Monetary Democracy

Monetary Democracy

The rules of the monetary system are too important to be left to financial elites. When ordinary people speak up, they often come up with better ideas.

Men gather around a newly opened bank in Kermit, North Dakota, in 1906. (Transcendental Graphics/Getty Images)

Money, Power, and the People: The American Struggle to Make Banking Democratic
by Christopher W. Shaw
University of Chicago Press, 2019, 400 pp.

The Bank of North Dakota (BND) looks like a typical bank. Its main building has the design of a glass-and-steel corporate headquarters, the boardroom sitting atop a façade that leans forward like the prow of a ship. It points west, of course, because that is the traditional direction of opportunity in America. The bank’s most recent annual report, from 2018, begins with a cascade of business catchwords that promise “quality, sound financial services,” a “people-centered” ethos, and the ability to “empower individuals.” It all sounds very on-brand for the corporate world. But turn a couple of pages, and you will discover that BND is actually quite unique: it is the only state-owned bank in the country.

The economic crisis induced by COVID-19 allowed the bank to put deeds behind its words. Thanks to BND, according to a May 15 report in the Washington Post, North Dakota awarded more Paycheck Protection Program funds on a per-worker basis than any other state. The PPP was Congress’s attempt to flash freeze small businesses during the coronavirus crisis. It provided forgivable loans intended primarily to keep workers on payroll until normal operations could resume. Unsurprisingly, the major national banks tasked with issuing the money favored their own big clients. Since the loans were basically government grants, they offered little to the banks besides the opportunity to give some extra goodies to the companies they did a lot of business with. Meanwhile, the Federal Reserve backstopped the corporate sector by pledging virtually unlimited purchases of an ever-growing range of financial securities. Writing for the American Prospect, David Dayen observed, “The monopolists get concierge service, the small businesses get to take a number.”

BND made North Dakota different. Because it is accountable to the people of the state instead of shareholders, it has a public mandate that goes beyond its bottom line. This includes supporting community banks to retain their independence even as the financial industry undergoes wave after wave of consolidation. Community banks are intimately familiar with local small businesses. With help from BND, they directed PPP funds to those small businesses, which employ nearly 60 percent of the state’s workers. In this way, BND helped to stabilize North Dakota’s economy and, as of May, keep its unemployment rate among the lowest in the country.

This illustrates how important it is to have a banking system that serves the public interest instead of the investor class. Banks channel the flow of money, and it is the flow that makes money what it is. Much like rocket science, the hydraulics of banking often seem too complicated and t...