What is Mutual Banking?
One of the first questions people who are interested in Mutualism have is related to the Mutual Bank. Mutual banking is probably one of the most infamous “Mutualist” projects, outside the incessant memes over occupancy-and-use norms. More specifically, the operation of Mutual Banks was seen as a key to transforming Capitalist markets into Socialist ones in America in the late 19th early 20th centuries.
So, what is Mutual Banking?
The mutual bank is an organization that grants its members credit. Credit, in its essential form, is exchange plus time. It is the act of giving something for promissory return in the future.
To issue credit, the members of the Mutual Bank would offer security. If people had property of value, then this could be traded to the Mutual Bank in to repay debts in the case of insolvency. This makes the credit secure.
Credit is secure because members need to repay their debts for the services provided for them. Making credit available has a cost. Not just in the value that is lent, but there is cost in operation of the business, cost in making banknotes, cost in assessing solvency, etc.. The debt that people take on would therefore need to equal the accumulative costs services provided.
So, in exchange for pledging security, members of a Mutual Bank get access to credit in the form of banknotes (otherwise could be called “money”). By becoming a member to the Mutual Bank, people with its banknotes can exchange them in return for the products and services of other members, incentivized, since other people need to pay off their own debts, business costs, or simply because they want to trade them with other members of the association.
As banknotes circulate, and they begin to represent more and more a trusted method of exchange, the Mutual Bank could expand. Other Mutual Banks that crop up may federate with others to expand the reach of the economic system and give its members more products and services to obtain with their banknotes.
It was theorized that Mutual Banks, when in operation, would naturally expand and outcompete the banks that charged interest above cost. It was generally estimated that Mutual Banks could operate on around one per cent on loans. Producers would then begin to sell cheaper, as the elimination of interest removes a portion of the necessary cost of products. Wages would increase as workers seize upon the greater power that is allotted to them, and over time competition would make war with the Capitalists, who no longer can rely on the advantage of obtaining increase from mere ownership, a privilege trampled on by the Mutual Bank.
Specific Mutual Banking programs were designed for their unique contexts. In Paris, Pierre-Joseph Proudhon had to make his scheme work with what property was available to the Parisian working class. In New England, William B. Greene had designed his Mutual Banking concept on the “Land Banks” of Colonial Massachusetts, which granted money in exchange for pledging land as security, something that was easily tradable and abundant for the settlers.
This illustrates a potential limitation of the Mutual Bank, as a working class devoid of readily exchangeable goods could not take advantage of a Mutual Bank for secure credit. Although, it is still possible for a Mutual Bank to give unsecured credit, but, it would most likely feature a larger cost that needed to be compensated among the members of the Bank, and, would likely need a lot of people to establish trust in the enterprise.
Mutual banks have another potential limitation that is unique to Monopoly Capitalism. The most vigorous advocacy for the Mutual Bank happened at a time when Capitalism had a lot more competition and was much less established than it is nowadays. In the present, industry is very conglomerated into massive corporations, meaning there might not be the space for competitors using mutual money to compete in this arena. Large retail stores such as Walmart have a very large influence on local business, and if they say: “We only accept legal tender.” Then it makes it extremely disadvantageous to hold onto mutual money and blockades the ability for mutual trade networks to establish themselves.
Likely the biggest limitation of the Mutual Bank idea, though, is Government. The aforementioned Land-Banks of Massachusetts were disposed of by acts of Parliament. Proudhon’s plans for his Mutual Banks fell apart when he was imprisoned by the French government due to “defamation” of President Bonaparte. Greene’s pleas to authorize the workings of Mutual Banks to the Congress of Massachusetts, was denied. The Government established the monopoly over money, and the legitimate operations of the banks, and that allows the Capitalist systems of credit to flourish without competition to this day.
