With all of the anti-capitalist protests going on, and many of them finally drying up, it’s probably worth mentioning this Thanksgiving weekend that I’m grateful for the existence of commercial banks.
Yes, some of them engage in suboptimal or even bad practices. Some of them nickel and dime customers and most abused overdraft insurance when they were still allowed to. Some of them received bailouts, when in fact they should have been razed so that new competitors could take their place.
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But if all Americans were strictly voicing their own economic interests, every single one would join me in expressing relief that such institutions exist, that there are many of them, and that their services are widely available. Even if you don’t use a bank yourself, you are lucky your employer does, because he would not likely have ever found the means to hire you without it.
Our modern economy is different from past ages because of the ordinary man’s unprecedented access to capital. There are really only two ways for working people to gain such access. One of them is to violently abolish economic freedom and impose collective ownership of all property. This method has been tried, and it has caused only misery, death, and the destruction of human freedom.
The other way for ordinary people to gain access to capital is to borrow it from a bank. This has worked well for hundreds of millions of people just in America over the last 111 years, to say nothing of counless others around the world.
First, think of your employer. Commercial banks probably give him access to the capital necessary to make your labor worthwhile to him, and therefore to make your employment possible.
And then there’s the big one — the single loan that the greatest number of Americans experience directly. Aside from your mortgage, how many other opportunities do you get in life to leverage yourself to such great effect with other people’s money, and at such a cheap price? A mortgage is a win-win. You get a long-term stake in a signficant asset in exchange for just 20 percent down, or (in better times) even less. Over the last century, mortgages have helped countless poor immigrant families build real wealth.
Yes, I know we just had a housing bust. But believe it or not, a vast majority of American homeowners still have positive equity, which will be a major source of wealth for their families in the long run. One-third of American homeowners own their homes free and clear, and an additional 52 percent have mortgages with at least some positive equity.
Some portion of the 15 percent of homeowners currently underwater will eventually make money when they sell. Among those who do not, some will likely come out ahead of where they would have been as renters paying someone else’s mortgage. And finally, a home is capital that can produce income. If you cannot sell it in today’s market, you can still rent it out.
Ownership of capital is a sign of economic power that only the super-wealthy enjoyed in centuries past. Today, even after all the foreclosures and misery, two-thirds of Americans are homeowners and enjoy that economic power, up from 46 percent at the beginning of the 20th Century. These are all gains we can attribute to commercial banking. Very few aspiring homeowners can produce a quarter- or half-million dollars from their mattresses to buy a home.
Yes, for the liberals out there, we are fortunate that banks have rules. We are also fortunate that deposits are backed up by the FDIC (for which depositors pay, not taxpayers). And like the Occupiers, I doubt the wisdom of bailing out the banking industry’s leading incumbents. But I’ll still always be thankful that there are banks, that there is a system of banking, and that the Occupiers, who think a revolution can help them avoid working for a living, will never get their way.
How could they ever succeed in a society where so many have the chance to own so much?
