The Curse of the Federal Reserve and the Federal Debt Explained and Delineated: Part I

When heuristically discussing the dire 21st Century status, and flagrant economic and financial practices, of the federal government, the 20th Century federal practitioners of the problematic socialist doctrines of economist John Maynard Keynes almost always say that there can be no viable comparison between federal economics and financial policy before 1913, and that which inexorably came after that pivotal year. How true it is that a purely polemic discussion about the state of austere economic flux in the United States after 1913 cannot be adequately pursued with any degree of success in determining official culpability for the awful economic and financial mess that has prevailed in the country. To pursue this properly, the sordidly unconstitutional processes and policies legislated by the federal government during, and after, 1913 have to be recalled and examined, the guilty people responsible for the legislation and its implementation have to be named, and the deceit and conspiracy that caused the awful economic calamities and conditions, described by sad, though correct, history, to prevail in the first three decades of the 20th Century have to be examined and analyzed for what they exactly were.

Hence, if the reasons for the abject economic and financial problems of the 21st Century federal government may be properly attributed to their root causes, what would those causes be, and from whence did they come? The distinguished economic analyst Henry Hazlitt, in his books, “Economics in One Lesson,” and “The Failure of the New Economics: An Analysis of the Keynesian Fallacies,” summed up the faults of the Keynesian socialist economics imposed after 1913 by Woodrow Wilson and Franklin Roosevelt into three basic categories, 1) unconstitutional taxation, 2) rampant socialism, and 3) egregious federal deficit spending in the making of a, basically, unpayable federal debt. He points out that from U.S. Supreme Court Chief Justice John Marshall’s 1792 affirming vote in the Supreme Court case McCullough v. Maryland, which declared Alexander Hamilton’s First Bank of the United States as constitutional, and that it could not be taxed by a State entity, came the 1913 unconstitutional Federal Reserve Act, in which the Article 1, Section 8 power of Congress to coin money and determine its value was relinquished by the Legislative branch and given illicitly to a private cartel of private bankers known as the Federal Reserve Board. Hamilton, a monarchist of British tradition had persuaded President George Washington to sign the bill into law in 1791, and that the Banking Act was necessary in order for the execution of the powers of Congress in Article 1, Section 8. This, of course, was not true and constitutional, as was clearly asserted by Thomas Jefferson and James Madison, but Washington, a soldier and not a scholar, was putty in the hands of the persuasively sophistic Alexander Hamilton.

So, therefore, let’s take Hazlitt’s categories, one by one, beginning with unconstitutional taxation, and examine the prior and present taxing status of the federal government. Prior to the year 1913, the federal government was funded exclusively by excise taxes or tariffs, and it fared very well on those tariffs. Before the dubious ratification of the 16th (income tax) Amendment in February 1913, the federal government had very few essential constitutional responsibilities, and funded those essential responsibilities without the use of an income tax. Why was this so? It was because an income tax was an un-apportioned indirect tax and, therefore, blatantly unconstitutional and illegal for the federal government to impose. During the American Civil War, Abraham Lincoln, with impunity, blatantly violated the U.S. Constitution by unilaterally drp imposing an un-apportioned indirect income tax to fund the war of Northern aggression. Since he had already unilaterally suspended federal habeas corpus, an egregiously unconstitutional act, he presumed to have absolute power to do anything to reach his illegal end objectives. At the end of the American Civil War, Lincoln’s income tax was, however, immediately repealed, and during the subsequent peacetime, the federal government managed to operate efficiently, and entirely, on import taxes called tariffs. Congress was fully able to run the federal government on tariffs alone because federal responsibilities did not include unconstitutional welfare programs, agricultural subsidies, or social insurance programs like Social Security or Medicare. After the Civil War, though tariff revenues sometimes suffered under a protectionist policy ushered in by the Republican Party, which supplemented federal income via excises on alcohol, tobacco, and inheritances, the federal government always managed to operate efficiently with a balanced budget. During periods of war throughout early American history, prior to the American Civil War, the Founding Fathers were always able to raise additional revenue employing different methods of direct taxation authorized by the U.S. Constitution prior to the 16th Amendment. These alternative taxing methods gave the young American nation embarrassing peacetime budget surpluses that several times came close to paying off the national debt.