one and despise the other. You cannot serve God and mammon." Matthew 6. 24. |
The scripture above has been so included precisely because it summarises the purpose of these essays. Any Christian involvement in politics should be done so on the grounds that political belief is informed by faith, and not the other way around. In fact, the latter has created many issues for the Western Church for some time now. Nevertheless, the words of Christ are to be kept in mind when proceeding, on the understanding that any theoretical developments, suggestions, and opinions are done so with the intention of creating a more harmonious, organic social order— and not simply for the purpose of what appears to be most profitable. Prosperity is good for civilisation, but must also necessarily have its guardrails, lest we fall into flagrant abuses towards human society and natural justice. Such forms the moral compass of the examinations of alternative, federalised economic and financial systems proposed within these essays; the inclination is to reunite ethics and economics, for You cannot serve God and mammon [riches].
With regards to the theory of the citizen's mutual bank, this essay will be geared towards making a briefly structured examination on its role as a financial savings and loan-issuing institution. Topics covered will include the general structure of the bank and its modus operandi, the role of the manager, and the role of the depositor; how the bank could go about issuing loans; and, finally, a conclusion will unite these examinations with Christian ethic. Further essays will explore options that touch upon proposed methods to begin and build the citizen's mutual bank. It is important to stress that this is only designed as a short essay, and is therefore somewhat brief.
Before beginning, it is worth asking, What encourages people to save money, rather than spend? Although expenses are unavoidable, usually saving is designed with a long-term view; that is to say, people typically save for milestones throughout life, such as marriage, children, a mortgage and land, retirement, &c., and therefore require an institution which is fundamentally stable for such purposes. Said institutions typically reward savings-deposits with growth on investment, usually by way of stockholder commission. All the same, it is generally considered common sense to save towards these milestones as best as possible, rather than draw heftier loans and place oneself in a deeper state of debt; therefore what is required is a banking institution that is tailored towards operation based upon interpersonal networks— accounting for unique regional and intranational variables— and is geared towards fiscal security. These things are considered necessary, as it is through such interpersonal networks that community cohesion, culture, and social ethic reinforces itself— which will necessarily tie the bank to accountability, rather than alienation from its depositor's interests. This involves not an approach that seeks profit for the namesake, but rather, a rejoinder of ethics and financial conduct.
It is also worth providing a short paragraph on the roots of the term "economy," which is in the Greek word "oikonomos;" a direct translation calls it "household management." Therefore, in dealing with matters of financial and economic concern, it pays to bear in mind the very roots of the term and understand that an economy and its nation is akin, in the classical sense, to a house; there should be little discretion between the two. If you wouldn't leave the house in a mess, why should a people leave their social-economy in a mess?
To begin, the structure of the mutual-savings bank itself is very straightforward to comprehend: it is a banking model which is designed to encourage small savings-deposits (and conservatively reward with growth) as well as the provision of interest-free loan-issuing, particularly inasmuch as startup capital for small businesses, or family-based mortgages, for instance, are concerned. These policies also eliminate the potential for usurious lending practices, being the charging of exorbitant interest rates on loans. The credibility of the bank rests upon its reserves, and is thereby also a reflection of managerial behaviour; the goal is to increase reserves and prosperity thereby; but there is also an ethical responsibility to do so soundly and without usury. At its most fundamental level, it is a community-oriented form of banking which replaces stockholder interest with depositors as the main beneficiaries of its policy; managers are accountable solely to depositors; there is thereby no conflict between stockholders on the one hand and debtholders on the other.
2.— On savings-deposits, with regards to the roles of the depositor and of the manager.
Given that savings-deposits are the only solid reason for an individual or business to deposit money in a bank, it makes sense to address this first. People will only save for goals by depositing if they are offered a reasonable return on their withheld capital, on the understanding that it is kept safe; otherwise, they are more inclined to spend it or keep it directly in cash form. Also to be borne in mind is the Christian concern— for faith informs politics— surrounding an ethical fiscal policy, with particular emphasis on eliminating usurious practice. Yet it is believed that the savings policy of a mutual bank satisfies these conditions and more.
How does it do this? Quite simply, by relying only upon the depositor as the singular provider of capital and thereby negating the role of stockholders. Any policies are determined by local and regional branch managers, whom are entrusted to select savings portfolios which provide for conservative, steady growth on deposits; this is because the credibility of the bank and managerial reputation is tied directly with its reserves, in both growth and decline; whilst it does mean that interest returns on deposited capital will be lower when compared to the stock market return, there is the counterbalanced effect of a more secure investment should the economy experience downturn. Therefore, managers within this model are the sole trustees.
In terms of the actual investment policy, achieving such requires that the majority of the portfolios offered are weighted heavily towards investment in local, regional, and (to a minor extent) national government bonds; some business bonds and cash funds; and lastly a minimal weighting in an equity market. These are usually risk-averse and have historically proven their propensity to make good on promises for decent return; at the same time, a small weighting in equity markets is the proviso for a diversified portfolio with slightly higher returns, whilst being heavily counterbalanced and thereby stabilised by the majority resting in bonds and cash funds. This structure has the multifaceted benefit of:
a.— satisfying the conditions for conservative growth on deposits by seeking stable portfolios albeit with slightly lower interest rates;
b.— securing a stable deposit by weighting investments towards historically more stable sources, such as the bond and cash fund market; and,
c.— satisfying Christian ethical concerns regarding usury by not lending money at an unreasonably high rate of interest, reflected in the modest returns on those investments.
All well and good. Yet, why should a manager, if regarded as the sole trustee for portfolios, act sensibly? How are citizens to place their trust in managers? By understanding that there are also a series of mechanisms through which irresponsible managers may be penalised— aside, of course, from government intervention.
The predominant method is in tying the manager's perks— i.e., any bonuses and privileges— directly to the growth of the bank's reserves: if the bank declines, so too do the perks granted to the manager; conversely, reserve growth would indicate corresponding increase to a manager's bonuses. In some cases, that cannot be helped; but the community of depositors themselves cannot be expected solely to bear the brunt of economic downturn. Conservative investment and techniques such as "smoothing" help to minimise this. However, this ensures sensible management through disabling the manager's ability to claim bonuses despite losses to the bank's reserves; otherwise, what is to stop a manager from speculating and investing carelessly, if they are still able to withdraw perks and bonuses?
Another thing to bear in mind is that a level of competition will still exist. The idea of a citizen's mutual bank is not geared to a singular entity; rather, variations can still exist, offering different policies and portfolios. Competition can be considered healthy inasmuch as it produces a drive to betterment, meaning that managers will be inclined towards more sustainable, secure, and better portfolios to offer. Diversification for different kinds of depositors will also be offered. This method pits the bank against stagnation. Although federative regulations will exist to an extent,— such as to ensure healthy competition, for instance,— they are only as guardrails and not as a leaning-post.
On top of this, there are other, less formal methods of penalisation. If a bank is operative predominantly in a regional context, and therefore contextualised by unique local and regional cultures, there is a necessary element of social pressure incumbent on unsound practice. People can also vote with their financial decisions, and thereby opt to withdraw or leave a bank should it show signs of irresponsible management. Coupled with competitive others, there is a real and genuine social threat to come from mismanagement or irresponsibility. Whilst this is not a definitive guarantee against opportunists, it presents a tangible warning.
3.— On the mutual bank, with regards to credit unions and loaning.
The idea that any sustainable banking structure is limited purely to savings and reserves is ultimately limited in scope. Banks are also a primary means through which people— often for purposes of mortgage, startup capital for business endeavours, &c.— seek loans; the mutual bank is also an institution for loaning; it is through these loans that an economy, particularly a local and regional one, can prosper. Nevertheless, an active loan association is provided by the mutual bank, further settling the fundamentally Christian concerns surrounding security and eliminating usury.
Loans within a citizen's mutual bank take on a slightly different form inasmuch as they are built around a likening to the credit-union mechanism and operate most fluently within the context of local exchange and currency systems, which perfectly befits a regional banking system. Akin to the tying of the bank's credibility to its reserves in the savings model above, the credibility of a bank's loaning capability is measured, in this instance, via the quantity of outstanding issues.
In this structure, registered members are fundamentally responsible for the management of money supply within a contractually-bounded system— in this case, specifically towards loans. Should a member decide to issue a loan, they are inadvertently stimulating a money supply (being the aggregate sum of money in an economy's circulation) by creating their demand, signalling a transaction need for some purpose. It is important to remember that a money supply accounts predominantly for the context of circulation, and not for capital withheld in savings-deposits. Therefore, whether the loan is issued on a pure credit-basis,— i.e., without an initial stock of cash,— or via the bank's reserve supply, is bound to the regional bank's policy. Nevertheless, both instances facilitate in theory a stimulation of money supply and exchange balance, as the requirements for loans, once approved, are instantly met with a supply of loaned capital. This largely benefits those who seek startup capital for business endeavours, those seeking mortgages for a family house (familial ties generally correspond with more reliability and trustworthiness), or other.
By writing of such theory, it would be fair to mention a concept which presents both positive and negative obstacles to either method of issuing loans, be it through simple credit, or hinged upon the bank's reserve supply: that of "synchronisation constraint". In economic theory, this deals with the concept that people are constrained from spending first and earning later if their opportunity for a loan is hinged directly upon the immediate availability of paper currency.
To the first,— i.e., through credit,— the benefit is of course that, once approved, a member becomes the immediate recipient of a loan. If, for example, they require a loan with regards to startup capital, and therefore begin business ventures, the regional economy stands to gain quicker. It would also directly support, say, a family requiring a mortgage, as they would have fewer issues accessing such if they were enabled the loan instantly. What this means is that, at a fundamental level, the disconnect of inefficient, bureaucratic banking administration is cut short— especially as it functions within a regional context; there is also the elimination of synchronisation constraint. One of the largest benefits of this approach is that it does not necessitate standard charging of interest on loans, as they are not drawn directly from cash reserves, and thereby only stimulate the production of money and do not entail the removal of physical capital. However, the downfall of this method is that there is more reliance upon the trustworthiness of the person in question, alongside a lengthier approval process. How well this accords within given regions and localities is entirely dependent upon the society in context and the degree of interpersonal networks that exist.
Yet, to the second,— i.e., through issuing loans tied to a bank's reserve supply,— there is by its nature a more discretionary procedure, which could well work to the benefit of the bank itself. A bank would risk running itself into debt if it issued loans well above the capacity of its reserves, and thereby is urged to caution on its loan policy. The issue with this method, however, is that it is enforces a natural limitation on economic growth, as the money supply is necessarily restricted according to how much a bank can afford to loan. Counterbalances to this measure could include, for instance, a policy that limits the quantity of loans issued, a better selection of conservative savings portfolios to gradually grow and increase the reserve supply and thereby expand its opportunity to loan, &c.— it is predominantly dependent on the policy of the bank's manager. All the same, there are still opportunities to increase the money supply.
With all this in mind, it is right to ask, What is to stop an opportunist taking loans and refusing to repay? In short reply: there are once again a number of both obvious and hidden constraints to this sort of behaviour. All of these seek to maintain the credibility of the bank in the public eye.
The first and perhaps the most obvious is that there are contractual boundaries within membership. Like any such association, membership is a process which must be approved or declined following a reasonable analysis. In doing so, a contract is also signed, drawn up with the intention of protecting said bank— and therefore, in this case, regional money supply— from opportunistic thieves. Clearly defined boundaries go a long way to sustaining the credibility of a banking institution.
Other mechanisms include monitoring, which could be done through a frequent and transparent report on bank performance, and sanctions placed upon people who break the contractual obligations. In these instances, the monitoring serves to highlight any potential concerns, and sanctions act to enforce the parameters of loan-issuing. If necessary, these sanctions can be corroborated by local parliamentary bodies.
Finally, there is once again the presence of an informal control mechanism, by way of social pressure. In a regional or local financial setting, particularly where there are interpersonal networks between peoples and communities, (the effectiveness of this is dependent upon the community in question, bear in mind,) there is also more likely to be an effective ostracization for those who advantageously draw loans. People in this instance are socially derided and further have a hard time in relationships and trust within their community. It's a risk that, in the right setting, is often not worth taking.
4.— Concluding thoughts.
In all instances, it is quite clear that the citizen's mutual bank, albeit explained briefly, satisfies multiple conditions for a unity between ethic and economy. Fire and foremost, being effectively operative within a regional and local framework, it necessarily accommodates itself to the unique cultures founding within those communities; secondly, it eliminates the need for usurious business practices, as any interest rates on loans are scarce and modest at best; finally, it offers a variety of ways to effectively save money and loan to those who require it in a secure, stable fashion. All of these things contribute better to a stable, localised financial modus operandi that is better-equipped against bureaucracy, alienation of capital, and dishonest banking practice; understandably, it could well promote a more communitarian approach to local exchange and financial systems.
The idea of this essay is not based upon a direct convulsion of economic revolution. Instead, it is designed with the intention of provoking thought on how our very "oikonomos"— that household management— is governed and operated; within these parameters, such economics can better foster secure family-oriented property-ownership, small business operation, and thereby an indirect community solidarity. It is quite clear that there is a need to address these concerns, as leaving the monumental challenge of our economy as it stands to the generations to come is both anti-social and anti-individual, in both respects.
(N.b., there will be more parts of this series to come, elucidating further developments such as potential methods to establishing the citizen's mutual bank and its occupation in regional, federative parliaments. Equally, alternative currency systems will be explored in their relation to regional economics.)
+ God bless