Graphic courtesy Public Banking Institute

By Frank Sanitate, Santa Barbara News-Press | October 18, 2020


Both community wealth and private wealth are important. But private wealth has a significant advantage which communities are not taking advantage of now. Community wealth needs to imitate private wealth in taking this advantage. What follows is why and how communities can do this.

Starting with basics, what is a community? A community is a group of people who live in a neighborhood, a district, a town, a city, a county, a state, a nation or a whole planet. What is community wealth? It is not just the financial goods of a community but the common goods we share together: the air, water, land, airspace, etc. It also includes other goods that further serve everybody in the community: roads, schools, fire safety, crime safety, etc.

The way a community decides what’s “good” is, they get together and decide what’s good! Beyond the choices just mentioned, a community might decide that daycare for all working parents is a good they want to pursue.

They might decide that everybody in the community gets a bouquet of balloons delivered to them on their birthday! Community wealth means all of the things that the community decides are good for the community – from protecting the air we breathe down to birthday balloons!

The next question is: what advantage does private wealth have that community wealth might want to participate in as well? In short, private wealth has access to bank credit. They can borrow money from banks to increase their wealth. Communities can too, but there is a catch. To understand that catch we have to know about two banking falsehoods that have been circulating for decades, if not centuries.

Falsehood 1: When you borrow from a bank, you are borrowing “other people’s money.”

That is simply not true. What’s true is: when you borrow from a bank, the bank creates money simply by making the loan to you. The act of making the loan is what actually creates new money! The Bank of England, among many other sources, acknowledges this. Banks create money simply and precisely by making loans!

Falsehood 2: Bank lending contributes to the economy.

No. 85% of bank loans of the largest banks are used for financial investments. These loans provide nothing to the economy. No new goods or services are produced from them. The financial economy — private wealth — uses these loans to swap assets with each other: stocks, bonds, property, futures, other derivatives. The money from these loans is used simply to place bets on creating greater future private wealth. The other 15% of these bank loans contribute to the economy. That money is used to create new businesses, new products, new services.

The catch I mentioned above is this. When a community borrows money, all of it is used to create goods and services that benefit the community. It isn’t used for trading already existing assets for the purpose of increasing financial wealth. It is used to create community wealth. This “wealth accumulation” means, simply, a better community. That’s where the word “commonwealth” comes from.

Back to the basic topic: What advantage does private wealth have that community wealth should also take advantage of? Private wealth has its own banks for its own purposes — at least the 85% of current large bank lending.  That money simply moves around the loop of the financial system, with the same people buying and selling assets, in the hope that their wealth can be increased in the future.

Why don’t communities take advantage of the same privilege — to have banks whose purpose is dedicated to serve, not private wealth, but community wealth? That is, why can’t a city or state have a bank that creates money out of nothing to lend solely for the good of their community, for community wealth?

The good news is that such banks – very few – already exist! They are called “public banks.” Their purpose is to serve the public good. The Bank of North Dakota is an example of a public bank which has been doing this for 100 years! The people of the state of North Dakota have greatly prospered from this.

A public bank, of course, is subject to state and federal laws, just like a commercial bank. It has to make prudent loans. This is unfortunately what some big banks fail to do, yet they are regularly bailed out by the common people, the community of the United States, represented by our government — lately to the tune of trillions of dollars.

A public bank would need to, and want to, make a profit. But its primary purpose would be to make low interest loans (new money creation) to its community that specifically serve the community good. The interest on these loans would be much lower than the banks who make loans to private wealth. The profits public banks make allow them to make more loans for greater community good. Many states, counties and cities are in the process of laying the groundwork to create public banks, especially here in California – and hopefully Santa Barbara.

What’s more important – community wealth or private wealth? The answer is, “yes”! Let’s be smart and use banks to everyone’s advantage.

Support a public bank.