When Pubs Briefly Replaced Banks
A very short piece on "Marketplace" (NPR) this morning led me down a curious rabbit hole. Wendy Carlin, economics professor at University College London, made passing reference to the Irish bank strike of 1970 and how the pubs kept the country from falling into ruin. This smelled like one of those exaggerated tales in which beer so often finds itself, but intriguing enough to investigate. Turns out there's something to the story, and perhaps more and less to do with beer than Carlin suggests.
If you want a scholarly account, this is a nice recap from staffers at the Bank of England. The banks closed in early May, staying closed through mid-November. Things had actually been grinding down from March, and it would take until early 1971 for them to come fully back on line, so "banking in Ireland was disrupted for nearly a full year." They continue:
Denied access to a functioning banking system, Irish people continued writing each other cheques. During the Irish dispute, people accepted cheques in lieu of payment as IOUs. By doing so, they were shouldering the risk until the banks reopened. It was unclear, for a long time, when the dispute would end.
The Irish journalist Patrick Cockburn recalled this era from his youth in an article in the Independent.
Undated cheques, often endorsed over to others but never cashed, became a form of currency. When the supply of cheques dried up, people wrote new ones on any available piece of paper, sometimes adding a postage stamp to give it an official appearance. There was talk of some cheques being written on beer mats and lavatory paper. It was a system that worked because it drew on local knowledge and trust.
Here's where the pubs come into play. Particularly in rural areas, publicans knew their customers intimately. They knew whom to trust with IOUs, knew whom not to trust; they knew where the debtors lived and worked.
At the Harvard Business Review, Umair Haque summarizes the work of Antoin Murphy, one of the few scholars to study this incident closely. He puts it this way:
The Irish economy was characterized by intense, frequent, conversational personal contact: tight, dense, solid local knowledge circulating at high velocity within and across communities. Result? Borrowers and lenders could build solid microfoundations of trust. In other words, when you’ve been chatting with Bill every night at the local pub for twenty 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). Furthermore, 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.
Of course, it wasn't just pubs. Cockburn reports that during the strike, 11,000 pubs and 12,000 local shops acted as bank substitutes. Of course, shopkeepers had similar information about their customers as pubs, a broader clientele, and a wider supply of goods people needed. But then the local butcher and baker aren't as romantic as the pub, so they get slighted in the narrative. Nevertheless, the thrust of the story is true: absent banks, the Irish in 1970 did manage to recreate a workable, temporary system of currency. The economy suffered, but not as bad as expected, and it certainly didn't collapse.
There are a few fascinating lessons from the whole affair, though only one involves beer.
- Money is itself a powerful fiction resting on an entirely social foundation. I give you a slip of paper with a ten written on it and you give me lunch, all because we know that when you can take that ten and go buy vegetables for tomorrow's lunch. It represents our trust in these things, not a stack of gold bullion in Fort Knox. As Haque writes, the small businesses "were able to take on, at least in tiny part, five of Robert Merton and Zvi Bodie’s six standard functions of a financial system: settling payments, providing information, setting incentives, pooling resources, and transferring resources. The bankers thought even one of six might have been impossible. It’s as if the economy settled into a new dynamic equilibrium: one where emergent, unpredicted — and totally unforeseen — behavior unlocked a very different kind of financial system." So long as the system that replaces money has the social foundation and necessary trust, it can continue to work.
- None of this could happen in 2017. Everything about this experience was possible because commerce happened on a familiar face-to-face basis. 1970 was a time of meatspace, when people did their business together, exchanging creased banknotes and coins by hand. Today, money is far more virtual, and humans both more mobile and distant from shopkeepers. Some of us may be regulars in some businesses, but it's hard to envision a shopkeeper or publican today having the confidence to assess our credit-worthiness. We shop in large stores with large, transient workforces, eat and drink in myriad establishments, pay with credit cards. Or we shop online. We don't know the people with whom we do business now, and instead trust the system of banking.
- The role of pub as center of community life has for over a century been partly romantic and specific to certain countries. Even in 1970, this would never have happened in the United States. It took a country with such an extraordinary pub culture for this to happen in Ireland. The idea of the "local" exists now more as an ideal than a reality, and even where it has actual substance, the way people drink has changed. If you have a local, you're probably not in it five nights out of seven--two or three would be surprising. One of the reasons this story continues to make the rounds is precisely because the idea of a local is so romantic and appealing--and obsolete.
So it is true that the Irish averted catastrophe for the better part of a year in 1970 despite lacking access to banks, and it's true that pubs were a part of the reason. It is also a lesson of a time and place lost to us now. We best not crash our banking system now, because pubs won't be in a position to save us.