Banking, Beer and Taxes

Interesting parallels between today and 90-years ago.

On this day in 1933, President Roosevelt signed an amendment to the Volstead Act legalizing the manufacture and sale of "3.2 beer" (3.2% alcohol by weight, approximately 4% alcohol by volume or ABV) and light wines. For comparison sake - today's Bud Light has a 4.2% ABV.

The reason this weakening of Prohibition came about is because FDR was faced with a banking crisis as he came into office (he was inaugurated just 18 days before) and the new President badly needed tax revenue. So he asked Congress to allow 3.2 beer (the Eighteenth Amendment did not specify the percentage that constituted an intoxicating beverage) so that he could legally tax the manufacture and sale of beer. Congress readily agreed passing a bill the very next day by a vote of 316-97. Congressmen were well aware their constituents wanted beer back.

Two days later the Senate agreed as well but they lowered the alcohol content to 3.02%. However, they also added the exemption of wine to go along with beer. Guess the patrician Senators may have missed their legal table wine with dinner. 

These new taxes were needed to help fund FDR's planned new FDIC (Federal Deposit Insurance Corporation) which was to guaranty the safety of bank deposits and help restore confidence to halt the bank runs that were plaguing the country. The FDIC was created shortly thereafter in June of 1933 and the initial limit of FDIC protection was up to $2,500 by the way.

The more things change the more they stay the same. Makes one wonder if perhaps today Congress should pass a law taking away all banking restrictions on legal marijuana growers and dispensaries but require that all their banking be done with local community banks who are feeling the biggest pinch from these latest banking problems (and yes I’m aware the root causes of today’s issues are much more complex).

Using man’s vices to help solve a banking crisis has worked in the past.