O’Malley’s Utopian Banking Scheme

This is a thought exercise designed to get at what the Populists wanted and some of what was at stake in the debate over money.

Our money today is not backed by gold, silver, or any other material. Rather, its value comes from our mutual, collective faith in the stability and long-term prospects of the United States, and from the material assets of the United States; the military forces of the United States, and from the creative labors of US citizens–the gross national product. It’s “backed” by these things, which are hardly trivial. It is “legal tender,” which means you can’t legally refuse to take it, but it’s backed by “the full faith and credit of the United States.” In that sense, it belongs to us–we create it and we, our mutual enterprise, give it value.

The amount of paper money circulating is roughly indexed to the gross national product–that is, the money supply is determined by our collective labors, our output and creativity. The Federal Reserve looks at the GNP; it looks at wage levels, price levels, employment figures and other indicators and decides how much money should circulate–the money supply. This in turn effects interest rates–the cost, to you, of borrowing money for a house, or a car, or a student loan. Our money, then, the money supply, is indexed to our national creativity, energy and ambition. We create it, we give it value: the Federal Reserve makes a judgment about our collective enterprise and adjusts the amount of money in circulation.

Why, then, do you go to a bank for a loan? If money is a symbol of our creativity as a society, a symbol which derives its value from our collective enterprise, why must you go to a bank to borrow it, and pay extra costs to the banker?


The federal government will loan money directly to its citizens. Interest rates will cover only the costs of administering the loan–let’s imagine that’s .01%. In this proposal, all citizens are entitled to borrow an amount of money connected to their net worth and annual income. Loans would be had simply by applying at the post office. The post office would quickly check your income tax records, which are computerized; a mathematical formula would establish the maximum you are entitled to, based on your income, and then the postal clerk would give you the money you requested. The more you borrowed, the longer you would have to pay it back. There would be no review of what you planned to do with the money, but you would be strictly obliged to pay back. Those who failed to pay back the loans would have their wages garnished or be jailed or set to work at public service jobs until they had paid off the debt.


Borrowing money is incredibly cheap. Say you want to buy a car, or take out a student loan. Instead of paying 7% interest to a bank, you would pay .01% interest to the federal government. Buying a car would suddenly become much easier.  It would stimulate the auto industry and all related industries. College debt loads would no longer cripple the borrower. If you wanted to put an addition on your house, you would borrow $50, 000 at .01% interest. Lots of people would hire carpenters, builders, architects: the lumber industry would be stimulated, the home furnishings business, etc. Suppose you wanted to buy a house. You need $300,000. For 30 years at 6%, the monthly payment would be $1,798.65, and the total amount of interest you would have paid the bank would be $347,514.57. Under O’Malley’s Utopian Banking Scheme your interest rate would be .01%, possibly less, and your monthly payment would be $834.59. The total amount of interest you would have paid over that 30 years would be $451.47. If you wanted to start a business, money would be easy to borrow, eliminating the major barrier to new enterprises. and instead of paying 347,514.57 to a bank, you would have paid $451.47 to your fellow citizens.

Productive labor is stimulated.


The disadvantages are only to those who loan money at interest–they would be forced to work for a living, as the value of the money they hold would be reduced. But there would probably be a secondary market in high risk loans.

Also there would surely be an initial period of inflation, as more money entered the economy. This would help those with existing fixed debt payments, like mortgages, car loans or student loans

In historical term, this might be considered a “producerist” idea, or an example of what historians sometimes call “republicanism.” It’s not socialism, since it seeks to preserve private ownership and foster individual enterprise. But it’s not capitalism, because it seeks to undermine the value of accumulating capital to lend at interest. While it would still be good to be rich, there would be no point in saving capital to lend, since it socializes the money supply. It’s worth pointing out that as explained in the first paragraph, our money is already socialized, we just pretend it’s not.