When the Banks Collapse, Everything Will Be Fine. Here’s Why.

“Once upon a time,” author Umair Haque writes in Harvard Business Review, “there was a country where bankers disappeared. The bankers, fed up with regulation, dissatisfaction, and downright hostility, decided to unleash the planet-destroying superweapon in their arsenal: they went on strike, not once, but three times.”

You can probably guess what orthodox economists predicted would happen. Haque writes: “A collapse in the money supply, a credit crunch, a trade implosion, mass unemployment, an atomized GDP, and the gears of industry and commerce grinding to a crashing halt. Imagine all the veins in your body suddenly shrinking and collapsing — Avada Kedavra!! — and you might begin to see how economists conceive of banking shutdowns.

“This is no fairy tale,” Haque goes on, “so we don’t have to imagine what happened next. And what did come next was something really, really interesting — and just a little bit awesome. Instead of Ragnarok ripping prosperity to shreds, the economy continued to grow. Though the money supply did contract sharply, neither trade, commerce, or industry came to a grinding halt.”

(We can already hear Paul Krugman’s shrill squeal now: “Inconceivable!”)

(Sorry, Krugs. This one’s real. Just look up the Irish bank strikes of 1970.)

How did it happen? Simple: “People created their own currencies, to substitute for the collapsing money supply.”

It defies all conventional, top-down, academic thought. After all, it’s hard for the elitists to see how the plebs could possibly take care of themselves, without the ivory towers in place. But it’s true. And it’s just the way humans work. We’re built to survive.

That’s what we do.

The Irish bank strikes lasted a full decade — from 1966 to 1976 — and consisted of three major strikes. This particular strike began on the May 1, 1970 and lasted until Nov. 17.

The situation, on the surface, probably seemed pretty dire. The presstitutes were probably out full-flock predicting the apocalypse. Yet, of course, the apocalypse never came. And the Irish actually did quite well without the banks.

“Instead of panicking,” Niall Maye explains on CoinTelegraph, “the people of Ireland used their survival instinct and very rapidly discovered other ways for carrying out the functions previously performed by the banking industry.”

“… the services of the clearing banks,” economist Michael Fogarty told the Irish Independent, “proved by no means as indispensable as would have been expected before the dispute.”

Make no mistake, it was a pretty makeshift and messy ordeal. But it worked.

Ireland’s population of three million used whatever they could — undated checks, pieces of paper with stamps attached, toilet paper, beer mats, etc. — as alternative forms of currency. The 11,000 pubs and 12,000 shops in the country became insta-substitutes for banks.

Scholar Antoin Murphy, who studied the strikes, called this new system “a highly personalized credit system without any definite time horizon for the eventual clearance of debits and credits substituted for the existing institutionalized banking system.”

Murphy also noted that the public’s ability to assess risk “was based on a vast pool of information available to transactors on the credit-worthiness of other transactors.”

In other words, it was characterized by, says Haque, “tight, dense, solid local knowledge circulating at high velocity within and across communities.”

(In other other words, it was built on trust and a reputation system.)

After all, Haque says, “when you’ve been chatting with Bill every night at the local pub for twenty years, you probably know whether his note is a good bet or not (and further, just how much to discount it to earn a sustainable and fair return, that neither fleeces Bill, nor robs you). Furthermore, if you’re the publican, and you’ve been chatting with me and with Bill, then you’re even better positioned to become a de facto arbitrator of notes — a bank. And that’s exactly the role that pubs began to play.”

By the end of the strike, most pieces of paper turned out to be worth the value written on them. Insolvencies were few and far between and imports, expected to take a nosedive, were largely unaffected.

This isn’t unlike, by the way, what happened during the Great Depression in America, where paper, cardboard, wood, metal tokens, leather, clam shells and even parchment made from fish skin was used as alternative currency called “scrip.”

In both cases, a decentralized system sprang up to replace the centralized one. Haque goes on:

You might say that a radically decentralized, p2p financial system spontaneously arose. Instead of letting the bankers’ strike collapse their prosperity, people decided, simply, that they could get on with the day-to-day stuff of banking themselves. In slightly more formal terms, I’d suggest that they were able to take on, at least in tiny part, five of Robert Merton and Zvi Bodie’s six standard functions of a financial system: settling payments, providing information, setting incentives, pooling resources, and transferring resources.

The bankers thought even one of six might have been impossible. It’s as if the economy settled into a new dynamic equilibrium: one where emergent, unpredicted — and totally unforeseen — behavior unlocked a very different kind of financial system. It wasn’t perfect; yes, foreign currency transactions were problematic, yes, moral hazard was an issue, and perhaps my reading, having not been there myself, is frankly erroneous. It’s not a utopian picture — just a very different one from mega-banking, with a very different feel, purpose, and structure.

Fast-forward to late-2016, we have a radically decentralized, P2P system in place, also based on trust: “Bitcoin,” Maye writes, “not only removes the need for banks or any form of middlemen but it is also a proven store of value and a medium of exchange that is a safety net against the currency woes happening all over the world.”

We also have marketplaces operating beyond the confines of the banking system (mostly on the Dark Web) which thrive without regulation, based, instead, on a reputation system.

Maybe it won’t be bitcoin and its black-marketplaces which rises like a phoenix out of the ashes of the global financial collapse. Whatever it will be, though, the elitist pundits and presstitutes will, once again, underestimate the pleb’s endless ingenuity.

Disaster, as we spoke about in our Revive the Tribe episode, tends to bring folks together rather than turn them into raving lunatics. Humans are hardwired to handle adversity. It’s how we’ve survived this far and how we’ll continue to not only survive, but thrive. Especially once we shake off these zombie institutions which only serve to empower and enrich the wrong people.

“The parable of the disappearing bankers,” Haque says, “gives the tiniest glimpse of a better way: a path to a smarter kind of growth, built on a different set of institutions — those that operate at micro-scale, instead of mega-scale, built on human relationships, instead of anonymous transactions, self-organizing, instead of “administered,” and that have the humanistic and the meaningful, instead of soul-crushingly trivial, hardwired into their very DNA.

“Maybe, just maybe, banks need people a lot more than people need banks. Perhaps that’s true for the whole imperious, plodding gamut of yesterday’s zombie institutions, from corporations, to newspapers, to governments. Perhaps people and societies are a tiny bit more adaptive, resilient, intelligent, and creative than yesterday’s institutions assume. And perhaps failing to recognize that is what’s really at the root of this great crisis.”

Indeed.

Until tomorrow,

Chris Campbell
Managing editor, Laissez Faire Today

P.S. Have something to say? Say it! [email protected].

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