This essay, the first of a series on government efforts to bank the “unbanked,” reviews the history of postal banking and its deleterious role in the Great Depression. Subsequent posts will discuss contemporary proposals for government involvement in retail banking, such as through the U.S. Postal Service and the Federal Reserve, in light of this experience.
Some 8.4 million U.S. households (6.5 percent of the total) have no bank account. For a modern economy, that’s a high number. Some experts and politicians believe that the best way to lower it would be to get the U.S. Postal Service to offer bank accounts, with many claiming that America’s experience of postal savings between 1911 and 1966 shows how a similar system could help bank today’s “unbanked.”
Superficial evidence might seem to corroborate their case. Immigrants and minorities make up a disproportionate share of the unbanked, and a recent study found immigrants were particularly heavy users of postal savings in its early years. But most contemporary accounts, especially those that claim postal savings as a model for the present, fail to give due consideration to how a poor legislative design made it a force for ill in the toughest years of the Great Depression. Far from strengthening the argument for post-office banking today, the postal savings experience is a cautionary tale against government participation in activities that have historically been the remit of commercial banks.
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