A recent article by Charles Hugh Smith describes how banks have become obsolete, and how they might be replaced in today’s high-tech world. It has gotten me thinking the last few days, and so I present to you transition structure number two, the crowdfunding bank, the anti-bank, or as I prefer, the knab. First, I will briefly outline the strategies used to transition from here to an NE:
- Reduce monetary costs (and therefore economic participation)
- Close industrial cycles (see industrial ecology if you don’t know this idea)
- Put capital into common hands (this is the primary strategy of communism and most types of anarchism)
- Create a basis of intellectual “antiproperty” (a knowledge base that can be used to create the rudiments of civilization–see Open-Source Ecology)
Ordinary banks can be explained most simply as a firm whose customers invest money (which is transparently presented to the customer as simply putting their money in a vault), and receive interest on their deposits. Those deposits are used to loan other people money, who pay interest on the liability, from which the bank profits. The bank is a typical capitalist firm, seeking to maximize its profits by both attracting new depositors or higher deposits, and recovering the highest possible interest on the money it loans out. Banks now include electronic payments (because that keeps your money in the banking system, of course), bill pay services (where your bills are automatically deducted from your accounts) and have other services such as personal loans and lines of credit. How can we tweak this system to fit into at least one of the above four strategies?
Rather than the bank seeking profit, and loaning money based on how much interest it can recover, what if a bank were to aim to increase the real income of its members? This type of bank would take customer investments as usual, but it wouldn’t pay interest (most of the time interest is less than inflation, anyway–which ironically is illth generated by the banking industry). Customers would be expected to use the bank’s bill payment service, because of the bank’s second function: Rather than taking deposits and loaning them out to third parties to collect interest, the bank would use the deposits to purchase capital that will provide at lower overall cost the service that the bank’s members are paying bills for. It would essentially be turning a recurring cost into a lower sunk cost. The money used for the bank’s capital purchases would be recovered transparently through the bill payment system. Voici la knab.
I think this would not only be viable, but actually less risky and more versatile than traditional banking. When traditional banks loan money, there is a risk that it will not be paid back. Banks use credit scores, derived from many sources, to determine how risky it is to give someone a loan, and loan repayment happens separately from other types of payment. The knab’s “loans” are repaid through the bill payment system, which should already be in active use. This way, the risk of the capital purchase not being repaid to depositors is no greater than that of the service users’ risk of not paying their bills.
Because the goal is increasing real income through reducing costs, this organization could easily be created as a non-profit, and would likely benefit its members more if so. As it scales up, the knab should begin committing some of its resources to strategy #4, which it can easily do, due to its possession of capital. Some sort of research structure should collaborate with the knab to reverse engineer its capital and create libre versions of it. Also as it scales up, its role will increasingly shift from strategy #1 to strategy #3, as well as providing indirect support to #2.
I am open to ideas, criticisms, and clever jerks who want to steal this idea and run with it.