“The rise of public banking in the wake of the American Revolution was built on the strong foundation of credit unions which criss-crossed the pre-Revolutionary United States. The crisis of the Great Depression helped pave the way forward for the public banking movement. Several Communist-dominated states, including most famously Illinois, Michigan and Wisconsin, formally established state-owned banks in 1930 and 1931 as emergency measures for financing economic relief efforts. These banks were swiftly taken over by the Provisional government following the MacArthur putsch. They, along with the members of the Credit Union Alliance who had the good fortune to be out of MacArthurite control, formed the backbone of the Provisional government’s finances.
Other public banks were formed in the chaos of the Revolution itself. Though some banks, particularly those specializing in agriculture or savings & loans, willingly sided with the Provisional government or simply tried to keep their heads down during the chaos the larger banks, especially those owned by the House of Morgan, eagerly sided with MacArthur. Their enormous credit assets were a critical component of funding MacArthur’s shaky government through credit extended by the banks, trading of financial instruments to fund the war and loans received from abroad. This made them a prime target for revolutionary forces.
The fall of New York to the nascent UASR shifted the balance of power in many critical ways. While most of the key documents, including lending records, held by the major Wall Street banks had been transferred early on to Washington and MacArthur’s protection, much of their other assets, including considerable quantities of gold, were still in New York when Red forces routed their White foes. While many today are shocked that the capitalist forces could be so lax in failing to secure essential wealth there were two compelling reasons for this oversight. The first is the major banks trusted their hired security to at least hold these facilities pending relief. The second was gold, unlike bank documents, was much harder to move in vast quantities.
Seizure of these assets and other bank documents was approved by the radical New York Commune and approved post-facto as a war measure by the Provisional government in Chicago. The victorious revolutionaries of the New York Commune immediately voted to use the seized assets as capital for founding the Bank of the New York Commune, known today as the Metropolis Communal Bank, to help fund the war effort and to transfer two-thirds of all gold seized to Chicago and the Provisional government at the first practical opportunity. While the Bank of the New York Commune was not the first case of seizure and conversion of private bank assets into public institutions it was the most spectacular, well-known and soon became the blueprint used in other bank seizures across America.”
The Public Banking Revolution by Robert Bremmer, published 1992
“When the dust settled from the Revolution one of the main challenges of the UASR’s new economic policy was imposing some semblance of order on the Union’s financial and monetary systems. The ad-hoc network of credit unions and public banks that served the Provisional government so well had to be re-organized, supported and given specific responsibilities. The new government’s first stab at solving this problem was the Banking Reorganization Act of 1933. The two main subjects the Act focused on was the status of public banks and credit unions. In some ways the Act effectively rubber-stamped what had already happened during the course of the conflict while in other ways expanded on these developments.
Credit unions saw some key changes but for the most part their core functions remained largely unchanged. The Credit Union Alliance was folded into the UASR government to serve as a regulatory body for all credit unions. Community banks, agricultural banks and savings and loans that survived the conflict were re-organized into credit unions owned by their depositors. Community banks whose owners were friendly to the Provisional government received limited compensation. The CUA itself was re-organized into a Congress of Delegates chosen from twelve regional districts. Its job was to both monitor the activities of these banks and provide advice, assistance and support for the UASR’s economic policies.
Public banks would see critical organizational changes. They were organized into two new categories: provincial banks which were founded under the terms of the act in every province and Autonomous Region and the district banks consisting of banks founded by municipalities, districts and communes within each province. All public banks financed the operations of their relevant governments. Provincial banks were also designated as lenders of last resort for all district banks and credit unions within their jurisdiction. Public bank assets consisted of all physical assets held by their chartering sub-union government, all revenues of their chartering government, deposits from co-operatives in their areas of operation and interest from loans extended by the bank in question. Provincial banks could also turn to the Union Bank as their lender of last resort.
All public banks were operated by Executive Committees. In the case of district banks these committees were directly selected by the relevant governing authority with power to recall any or all of them in the event of unsatisfactory performance. Provincial banks had half of their Executive Committees selected by the relevant provincial government while the other half were chosen by the Provincial Bank Congress, a body of delegates consisting of representatives from all district banks and credit unions within their jurisdiction. The provincial banks also sent their own representatives to the Union Bank Congress to monitor, regulate and nominate potential members of the Union Bank Council subject to the approval of the Central Executive Committee.
Such banks were founded rapidly, proving to be very popular with Union citizens. These banks provided provincial and municipal authorities with the means to directly finance their own projects, fund public housing, overhaul infrastructure and speed up the process of electrification. The Central Executive Committee found them essential for providing greater flexibility and adaptability in economic planning, making it easier to adjust to the changing needs of the working class. They also found strong support from the credit unions thanks to their role as a reliable backup in case of financial emergencies and ability to forgive debts when necessary.
Most Union economic historians have concluded the public banks were one of the key pillars of the rapid economic recovery from the Crash of 1929. The model was so effective that public banks, along with credit unions, soon spread to much of UASR-aligned Latin America. Taking cues from their North American comrades, such institutions soon became the bulwark for financing the new revolutionary states. The only major holdout in the growing Communist bloc in this initial period was the Soviet Union.”
Revolutionary Banking: A Monetary History of the UASR by David Harvey, published 1988
“One of the biggest questions facing the Communist movement was that of money. Money, in accordance with orthodox Marxist theory, was capital put into a commodified form. Further complicating matters was that the foundation of all money, according to communist and capitalist thinkers alike, was debt. Money existed as a form of debt and could only continue to be produced so long as debt was issued. It was both the lifeblood of capitalist economics and a commodity unto itself, traded like any other product of labor.
This made preserving any form of monetary exchange a difficult conundrum for Communists in the UASR and the USSR. On one hand, keeping money intact meant preserving a chain that held back the working class from liberation. Proponents of this position feared preserving money would undermine the gains of the revolution by ensuring the very instrument used to justify oppressing the working class would remain intact. This position was especially popular among the party ultra-left. In contrast to this position where the economists and thinkers in the immediate aftermath of the American and Russian Revolutions who had great difficulty conceiving of any sort of alternative for handling a highly complex, specialized economy. The ultimate solution reached by planners on both sides of the Atlantic for meeting these concerns was a reflection of the tensions, conditions and immediate challenges facing both revolutionary governments.
The Soviet Union resolved the problem in 1922 with the establishment of the State Bank of the Soviet Union, more commonly known as Gosbank. The Gosbank was founded using the seized assets of all banks, financial firms and other similar operations along with the confiscated wealth of the Tsars to handle monetary affairs in the new USSR. Gosbank was both the central bank of the Soviet Union and the only bank within its borders. Gosbank operated like other central banks of its time, such as the US Federal Reserve and the British Bank of England, and also extended loans to fund economic enterprises and infrastructure projects in the Soviet Union. Critics characterized it as the highest form of state capitalism while proponents argued Gosbank was a better solution than allowing multiple banks to operate within the USSR.
What developed in the UASR was very different. Unlike the Soviet Union, whose approach to Gosbank was influenced by the highly elite nature of clientele of Russian banks, the former United States had a long history of regional and community banks along with a vibrant network of credit unions. A far greater percentage of Americans, in contrast to subjects of the Russian Empire, had a bank account and lines of credit in some form or another. There was also the considerable network of independent yet allied credit unions organized under the Credit Union Alliance whose members included credit unions for the Workers’ Communist Party, the Solidarity Labor Federation and the famous Army and Navy Federal Credit Unions. The credit unions were further supported by the ad hoc network of public banks founded shorty before and during the Revolution. Based on all of this the framers of the UASR determined it would simply not be possible or desirable to implement anything similar to the Gosbank. The Union Bank of the UASR was instead established solely as the central bank and main watchdog of financial activities in the UASR.
The Union Bank took a rather unique approach to managing monetary policy, which became a widely copied blueprint throughout the Comintern. The first major policy set by the Union Bank was the decision to move to a purely fiat currency backed by the full faith, credit and labor of the Union government. Transactions with governments who didn’t trust the new Union Dollar were guaranteed by the gold reserves of the former United States and private banks which were seized during the Revolution. New money was created through extending loans or issuing bonds which could be purchased by citizens, economic co-operatives and other Comintern governments with the flow regulated by the interest rate set by the Union Bank. This created far greater flexibility for UASR planners in regulating the flow of currency in and out of the economy by granting, to quote Union Bank financial economist and later Chairman Joseph Schumpeter, “total freedom to create and destroy” .
To combat the twin fears of encroaching debt and runaway inflation the Union Bank enacted a policy of debt forgiveness. Debts extended by the Union Bank could be forgiven for operations seen as socially necessary of those who were in danger of insolvency due to loan payments or as a means of deflating the overall money supply. In some cases, either by a vote of the Bank Council or the Central Executive Committee, jubilees could be implemented wiping the slate clean for entire regions or even in extreme cases the entire Union. Public banks and credit unions were also allowed to use this instrument their debts. In effect this instrument granted flexibility to co-operative enterprises outside the realm of the state, a mechanism for the Union Bank to keep inflation in check and the means for direct economic relief.”
Globalizing Revolution: A Monetary History of the Communist International by Barry Eichengreen, published 1996
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