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: Intro

What the Whiskey Rebellion Can Teach Us About Using Cannabis Money for Public Banking

Something big is stirring out west. Since the California voters passed Proposition 64, cannabis use and cultivation has been made legal for all adults over 21 years old and the consequences of this law are far reaching. When we contrast the history of cannabis cultivation with the new practices resulting from Prop 64, a story emerges that is at once new and old. What is new is a centralized, regulated, and taxed cannabis industry replacing the decentralized small farmers of the past, what is old is a story of taming frontier economies with high taxation. It’s a story that is liable to provoke romantic sentiments for the plight of the small-time farmer in the face of unstoppable capitalist progress but we can do better. With the right degree of activist lobbying the cannabis industry can lead the charge in demanding a California state public bank – a bank that would solidify the populist legacy of the outlaw pioneer cannabis farmer.

Something similar was accomplished in the first years of the republic. During the so-called ‘Whiskey Rebellion’ (a term invented to discredit the uprising) farmers on what was then the wild frontier formed militias to resist the new taxation policy of Alexander Hamilton. These rowdy ‘regulators’ protested against a financier-oriented tax plan that was onerous and unfair even though it ended up financing a beneficial new institution. Their anger was justified: western farmers had been targeted by the wealthy easterners before and now further economic burden would befall them where they could afford it the least. Protesting in those days had a different meaning than it does today. We haven’t seen someone tarred-and-feathered in centuries, nor have we seen spontaneous armed uprisings in quite some time. Instead, we should look at what all of this tax revenue generated by the whiskey tax was used for and what all of this money generated by the Cannabis industry could be used for now.

Despite the absence of tax-resisting militia-men today, the similarities between the changes taking place within the cannabis industry and the Pennsylvania regulation of 1794 are striking, especially when we look into the realm of banking. Although the new cannabis tax revenue for California can’t go towards funding a public bank (the funds generated by prop 64 will go into a special fund predesignating where the money will go), the cannabis industry needs a place to safely store its profits and a public bank is the only kind of bank that can fit the bill. Marijuana is still a schedule one illegal substance at the federal level (amazingly, given its proven medicinal properties), so businesses operating in cannabis do not have access to nationally chartered banks under FDIC requirements. A huge industry generating many billions of dollars is forced to operate with duffle bags full of cash. A state owned and operated bank, on the other hand, bypasses this oddity and creates a win-win for both Californians and the cannabis industry.

Public banks have an enormous benefit for the economy within which they operate. Hamilton conceived the first Bank of the United States and the means to fund it entirely on his own. It helped stabilize the finances of the nation in its infancy after it had accumulated massive war debts both foreign and domestic. By a stroke of genius, those debts were parlayed into a system that convinced investors to do business with the unproven new nation and continue to allow the government to borrow on favorable terms. War debts became the basis of the new economy under this program of ‘Assumption’ and bondholders would continue to hold confidence in doing business with the American government. The only problem was the start-up costs came from poor frontier farmers already beset by economic suppression. It was a giant slap in the face to the people who had fought for liberty and independence, but the bank that financed it stabilized a nascent country in precarious circumstances. Today we have much more willing tax base, in spite of the many resentful cannabis farmers getting edged out by the high cost of going legit, and with the help of persistent public banking advocates a Public Bank of California that benefits the entire state is within reach.

The differences between these two events separated by over 200 years are numerous but three important elements bring them together: a profitable yet unregulated agrarian economy suddenly besieged by taxes, a maligned commodity that is much more than what it seems, and the establishment of a public bank (potentially this time). Like the cannabis farmer on the west coast, the whiskey distiller on the frontier lands of western Pennsylvania, Massachusetts, Kentucky and elsewhere used distilled spirits as a cost-effective means for earning an income. Whiskey was downed by almost everyone in America and the frontier people could sell it to the easterners with a fraction of the transportation costs compared with other goods. At their high points both whiskey and weed were so valuable that they were used as money. [see Terry Bouton, ‘William Findley, David Bradford, and the Pennsylvania Regulation of 1974’ in Revolutionary Founders: Rebels, Radicals, and Reformers in the Making of the Nation]

The burdens of taxation hit communities like these particularly hard. The whiskey rebels turned to the traditional form of protest to try and stop the tax collectors from charging distillers: armed mob threats against tax collectors, shutting down courts, and erecting liberty poles for gathering points. We’re pretty far away from seeing people using such tactics in 2018. However, a public banking movement has been boiling up for years now in both cities and states from Oakland to New Jersey. [Public Banking Movement Gains Grounds in Cities and States across the US]  If the cannabis industry can rally for a bank that would accept its money as deposits it would be a complete game-changer, offering a beacon of light to the similar public banking projects already underway in 20 other states. [How Public Banking Is Winning the West]

Populist finance has seen a resurgence since the Occupy movement put the spotlight on the greed of private banks and the vast disparity in wealth between the rich and the rest of us. [link from occupy.com] While frontier regulators of the late-eighteenth century opposed all financial schemes, today progressives understand that dealing with massive wealth inequality will take drastic measures at the state and national levels. Taking on Wall Street will require more than agrarian regulators marching against the tax man or, in other words, good-old-fashioned direct action. California State Treasurer John Chiang has been conducting public hearings after the formation of the Cannabis Banking Working Group and there the public made its desire for public banking known. Instead of giving them the brush-off, Chiang responded positively and it seems the lobbying by public banking advocates has been met with some success. [Activists Urge California Public Bank not Limit to Cannabis Revenue] The issue now is whether or not the prospective new bank will be extended beyond just the cannabis industry to cover the needs of general California business.

These developments are encouraging for populist finance. In an era beset by financial parasitism and high private debt levels, public-based solutions to money and banking point the way towards prosperity and equality. What will follow is a story about two moments in American history that connects the populist practices of the whiskey-fueled past with our pot-blazing present.