The Great Depression resulted in various proposals to address the failures of the Fractional-Reserve Banking System in the 1930s. From monetary reforms and nationalization of privatized firms to the popularization of Keynesianism and Soviet-Type Economic Planning (STEP), the decade was a period of economic experimentation and innovation. Like the Market/Mixed Economy, proposals have been posited to entertain the replacement of the Fractional-Reserve Banking System with a Full-Reserve Banking System. Although the Fractional-Reserve Banking System succeeded in maintaining its place within Neoliberalism, such questions have persisted long after the Great Depression and the Death of Bretton Woods. The Great Recession in particular had reignited those questions alongside the introduction of Cryptocurrencies.

In Fractional-Reserve Banking, the commercial banks are required by law to only keep a portion of any Kapital that their customers had deposited at any of their local branches. Any excess Kapital is permitted to be freely lent to any potential borrowers. Its whole purpose, including its rationale, is driven by the Incentives of Supply and Demand. By allowing people to borrow Kapital from them, commercial banks are expanding the so-called “Money Supply,” the amount of Fiat Currencies in existence. The loans are then spent on the production of goods and services, thereby contributing to economic growth within the framework of a Market/Mixed Economy.

The trick with Fractional-Reserve Banking is how there is no expropriation involved. The Kapital which somebody deposited into their account is still recorded on the financial ledgers of their commercial bank. The commercial banks are limited by the “Reserve Requirement,” which is the Quantity of Kapital that they are supposed to possess within their own accounts at the Central Bank. In the event of a run on the banks, the privatized commercial banks would give people their Kapital without creating the impression that they have no Kapital to speak of. All of this seems sound until one realizes where are the commercial banks getting the additional Kapital to offer loans if the deposits themselves are still left unaffected?

When seen in this context, it becomes natural to assume new Kapital is being ‘created out of thin air’ by the commercial banks in order to drive economic growth. But since Kapital is ‘created out of thin air’, what is ultimately backing Kapital? The simplest answer is Schuld–Kapital is essentially pegged to the Schuld that materialize whenever borrowers accept loans from the lender. The Schuld that emerged from the transaction becomes an Incentive in its own right, forcing the borrower to earn more Kapital than what they had originally borrowed in order to pay off their Schuld. This becomes even more problematic if there is an Interest Rate because that can cause economic growth to fall. The trick there is a “Money Multiplier,” which Fractional-Reserve Banking requires in order to expand the Money Supply whenever privatized commercial banks are accepting deposits and lending loans to borrowers. If economic growth continues from people overworking themselves to earn more Kapital, they are also depositing more Kapital to their accounts at the privatized commercial banks.

But there are limits to this sort of banking practice. Fractional-Reserve Banking cannot tolerate everyone withdrawing their Kapital from the financial system simultaneously. Perceived economic decline can force people to make a run on the banks and withdraw their Savings. Privatized commercial banks are tolerant of a certain number of people making withdraws; larger numbers of people may cause them to become insolvent. An eventual collapse, brought on by a bank failure, becomes likely. While this sort of behavior occurred during the Great Depression, it has not stopped privatized commercial banks from trying to maintain smaller Reserve Requirements and their Central Banks trying to set lower Interest Rates whenever possible.

Given the problems of Fractional-Reserve Banking, an alternative was posited in the form of a “Full-Reserve Banking System.” In Full-Reserve Banking, privatized commercial banks are required by law to maintain full reserves of Kapital in deposited accounts at all times. Since it is assumed that all privatized commercial banks are not ‘expropriating’ any Kapital from existing deposits, any loans they issue to potential borrowers is limited to the deposits that they have in reserve. To understand the origins of Full-Reserve Banking is to also understand why the Work-Standard is incompatible with any pure application of Full-Reserve and Fractional-Reserve Banking. After all, Full-Reserve Banking is to Production for Utility, what Fractional-Reserve Banking is to Production for Profit.

Full-Reserve Banking originated from the details of the “Chicago Plan.” The Chicago Plan was a set of banking reforms proposed by economists at the University of Chicago, the most important of them being Irving Fisher. These Chicago economists advocated for separating the process of creating Kapital from the lending of Credits. What Fisher and those men conceptualized was Full-Reserve Banking and something else called “Narrow Banking.” The latter is even more ‘radical’ by Liberal Capitalist standards than the former insofar as privatized commercial banks are restricted to only accepting deposits and withdraws of Kapital. No privatized commercial bank could offer loans without offering the Kapital that it already has deposited in accounts.  

The crux of Full-Reserve Banking was described Fisher as “‘nationalize’ money, but do not ‘nationalize’ banking.” Put another way, the creation of Kapital had placed greater emphasis on the financial powers of the Central Bank. The fact that people have advocated for Full-Reserve Banking to remove Schuld from Kapital is outrageous, regardless of whether one chooses to go by Liberal Capitalist standards or even by the Work-Standard. Adopting either Fractional-Reserve Banking or even Full-Reserve Banking is insufficient in facilitating the Vocational Civil Service (VCS) Economy’s conversions of Arbeit into Geld. Therefore, it becomes necessary to envisage the Reciprocal-Reserve Banking System as being compatible with Production for Dasein under the Work-Standard. There are three justifications as to why:

• The Central Bank’s ability to create new units of Sociable Currency is easily dependent on how the Final TPP Value, which is impacted by the amount of Arbeit and Geld that is going into the Life-Energy Reserve. The Central Bank cannot put new units of Sociable Currency into circulation that is not back by the Quality of Arbeit. 
• All National-Socialized Banks (NSBs) maintain a limited amount of Actual Geld that is distributed between them by the Central Bank. The Central Bank gets that Actual Geld from the Council State’s State Budget. The State Council must decide, with the recommendations of the Ministry of Finance, exactly how much of the State Budget should be going toward the NSBs. Any Actual Geld that the Council State allocates to the NSBs are available for them to lend to potential borrowers as Work-Tenures. This is called the “Earmarked Requisition.”
• The NSBs cannot be the ones tasked with relaying information on the Final TPP Value to the Central Bank. The Economic Planners and their Accountants need special financial institutions to deposit the contributions of Arbeit and Geld from production processes and transactional sales to the Life-Energy Reserve. More importantly, the Council State will also need a special financial institution that would help them facilitate the wiring of Paygrades and Stipends to the Totality.  

Borrowing a loan under the Work-Standard is going to be different from borrowing a loan under Liberal Capitalism. Those who decide to borrow loans will not be charged Interest, but they will be charged a special “Service Fee” because they had chosen to rely on the services of the banks. This Service Fee is to be set by the Central Bank and made applicable to all National-Socialized Financial Instruments (NSFIs) under the Work-Standard. It is to be paid up front as part of most financial transactions. The banks contribute half of their Arbeit through maintaining deposits and lending; the other half comes from their clients borrowing and withdrawing Geld as part of pursuing a new Vocation or establishing their own State-Owned Enterprise. This deters Usury and the Schuld Bondage which plague banking establishments under Liberal Capitalism.

Every Work-Tenures that is issued by the NSBs are tied to the Intents of the borrower. The Borrower states that they needed a fixed amount of Geld to create their own Vocation or found their own State-Owned Enterprise. The Lender issues them the Geld under the condition that the Borrower will assume command responsibility of living economic life at their own initiative. The Borrower must pay back the Geld by contributing the equivalent amount in Arbeit. If the Borrower fail to pay back the Geld, then the bank is legally bound to charge any remaining amount as Schuld. The Borrower will then be asked to reconsider their personal pursuits, the Council State intervening to return them to their original Vocation.

Categories: Compendium

Tags: Economics, Finance, Philosophy, Politics, Psychology, Socialist Finance, Third Place, Work-Standard