The Banking Sector

SS responded (TableAus May/June, 2009) to The Philosophy of Business B: Money & Freedom with the question of whether this really applied to banks, with whom we are forced to deal and who set their own terms: and if we’re forced to deal with banks, perhaps force is justified to control them.

It is true that banks do more than borrow and lend money while charging a margin, but fundamentally that is because so many people want them to. It is however not true that banks are under-regulated. They are highly regulated, so much so that whatever portion of the recent financial problems was due to poor decision making, at root they were caused by government meddling (for example, political demands to lend unsafely in order to achieve politicians’s social agenda, and government “guarantees” of bank solvency supposedly to protect depositors but in reality encouraging risky behaviour).

It is also true that many types of savings account are not cost-effective for all people. That is part of the reason why there are so many of them available! I am all for complaining to your bank if you think it’s offerings are inadequate – I am even more for you finding the best account for your circumstances and moving. Though in the example given, I am not sure why less than $30 a year for what the bank is offering (safety of several thousand dollars from theft, convenience etc) is regarded as onerous.

Despite perception, however, nobody is actually forced (in the sense of physical force) to use a particular bank or any bank at all. The principle here is that wanting something badly enough to use it while not getting as good a deal as you’d like, is not the definition of physical force. Note that this extends to all you do business with. For example, it usually costs an employer far more to pay someone in cash or even cheque than electronically. Therefore an employer is perfectly justified in either refusing to pay in cash, or charging a steep fee for doing so. There is no force involved here – you have to decide whether your job is worth the $30 annual cost of having a bank account. Note also that it is a misperception to believe that banks “should” provide a safe haven for your money and charge you nothing because it is “your” money. Why? They are providing a service and like any other service, deserve to be paid for it. That service costs substantial money in required infrastructure (safes, buildings, computer systems etc) and employee salaries (someone has to do the work!).

In short, people do in fact choose to use banks, whether for the benefits they receive directly themselves, or because other people they choose to deal with require it.

One further point worth making is that you cannot cherry-pick how you apply principles. You are either for freedom of association and contract or for the initiation of force to impose A’s opinions on B, C and D. And you can be assured that whatever grumblings you may have about bank fees, they cost you nothing compared to the pervasive harm caused by the latter. If the latter was not the principle under which we live, we would have neither the financial crisis we have (the end result of government policies) or the recession and inflation yet to come from stampeding governments panicked into further taxing and “regulating” the surviving businesses and printing vast amounts of worthless paper money to fund “stimulus packages.”

© 2009 Robin Craig: first published in TableAus.