Starting Over with The Last Jedi

Here we go again, another Star Wars movie. After the reboot of the franchise in The Force Awakens took the safe route and essentially mimicked the original Star Wars episode IV, expectations were pretty low that The Last Jedi would give this next generation something sizable to chew on. When Disney bought the rights to the Star Wars brand it was safe to assume that the same tropes and themes would resurface in shiny new graphics, that they would give enough fan service to keep up with merchandizing profits, that they would sustain continuity between the generations. The fairy tale magic that George Lucas brought to the baby boomers was such a strong force in pop culture that it was bound to make a come-back and Star Wars probably will continue build on its universe in a time when its world is so well-entrenched in the mainstream consciousness. I still remember when my parents took me to see the 1990’s remakes of the original trilogy: it was a kind of inter-generational transference of pop-culture that (most importantly) brought families out to buy movie tickets of a movie they had already seem (many times I’m sure). After that success, Lucas Arts hit the accelerator on filming the prequels and turning this legendary trilogy into a billion dollar franchise that will seemingly never go away.

But then something strange happened. The Last Jedi didn’t play it safe, it threw everything that Star Wars represented out the window, at least for most of the movie. The primary protagonist Rey’s back-story suddenly doesn’t matter. The evil villain is killed unceremoniously and his back-story is even less important. The great legend Luke Skywalker seems to have reverted to his teenage self and whines and pouts about how things could be different, only this time with a brooding sense of failure. Yoda burns books. Leia can fly through space. Much is left unexplained. And fans were pissed.

Though critics received the movie well, the fans were divided straight down the middle: you loved it or you hated it. Fanboys who invested so much of their time and energy into the Star Wars universe were devastated that someone could send such a wrecking-ball into their dreams. Much of The Last Jedi is outright ridiculous and feels almost like it was calculated to provoke outrage; after all, we live in an age of online social media fury where trolls abound under the bridges of every post and making controversial statements seems like the only way to get attention anymore. And this is what brings me to a curious thought about Star Wars and pop-culture: is this hot-mess of a movie actually brilliant for being bad? Did it torpedo itself on purpose?

Perhaps the problem with The Last Jedi is not with The Last Jedi but with Star Wars. Perhaps there was something deep within the Star Wars themes and story structure that was wrong and needed fixing. The biggest criticism of The Force Awakens was that it was basically the same movie as A New Hope. It’s easy to see why people would think that Disney took this complaint seriously and took too far a turn in the opposite direction, giving the fans something so completely different that it upset them. What Rian Johnson did with the script of the Last Jedi was fundamentally alter the logic of the Star Wars universe. It was a bold move and it opens up a crack in one of the biggest (perhaps The biggest?) fantasy worlds of the present. Judging the movie based on how far it strays from its source material and how uncharacteristic its portrayals were is only to announce that you don’t want your fantasies altered. A proper critique of The Last Jedi must ask what themes the film is trying to convey to its audience, what message is it trying to send to the children that it so acutely advertises to.

And this is the first big point about The Last Jedi, broadly speaking: it severs the ties from one Star Wars fan base (the original one) and the other (the new one). It tells the new fan base: the old heroes failed. Luke Skywalker is a cynical recluse. General Leia led her rebel army into oblivion (and that’s after allowing the fascists to rise again after winning the first great galactic war). Han Solo, well, I guess wasn’t very fit to be a father. The Last Jedi opens up the possibility that the entire Star Wars ethic that champions a rag-tag group of rebels tapping into a long lost ancient metaphysic to defeat the empire is simply and inevitably a losing option. As Kylo Ren says in a line that was repeated ad nauseum in the trailers and set the tone for the movie: “Forget the past, kill it if you have to.”** It’s all wrong. The Jedi order, the rebels fighting the empire, the entire moral code that Star Wars perpetuated so effectively throughout American culture and farther: throw it all away and start over. Though everything is put into question, The Last Jedi doesn’t actually start over. It challenges and alters the conventional Star Wars ethos but keeps some things in tact. I’ll try and suss out what it keeps and what it casts away.

Second point, the empire in its totalitarian fascist form is only a symptom of a greater systemic problem. It’s as if Rian Johnson was trying to solve a problem caused by his predecessor’s rehashing of A New Hope: the rebels allowed the First Order to rise in power after gaining control of the galaxy and nobody was willing to admit it. Something must have happened that forced the rebels to be rebels again instead of new legislators making a new and more perfect government. After all, we caught a glimpse of an intergalactic federal republic in the prequels, so why are we back to square one fighting the machine instead of running it? The Last Jedi doesn’t just hint at this defect in the The Force Awakens, it offers an explanation: a whole planet of rich weapons manufacturers in Canto Bight. Even if it is mentioned in a side-quest with only marginal consequences for the main plot, this completely changes the game in the Star Wars universe. The dynamic of totalitarian empire-builders rising to dominate the world and the rebels rising to challenge them are the inevitable and infinitely repeatable outcome of a world in which rich weapons manufacturers can profit off of both sides. The existence of a military industrial complex (neatly wrapped-up in a single planet) all but necessitates war and unending precocity for the world.

Third point, the force is not hereditary anymore. Rey is not a super-powerful jedi-to-be because of her parents bequeathed that power to her, it was a random occurrence, a miracle. At this point, the force is dispersed and accessible to anyone. This ‘democratizes the force’ and removes any elitist presumptions about who can exercise this spiritual power. This gives the viewer the sense that they can use the force if only they got lucky, which can happen to anyone. Kylo Ren still has force powers, being the child of a family lineage with the force, but it can equally surface within a nobody. Kylo himself rebels against his parents directly when he is being trained. Again, the broader point is that the older generation does not determine the course of the next. We need not remain attached to the powers and deeds of our forebearers. Try something different kids.

Fourth point, the jedi order is a fraud that fails as spectacularly as the rebels. The ancient jedi texts that Luke keeps hidden away are unimportant. They are helpful at best, idols at worst. Luke Skywalker focuses Rey’s attention to the Jedi Order’s failures rather than their successes, as if their entire reason for existence is negated because they were undermined by one powerful Sith lord. It never is explained why this is more than a mere one-time failure of the jedi instead of something that shatters their benevolence to the universe. At any rate, Luke Skywalker has decided (with Yoda taking an even more extreme position) that every artifact, all of the training manuals, every piece of received wisdom from past jedi’s, all deserve to be destroyed forever. Rey’s fate is still of paramount importance and Yoda councils Luke to do all that he can to keep her on the light side, but, because of this one failure, all of the tools that will help Luke and future jedi train adolescent jedi-to-be are set ablaze.

With the fifth point things get weirder. After suggesting that nearly everything about Star Wars, the Jedi order, the rebel strategy, and the whole infrastructure that the good guys set up, is wrong, The Last Jedi brings it all back. The fault for the current situation of the rebels and the jedi now seems to rest entirely on Luke Skywalker’s shoulders, or, the problem is with the Jedi Order and not the force itself. Never is the idea of balance questioned, or why leaning heavily on the light side of the force creates the much revered metaphysical balance. The jedi’s failures that result from Luke are evidenced by Kylo Ren’s going toward the dark side, just like Darth Vader’s turn after being trained by a good jedi. Since the order representing the light side of the force keeps producing dark off-spring, there must be something wrong with the order of light itself. Why the blame should rest with the order of light instead of the very notion of a light and dark side of the force is a mystery. To insist that balance is good but that only light possess the good and dark the bad is contradictory: there must be some bad (roughly half) for balance in this manichean force to exist. Rey and Kylo could have together balanced the force in their relationship but instead she chose light at the crucial moment. She does this despite Luke Skywalker himself telling her that the past order of the jedi, with all of their institutional knowledge of the force holds no authority on the force. Believing the jedi know the force better than others is “vanity”: it is anti-democratic. Perhaps they are building up to a true balance of the force in the relationship that Rey and Ren will have but, at this point in the franchise reboot, Rey is still trying to keep to the light side of the force within a broken jedi system that has failed her and her generation.

Six: it was all a misunderstanding. Luke “in a moment of pure instinct” nearly tries to kill his apprentice, but it was a mistake that he realizes just before making the strike. So the divergence between Skywalker and Kylo Ren, what turned him onto the wrong path, is simply a misunderstanding. This appears to make a reunion between Kylo and the light side of the force, just like Darth Vader’s redemption at the end of Episode 6, a live option. Kylo might have stayed on the true path if not for Luke’s lapse of judgment. This leaves open the possibility that the troubles this new generation is facing are all a matter of miscommunication, a momentary fissure that can be mended if everyone simply expressed themselves properly. This is, of course, at odds with the willingness of Yoda and Luke to burn down every important jedi artifact: if everything went wrong because of a simple misunderstanding, then why is the entire edifice judged to be obsolete?

Seven: The lesson that the older generation of freedom fighters must now pass on to the younger is of failure. Teach them how to fail well and keep at it despite failure is more important than education with books or planned master-apprentice relationships. There seems to be nothing worth passing on but, again, it is still imperative that the young stay on the path of light. Teaching someone how to cope with failure and still try to succeed amidst a series of failures is suddenly the only lesson that needs to be passed on for this purpose. It all rests on the decisions of each person makes individually first, and then how whether or not they learn from those mistakes (all by themselves now), second.

Eight: the good leaders are the ones who know how to fail well. Almost every older character messes up in The Last Jedi, whether it be the dashing pilot who over-commits his fleet, Luke Skywalker who fails his apprentice, the new vice admiral Holdo who allows the rebel alliance to be ground down into almost nothing, Fin and his new friend fail to prevent the First Order from tracking the rebels. Good leaders like a redeemed Luke and Holdo sacrifice themselves for the cause of the rebellion in the end. The youth like Fin are told to go on living, carrying the torch of resistance. Martyrs are praised for their devotion to the cause, turning their failures into positive outcomes in spite of their previous mistakes. Everyone of age is wiped out by the end of the movie except for Leia, who is the odd exception. A glorious death that contributes to the cause of fighting the evil power is the way to rectify your failures. Here again, the only lesson the older generation has for the younger is to fail well. It is as if Rian Johnson became obsessed with Samuel Becket while he was writing the script.

Conclusion: If these points really are in the subtext of The Last Jedi, then it feels like what is being passed down to a new generation of Star Wars fans is how to continue failing. Once the old Star Wars characters have lived out their failures and sacrificed themselves for the hope of a better future, the next characters are faced with the burden of an absolute form of choice. Gone are the relics, books, schools, and army that would help guide the youth into an anti-imperial adulthood. At this point, Kylo Ren decided to destroy it all willfully and join the empire. This is one response to the utter failure of ones teachers. But Rian Johnson is asking us to hold onto the idea of the goodness of rebellion against domination and anti-imperialism. It is a message of holding onto hope for the future in times of near collapse. The righteousness of this decision to fight rests on no institutional authority anymore: the jedi and the first rebels only botched it after their initial success. This means that ones choice is now (theoretically) totally free.

This might seem like a fitting ending and a message of hope, but what becomes of it in the end? This movie trilogy has not reached its ending just yet, but already we get a glimpse of what results from the breakdown of institutions and the casting off of all authority. Poe Dameron decides that the chief admiral of the rebel army is deploying a losing strategy and attempts a coup. His insubordination goes unpunished and is even lauded by General Leia and Vice Admiral Holdo. This constant in-fighting is no way to run a military, in fact, it almost guarantees that army’s destruction. Either Poe is reprimanded for sedition or he succeeds in his coup, taking charge and leading the military on a new course. We cannot have it both ways. Without proper discipline to lead an army, rebels have absolutely no chance to defeat an empire. The chain of command was upheld in the previous Star Wars movies and it allowed them to defeat the empire with a carefully laid plan, but in the latest run, including Rogue One especially, insubordination is for some reason a winning trait. If this is what the take-home message of the latest iteration of Star Wars movies is, then the clearing away of all authority, all connection to the past, and any memory of the stability of the old republic is obliterated.

Perhaps the Jedi Order was elitist and futile. The prequels didn’t exactly paint their council meetings in a very democratic light and they resemble more of a revolutionary guard for the republic: a strong arm to quell any dissent within the old order. But this is might be a clue as to why the original rebels failed to prevent the return of an imperial force in the First Order: they lacked the cohesion and discipline to take power after the defeat of the empire. If the new generation of Star Wars characters are ever going to end the cycle of rising empires and rebuild the old republic, then there are some rules and procedures that they will need to establish in order to maintain their power. This cannot happen if a pattern of infighting, insubordination, and absolute anti-authoritarianism are all that an institution-less force can provide. The point of resisting empire is to succeed, not to let every newcomer to the resistance fail all by themselves and hope it will eventually all turn out better in the future.

So those are my gripes with the direction of Star Wars, a franchise I never had that much attachment to in the first place because of its simplistic ‘good vs evil’ Manichean world-view. The force that pervades all throughout the Star Wars universe has a hard and easily distinguished split cutting straight through it, making it fairy-tale simple and vaguely spiritual at once. But this latest installment has done something fresh by introducing shades of grey and suggesting that the real problem for the rebels lies elsewhere. Perhaps the jedi had the wrong idea about the force and perhaps the real enemy was hidden out of sight the whole time. The sidequest we get to Canto Bight, while not having any consequences for the main storyline, opens up the possibility that it is the rich and connected weapons manufacturers that are the root cause of all of this galactic death and totalitarianism. Rian Johnson has written in its own semi-secret military-industrial complex into the Star Wars universe and should be praised for doing so. He’s also challenged the hero-worship of the franchise, forcing the new characters to face stark choices. How far they will go with this new version of the Star Wars mythos is unclear, but the fate of their universe seems now to lie in the hands of Rey and Kylo Ren together. The Yin and Yang relationship will come to full blossom when they together decide which aspects of the old Jedi Order to keep and which to throw away.

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Public Banking and Taxing the Wild Frontier: Conclusion

As the twenty-first century drags on, we face an uncertain road ahead. To catch a glimpse of hope we need not look that far back into history to find working models for both prosperity and sustainability. It has been encouraging to see activists working hard on forming public banks, for these banks can change the fortunes of every member of the economy in a time of vast wealth inequality. The times call for practical-minded solutions to big problems like climate change and economic stagnation. To seize the moment, we need only look to our own past for models that work.

Out west, cannabis is one of the biggest economic drivers of the region. Its coming into the fold of taxation and regulation at the state level offers a turning point that could lift up far more than just the people involved in the industry. By chartering a public bank in California, the cannabis industry can use banking services where once they could only use cash. It solves the problem of paying taxes in large suitcases full of dollar bills and a lack of small business loans for cannabis businesses with less start up capital. But the really exciting part comes with what the state can do with its own bank once that revenue is drawn in from pot funds. Financing large scale infrastructure projects that can transition the economy from one based on fossil-fuels and freeways into a renewable economy with clean energy all but requires that we utilize public banks. Nothing else can bring all of the funds together for such a massive undertaking that so many people believe must be done.

The pioneers of cannabis farming sought to escape from a society that suffocated their creativity and freedom of expression. They were so successful that others followed them out there in a curiously similar movement to other historical movements that brought people out west in droves. The California Green Rush, like the Gold Rush and the Timber Boom before it, brought billions of dollars to the further reaches of the American west in a hurried and chaotic fashion. It is likely that the Back-to-the-Land cannabis farmer will be mythologized in a similar way that the gold panning pioneer was in the nineteenth century. With the Redwood Curtain lifted and profits soaring, rugged individuals and hippy communes are sure to get the romanticized treatment of yet another distinct culture subsumed by modern business. Public banking offers a way out of this predicament. With its public financing model, we no longer have to play the game rigged by Wall St to benefit the already well-off. Hippies get to put a dent into the capitalist machine after all – just not the way they expected 50 years ago.

Small farmers and landed peasants have always born the brunt of specialized industry marching forward. It’s a fact that has torn apart people’s relationship with the earth for over 200 years now. It has also created enormous prosperity, especially at the national level. Innovations in banking, worker specialization, and increased scales of production set off irreversible processes into motion that need to be reckoned with democratically instead of with a blanket rejection. Alexander Hamilton’s vision won out but the implementation has gone way off course. If we hearken back to the eighteenth century, we can see a virtuous project too far ahead of its time to be appreciated in the Bank of the United States. The man wasn’t perfect (in fact, he was down-right elitist), but Hamilton did have the common good in mind when he conceived a national public bank in his mind and willed it into existence. With a quick crash course in public banking, one can grasp just how necessary establishing new banks are to creating an economy in which everyone wins.

Currently, cities and states must borrow money from Wall St banks to finance their projects. The payments made to municipal and state bondholders, plus interest payments made to banks from loans doubles the cost of any large project. Public worker’s hours and pensions are being slashed, facilities are downsizing and getting privatized, and the investor class is making off with the profits like bandits. Money that could be circulating within the public sector and distributed equitably is drying up. Fringe finance is replacing banks that no longer deem it profitable to do business with the poor, extracting wealth for basic services that could be done easily by the post office. The money pie is shrinking because access to credit has been consolidated by extraordinarily wealthy financiers in their private bank accounts and tax shelters. Public finance is the key to unlocking the economic potential just waiting to be let loose. [What We Could Do with a Postal Savings Bank: Infrastructure that Doesn’t Cost Tax Payers a Dime]

Public banking has a proven track record. Everywhere you look, from Germany to China to early America, linking governments to the technologies of banks is a proven winner. It is not only profitable for governments but the private individuals involved in financing and borrowing from it. The only ones who lose are the already ultra-rich 1%, the ones who want to keep their monopoly on the lending/money-creation powers of banks. With the sudden availability of funds opened up by the cannabis industry’s wave of legalization, the time is now to turn high profits into big ideas for a sustainable future. [Dave Dayen: The Ultimate Cash Crop: How a Pot Crisis Restarted a Public Banking Conversation in America]

Public Banking and Taxing the Wild Frontier: Part Four

In the period following the ratification of the federal US Constitution, the financial course for the new nation had yet to be charted. Alexander Hamilton had a dream to turn the former colonies into a modern mercantilist nation on a model he borrowed from the British and its Bank of England. His idea would succeed with flying colors, but few truly understood just what he had done to make banking so indispensable to the health of this new form of economics. It would take decades for the nation to warm up to the idea of banks as an everyday feature of American life, but by that time, private banks would dominate the landscape and the old civic-minded banks would be a distant memory.

People were highly suspicious of the purity of Hamilton and other speculator’s motives, and rightfully so. Populist anger the elite eastern “stockjobbers” was well-founded, the blanket rejection of banks and all financial schemes was, however, foolish. Banking (especially of the public variety) would prove to be so successful that its detractors would come around in the long run, but the damage would already be done by that time. The option for government involvement in banking was besieged and destroyed in the first decades of the United States, that is, until the populist farmers realized that bringing banking into the government was the best and perhaps only defense against the insatiable greed of Wall Street bankers and industrialists in the antebellum nineteenth century. In hindsight, keeping public banks around was the best way to prevent gross economic hardship, but the battle-lines were drawn differently in these very different times.

The revolts and minor uprisings that occurred in this time period were all debt related. Traditional debt relations were far more fluid and amenable to the needs of common villagers before modern economics took a hold of them. The soldiers and suppliers of the Revolutionary War had not been paid. Their expedients for trade were dashed. Their protests were quelled. Before 1787, farmers outside of the merchant city regions had the benefit of the state’s former issuance of paper money to stimulate business. They began as a war-time expedient during the seven-years-war but remained afterward to everyone’s joy. In a frontier land lacking in specie (metal coin currency), paper money was a godsend. But the new constitution forbade the states from issuing any more colonial scrip and centralized the money-making function within the new federal government. The very first articles of the US Constitution are explicitly designed to prevent states from issuing their own ‘bills of credit’ and instead enshrine the return of the economy to a hard currency basis. The framers worried about the inflation these bills created, but paper money would come to dominate the economy anyways in the form of bank notes.

If bills of credit or paper money could no longer be used by farmers, then they were stuck with hard specie scarcity. Their business was less connected to the world at large, so metal money was harder to get their hands on.On top of that, exploitation by speculators, who sensed their desperation only to capitalize on it, added to their affective loathing of all things financial coming from the coastal port cities. Upon reading accounts of the financial hardships of American farmers and poor debtors, laid out in the previous post, it’s easy to see why they would be driven to such hate. But every actor needs a circulating medium of exchange to lift their fortunes. The distrust of a banker-government partnership inculcated during this period of history went a long way towards eliminating the necessary checks against the money-creating power of private banks. The banks role in controlling the increase or decrease in the overall supply of money could only be effectively curtailed and controlled by a central governing body endowed with financial powers like that of a bank. Distrust and anger at central government and public banks actually hurt prospects for economic justice by empowering private banks to carry on this highly profitable enterprise free of restraint.

Bray Hammond sticks the point well at the beginning of his grand history of banks in Banks and Politics in America: From the Revolution to the Civil War:

“The agrarian demand for paper money and easy credit which did at last appear in the States in the latter part of the 19th century arose from tardy recognition by the agrarians that they lived in a modern economy, not in dreamland, and in order to hold their own must use credit as business men did. It arose from a slow realization that farming must be a means of making money, not of withholding oneself from the world… But in the face of business enterprise and industrialization, it became impossible for farming to remain unchanged. Stock had to be improved. Machinery had to be acquired. The elements of farm capital became diversified, the land itself ceasing to be the one ingredient of weight. Money and credit forced their way into the farmer’s reckoning.” (Hammond, p.33)

It’s at this point that a shift in emphasis must ensue. A different country than the one Jefferson envisioned was taking shape around the turn of the 18th to the 19th century and we cannot simply remain pitted against all financial concoctions wherever they crop up. The future involves banks and they need to be made to work for the people or the vast majority instead of fought at every turn. The makings of a modern economy were shaping up at this time; increased specialization in the workplace and the overriding importance of overseas trade in the international game of political economy was drowning out the small farmer’s hope for New World of freeholders. The cat was out of the bag.

The scars leftover from Federalist era lingered on into the Jacksonian era of Democratic entrepreneurialism until the producing farmers figured out how debt, monetary policy, and banks effected them on the national level many decades later. The populist party sought to take over control of the money supply away from banks in the late eighteenth century with their ‘sub-treasury’ system and the non-partisan league would successfully lobby for a state-owned bank in North Dakota. But no movement in America has been able to sustain a public-oriented financial school of thought in the tumultuous times that capitalist industrialism wrought at the end of the 19th century, 20th and up until today. We have a moment right now to establish new public banks with the growing momentum of the public banking movement. It is high time that certain truths about banking become a part of common wisdom and used for the benefit of the 99% instead of the exclusive gain of the 1%.

Hamilton’s Bank of the United States was lauded by all those who understood it. It not only flipped a liability in high war debts into an asset (quite literally), it spread new money out into the economy whenever loans were dispersed. It’s bank notes functioned just like money, similar to the paper money of colonial scrip but more like state bank notes also circulating, so it increased the amount of business that could be done in two separate ways simultaneously. It offered credit for new projects in a typical lending fashion and then, as a result, bank notes could be drawn on representing the promise to repay the debt. These notes were basically paper IOU’s for the original loan/deposited coin (more on this later), but they would inevitably change hands many times in the course of business and effectively enter circulation as money. This is the what makes banks so hotly contested: they don’t just offer loans and act as special intermediaries for future business (though they do that also), they increase the amount of money in the system as a whole so long as they remain solvent (i.e. have enough hard currency to back up the notes that come back in for redemption, or withstand the depletion of specie from their vaults). That these bank notes could be used to pay federal taxes enhanced their acceptability as legitimate money.

Absent regulation, this operation is fragile and private banks are incentivized to extend credit wherever they can profit. The increase in available paper bank notes/IOU’s increases the amount of money passing from hand-to-hand in the general economy, even if you as an individual do not have an account at that bank or any bank. Those paper bank notes can always be redeemed at a local branch of the corresponding bank for hard coin in the vaults, that is, unless too many notes come in for redemption at once and the vaults are depleted.Provided the bank remains solvent, the net effect on the economy at large is immense. Having more things getting passed around as money lifts up the general economic prospects of every actor in the system, provided that the amount of notes issued are commensurate with the overall level of real economic activity. Issue too many and you get price inflation, too little and prices drop but there is less money around to get your hands on.

The national public bank of Hamilton was able to check the excessive issuance of bank notes in the way that a central bank does now. Today central banks are independent of government and merely transfer money from one bank within its system to another in the form of reserves in their central bank accounts. The first and second Bank of the United States operated slightly differently but also kept private banks and state banks that existed before them from collapsing in a heap of panic, rendering its notes useless and its contribution to the overall money supply vanishing in a flash. It made sure that the ratio of bank notes to reserves didn’t get too high and private banks couldn’t print way more notes than they could back up with coins. The first Bank of the United States, Hamilton’s bank, operated in a time when the split between public and private sectors was not so pronounced. Many believed that private investors were needed to lend credibility to the institution in the first place, the government being too young and fragile to instill any confidence. But it was a public bank that served the needs of the people at large by servicing the new and fragile government’s debt and hence its credibility as a future borrower. It increased the supply of money to stimulate industry by issuing its own US Bank Notes that had a wide circulation.

Banks whether public or private wield enormous power by controlling the size of money in the economy at any given time. This is not always well-understood by economists but when banks make loans they increase the amount of money flowing through the economy. Bank loans create more money, paying back those debts created by the loan destroys it. It’s an extraordinary tool within a modern economy and there is no reason why governments shouldn’t be involved in banking when it plays such a vital (and lucrative) role. This is what Hamilton’s bank did before private businessmen and entrepreneurs started opening up their own banks and attacking the national bank. In another one of histories ironies, it was farmer’s opposition to the Hamilton’s policies that killed the second Bank of the United States when Andrew Jackson swept into power. Little did they know that this national, central bank was the only thing preventing private banks from wildly profiting off of the economy’s need for credit, in turn playing havoc on the money supply. The full story is told in Bray Hammond’s standard financial history book in Banks and Politics in America from the Revolution to the Civil War.

According to Hammond, Hamilton did understand this crucial function of banking. It’s quite possible that only a handful of individuals grasped this operation and its significance and few understand it still today. The fact that banks create money, control its supply (in a more-or-less/marginal sort way of increases or decreases from day to day instead of absolutely), and perform a systemically vital function to a dynamic modern economy escapes contemporary economic textbook definitions of banks as mere “intermediaries.” If we replace the terms of 21st century economics with ones from the 18th century, we can still detail the same banking function:

“…[I]n the sentence before his explanation of specie deposits, Hamilton had made the observation that every loan which a bank makes is in the first instance a credit on its books in favor of the borrower and that, unless withdrawn in specie, it remains a liability of the bank till the loan is repaid. In these words he explained 20th century banking as will as 18th, and how bank lending creates bank deposits, with the difference that he did not call them “deposits” but reserved that term for specie transactions, distinguishing credit for specie from credit for the proceeds of loans. He did so because he observed banking in terms of the individual bank and not of many banks constituting a system. He was writing at a time when there were three banks only in America, each sole in its community. The effect each bank’s lending had on its own positions was in those circumstances direct and unobscured; its loans obviously increased what would now be called its deposits; for the checks drawn on it were not being deposited in other banks nor were the checks drawn on others being deposited in it. Each bank was a closed and separate system. Hamilton simply noted what in the then situation was plain and required no unusual discernment. The records of the Massachusetts Bank indicate how common it was at the very beginning to credit borrower’s accounts with the amounts lent them; and the known figures of deposit liabilities are plainly too large to have arisen from specie alone. Such credits seem in practice to have been included with deposits proper but in discussion to have been kept distinct. A deposit was of something tangible, whether for safekeeping or to apply on a capital subscription. The liability for amounts lent was called credit or book credit, as by Hamilton in the passage in which he described the procedure.

Though exempting specie deposits from the restriction could scarcely have given a bank any more inducement than it already had to acquire specie; it doubtless seemed logical to Hamilton that the liability arising from deposits of specie be distinguished from the liability representing the proceeds of loans and that it be excepted from limitations on an expansion that could occur only when liabilities were assumed in excess of the specie held. The issuance of notes and the crediting of customers’ accounts might and did entail the assumption of liabilities in excess of specie holdings, but not when the issuance of the credit resulted from a deposit of specie.” (Hammond, p.138-9. Emphasis mine.)

In other words, when a loan is made by a bank it doesn’t matter that there isn’t enough corresponding metal coin specie to match it one-for-one. Taking in deposits or specie to store in its vaults and making loans to those seeking credit are two separate functions of banking that work in tandem but don’t require a steadfast equivalence. When a loan is made, the amount of money requested by the borrower is written into their account, which they can then draw on regardless of how much specie that individual has deposited on their own. The only thing that matters is that people don’t rush in and grab all of the hard currency all at once in a panic. As long as the bank is believed to be trustworthy, it is. The bank can then keep on lending as much as it likes (more or less), printing more of its bank notes (no doubt to change hands many times), and profiting off of the regular interest payments coming in from the borrower. It’s this ambiguity that leads people to call banking a monster of instability playing fast and loose with our money. Within the accounting format called ‘double-entry bookkeeping’ is the ability to measurably increase the overall money supply by entering numbers on a piece of paper during the loan making process. Whether those two sides read ‘asset/liability,’ ‘credit/deposits,’ or ‘bank credit/specie capital’ is insignificant. It’s in the proportion of one to the other that the fluctuations in money supply increase or decrease, but the ratio itself was fluid in the early days of banking.

“The practice then was less conventional than now, for then, taking advantage of the fact that every item on a bank’s books has both an asset and a liability aspect, it might be called either; whereas now every item belongs rigidly on one side or the other. Thus deposits were sometimes what a bank held and sometimes what it owed; and circulation represented money lent as much as money owed. There is a modern parallel in the fact that bank credit may be measured either in assets or in liabilities, and though the statistical practice of measuring it in loans and investments is now well established, deposits are often taken informally as its measure, and the law provides for its control through the ration of reserves to deposit liabilities.” (Hammond, p. 141)

Banking reform would later come in the form of reserve ratios to restrict the amount of loans on one side of the page to the reserves on the other side. Playing with this ratio became the way to check bank’s influence on the economy at large and prevent collapse of banks who greedily issued to many notes without having enough coin to back them up. But fixing reserve ratios as a universal standard did not and does not provide an effective restraint upon the banking system in general. This method assumes, falsely, that issuance of loans comes attached to the specie in the vault when they are actually two separate functions within a bank. The ratio can go up or down and still be left in tact. What matters is that the confidence trick in the bank’s vaults is upheld and people don’t collectively make a run on the bank. As Hammond explains above, it doesn’t really matter if you focus in on the amount of deposits at the bank or the amount of book credit granted by a loan. They are two separate things that have been joined together within the marble walls and pillars of the bank so that a single thing (money) can be multiplied and dispersed where businesses wants it to go.

The Bank of the United States performed this function in a controlled, centralized manner that serviced a fledgling nation. It’s not so absurd to say that without it, the United States might have crumbled in its infancy under the surrounding colonial European powers and its own war debts. Hamilton’s Bank serviced the interest on the debt, enhanced the credibility of the United States of America abroad, stimulated business, and acted as an early-modern regulator of the banking system.

“its prominence as one of the largest corporations in America and its branches’ broad geographic position in the emerging American economy allowed it to conduct a rudimentary monetary policy. The bank’s notes, backed by substantial gold reserves, gave the country a relatively stable national currency. By managing its lending policies and the flow of funds through its accounts, the bank could — and did — alter the supply of money and credit in the economy and hence the level of interest rates charged to borrowers.

These actions, which had effects similar to today’s monetary policy, can be seen most clearly in the Bank’s interactions with state banks. In the course of business, the Bank would accumulate the notes of the state banks and hold them in its vault. When it wanted to slow the growth of money and credit, it would present the notes to banks for collection in gold or silver, thereby reducing state banks’ reserves and putting the brakes on their ability to circulate new banknotes. To speed up the growth of money and credit, the Bank would hold on to the state banks’ notes, thereby increasing state banks’ reserves and allowing those banks to issue more banknotes by making loans.

The Bank’s branches were all located in the fledgling nation’s port cities. This made it easier for the federal government to collect tax revenues, most of which came from customs duties. Locating the branches in ports also made it easier for the Bank to finance international trade and help the Treasury fund the government’s operations through sales of US government securities to foreigners. Furthermore, the Bank’s branch system gave it another advantage: it could move its notes around the country more readily than could a state bank. The Bank’s branches also helped to fund and encourage the country’s westward expansion, particularly with the establishment of a branch in New Orleans.” [Federal Reserve History Website]

So the utility of this bank is without question. More than a money-making machine for a handful of investors getting fat off collecting interest payments, it actually prevented the excesses of banks from spiraling out of control and wrecking the greater economy – as would happen many times after the two banks were killed. In its virtuous civic function, The Bank of the United States was almost an “anti-bank bank” that looked after all actors within the bounds of the nation instead of a small faction of wealthy investors. The number of those kinds of banks would multiply very soon and the network of private banks would come to dominate the American economy to this day. Had the Bank survived, industry would have progressed much more steadily and without the chaos of epidemic bank failures, greatly reducing the severity of depressions that jaded so many Americans. One can imagine the despair and resentment of a population left holding worthless pieces of paper that used to be as good as money, failing to understand what exactly had gone wrong.

It’s worth looking at how this bank was incorporated, if only to admire the grandeur of an intelligent plan conceived on paper but willed into reality. With the war debts exceeding $150 million from the federal and state treasuries combined, interest payments would need to be effected soon. Direct payment with taxes would have crippled an economy that didn’t have as much specie available to do business as is, with outlying farmers feeling this pain exceptionally. The bank would offer to the public a subscription for future stock of the bank to the limit of $8 million, with the federal treasury owning $2 million for a total of $10 million. The federal government would own one-fifth of the bank and private citizens would make up the remaining four-fifths, drawing interest from the scrips they bought. Once enough specie was collected (which it was almost immediately), the game was in play and debt servicing could commence on the basis of that hard currency.

“Though the authorized capital of the Bank was $10,000,000, of which $2,000,000 was to be paid in specie, the Bank was permitted to organize as soon as $400,000 had been received from the subscribers. Whether much more was ever got from them on successive installments is doubtful, though the Bank subsequently accumulated a treasure much in excess of what the stockholders were supposed to pay. Payment for the government’s stock was accomplished under an authorizations in the charter that was taken over almost intact form Hamilton’s proposal and was presumably intended by him to give the appearance of a cash payment. In effect the Treasury drew for $2,000,000 on the United States commissioners engaged in selling government securities in Amsterdam, deposited the drafts with the Bank, and then drew against the deposit to pay for the stock. Technically this consummated the purchase of the stock with funds borrowed in Europe. But it was not desired to have the drafts go through and the specie shipped from Europe, because it would have had to be shipped back for other purposes. So the Treasury borrowed $2,000,000 from the Bank and used the amount to take up the drafts on the commissioners, with which the whole transaction had opened. The net effect was therefore to leave the government in possession of $2,000,000 of Bank stock and in debt to the Bank for $2,000,000, though technically the money owing to the Bank had not been used to buy the stock but to “restore” the funds in Amsterdam which had been “used” for that purpose.” (Hammond, p.123-4)

It was a kind of trick that can work with the use of a public bank and the stability of a government combined. Only enough specie needed to be acquired so that those who needed it could draw on it when they needed it. The rest of the subscribers, including the treasury, kept their accounts on the books and waited for the interest payments to come in from regular installments. The one-fifth of the bank that the government owned it didn’t actually pay for, it borrowed the money from Dutch financiers already keen on these machinations. Instead of physically transferring specie hand-to-hand, agents of the treasury gave to the Dutch paper promises to pay later. They then used this borrowed money to buy bank stock (which earns interest) and pay off the imbalances of the account as time goes on. It all works because there is enough specie to be drawn out of the bank on occasion, allowing the pretense of convertibility between metal money and paper money to persist. People trusted that there would be enough business in America for these accounts to be settled in the end because there was so much nascent potential on the American continent, the bank allowed them to push paying off debts forward into the future by playing with this divergence in forms of money. Essentially, it was a leap of faith on everyone’s part:

“The early Americans were short of capital, particularly capital in the form of gold and silver. If that dearth of gold and silver had been allowed to hold up their formation of banks, the circle would never have been broken; instead they resorted to arrangements which had the practical virtue of establishing the proper procedure in principle if not in fact. And in time, because the pretenses worked, they accumulated the gold and silver and made the principle a reality. It is a case where a pious lifting of oneself by the bootstraps is preferable to cynical realism or conscientious passivity. And for the most part a saner and more honest practice in capitalization established itself as soon as a surplus of wealth made it possible. Without the initial act of faith, so to speak, the surplus would have been slower in coming. The Americans had declared their political independence before it was a reality, not after; and what they did in the matter of financial competence was much the same.” (Hammond, p.124)

It’s the complexity of the move, the juggling of many different obligations all at once, that makes people resort to religious terminology to explain what in the world just happened before their eyes. But all parties simply had enough trust in the ability for a national government to persist in a stabilized capacity, collect enough taxes, pay investors their installments of interest, and receive the required initial subscription to kick things off. Hamilton was also an eloquent speaker and assured congress that his plan would work. He was right and he knew it.

The Bank of the United States brought together private business and public regulation together at a time when both needed each others help. The bank and public banks like it expanded the total money supply in a controlled and regulated fashion, while giving the government the means to pay off its own debts. When the treasury was forced to liquidate its bank stock, it profited for “$672,000 or 30 per cent, and the dividends it received while shareholder were $1,100,000.” (Hammond, p.207) Public banks are very profitable for the governments they represent, but they partner with the other banks and keep them from stashing these profits all to themselves. If large projects are to be effected without a public bank to borrow from, private banks pocket the interest from that demand for funds. Since banks create money, owning one means you can essentially borrow from yourself, like the confidence trick of the Bank of the United States.

The expediency of the bank can be mimicked in our own day and at the state level. Having a public bank for each state would stabilize the rest of the banks of that state by providing additional money to borrow at lower interests. Interests rates could be lowered across the board, or raised if too much business activity is causing inflation and over-extension of credit; and there lies the great hope: a regulated banking industry unbeholden to the insatiable demands of unchecked private banks. This is not a faux-public central bank like the federal reserve, but one that really works for the people by relieving the strangle hold that private banks have on the creation of money. Governments don’t have to be debtors begging for money to start their projects, slashing public worker hours and benefits, stagnating wages, and paying huge amounts of interest to private bankers when they own their own bank.