When I was an undergraduate at Boston College in the 1970s, one of the weekly underground newspapers that catered to the 250,000 college students in the Boston metropolitan area featured a page length ad by the left-wing graduate economic students of the Boston chapter of URPE (Union of Radical Political Economists). The ad appealed to the college students of Boston to withdraw all the cash from their checking and saving accounts the following Friday as a protest against the Vietnam War. Being an economics major and neophyte Austrian, I realized that such an action would cause severe difficulties for the banks, because they only held (at the time) about 13 cents of every dollar of demand deposits and 3 cents of every dollar of saving deposits in the form of cash. The rest of the deposits were lent out for longer or shorter periods of time despite the fact that the banks had contractually obligated themselves to redeem the entire amount on demand. There was much discussion of such an action on the BC and other Boston campuses during the week leading up to the planned mass action. Of course, when Friday rolled around the event fizzled, because students were too busy partying (Thursday being the unofficial start of the weekend). But the idea was a brilliant one.
Murray Rothbard never tired of pointing out that in a free society plain citizens could bring inflationary fractional reserve banks to heel through a deliberate and concerted campaign to get people to withdraw their deposits in cash. “Antibank Leagues,” as he called them, would be formed by those “who know the truth about the real insolvency of the banking system” to “urge bank runs.” The bank runs or their very threat would “be able to stop and reverse monetary expansion.” What Has Government Done to Our Money pp. 47-48.
Now we have the first stirrings of the formation of such a league in the Move Your Money campaign. This modest but growing movement is urging people to move their money from big banks to small community banks and credit unions. Establishment media such as Time, Newsweek, The Nation, Salon and CBS News have already taken note of the campaign. The organizers are urging people to lobby their friends, organizations, and municpal governments to move their money and to use online social networks to propagate the idea.
The organizers of the Move Your Money campaign of course are superficially focused on the fact that big banks and financial institutions were at the eye of the recent financial storm. They do not understand that it is the entire system of fractional reserve banking, which has been cartelized, regulated and bailed out by the Federal Reserve System for nearly a century, that is mainly at fault for the financial meltdown. Still, the idea underlying Move Your Money is a sound one that needs to be expanded to include mass deposit withdrawal from all banks.
Depositors have more power over banks than customers have over normal businesses in a market economy. The reason is that banks are permitted by law today to hold only about ten percent of demand deposits and zero percent of so-called “saving” deposits in reserve, even though they are contractually obligated to redeem these deposits in cash whenever the depositor requests. (In fact, very little of even its “cash” reserves is held in actual cash in a bank’s vault and ATMs; most of its reserves has only a virtual existence as a digital credit entry on the bank’s reserve deposit account recorded in the computers of its regional Federal Reserve Bank). Thus the banking system would not be able to withstand a concerted campaign to withdraw cash and the Fed would have to shut down the banking system (including ATMs) to sort things out. It would take months, if not longer, before the Fed could print up and deliver sufficient quantities of cash to the banks to meet all of their depositors’ demands in full. In the meantime cash withdrawals might be limited to small quantities biweekly or monthly as occurred in Argentina during the last meltdown of the peso in 2000-2001
So the weapon to thwart inflation and deficit spending and by extension socialized health care and imperialist wars is at last partially unsheathed and in the grasp of American citizens. Let us wish the Move Your Money campaign success and nudge its economic knowledge and political ideology in the right direction.
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