Electrified Stories

Electronic images pass through the mind, a plushy chair cushions a straight back.  Simpler times are conjured up by an graphic bits of light set upon a screen.  Sitting still, the imagination soars backward and we try place ourselves in a natural setting performing essential tasks.  I fetch water in a wooden pale from my own well dug up by my great grandfather, I buy a sickle to ease the next harvest, I feed the livestock with grain stored up in the barn, I head to the pub to find my neighbors – all of whom I know, I get into a brawl with my rival and nobody is actually hurt.  I am inside of a community and feel reassured by this sense of belonging as I lay me head to rest.  Night becomes day, day night, and “harmony” is won again.

And all of the time we hear it, over and over again, the value of necessity: “you must,” the gods will it so.  The sting of morality came from tales of old, they happened some time in the great past, the infinite past of “always,” or never at all.  That sting tells you that your life is a mere story: you rise up full of passionate vigor, clamoring for a reputation, a single moment of glory to pass on into the future, but it will never live up to the ancient ancestors.  They alone hold the true glory, they set the world into motion, their deeds will be told forever.  Your story will end, it must, and necessity wears everyone down into the abyss, it must.  The choices we make and the deeds we perform leave a mark only in a fleeting story and it is only a matter of time.  The stories assert a power of their own on our wills and desires, but also bear a solemn reminder: the gods will always be better than you, they live on while you will die.  The power of the story is felt in another way.

For all of the freedom we possess and all of the control we may exert over our environment and fellow people, we will still be pulled down to the earth in the end.  Not all of the gods live in the heavens.  The stories have a mind of their own as they pass from lips to ears and fire back and forth inside of the curious youth.  They say what must be said, they answer the perennial question “why?” with “it is so,” they explain how a people is more than the sum of its individuals.

Why has it become so difficult to say “you must”?  The stories we tell each other are merely human stories.  They go no further than this character, this big name “people,” so now our destinations fit neatly into a story told by humans for humans called history.  And it is true – mostly.  People will never stop pointing to what is left out, the remainder, the excluded-from-the-whole-picture because people desire the whole beyond themselves and restating the limitations of scholarship will only compel them to look elsewhere.  The earth tells its own tales.  It speaks right along with our voices when we tell our children stories about far away lands.  But it doesn’t speak through that elementary force of electricity: that is reserved for the hidden region behind the eyes.  Electric currents run through the brain, jumping from synapse to neuron and back again.  But as our stories themselves have become electrified the human desires have gained ground, eliminated risk, conquered necessity: we are all capable of “changing history” or creating a “historic moment.”  Our stories are now true.  And so?  None of them are necessary.

Shall we rejoice in our victory over necessity?  Can we claim the future for ourselves?  It is a matter of time, always a matter of time.

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.

Public Banking and Taxing the Wild Frontier: Part Three

Much More than a Whiskey Bottle

The cannabis farmers who found the road to economic self-reliance in the redwood forests of northern California suddenly find the road closed. As the pioneers of the most lucrative industry in California and the first to take the risk nationwide, they are now being cast aside by entrepreneurs with plenty of start-up capital. Multilayered taxes, including a big excise, now threaten the small farmer haven that once was the emerald triangle. [East Bay Express: Nipped in the Bud]

When the back-to-the-land hippies fled a stultifying mainstream American culture, they discovered an older America: the Jeffersonian vision of the self-reliant yeoman farmer. They will likely share the fate of that vision however, trampled upon by industrial and efficient Hamiltonian businessman. Battles for a sustainable use of land and resources, as well as an equitable share in the industry, can and should be fought for. But the biggest battle will be fought over which version of the Hamiltonian vision will be instated in the aftermath. With the new tax and regulation of this massively lucrative industry will come the opportunity to revisit the better side of Hamilton’s legacy: his championing of public-oriented financing in the form of the first Bank of the United States.

Before we get to the first public bank in America, it’s worthwhile to explain the economic situation facing the frontier farmers of that time. Their plight at the hands of Hamilton mirrors the plight of the small cannabis farmer when you substitute weed for whiskey.

The aftermath of the revolutionary war saw a period of radical economic transformation, to say nothing of the unprecedented political innovations. Soon after the revolutionary war and the signing of constitution, congress approved of Alexander Hamilton’s funding scheme to assume all of the debts that the states had incurred and centralize them in the new United States government. This would result in a huge windfall for the bondholders of American war debt: over time they would received both the accrued interests and the principle of these bonds at face-value. Taking on this debt would be the engine that propelled the first Bank of the United States into working order and, in turn, set the country off on the right footing with respect to the rest of the world.

All seems well on the face of it, after all, ordinary farmer-soldiers bought paper war bonds too. But the economic conditions in the west were vastly different than those in the wealthier east. The long time that had elapsed since the issuance of the bonds rendered them useless to farmers in need of metal coins or specie to conduct trade. Years had gone by where nobody could be sure that these bonds would be paid back and people needed hard money to go about their lives. Most of the revolutionary war bonds ended up in the hands of the eastern merchants who could afford to hold onto them during the long wait before redemption. The lack of acceptable currency in the west convinced greedy speculators to scour the western lands and swoop them up on the cheap. Western farmers needed acceptable cash immediately and were desperate to sell these bonds and chits. This drove down the prices of to a fraction of their original worth. But when Hamilton’s financial plan was passed, the bonds suddenly gained their full value back and wealthy easterners reaped a huge windfall. Financiers of the east had swindled the frontiersmen of the west less than ten years after they had fought and defeated the British Empire.

And that’s just the tip of the iceberg. The greatest change took place when the new invention of paper currency, called colonial scrip, was taken away after the establishment of Constitution in Congress. No longer could states issue their own currency and make it easier for average person to conduct business. Paper money was the brainchild of Benjamin Franklin and a huge hit with the poor western farmers that lacked specie. It was a totally new brand of finance that facilitated inclusive economic activity, one of the most revolutionary of innovations in a time of so much revolutionary activity. The only problem was that it created currency value inflation due the ease of printing more whenever the occasion arose. The real conflict came, however, from the depreciation of the bonds that wealthy merchants held. Increasing the money supply by printing of more paper money meant that the return on the bonds came back with weaker money than it was lent with. Creditors took a reduced return on their investment but everyone else (the vast majority of Americans) benefited from the ease of doing business. The more money available, the more poor farmers could conduct trade. It was a clear class conflict between debtors and creditors: creditors hated the uncertainty of price fluctuations and taking a bath on war bonds, debtors wanted more money in the economy at large and therefore more economic equality.

Populist finance in America has a long history that rarely makes its way into mainstream canon. A number of authors have written on the subject and deserve praise for their efforts. So much of the historical activity of a people that claims such a democratic heritage was directed at wealthy financiers who got rich at the expense of the vast majority. These democratic actors had potent critiques, alternative ideas that could work, and sound minds for political economy. They simply lost the important battles of history and history, as we all should know, is written by the victors. As William Hogeland put it (the first author who opened my eyes to the history of missed opportunities for American democratic finance in Founding Finance: How Debt, Speculation, Foreclosures, Protests, and Crackdowns Made Us a Nation): “It’s Hamilton’s America… we all just live in it.”

Summarizing the economic grievances of western Pennsylvanians, Terry Bouton writes,

“During the 1780s state leaders had eliminated paper money, which was the primary medium of exchange, especially in the back country, where gold and silver coins were always scarce. They had killed a government loan office that had offered long-term low-cost credit to small farmers and craftsmen – and replaced it with a private bank that offered loans only to merchants and land speculators. The state government had adopted a plan to repay the Revolutionary War debt that taxed the soldiers and farmers who had fought and supplied the war effort so that wealthy men who had speculated in once-worthless war bonds and IOUs could make a financial killing. Those new taxes were often to be paid in gold and silver. All of these policies stripped the countryside of cash and left thousands of farmers unable to pay debts, mortgages, or taxes. The result was waves of sheriff’s auctions that swept the state, a floodtide of misery that, in [William] Findley’s home county, foreclosed about 40 percent of the taxable population.

At the same time that ordinary Pennsylvanians were losing cows, tools, and farmland at auction, state leaders were making it increasingly hard for them or their children to acquire new land. Officials at the land office gave preferential treatment to big speculators (including themselves). Revenue officials refused to prosecute large speculators who had not paid their taxes at the same time that they pushed to foreclose ordinary taxpayers. Judges ruled in favor of wealthy speculators over settlers in nearly every land conflict. In 1792 the state supreme court turned a clear anti-land-speculation law into a pro-speculator one. The law had put caps on the amount of land anyone could purchase to limit speculation. Defying the law’s stated objectives, however, the supreme court ruled that the limits applied only to small farmers and that wealthy speculators could buy as much land as they could afford[.]” (Bouton, ‘William Findley, David Bradford, and the Pennsylvania regulation of 1794,’ in Revolutionary Founders, p.237-8)

With the war over, it seems that the Federalist who took charge of the new government felt the poor farmers of the west were expendable. The new measures crippled the financial base of the liberty-loving rabble-rousers and bolstered the already wealthy speculators that Hamilton championed, setting a precedent that has more-or-less held up throughout American history. Populist direct action had been the bread-and-butter of the movement for independence in the colonies and the new government now regarded them and their proponents as a threat to the new order. This was all very painful for untamed patriots, with this pattern of financier-oriented policy fostering two previous militia formations before the whiskey tax, but when the excise tax came it added insult to injury. The whiskey tax struck at the livelihoods of the very people who joined Hamilton in fighting the British and creating a new republic.

What makes the whiskey tax so hurtful is not that it kept uneducated farmers in the wilderness from getting drunk, distilling and selling whiskey (often to those with the money to buy it out east) was a cost-effective strategy for earning an income through trade. After all of the financial attacks that drained the economic base of the western farmers, now their last profitable trade was being hit by an excise tax. Whiskey distilling drastically reduced the transportation costs in comparison to other goods. It allowed subsistence tenant farmers and self-sufficient landowners alike to sell a valuable product from the periphery back to core market at a reasonable profit. Hogeland explains this dynamic the best: whiskey was exceptional,

“… for being a cash crop, with eager markers both within the region that produced it far away. A gallon of good rye whiskey might sell for only twenty-five cents in the west; easy of the mountains, it could bring from fifty cents to a dollar. Hauling twenty-four bushels of milled rye over the Alleghenies took three pack animals with projected revenues of a mere six dollars; costs outran revenues. Reducing those bushels, at home or at a community still, to two eight-gallon kegs of whiskey amplified their value almost three times while reducing transport requirements to a single animal.

So with a value nearing the absolute, whiskey became currency in places where coin wasn’t seen. Always exchangeable for cash somewhere down the line, whiskey maintained good value against metal. That tended to democratize western economies… The product gave cash-starved segments of society opportunities for small-scale commercial development that might begin freeing ordinary people from debt and dependency.” (Hogeland, p.178)

So whiskey distilling kept these humble farmers economically afloat. Distilling whiskey and selling it back east, just like growing cannabis from the 1970’s to the present, kept communities moderately prosperous without going big and corporate. Their distilleries were often used communally and seasonally. The excise tax on spirits disproportionately effected those smaller distillers because the larger distillers closer to the eastern core could pay a lower tax rate by keeping the stills churning out whiskey bottles all year long. The tax was calculated with an assumption that the stills would be used year-round: impossible for seasonal independent farmers but advantageous to business-oriented distillers seeking to maximize the profits from their investment in their distillery. Large distillers could lower their prices and push out the smaller ones hit harder by the excise. This was complicated macroeconomic tinkering and Hamilton was smart enough to understand the consequences of his legislation. Frontier farmers must have seen this move as yet another targeted attack by financial aristocrats.

Resistance to the first excise taxes in Britain, as Thomas Slaughter describes early on in his The Whiskey Rebellion: Frontier Epilogue to the American Revolution, was one of the quickest and angriest responses ever engendered by a government’s tax scheme. Excise taxes are also called “inland taxes” or “internal taxes” and levy a percentage of the value of a commodity at the point of production. High war costs during the English Civil War forced seventeenth century British governments to seek more revenue. “Opposition was immediate, violent, and persisted in some regions for over a century thereafter… a mob burned down the London excise house during the 1650’s.” (p.12) The core-periphery dynamic was at play here, with London and other central regions of the empire being easier to administer than the farther reaches. “Resistance was always greatest in Scotland, Ireland, Wales, and the outlying rural parts of England.” (p.12) Yet, despite their unpopularity, excise taxes remained a feature of life in the empire. “Indeed, despite pockets of resistance, the excise surpassed the land tax and customs duties to become the single most lucrative source of government income between the years 1713 and 1799. For much of that period it constituted over 40 percent of all Treasury receipts”. (p.13) American farmers no doubt had a collective memory of these tax measures and did not wish to see a repeat in their new country. To add on top of the financial hardship and pro-speculator policies drying up their wealth an excise tax that disproportionately affected their most lucrative business would have seemed like a declaration of war. After all, the impulse to independence and revolution in 1776 was summed up by the slogan “no taxation without representation.” Thousands of farmers did not wish to see the same enemy that they had fought so hard against suddenly reappear under a different guise.

Somewhere between 7,000 and 10,000 men descended upon Braddock’s Field near Pittsburgh, Pennsylvania in 1794 to formulate a response to the excise tax. (Slaughter, p.234) These regulators came from all over the peripheral lands in an orderly and deliberate fashion. Similar actions had occurred recently in the Newburg Crisis and Shay’s Rebellion (or the Massachusetts Regulation) and they drew from a history of populist tax and creditor resistance from the traditional Anglo-Saxon past. The Whiskey Rebellion was a series of mass actions that sprang up all across the countryside – sympathy demonstrations even took place in the big eastern cities. Debt courts were shut down, road blocks were created to stall property foreclosures, and tax collectors were tarred and feathered. (Bouton, p.241) Resistance was a widespread phenomenon that a great deal of the western culture took part in. Though mostly peaceful, tarring and feathering is no benign action – these people were serious about protecting their participation in a trade that became essential to their livelihoods.

Though mass assemblies brought some orderliness to the tax-resistors, they remained divided on how to continue in the face of the impending military campaign to round them up. Some wanted to meet Hamilton’s volunteer/mercenary militia head on or even secede from the republic and found their own nation. Others like William Findley wanted to organize the people into a new party and win seats in congress. There inability to unite, together with the presence of Hamilton’s army enforcing official national law, caused them to disintegrate. Added to this were reports coming in of the atrocities committed by liberty-loving revolutionaries in France, souring the public opinion of widespread disorder and generating well-founded anxiety. The private army raised to put down the rebellion arrested what regulators they could, sometimes indiscriminately seizing individuals at will. To his credit, president Washington pardoned every person imprisoned for their seditious activity, the damage to the movement having been done. Memories of this event and other events like it led to the political collapse of the Federalist party in just a few years. The excise tax followed them out the door when Jefferson’s Democratic-Republican party repealed it.

As Hamilton’s army approached, thousands could see the writing on the wall and fled farther west into the wilderness. Resistance to rich eastern elites would thereafter be fractured or be duped into picking the wrong targets. The coalition that got Thomas Jefferson elected and shook up the electoral shape of America understandably reviled Hamilton’s bank and the means he used to establish it. As prominent figures like James Madison learned of the financial might of villainous speculators, he too turned on his Federalist ally. Madison tried to distinguish between rightful or original owners of government bonds so as not reward rich speculators, but Hamilton’s plan was complete and Madison’s plan infeasible. No records were kept for the sale of these bonds that had changed hands many times. Such was the double-edged genius of Alexander Hamilton: his mastery of finance came at the cost of alienating those around him. He could personally rout the frontiersmen and create many enemies in Washington yet still be revered for the extreme utility of his public bank.

Much to their frustration, neither Jefferson nor Madison could deny the utility of a public bank. Jefferson never understood how debt kept the money system stable and acquiesced to his Treasury secretary Albert Gallatin’s level-headed advice. The agrarian sentimentality cultivated in Virginia and reflected in much of the population of America left Jefferson unable to shape the economic future of the country he did so much to inaugurate. Madison chartered a new Bank of the United States himself to handle the debts from the War of 1812. When that bank was up for recharter, Andrew Jackson, swept into office on popular anger against the financial elite, vetoed it. It would take another 50 years or so for populist agrarian crusaders to realize that government/state owned banks were viable institutions that could protect their interests.

The scars left by rich speculators lingered on for some time after whiskey tax and subsequent repression. From then on, distrust of banks would be a feature of oppositional political thinking in America. Banks would win the future however and without a public option in the banking sector, wealthy businessmen could simply charter their own private versions. For the better part of the nineteenth century, all banks would be viewed by farmers as monstrosities that use a baffling magic trick to mess with their fortunes. But banks are not necessarily evil institutions, the measure of their social utility depend on who is in control of them. Today banks are mostly private corporations with shareholders that demand the maximization of profits as a matter of principle. It need not be this way though and, ironically, Hamilton himself illustrated the best populist alternative to the machinations of the wealthy 1% of today with the Bank of the United States.

The next piece will examine this functioning of this bank and public banking more generally.

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.

The Forces of Nietzsche vs. the Humanity of Graeber: part 1

In examining debt it becomes very hard not to dwell on morality. As a promise of one party to another, the debtors obligation demands an “owning up” to that promise – or else risks being negatively valued in the community at large. This ’negative value’ clings to any extended look into the situation of indebtedness, so to conceptualize debt and any logic accompanying it must bring its value aspect along with it. The debtor, under this pervasive logic, is charged with making the creditor empty until repayment sets the relationship aright. Before the moment of re-harmonizing both creditor and the debtor, the debtors are stripped of their moral authority and rest firmly in the negative of a binary relation.

We can find help in Graeber’s definition of debt as an obligation that has not reached completion or a relationship of equality that has been skewed – to become equalized or “righted” in the future. Equality and reciprocity are clearly presupposed in the creditor/debtor relationship, which is then complicated by the duration of time between the two transfers: one from creditor to the debtor and the other from the debtor back to the creditor. To borrow from one side of an equation without setting the equation back in balance in the future would be labeled unfair; a promise extends the relationship ahead of time sometimes indefinitely and sometimes scrupulously marked off in advance. But this mathematical formulation doesn’t cover over the issue entirely. The value aspect of debt reaches even as far as the nature of individuals under consideration (sovereign individuals consistent through time): does not the very ability to repay some time in the future (and so “own” one’s debts) or demand a repayment for a past agreement (without which one will be wronged) require a valuation itself? Can one prescribe a valuation on the performative action of own up to the deeds performed in the past and project them into the future?

To put it in other words, doesn’t the ability to make the promise to repay, as the element of “ownership” of one’s contractual agreement across time, presuppose the positive valuation of consistency through the individual’s life? Is it debt that forces us to pledge ourselves to remain the same going forward into the future, or, conversely, does the consistency of the individual come first and set up the room for the contract? We tend to assume that a person be responsible for all of their deeds throughout their life, holding them in a monumental memory and etching them into the very nature of the person. A value hides under this assumption, buried by a gluttony of memories. A reversal of debt-valuation could find a key ally in “paying” attention to a perhaps deeper valuation: that one remain the same throughout their life. A different logic could be at play, one that if made explicit might sever the us from the binds of debt-morality. A newfound strength in an active forgetting – what could be more opposed to the pernicious effects of moralistic debt-logic?

Both Nietzsche and Graeber give strangely similar accounts of debt, morality, and history when examined side by side, though they diverge in a few key spots. You probably wouldn’t see it at first, because *Debt* tries to set its relationship to Nietzsche on its own terms in an isolated chapter. Graeber summons Nietzsche to briefly assist him in recounting some myths parading around as science. The chapter of Debt called ‘Cruelty and Redemption’ examines Nietzsche’s second essay in On the Genealogy of Morals titled ‘”Guilt,” “Bad Conscience,” and the Like’, but much is overlooked in that monumental essay. Highlighting the differences between the two will give us a deeper look into each’s respective normative views, while the commonalities that have been passed over by Graeber will help us to more precisely locate the logic of debt (and all of its moral and religious implications, in all of their violence). The two have basically the same approach to debt, but differ in what one could call a moral sense: Graeber is much more communally minded and has disdain for the forces of violence he believes “rips people from their contexts”, whereas Nietzsche does not shy away from the active forces of the “strong types”. Eventually we will arrive at a crossroads where humanity will attempt to be retained by Graeber and superseded by Nietzsche. Despite groundbreaking inquiries into the nature of debt on both accounts, both writers bring in opposing, not-so-subtle judgments that point in completely different directions.

Having recently uncovered the nationalistic pretensions of primordial debt theories of money, Graeber continues in his quest to dispel theories that lead into myth. When money is treated as a “debt-token” or a mere measure of debt, what we are indebted to and where debt can be extended into in our social relations becomes fuzzy. If the universal store of value that is money is determined to be nothing but a measuring device, the debts we have with each other appear to be everywhere. Again, when all that money is is a measure of value – eventually it seems like we are indebted to just about everything in our community and the cosmos (parents, ancestors, gods, etc.). Our whole lives turn out to be a long list of things that we are indebted to; a sentiment that is particularly susceptible to despotic nationalism, where the state is seen as the guarantor of all of these debts and the only entity big and grand enough to do so. This was covered in my last post on money as caught between to myths.

Graeber seems to think that Nietzsche is recounting something like this primordial debt theory when he begins musing on the creditor-debtor relationship and its place as the origin of measuring one person against another: the origin of values. This is seen as another state-of-nature story like Adam Smith’s barter economy that spawned the more efficient money based exchange system (in other words, a retrospective creation myth for money). Quoted in Debt but with a different translation than here, Nietzsche writes:

“…the feeling of guilt, of personal obligation, had its origin, as we saw, in the oldest and most primitive personal relationship, that between buyer and seller, creditor and debtor: it was here that one person first encountered another person, that one person first measured himself against another. No grade of civilization, however low, has yet been discovered in which something of this relationship has not been noticeable. Setting prices determining values, contriving equivalences, exchanging – these preoccupied the earliest thinking of man to so great an extent that in a certain sense they constitute thinking as such: here it was that the oldest kind of astuteness developed; here likewise, we may suppose, did human pride, the feeling of superiority in relation to other animals, have its first beginnings. Perhaps our word “man” (manas) still expresses something of precisely this feeling of self-satisfaction: man designated himself as the creature that measures values, evaluates and measures, as the “valuating animal as such.”” (GM,8)

In Graeber’s summary of Nietzsche’s plan with his essay, (that guilt, debt, and those sentiments that follow morality are the result of a person-to-person, buyer-seller or creditor-debtor relationship, with community developing only afterwards) what he

“is doing here is starting out from the common-sense assumptions about the nature of human beings prevalent in his day (and to a large extent, still prevalent) – that we are rational calculating machines, that commercial self-interest comes before society, that “society” itself is just a way of putting a kind of temporary lid on the resulting conflict. That is, he is starting out from ordinary bourgeois assumptions and driving them to a place where they can only shock a bourgeois audience.” (Debt,p.78)

There is a split character in Nietzsche’s essay. On the one hand, he is parodying those backward-looking excursions into “primeval times” and taking them from their “origins” (about which Nietzsche is not so concerned) to their logical conclusion as nationalist myths demanding sacrifice to the great creditor-ancestors of the past. On the other hand, Nietzsche is offering the reader his own understanding of God-less forces in the course of weaving through the simple-minded and triumphalist narratives trumpeting around in his time. The primordial debt/nationalist story continues along with our indebtedness level rising in tandem with the power level of society – as though the greatness of a tribe, become a community, become a nation, become an empire had increased the debt to each of its members as it rose up to each level. To add to Graeber’s portrayal of this side of Nietzsche (the parodying side):

“The fear of the ancestor and his power, the consciousness of indebtedness to him, increases, according to this kind of logic, in exactly the same measure as the power do the tribe itself increases, as the tribe itself grows ever more victorious, independent, honored, and feared… If one imagines this rude kind of logic carried to its end, then the ancestors of the most powerful tribes are bound eventually to grow to monstrous dimensions through the imagination of growing fear and to recede into the darkness of the divinely uncanny and unimaginable: in the end the ancestor must be transfigured into a god.” (GM,19)

If the story seems coherent it is from a purely didactic viewpoint. When indebtedness is a condition that is universal across one’s society (in the market and religion alike), as well being as entrapped by a large state-apparatus, then the tendency is to imagine such a condition in one’s “pre-history” before documentation or “official history” was bestowed (perhaps by the great creditor/documenter?) into existence. The story of a debt-maximizing God’s rise to prominence through a chain of more and more powerful social arrangements (for Nietzsche) and nationalist primordial debt theories (for Graeber) is rightly labelled as creation myths and not truthful accounts for the history of any societies nor money. That the debt level rises in lock-step with the power of a community or tribe is no where in evidence (as if the feeling of indebtedness is ubiquitous across a “whole society”!). The ridiculousness of these stories is owed to the dream-land of pre-history taking the place of an historical explanation of the arrival of the present situation. In looking for the origin of money or our moral sentiments, our most analytic thoughts and well-documented studies get convoluted and confused because we are predisposed to imagine similarly to what is right in front of us or all around us.

But I would argue that the other side of Nietzsche, who weaves his own affirmations and denouncements through the fake origin stories, is missed by an author rushing on to the rest of real history and real humanity. After stating that “there is also every reason to believe that Nietzsche knew the premise was insane; in fact, that this was the entire point” on one page, in the next has one, Graeber has one subtle and one giant leap that a close reading of Nietzsche’s essay will show is problematic. “It’s a worthy game and no one has played it better;” he goes on, “but it’s a game played entirely within the boundaries of bourgeois thought. It has nothing to say to anything that lies beyond that.” (Debt,p.78-79) Nietzsche is now locked up in this chapter for lack of any further evidence of these days of old. Moving on up in *Debt we will get lots of facts anthropological and historical on the road to mapping out the logic of debt across the ages, but we will also get a recurring terminology in which a humanist morality is snuck in. The values that Nietzsche puts forward are done bluntly and with great enthusiasm – a point that he wants to hammer into his readers’ heads. He writes about unavoidability of a conceptual “prehistory”: “(this prehistory is in any case present in all ages and may always reappear)” (GM,9) – suggesting that origins incessantly pop up and reassert themselves in even the most conscientious societies. Is not the principle of “from each according to their ability, to each according to their need” of a baseline communism behind hierarchies and exchange a form of foundationalism that peels away the negative systems to find a romantically good core at the heart of humanity, the origins of sociality?

But Graeber’s approach is more casual and anecdotal – he takes it as a matter of fact that people experience communism as he defines it in our everyday life and that decency between people is as common as the air we breathe. It is only through encroaching hierarchy on the one hand and the demand to make our relations equal on the other that this basic humanity becomes tarnished. New categories papered over with lots of history, however, do not prove those categories more scientific. The non-scientific compartmentalization of social forms in hierarchy, exchange, and common decency (communism) aren’t essentially provable as comprehensive throughout human history and are heuristic categories to make Graeber’s humanistic-moral point easier to grasp. This territory of morality, humanity, and religion is precisely what must be dwelt on further if we are to find our way through the labyrinth of political economy and understand the logic of debt.

Nietzsche will spend more of the space on his pages with thoughts on memory, guilt, and punishment – the violence of inscription onto the body of the individual so as to train it to behave, and behave in docility over an extended duration with a conscience. It is these physical acts of punishment, the tremendous pain inflicted on the body, and the techniques that redirected human emotion inward that will drive the critique. The violence of the state that anarchists like Graeber never tire of pointing out (rightfully) is also pointed out by Nietzsche as a clear bringer of misery:

“…the wielding of a hitherto unchecked and shapeless populace into a firm form was not only instituted by an act if violence but also carried to its conclusion by nothing but acts of violence – that the oldest “state” this appeared as a fearful tyranny, as an oppressive and remorseless machine, and went on working until this raw material of people and semi-animals was at last not only thoroughly kneaded and pliant but also *formed.
I employed that word “state”: it is obvious what is meant – some pack of blond beast of prey, a conqueror and master race which, organized for war and with the ability to organize, unhesitatingly lays its terrible claws upon a populace perhaps tremendously superior in numbers but still formless and nomad. That is after all how the “state” began on earth: I think that sentimentalism which would have it begin with a “contract” has been disposed of.” (GM,17)

As always, Nietzsche digs deeper than moralistic and pious colleagues did (and most other writers have done since he died). He tears through the glossy surface that morality places over the victories of struggling forces, but not to find a basic human existence but ever more forces. Both ethical historians (one a genealogist, the other an anthropologist) are not impressed by the justifications that predominant powers give for their existence, but Nietzsche doesn’t fall for the next myth in line: the myth that human communality was all well and good before the state bore its way into the earth. Despite the terror of the state and the cold calculating law of the markets, another technique deserves our attention in the effects of repeated punishment and the formation of memory. The processes of ingraining a conscience into people also has a history drenched in blood and torture and did not simply exist before the rise of states, markets, and nations. We do not return to a more communal and warmly uncalculating relationship with other people when we remove the state, this would be to replace one myth with another. As we will see, the greater emphasis on techniques of punishment and inflicting pain in the development of a memory will play an important role in making us stand up for or own our debts through time. We own our debts and make contractual obligations through a more subtle and less noticeable coercion than the violence of the state and the equalizing demands of the market; although the history of this coercion is also the result of similarly reprehensible amounts of pain.

The drawing up of Nietzsche’s own primordial debt theory in *Debt is done briefly, but is done solely to assist in dispelling a bad myth. But Nietzsche always takes the game farther. The imaginary, “bourgeois” play with origin mythology is not for him something that when peeled back, we will get our humanity back. Graeber asserts this much about the fun Nietzsche is having with his audience, but this wild-mustached ghost never seems to find its proper place. The “real” that Graeber turns to immediately is a humanistic one oriented by a common community standard:

“in any real-life situation, we have propensities that drive us in several different contradictory directions simultaneously. No one is more real than any other. The real question is which we take as the foundation of our humanity, and therefore, make the basis of our civilization.” (Debt,p.79)

That’s a lot of “reals”! We have a positively real situation, then a multiplicity of contradictory forces (all real), and finally a real question: “what is the basis of our humanity/civilization?” Humanity takes center stage now in Debt, and the history that will follow in the second part of the book is done to tell us how the baseline reality of humanity has been disfigured by exchange and hierarchy. It is actually an extremely profound geo-history of political forms, economic systems, and religious dogma that all seem to compliment each other when attention is payed to all of them. But I am not disputing historical facts here – I’m getting after some contrasting ways of understanding morality in conjunction with debt. Remaining at this phase in the story for longer than Graeber did will strengthen much of his over-arching argument if we allow Nietzsche a louder voice: both are aware of the insidious logic of debt but Nietzsche’s inquiry more carefully focuses on those “reals”. The call for debt cancellation or resistance and a clean slate to reorganize society upon (found at the end of Debt) is prescient, but without dwelling longer on morality and those unexamined “reals”, the effort could be stifled by mental roadblocks. Like it or not, that ghost born posthumously is still hanging around.

The next part of this essay will be published shortly and go into more detail the differences in the theories of Nietzsche and Graeber. The role of memory and forgetting, history and origins, resistance and progress, and morality and resentment will receive further attention.>

Ian Hacking’s Historical Ontology as a Realist Puralism

There has been a stimulating discussion about pluralism from a number of bloggers recently. A pretty comprehensive list was compiled on Critical Animal here: The Pluralism Wars and there will surely be more to come. It seems a call from Levi Bryant was heeded by a number of bloggers, and the question of where pluralism fits with realism is a worthy enough question considering the existential threat that we all really face and the spectacular plurality of beliefs, opinions, and political factions out there spinning their tales. The whole thing has been very cordial, a far cry from how heated things use to get two years ago. I have no evidence or data to support this claim, but I still firmly believe that the big occupy rupture spiked people’s expressiveness – for good or ill of the conversation. It is when in the middle of an event, when a well argued speech or article might change the course of the assemblage and have a dramatic effect on people’s actions in concert that we bring out the big guns. It is when the “we need to calmly discuss this and carefully understand” becomes “we need to do this right Now!”.

There are many mentions of Latour, Whitehead, Stengers, and James, with James being the only philosopher I really have any decent grasp on. Stengers it seems has shunt tolerance, and cosmopolitics is no “let’s all get along” world peace plea. Latour as well talked extensively about war and its ecological shape with Gaia as a political actor (or maybe just entity). Anyways, when it comes to ontology and pluralism I thought I’d add my two cents while revisiting an old philosopher (he’s actually still alive) by the name of Ian Hacking. I was lucky enough to have Hacking as a professor in a senior seminar back at UC Santa Cruz in 2009. He was both challenging and friendly, opening us up to some of the more radical and intricate subjects in analytic philosophy at a time when we pined for the revolutionary philosophers of power, force, and deconstruction.

Hacking takes from Foucault’s genealogical work a historical dimension to truth and extracts it for analytical purposes. The method of looking back to history to understand the present is one that seeks not to solve a problem and give a definite answer as in a political decision, but situate oneself with a useful framing of the problem. The question is altered from “what is this being?” or “is being multiple or singular?” but “what process led to this or that being?” or “what effects does the naming of this being have?”. It is a fundamentally different question that places beings inside a continuum, a continuum that does not muse on the ontology by itself but rather changes in behavior, the disturbances brought on by beings, labels, names, and identities in their sites. To investigate how something came to be a thing at all, the coming-into-being of a being historically, does not get lost in whether beings are of a material quality or socially constructed. Hacking side steps these problems and asks a different one in a pragmatic way that skips right past pragmatist philosophy. He actually does research on child development, trauma, statistics, probability, and how naming – bringing a being into existence as a linguistic entity – is not just a description/explanation of a thing but effects it in a value-ridden way.

“This act of naming and labeling is far from arbitrary and it has powerful consequences for the actions one might take.” Declaring a being takes an utterance, an actor in a site or context that is far from impartial. Hacking invokes history as providing the inextricable place from which to situate beings: meaning that beings cannot be without their place. Far from an anti-realist, he says “I think of myself as a “dynamic nominalist” interested in how our practices of naming interact with the things that we name – but I could equally be called a dialectical realist, preoccupied by the interaction between what there is (and what comes into being) and our conception of it.”

(p.2)
A marked separation is held in Hacking where a thing has being on its own, aside from language and the names we give it; yet our naming and descriptions of these things are never neutral. The distinction {language – reality} is kept to avoid straw-man relativism, but there interplay is complex given the linguistic character of ‘being’. Being is in an unavoidable sense just a word. But when a thing is allowed to be called a being – it is granted access to being, gains currency, or becomes normalized – it takes on a material significance in the organization of matter.

The “linguistic turn” is closely studied by analytic philosophers and has something vital to say about a pluralist ontology: affirming the multiple over the single (as the paradoxical title of James’ A Pluralistic Universe embodies) does not rid us of a duality between word and world. ‘Worlds of discourse’ and the ‘hermeneutic circle’ that ensure that meaning must come from a place or context where other meanings bump into it and always have. We can be realists and hold the seemingly dualistic notion of words and things apart. I am not a realist, but that will have to be developed at another time (hint: think parallelism from Deleuze’s Spinoza: Practical Philosophy). On questions of ontology, this separation of language and real things (bodies and flesh if you will) is a major problem for any flat ontology that attempts to make objects all equally real (that is possibly oversimplified).

“In fact, “ontology” turns out to be perfect, for we are concerned with two types of being: on the one hand, Aristotelian universals – trauma or child development – and on the other hand, the particulars that fall under them – this psychic pain or that developing child. The universal is not timeless but historical, and it and its instances, the children or the victims of trauma, are formed and changed as the universal emerges. I have called this process dynamic nominalism, because it so strongly connects what comes into existence with the historical dynamics of naming and the subsequent use of name.”

(p.26)
To exacerbate the difference, a totally fictional being (a deity, a spirit) does not exist in material-reality. But problems sprout up immediately: the name “material-reality” has being in conjuring a linguistic entity and expressing it in discourse. The thing must have a site in language, in history. We can keep the distinction {reality – fiction} while paying attention to the way fiction alters reality in the perpetual act of naming and to the way reality asserts itself on the decision of naming a thing, or bringing something to being. Intertwinings abound, but this does not collapse the distinction.

For the purposes of philosophical inquiry and ontology as a subject within it, history works to situate beings in such a way as to enable deep analysis along with ethical implications for the present. Things neither completely lose their realness nor remain at a intangible distance from our (mostly language driven here) action through his being-altering nominalism. Both the linguistic operation and the real thing are kept apart even though his interests lie in the effects of the latter on the former. Those things exist separately, but new things come into existence that have a major influence on how we live, teach our children, deal justice, stereotype, and normalize certain behaviors over others.

“At its boldest, historical ontology would show how to understand, act out, and resolve present problems, even when in so doing it generated new ones. At its more modest it is conceptual analysis, analyzing our concepts, but not in the timeless way for which I was educated as an undergraduate, in the finest tradition of philosophical analysis. That is because the concepts have their being in historical sites. The logical relations among them were formed in time, and they cannot be perceived correctly unless their temporal dimensions are kept in view. This dedication to analysis makes use of the past, but it is not history.”

(p.25)
Problematization is the edge here. Taking concepts in there sites (his mantra is “a concept is a word in its sites”) takes a look at the big picture from a suspended moral position. One can begin with the aim of generating a positive good with one’s work, but also forgo value-judgments in that work. To frame the problem and broaden one’s perspective is one way of philosophizing: to look at the historical site, the processes leading up to it, and the series of effects that it has taken on bodies. The distinction {figure – ground} is also kept here, even if the ground is not-so solid. A better distinction would be {thing – place}, usually in the form of named-being and history in Hacking. Problematizing makes us sharper as well as more humble theorists by paying attention to the place/site at which we fashion our concepts, making them more potent tools for critical theorists. A good example of this is Colin Koopman’s nascent project of Infopolitcs:

Writing on Foucault, Hacking draws a distinction between two attitudes and shows how one can operate under one and exclude the other, but switch at a later time. One can be “intrinsically moral” and/or “extrinsically meta-moral” in one’s endeavors. Foucault’s histories were extrinsically meta-moral because they began from a problem in the present and went on to explore the emergence of that problem rather than propose a quick fix. There was a demand to know what he valued, what Foucault thought was right since he was a popular public intellectual with a wide reaching audience, but his project sought to get us to ask the right questions and understand how we got where we are in order for right action to develop on its own rather than prescribe it in theory.

“It is also extrinsically meta-moral. By this I mean it can be used to reflect on evaluation itself. The reflection can be done only by taking a look into the origin of our idea… But it is a social rather than personal formation of the concept. It involves history. The application is to our present pressing problems. The history is history of the present, how our present conceptions were made, how the conditions for their formation constrain our present ways of thinking. The whole is the analysis of concepts. For me that means philosophical analysis.”

(p.70)
This emphasis on history and process in concepts is clearly meant to bring the radical contingency of concepts into the fore. Universals exist in social arrangements, hermeneutic circles, and historical sites but in a constrained way. This constraint is a direct result of taking the meta-moral long-view and, in the same way that pluralism tends to promote harmony and respect for the other, the historical-contingency outlook does discourage an imperialistic “my way is the only way” mentality. We can turn around and take the intrinsically moral stance however and act in the present, which would be made better equipped by understanding the site (historically/genealogically/geographically) more clearly, having switched perspectives to the long-view in the past.

Suddenly the fire comes back. We throw around universals and make assertive claims to correctness in the present. An ethical urgency returns and the immediacy of the situation bears down on us so that we are making claims with the weight of the universal behind them. This weighty force can actually be increased by our prior change in perspective.

Just to bring it home: a climate scientist is wrapped up in a schizophrenic situation where they must be objective and take that distant world-view as a requirement for their job. The skeptical, impartial-as-can-be attitude has been ingrained in scientific training in a long history of refinement and revolution. To then take one’s findings and speak out in a present political situation is to make a qualitative leap from the extrinsically meta-moral researcher to the intrinsically moral lobbyist or expert. One can be on one side at one time and then on the other side in an other time. The trick is to be able to identify when you are being the broad and skeptical experimenter and when you are the policy-driven politico. The ability to switch up perspectives and see the world from a plurality of angles means that the universal one must be included with them. It is a matter of selection between site-determined stances and not the demand to hold them all available discreetly that would characterize an ethical pluralism.

Hacking’s style is of the analytic flavor – contrary to my own. The obsession with systematic logic and propositions turned me off at an early age. But his conclusions have much to offer across the divide. It is an exercise in switching one’s perspective, becoming more interesting and creative (in the Nietzschean sense of giving style to one’s character) that allows thinkers and philosophers to build bridges and make leaps between the divides that plague effective policy and scientistic authority.

I’ll end with a quote out of Hacking’s chapter where he most analytically and summarily treats language and realism called ‘Anarcho-Rationalism’:

“1)There are different styles of reasoning. Many of these are discernible in our own history. They emerge at definite points and have distinct trajectories of maturation. Some die out, others are still going strong.
2)Propositions of the sort that necessarily require reason to be substantiated have a positivity, a being true-or-false, only in consequence of the styles of reasoning in which they occur.
3)Hence, many categories of possibility, of what may be true or false, are contingent upon historical events, namely the development of certain styles of reasoning.
4)It may then be inferred that there are other categories than have emerged in our tradition.
5)We cannot reason as to whether alternative systems of reasoning are better or worse than ours, because the propositions to which we reason get their sense only from the method of reasoning employed. The propositions have no existence independent of the ways of reasoning towards them.”

(p.175)
And then to really finish:

“Anarcho-rationalism is tolerance for other people combined with the discipline of one’s own standards of truth and reason.”

(p.177)
All quotes are from Historical Ontology (Harvard, 2002)