Join Community Division Organizer, Amie Chaudoir, and Local Common Good Bank Business Partners for a participatory meeting to learn more about how and why a common good bank division will benefit Lane County.

WHEN: Thursday February 4th, 2010

12pm – 12:30pm

WHERE: Tykeson Meeting Room, Eugene Downtown Public Library

For all questions, please call: 541-514-4896

http://commongoodbank.com/wp/wp-content/uploads/2010/01/Common-Good-Finance-Night.pdf

Bank of North Dakota

Yes, The Bank of North Dakota is a vast improvement over our national banking system in the United States. There are two reasons why it is an improvement:

1. North Dakota’s bank is owned by the state, so all profits go to the public. The Federal Reserve banks are privately owned, so all profits go to private investors.
2. North Dakota’s economic decisions are controlled at the state level, where decisions can be more responsive to local needs. The Federal Reserve system acts at the national level.

However, decisions at the state level are still far removed from the concerns of individual communities. Most individuals have very little say in those decisions. State governments, like federal governments, tend to cater to big business — to the detriment of small business, communities, families, individuals, and the planet. Money influences the decision-makers.

Common Good Bank is not just about who gets the profits. Yes, the profits go to the wider community, just as in state-owned banks. But Common Good Bank will be different from conventional banks in two additional ways:

• Who is in control – Common Good Bank will empower communities to take democratic control of their own destiny – deciding by direct democracy what gets funded and therefore what gets done in their community and in the wider world.
• What is the bank’s mission – Common Good Bank will be committed to economic justice and sustainability, putting people and planet first. By contrast the Bank of North Dakota’s mission is “to encourage and promote agriculture, commerce and industry in North Dakota”. This is the sort of mission we can expect from state banks. According to Wikipedia:

“Though initially conceived by Non-Partisan League populists as a credit union-style institution to free the farmers of the state from predatory lenders, the Bank’s functions were largely neutered by the time of its inception by the business-backed Independent Voters Association. The recall of NPL Governor Lynn Frazier effectively ended the initial plan, with BND taking a more conservative central banking role in state finance.” (en.wikipedia.org/wiki/Bank_of_north_dakota)

Another question:

Do we need both? If Common Good Bank gives each community, in effect, its own virtual democratic bank, then is state-level or national-level banking useful?

Yes and no:

• Diversity: We want there to be more than one formally chartered bank like Common Good Bank, so that different regions can evolve differently, according to their needs. This will also provide something analogous to biodiversity — letting us learn from each other and giving us security in case one of the chartered banks gets legislated out of existence (individual communities can then shift to a different formal parent Common Good-type bank).
• Interaction: Financial interaction between community-level banks is important. The check-clearing function of national-level and state-level banks can be handled by each formally chartered Common Good-type bank. Several community banks together can fund large-scale cooperative projects such as regional energy production, agricultural processing plants, and telecommunications cooperatives. We do not need a separate, state-controlled financial intermediary for either sort of cooperation.

There is no need for a state- or national-level bank in a Common Good Bank system, other than the chartered Common Good-type banks themselves.

Final question:

Okay, suppose tye Common Good Bank system is better, isn’t it ALSO okay to promote a nationally-owned bank (as Stephen Zarlenga proposes) or state-owned banks (as Ellen Brown proposes)?

Yes. Anything that is substantially better than what we have now is worth working for. If you can get your state legislature to create a state-owned bank (or if you can get the American Monetary Act through Congress) before Common Good Bank is up and running, go for it!

Unfortunately, all you can do toward that goal is advocate. The rest is out of your hands. The power to make those decisions lies with our representatives in government. The gears of government turn very slowly and reluctantly, except when lubricated by big business and the implicit promise of campaign contributions.

In any case, government-controlled banks would leave us still without much say in the destiny of our communities and the world — we will still need the Common Good Bank system.

In Massachusetts, where I live, a state-owned bank would require a change to the constitution. So it looks much more promising to go after what we really want: community-based, democratic economics for the common good. The Common Good Bank model does not depend on convincing legislators to do something that big business opposes. It does not depend on society achieving a higher level of consciousness. It is something we can do for ourselves right now.

Common Good Bank will allow all of us to be actively involved in guiding the course of human events. Ultimately, anything short of that is just not good enough.

Woody Tasch

Last night five of us from the common good bank project joined about 40 others at the Gasoline Alley Foundation (GAF) in Springfield, Massachusetts, for three hours of schmoozing and an interview with Woody Tasch, author of Slow Money and founder of the Slow Money movement, which aims to create “a grassroots, non-profit seed fund supporting small food enterprises and building the nurture capital industry”.

Common good banks could be the vehicle for thousands of such funds. We will be talking more with Woody about how these two initiatives could work together to make both happen much more quickly.

Rob Thomas, founder of Social(k), and GAF’s Joe Sibilia hosted the evening. Joe asked some deep questions about the Slow Money movement, in an irreverent playful style that kept everyone engaged.

Green America's Business Seal of Approval

John White and I met last night with Alisa Gravitz, Executive Director of Green America (formerly Co-op America). Green America will likely play an important role in the common good bank system.

Common good banks will invest only in socially and environmentally responsible businesses. Green America has a well-established program for certifying “green” businesses and has already given 2,860 businesses its Seal of Approval. Any existing business can apply. Any business that makes it through Green America’s rigorous tests is a sound candidate for common good bank loans.

For startups, common good banks will be able to borrow Green America’s criteria, to help evaluate how well the proposed business will serve the common good.

If you would like to join our team of Founding Investors, and give me a call.

William Spademan

Uncommonly Good Banking

Common Good Finance President William Spademan is leading an effort to establish the first-ever common good bank. After seven years, the bank is close to taking flight. [Photo by Emi Link

(from The Clean Yield, Winter 2009, Volume 25, Number 4)

Uncommonly Good Banking

Two years ago, a client suggested we look into the Common Good Banks, a proposed network of innovative institutions to be headquartered in Massachusetts’ Pioneer Valley. We looked and were intrigued, but the bank didn’t exist then. It still doesn’t, but now it’s much closer to reality, and we thought readers might be interested in the concept as it emerges.

The core idea is simple: the bank becomes the epicenter of a do-it-yourself, democratic, community-based economy. Give a community of depositors the ability to guide its investment priorities, its use of investment profits, and its “creation” of money, and it can change who is in control. By offering everyone an equal say in what gets funded in the community, everyone gets an equal say in the community’s destiny.

On its face, CGB will be similar to many community banks and credit unions. As proposed, the Massachusetts-chartered bank would accept FDIC-insured deposits, make mortgages and other loans, and have regular checking, CDs, and ATM services–all the usual accoutrements, plus a local- use credit card that will not cost merchants the usual 2% fee.

But what’s really different? For starters, all net profits–beyond the roughly 6% return that is retained by the bank to compensate for “true” inflation–go to a community fund. The fund is then distributed to local and other nonprofits by vote of the investors and depositors; one person, one vote, regardless of account size.

A still more potent difference is the ability of the group of depositors to set priorities for loans. Food coops? A medical clinic? That town office building? Conserved land? Since capital flow largely determines community development patterns, when the local CGB membership sets loan priorities, it becomes a force in guiding that development.

Then there’s “creating” money, no printing press needed. Like most U.S. lending institutions, CG banks can, under law, lend up to ten times the money they originally receive from depositors and investors. Within that generous limit, all the money loaned is simply a figment of bookkeeping entries. This money-out-of-thin-air leverage is nothing new for banks–it’s how even the Federal Reserve creates money– but the community’s control of it is.

A Capital Idea

Common good banks are the brainchild of many, but most notably William Spademan, of late a community organizer and money theorist who has been working on the concept since 2002. He would urge CGB branches to go one step further: create a locally based currency on a par with the dollar. The theory, structure, and mechanics for CGB branches are outlined in a business plan that can be found on the bank’s Web site: www.commongoodbank.com. The big upside of local currencies is that by injecting additional money into an economy–not cash, in this case, but electronic I.O.U.s–a community can knock down unemployment, stimulate socially responsible enterprises, and generate a good deal of healthy community interaction, so-called “social capital.”

Once the first CGB is chartered and has a physical presence, it can be replicated in any community in the U.S. and beyond.

Each bank branch can be established with minimal capital investment–not even requiring a bricks-and-mortar presence–merely by rounding up 50 or so depositors. The branches form under the original bank charter and use centralized bank accounting and common backing for lending, but otherwise each branch is independent, and the profits stay to benefit its community.

Once the first bank opens, stock will be offered at about $1.00 per share. Soon thereafter, shareholders can freely buy and sell their stock through a bank-operated trading desk. That 6% annually retained by the bank to cover inflation? It has the effect of boosting the book value of the bank. This enables investors to get comparable gains when they sell their stock, even though they never see dividends.

Today, the Common Good Bank has an advisory board of some 50 members including several names prominent in the SRI community. Add to that over 20 community-division organizers sprinkled from Oregon and Texas to Vermont, a dozen partner organizations, several legal consultants, and two core staff–one being William Spademan. Most of these are volunteers. A well-qualified CEO-designate and an experienced chief loan officer are biding their time at other jobs until the bank is ready to open its doors.

Comparing Bank of America to Common Good Bank probably isn’t fair. B of A is too big to fail; CGB lacks a few hundred thousand dollars of investment capital even to gain its initial charter. But if measured by social returns and interest (in the nonmonetary sense), the Common Good Bank also seems too big not to succeed.

Will common good banks be insured by the FDIC?

Yes.

However, do not place too much trust in the FDIC. If many banks fail at once, the FDIC will not be able to help. Unlike other banks, common good banks are designed to provide local economic stability even in the event of a national or global economic collapse.

I like the idea of helping my community through banking, but will I also directly benefit from having an account with a common good bank, Eugene division?

There are many benefits to individual common good bank depositors and borrowers, compared to conventional banks and credit unions. Quantifying or even listing those benefits can be challenging, because the common good bank™ model is so community-focused. Nonetheless, here is a specific example in which an individual might save 40% on his or her deposits, while sharing in $1,100,000 of community benefits.

How will Common Good Banks operate its  highly automated online divisions?

For the first year,  the Banks functionality will be outsourced by the Connecticut Online Computer Center.  Ultimately Common Good Banks want our own software, but this might take a few years for such revenue as to afford this.

How many employees will the first Common Good Bank have?

Five. Our CEO, Chief Executive Officer, and 3 customer service staff.  As well, there will be  a 12 member board.  The remainder of the common good bank staff, such as the three division advisers in each community, will be independent contractors. Much of the work will be outsourced to existing organizations as well.

I understand each division is responsible for its capital adequacy, cash reserve, and solvency, as well as compensation for the Division Advisors and our non-profit partner.  But how are the operating costs of the whole bank being paid?

Each division will give equal percentage of it’s profits to the bank operations (home office), so wealthier communities will be contributing more than less wealthier communities.

Will I get charged late fees, over draft and other miscellaneous fees on my bank account?

Yes, but everyone will have a reserve credit cushion.  Normally, if you cover your overdraft quickly, there will not be a fee.  Our intent is to not have as many miscellaneous fees as other financial institutions. The purpose of the Common Good Banks™ is to serve the community and its individuals, so we will not be nickel and diming our account holders.  On the other hand, if people abuse this, there will be fees attached.  Our general philosophy is that fees will cover labor required for the service provided.

When will a common good bank division be opening in Eugene?

The Eugene division will be ready to open once the first common good bank opens. We still need tax-deductible donations of a few thousand dollars for the start-up costs of Eugene’s division, but with our community working together, we can make it happen.

We are expecting the first common good bank, in Western Mass. to open in 10-15 months.  To do this, we need to raise $1.5 million in investments before applying for the state charter.  If you would like to invest in Common Good Banks™ once they exist, or would like to see if you meet the requirements to be an angel investor, check here for a quick 10-second sign-up.  If you have questions about investing, or would like details contact Amie Chaudoir.

Will a common good bank division in Eugene compete with or hurt the local Credit Union with which I have a good relationship?

A common good bank division in Eugene will be a bank working for our community, so yes, it might compete with local credit unions, but it does not need to.  A common good bank division is another type of investment: it is your investment into our community at large.  Account holders with a common good bank may continue their primary banking with the financial institution of their choice, for, just a little bit of money deposited with a common good bank will create large profits for Eugene.

In fact there are new collaborations being made between common good finance and credit unions to act as our non-profit partner helping people to open accounts and apply for loans at a common good banks.  As a non-profit partner, these collaborating credit unions will be adequately compensated.

Can I make a deposit now?

No, you can’t make a deposit until the first common good bank opens. However, you can help NOW make it possible with a no-obligation 10-second signup.

What will the interest rates be on deposits and loans?

No common good bank exists yet, so by law we cannot discuss interest rates, except to say that we plan to offer rates that are competitive with what other banks offer.

Can I invest now?

Maybe! If you qualify financially, then you can be one of our angel investors.  Take our short Investor Survey and we’ll let you know. Common Good Finance needs to raise $1.5 million before applying for common goods bank’s state charter.   You can help make that happen, with no-obligation, in a 10-second signup.

If you have questions about investing, or would like details contact Amie Chaudoir.

How do I withdraw money and make deposits without a bank building?

Account holders will have a debit card to make withdraws at our local retail business partners (convenient and current community epicenters).  Deposits will be mailed into headquarters in Western Mass. (liken the good ol’ days).  Monies will be held at headquarters, but each common good bank division will be  financially autonomous: Eugene’s profits will be held in escrow for Eugene.

The Eugene division account holders can chose to vote on having a bank building and ATM machine if we want, but neither are necessary. Some of our business partners will act as virtual ATMs (cash back with no purchase necessary), and our non-profit partner will help people open accounts and apply for loans (for people who want personal interactions instead of performing these operations online).

Without a bank building and ATM machine(s), over-head costs are kept to a minimum so that profits for our community can be maximized!

As a business owner, I spend thousands of dollars annually on fees for processing credit cards.  Will a local common good credit card minimize this cost for me?

Yes!  The common good bank debit card and local credit card will be FREE for all businesses and account holders: no processing fees if the business has an account with Common Good Banks™.  With Common Good Banks™  as the credit card provider, we are choosing not to charge businesses a processing fee.  This is possible because when swiping the card, money is electronically moving from one CGB account to another… fees are not necessary.

If the common good bank credit card has a visa or mastercard logo on the card, then the card can be used for purchases at non-member businesses and there will be a processing fee for the business.

Common  good bank debit cards are also free for account holders and local businesses.

Why a bank? Why not a common good credit union?

Common good banks are designed to be not-for-profit, community-spirited businesses. So why not organize them as credit unions, an already-existing legal structure for tax-exempt nonprofit financial institutions? The short answer is that banks can do more than credit unions. Besides, credit unions are regulated in a way that prevents them from giving away very much of their profits and prevents them from growing quickly. Here’s how it works:

All banks and credit unions are required to maintain adequate capital. For stock-based banks, of course, capital means stock. For credit unions and mutual banks, adequate capital means retaining enough profits so that the ratio of net worth to deposits is at least 8%.

For example, let’s say a credit union has assets of $108 million – $8 million above and beyond the $100 million that it has borrowed from the depositors (as deposits). It has, in the view of the regulators, barely adequate capital. Now let’s say the credit union wants to expand by 10%, accepting another $10 million in deposits. It cannot do this until it has earned $800,000 more (or received a grant for that much), after all the costs of doing business. The credit union cannot give those profits to worthy causes; it must hold onto them indefinitely.

Now look at a similar situation in the common good bank™ model. Say the bank has sold $8 million in stock and has $100 million in deposits. In the view of the regulators, the bank has adequate capital. Now if the bank wants to expand by 10%, all it has to do is sell another $800,000 in stock. Typically, the new depositors themselves will buy that much stock. Meanwhile, any profits made by the bank (about the same amount of profits as a credit union would make) can be given to food pantries, public education, or whatever the members decide. So the bank can grow much more quickly and give much more to the community than a credit union can.

In spirit and in effect, a common good bank is a credit union organized as a stock bank, in order to advance the greater good more effectively.

Why will common good banks use the fractional-reserve system?

Many people who have become disillusioned with our current economic system mistakenly believe that the fractional-reserve system is the problem.

In the fractional-reserve system, banks are allowed to lend out a certain large fraction of the amount that has been deposited. In the United States, this fraction is 9/10. Each loan creates new money, which can then be deposited in the same bank or in a different bank. Most of that money (the same fraction) can then be lent out again, creating more money, and so forth.

Overall, the result of this practice is a several-fold increase in the country’s money supply (for example, by a factor of ten in the United States). But each bank can only lend out a fraction of what it has received as deposits, so it is not always obvious from the banker’s point of view that any money is being created.

The name “fractional-reserve” is meant to suggest that something is being held “in reserve”. However, since almost all money is just database entries, nothing real is held in reserve and nothing real is lent out. For example, even if you deposit a million $1 bills, the bank can lend out $900,000 and still have every one of those dollar bills in the vault. All money, including paper money, is just an accounting system, keeping track of who is entitled to how much goods and services. The so-called reserve is simply an accounting rule that limits how much money a bank can create as loans.

The fractional-reserve system benefits some banks more than others. Common good banks will encourage borrowers to spend their money locally and especially to use their borrowed money to pay other common good bank customers, so that the common good bank (instead of some other bank) can lend that money out again, for the greater good of all.

Where did this idea come from?

The idea for common good banks began in 2002 in Ashfield, Massachusetts, a small rural community in the foothills of the Berkshires. It began with a spiritual imaging exercise and informal theoretical discussions on how our society  especially our economic system and governance  might be restructured to work better, to create a more peaceful, just, and environmentally sustainable world. Inspired by dozens of other economic systems, through many surveys, discussions, experiments and detours, the common good bank model evolved. Hundreds of professionals and volunteers have contributed to the design.

Most of the labor for researching, developing and promoting this project has been volunteered. We have raised over $85,000 in pledges and contributions, consisting mostly of in-kind contributions. We are still seeking an additional $20,000 in contributions, to cover the expenses of securing a charter for the first common good bank. (You can help by making a donation.)

For a more personal account of the early stages of the project, see this article by our Project Director, that appeared in the Quaker publication Friends Journal, July 2006.

Why hasn’t anyone done this before?

Every individual piece of the common good bank™ plan has already been done successfully elsewhere (See “Spectrum of Economic Systems” and “Where Is CGB Democracy Used“). No one else put all these pieces together in this way because no one thought of it. Until now. And it took hundreds of people working together to come up with this synergistic combination.

Moreover, it It is not easy to start a bank. It takes a lot of money. Since no one will be making a large personal profit from this bank, a couple dozen community-minded people will have to put in $50-$100 thousand each AND thousands of people of lesser means will have to invest what they can comfortably afford. (According to securities regulations, only individuals with over a million dollars net worth can invest in a bank project before it gets a charter.)

Won’t the common good bank just get bought out by a bigger bank?

No. Common good bank™ organizing documents will contain several provisions to prevent a takeover. For example, return on investment will always be limited to the true rate of inflation, which will make any takeover bid financially unrewarding. No one would want to take over a common good bank! Also, the common good aspects of common good banks are contractually subject to oversight by the Society to Benefit Everyone, Inc., which owns the “Common Good Bank” name and logo, so if the bank stops conforming to the common good bank™ model in any way, it will cease to be called a Common Good Bank.

The clincher is that voting is one-person one-vote, rather than one-share one vote, and a 5% minority can veto any proposal that is morally reprehensible (see the section on common good bank™ democracy). So a larger bank trying to acquire a common good bank would have to convince 95% of the depositors to give up their control. Since each community division of the common good bank will vote independently after public discussion and debate, the chance of 95% being successfully hoodwinked is vanishingly small.

If return on investment is limited to the rate of inflation, why won’t investors just buy government bonds instead?

First of all, the true rate of inflation of the dollar is consistently higher than the United States government reports (see, for example, George J. Paulos: “An Alternative Inflation Index“, September 08, 2004). Until a credible and reliable measure of inflation is developed, common good banks will calculate inflation (and therefore the expected resale value of common good bank™ stock) as prime minus 1.5%. Over the past thirty years, the true rate of annual inflation and prime minus 1.5% have both averaged out to about six percent.

Many investors will invest in common good banks because they care about social and environmental “returns” as well as financial ones. Low-income depositors will invest small amounts because, by design, stock in a common good bank will act more like a high-interest one-month certificate of deposit (CD) than like typical stock. Also, by design, stock will be so easy to buy and sell, through simple transfers to and from a checking account, that depositors will be happy to choose a higher interest rate than they receive for their ordinary deposits.

“Be the change that you want to see in the world”

Mohandas K. Gandhi

]]> http://commongoodbank.com/2009/10/general/eugene-faqs/feed 0 http://commongoodbank.com/2009/10/general/the-evil-interest-fallacy http://commongoodbank.com/2009/10/general/the-evil-interest-fallacy#comments Tue, 13 Oct 2009 12:48:43 +0000 William Spademan http://commongoodbank.com/?p=612

“There is one bit of advice given to us by the ancient heathen Greeks, and by the Jews in the Old Testament and by the great Christian teachers of the Middle Ages, which the modern economic system has completely disobeyed. All these people told us not to lend money at interest: And lending money at interest — what we now call investment — is the basis of our whole system.” — C.S. Lewis, “Mere Christianity”

“Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness.” — Allah, the Qur’an [Surah Baqarah, 2:275]

Is interest evil? Many people who have become disillusioned with capitalism, see quite rightly that investment interest is how wealth gets funneled to those who already have the most. It is easy to think that interest is evil and must be done away with.

In the United States, our money is created by private companies lending it into existence and charging interest on it. Clearly this is not fair. But even worse, many people argue, is that the interest can never be repaid because it is not created as part of those loans! This argument is so popular that the search phrase “interest can never be repaid” gets 115,000 hits on Google.

But (1) interest is not evil in itself. And (2) the “interest can never be repaid” argument is seductively righteous and simple, but wrong.

1. Interest is not evil.

People think interest is evil because the wealthy investor earns interest simply by being wealthy. The investor is not producing any useful goods and is not contributing any useful labor to society. Our current economic system rewards the investor for being wealthy much more than it rewards people for being productive. The investor “devours usury”.

For example, let’s say Bill Gates earns $5 million a year doing productive work and let’s say, generously, that that amount is complete and fair compensation for all of his work for the year. In the same year, Mr. Gates’ $50 billion brings in another $5 billion or so in income (a thousand times as much as his paid work). Since we agreed that $5 million was fair pay for his actual work, the $5 billion of “unearned income” (as the IRS calls it) must be undeserved income.

When I gave this example to a colleague recently, he argued that Bill Gates might actually deserve those billions because of the great value that he has already given the world. I could argue against that, but the objection is missing the point. Surely there is SOME amount that is fair pay for his or anyone’s work. Then whatever investment income he gets beyond that fair amount is clearly unfair pay.

Here we come to the root of the problem. What triggers our moral outrage is the unfair pay, not the interest per se. What rankles is not that billions follow billions, but that someone is profiting unfairly. And perhaps, less obviously, that the rest of us are unfairly missing out on that profit.

The common good bank design rights this wrong by dedicating all profits to the common good. No one “devours the usury”.

The "Unpayable Debt" Fallacy (from http://vimeo.com/raam)

2. The “interest can never be repaid” argument is wrong.

Like many attractive fallacies, this one has an element of truth. The error and the partial truth have to do with the fact that money is not designed to go just one way. It circulates.

Figure 1 shows a diagram of of how money is created and how at first it looks as though the interest is unpayable, since it never gets created. In the diagram, money paid as interest goes to the bank and never leaves except as additional loans. This makes it look as though interest is incompatible with sustainable economics.

The true situation is more complicated. In figure 2, I have added a crucial third party: the investors.

Most of the interest and fees that the bank receives goes to pay the expenses of operating a bank: salaries and wages for employees, utilities, legal fees, taxes, and so forth. Money for these expenses gets returned to the circulating money supply.

The remainder of the bank’s income is profit.

Mutual banks (also called “cooperative banks”) and credit unions do in fact generally hold onto and relend their small profits — otherwise they cannot grow. This is a problem, but not a big one.

The vast majority of financial assets are held by stock-based banks, which are required by law to maximize profits. Profits go to the owners of the bank, the investors. The investors also receive profits from investment in other businesses.

Here again, it rankles that the investors are receiving all those profits without lifting a finger. But beyond our vague sense of unfairness, there are two very real problems.

Problem A: Investors typically receive more profits than they spend. This means that the buck stops there. The money stops circulating. It piles up.

Conceptually we can divide people into two groups:

(a) Investors — people who have more money than they need (and therefore have some extra that they can invest) and

(b) Non-investors — people who have less money than they need.

When investors receive more profits than they spend, the result is that people in group (a) who already have more money than they need end up with more and more of the money, leaving less and less for people in group (b) who already have less money than they need. This is a big problem. It is the root cause of poverty.

Problem B: Investors, being wealthy, typically spend and consume more than the average person. The big spenders are the worst offenders, but they are not alone. In fact, in the United States most of us  — rich or poor — consume much more than we  produce. For example, my family and I live on what is considered a “poverty level” income. And yet it would take us many years to produce for ourselves the goods and services that we blithely consume each year. This too is a big problem. It means that some people somewhere are working very very hard to produce the goods and services that we consume.

The Common Good Bank Solution

Figure 3 shows how the common good bank system solves both problems, creating a sustainable economic system. Common good banks will charge interest, but the profit from that interest all goes back to the community as grants to schools and other nonprofit organizations. The money keeps circulating. None of the profits go to enrich individuals.

In fact, communities must dedicate half their profits to advance the common good outside their community. Wealthy communities will likely have larger deposits, larger loans, and larger profits than poor communities. So the wealth will gradually get distributed more evenly.

To clarify how interest can be repaid even though it is not explicitly created when the principal is lent into existence, here is an example:

Example of Paying Interest With No Problems

Imagine a world with just two people, Al and Betty, and one nonprofit bank.

Betty is a farmer. Al is a bank teller and tool-maker.

At first there is no money. Then one day Betty borrows $100 from the bank, to buy a plow from Al. The bank lends the money into existence, with interest of $1 per month. Betty plans to pay $11 a month, so that the loan will be paid off within ten months.

At first it looks as though Betty will only be able to pay back $100 (without interest) because there is only $100 in circulation. The interest seems to be unpayable. But in fact, since the money circulates, both principal and interest can be paid, without creating additional money. Figure 4 shows how it goes.

The first month, Al pays Betty $11 for food. Betty pays the bank $10 plus one dollar in interest. The bank pays Al $1 in wages and retires $10 of the debt. This leaves Al with $90. Betty and the bank each have nothing.

The second month, these transactions are all repeated, leaving Al with $80. The transactions are repeated again the next month, and so forth, each month leaving Al with $10 less.

In the ninth month, just after Al receives his pay, he notices that the world is about to run out of money, so he decides to spend his last $10 on food. Betty immediately pays off the loan. No additional interest is due and Al has already been paid for the month. The bank retires the final $10 of the loan. No money is left in circulation and there are no outstanding debts.

In this example, the bank makes no profit. If the bank were to make a profit, say by paying Al only 50 cents a month, there is still no problem as long as the bank is a common good bank. The profits simply go to a nonprofit that (for example) pays Betty and Al to create works of art. The money stays in circulation.

In the common good bank system, interest is not evil and causes no problems. In the common good bank system, interest contributes to economic justice and sustainability.