This article originally appeared on VICE UK
Imagine an economy run by barmen where homemade checks, sometimes scrawled onto cigarette packets, pass for currency. That was the Republic of Ireland in the summer of 1966. On May 7, the first of three long nationwide banking strikes threatened to collapse the whole economy as bankers protested industrial regulation.
Over 80 percent of the country's money supply was inaccessible, held up as a result of the bank closure—so the Irish improvised. At first people wrote each other checks, then, when those ran out, people crafted up their own currency and IOUs, sometimes just bashing a postage stamp onto a handwritten check to make it seem legit.
As each strike came to an end and the banks opened again, thousands of these outstanding DIY checks hit the system. It took months to clear them all, but remarkably very few bounced and, despite everything, the economy continued to grow—albeit a little slower. This decentralized economy illustrated two things: the phenomenal ability of Irish barmen to judge the trustworthiness of patrons, and that a society could survive without the banks.
To find out more on the 50th anniversary of the strikes, I talked to Umair Haque, a radical economist and the author of The New Capitalist Manifesto: Building a Disruptively Better Business. We spoke about how this all kicked off in Ireland the first time and what would happen if banks were to effectively shut down again on a bigger scale.
VICE: Hi Umair. Theoretically speaking, what should have happened to a country without banks?
Umair Haque: Orthodox economics would have predicted a collapse in the money supply, a credit crunch, a trade implosion, mass unemployment, an atomized GDP [gross domestic product, or a measure of the value of stuff a country makes in a specific period], and the gears of industry and commerce grinding to a crashing halt. I like to describe it as all the veins in your body suddenly shrinking and collapsing. That's how economists conceive of banking shutdowns.
In some ways that was the threat of the strike, to disrupt the functioning economy, but that didn't go to plan. The Irish people survived for months at a time without the banks. How did people innovate their way through the crisis?
Even though the money supply did contract sharply, neither trade, commerce, nor industry came to a grinding halt. People created their own currencies, to substitute for the collapsing money supply. They kept using checks to pay one another, but then, people's checks began trading within communities.
A radically decentralized, peer-to-peer 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.
Antoin Murphy, one of the few scholars to have studied these strikes closely, describes it as "a highly personalized credit system without any definite time horizon for the eventual clearance of debits." The Irish were able to trade notes with one another, in lieu of credit issued by banks. It's amazing really.
What made this possible?
The Irish economy then was characterized by intense, frequent, conversational personal contact: tight, dense, solid local knowledge circulating at high velocity within and across communities. The result? Borrowers and lenders could build solid micro-foundations of trust.
In other words, when you've been chatting with Bill every night at the local pub for 20 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). And 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.
If the banks were to disappear tomorrow, do you think we'd see a similar thing happen in the UK?
Well, it's a fun hypothetical but the banks aren't going to disappear tomorrow. The role of banks and the city have changed. Today they are deeply embedded in our societal structure, as evidenced in the increased financialization of our whole economy. We are intrinsically connected to banking in ways much more complicated than in the 70s.
Take our response to the crisis in 2008. We nationalized the debt of the banks, which has now resulted in austerity. The failure is a deeply-rooted macro-institutional one that sustains the same behavior.
If we zoom out, advanced economies like the US, UK, and Japan are seeing massive stagnation. Today's young people face an insecure future, with no pensions, prospects, jobs, healthcare, savings, or mobility. As stagnation increases so does inequality. It's not the absence of banks that makes innovation necessary but as a response.
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What about the internet and the emergence of cryptocurrencies? Does it look like technology might support the same kind of decentralized alternative like the one in strike-ridden Ireland?
Well yes, when we think of the facilitating role that the pubs played in that case, technologies like Bitcoin and blockchain are an obvious substitute framework. However, only 5 percent of us use those technologies. If they are to be part of the answer then what we need is their adoption into the whole system—and that requires institutional change. The real question is whether these technologies will remain on the periphery or can be legitimized and regulated within the economic institution as a whole.
So we could find ourselves at a real turning point?
The difficulty is that there is a disparity of experience as inequality increases. Leaders don't fully understand how young people feel. More than ever young people need to implement change. People need to be vocal.
The rise of demagogues, such as Trump and the like, are an illustration of the dangerous political vacuum caused by economic stagnation. As the center crumbles it gives rise to extremism and fascism, which is always the product of inopportunity.
We are at such a stage that the decisions we make today about our financial system are going to affect people for decades to come. We cannot afford to wait for the banks to collapse before we begin to reimagine the economy.
Thanks for speaking to me, Umair.
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