The Potlatch as Fractional Reserve Banking

Abstract

Despite often-abundant natural resources, so-called “Indian Country” suffers the worst systemic poverty in North America today. Much of the economic story of Indian Country is one of hopelessly limited property rights naively designed to protect its wards. Whether encumbrances on fee simple ownership, restrictions on minerals development, access limitations to traditional hunting and fishing resources, the absence of taxing authority, or limitations on access to commercial markets, poorly defined property rights are a critical stumbling block to tribal economic development. Restoring a working system of property rights is essential to unlocking the wealth of Indian nations, and doing that calls for better understanding of their property rights institutions prior to European contact. This chapter focuses on the Northwest Coast Tribes’ early capital markets and specifically on how their potlatch system served as a system of fractional reserve banking to expand their money supply and finance wealth enhancing investments.

Keywords: credit market, economic development, exclusive tribal property rights, First Nations, fractional reserve banking, North American Indians, Northwest Coast Tribes, potlatch system, property law

JEL Classification: E51, K11, Q22