Today In Fact, 30 June

Before this day in 1921, banks in South Africa issued their own bank notes which were redeemable in gold. The South African Reserve Bank was founded today in that year and it was given the monopoly over the production of money. The Reserve Bank is one of only half a dozen banks that sells shares to private individuals and until 2002 was listed on the stock exchange.

The private shareholding is limited and the dividend paid is also limited to not more than 10 cents per share per year. The rest of the bank’s profits are paid to the state. There are about 660 shareholders in the bank. Anyone can buy a share for R12.50 at the Bank in Pretoria. The set maximum dividend means that it will take at least 125 years to get back the initial investment.

The question that interests me is; why would anyone want to buy shares in the South African Reserve Bank? There is no possibility of controlling the bank and the annual dividend is limited to 10 cents per year. There seems to be little rational economic reason to invest money in the bank.

There may be irrational reasons for investing in what is the South African government’s banker. There might be the sense of duty and commitment to the good governance of the banking sector? There may be the honour of getting invited to the General Meeting once a year?

Investing in the state bank may also be a concrete show of commitment to the country and the state. I mean if it’s going to take over a century to get back one’s initial investment, it must indicate that you are in it for the long haul? I mean the behaviour by the governors of the reserve Bank over the years have repeatedly shown that they do not serve their shareholders’ interests but rather the interests of the state. So an investor must be in it for reasons other than pecuniary advantage or power.

Perhaps economists and investors are just not as rational and motivated by self-interest as most economists assume. I think the 660 private shareholders of the South African Reserve Bank are a good example to use in arguing against the economic assumption that we as economic beings are only motivated by rational self-interest. Most of the 660 or so shareholders are wealthy individuals with one guy who got his whole extended family to invest. I don’t think they are in any other respects different from the rest of us. We all get into stuff that makes no rational sense and seems to offer us no self-interested gain.

This anniversary of the founding of the South African Reserve Bank stands as a testimony to the fact that we are as much motivated by irrational fears and hopes than by any cold calculations of self-interest.

– Posted by Douglas Racionzer (serendipiday.blogspot.com)