In yesterday’s posting, we noted that we do not believe that it is a proper function of government to be engaging in commercial activity. We also noted, however, that not everything is black and white. Especially in today’s society, in which so many people lack knowledge of fundamentals, such as basic principles of reason and justice, our institutions have become flawed to the point of incomprehensibility. Many institutions no longer serve their original function, or serve them in ways that have results the complete opposite of what was intended.
The Ex-Im Bank of the United States is not in that bad a shape. Arguably, it isn’t in bad shape at all. It serves its purpose, and appears to do so efficiently. The “quarrel” we have with the institution is that we do not believe that government should be carrying out that purpose. Rather, government should be making it possible for private citizens, individually or in free association with others, to be carrying out that purpose — and all others directly related to meeting individual wants and needs. That is, the job of government is to ensure that we can do our jobs, not do them for us.
Okay, the Ex-Im Bank is doing a job that we believe should be done by the private sector. In the current state of society, however, the private sector isn’t doing it. This was also the justification for setting up the Bank of North Dakota. Private commercial banks were not adequately serving the needs of the citizens and residents of the state, so the state stepped in as an expedient.
As an expedient, then, to address a clear need, the federal government was justified in setting up and maintaining the Ex-Im Bank — but only if, at the same time, it had taken steps to ensure that the private sector could take over the function at the earliest possible date.
This was not done, but it’s part of a larger problem that we’ll address in the next posting. What we want to look at today is what the Ex-Im Bank does.
The Ex-Im Bank was established to provide financing so that foreign buyers could obtain credit to purchase American goods. This is, frankly, the basic function of any commercial or mercantile bank. If there is insufficient savings available to provide credit for agriculture, industry, or commerce, a commercial bank has the power to create money by accepting bills of exchange and issuing promissory notes that can either back newly (re)issued banknotes or newly created demand deposits.
A bank generates its revenue by accepting bills at a discount, and charging interest on the loans it makes. In today’s flawed financial services industry, the difference between a discount rate on a loan of future savings, and an interest rate on past savings, is not well understood. This causes massive confusion, especially among politicians and taxpayers who think that the Ex-Im Bank is taking taxpayer money and lending it out at favorable rates as a form of “corporate welfare.”
We can easily dismiss the claim that the Ex-Im Bank is engaged in corporate welfare by pointing out that the Ex-Im Bank creates the money it lends out, it does not obtain the money from the taxpayer. Any commercial bank could do the same thing but, as we noted above, commercial banks are either not doing it, or are not doing it adequately.
This gets us back to the original question, should there be an Ex-Im Bank of the United States? In strictest theory, the answer is no . . . but there is a “but.”
The institution provides a necessary service. Further, the private sector seems either unwilling or unable to provide that service, at least adequately.
To that we add the fact that the service can hardly be called “objectively evil.” It’s the fact that government is providing a service that the private sector should be providing that is “evil,” not the service itself.
As we’ve seen in previous postings on other subjects, in individual morality we (and, by extension, government that only gets its rights from us) are permitted to do something as an expedient that has unintended evil consequences if what we do is not objectively evil, and the anticipated good outweighs the unintended evil. This is the “principle of double effect.”
We cannot stop there, however. In social morality we are not permitted to allow an unjust situation to continue if by organizing and restructuring our institutions we can correct the underlying problem(s) that required us to adopt a less than ideal expedient.
The bottom line? As long as things are the way they are, the Ex-Im Bank of the United States should be allowed to continue. We don’t like the fact that the government is doing things the private sector should be doing, but (all things considered) if the Ex-Im Bank were the worst offense of the federal government, the entire country would be a lot better off. It’s a pretty theoretical point for most people, the institution isn’t doing any harm, and is accomplishing a great deal of good.
That being said, however, in the third and final posting of this series we’ll show how (at least in outline) that the Ex-Im Bank could be not eliminated, but reformed in a manner consistent with strict principles of justice and the political theory of the Founders of the United States and the Framers of the Constitution.