The View From 1776

-------------------
Supremely confident that collectivist government had mastered the art of managing the economy, the Federal Reserve economists and their counterparts in the President’s Council of Economic Advisors in the 1960s set about financing President Lyndon Johnson’s welfare entitlements in his Great Society, the final phase of fully socializing our system of government.  The result was the catastrophic stagflation of the 1970s. 

None of this would have been possible had our money still been based on a gold standard.  But the corporate-state, fascist Federal Reserve system instituted at the tail-end of the Hoover Administration and, full-bore, during the Roosevelt New Deal, cut us away from the stabilizing effect of the gold standard and empowered the Fed to create whatever amounts of money the government desired to finance its welfare-state programs.

The inevitable result is inflation.  Inflation amounts to indirect taxation, because it steadily takes away the purchasing power of your earnings and savings to pay for the Fed’s artificially expanded money supply.

Great Society entitlements spending ignited the worst inflation ever experienced in the United States.  Inflation today runs somewhere under 3% per annum; in the late 1970s it was at times north of 20%.  Simply to pay for the rent and groceries, women were forced to leave their homes and take jobs to supplement their husbands’ pay checks, while those husbands introduced “moonlighting” to the lexicon by taking second jobs.  Between 1960 and 1980 the number of women in the labor force increased 96%, compared to a 33% increase in the number of men.  By 1980, women constituted 43% of the entire full-time work force.  Clearly the forced separation of so many mothers from their children is related to the ensuing explosion of drug addiction and crime among children and young adults.

Fed-induced inflation’s most severe damage, however, was visited upon the very foundation of our Constitutional society.  By 1979, a working family’s retirement savings and pensions, adjusted for inflation, retained only about 50% of their pre-Great Society purchasing power. 

Understanding this requires revisiting our national history and the history of Great Britain, upon whose constitution our nation was based.

Uniquely in the Western world, the English early-on recognized the essentiality of private property rights as the lever to protect their political liberties from the king’s arbitrary power grabs. 

Governments are always short of funds to finance their wars and domestic projects.  English kings frequently resorted to decrees imposing special taxes, or simply confiscated property of those who opposed their schemes.  In 1215 the barons, earls, and yeomanry of England had had enough of it from King John.  Meeting with him arrayed in full battle armor, ready to fight, they compelled him to sign Magna Carta.  That document contains 63 articles, 47 of which restrict the king’s assertions of arbitrary prerogative to tax, impose fees, or to seize property.  Of the remaining articles, all but two establish the legal rights of persons brought to trial or imprisoned for resisting the king’s property seizures.

The principle was established that only the people’s representatives meeting in Parliament could impose taxes and fees.  If the people retained control of their private property, then they could limit the king’s power thereby preserving the liberties we now take for granted in our Bill of Rights.  It was this principle, expressed as “No taxation without representation” that led to our War of Independence in 1776.

The nasty problem is that inflation is an unconstitutional way to take people’s property without the need to impose taxes in accordance with the Constitution’s Article I, Section 7, which states “All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.”

This not withstanding, since the New Deal, our government routinely enacts programs requiring more money than the available, constitutional tax revenues.  Those excesses, every day, are financed by “money” created by the Federal Reserve.  When the inflationary bill comes due, it’s you, the wage-earning taxpayer who pays through lessened purchasing power of your wages and savings.

Only a fixed and independent standard controlling the money supply can prevent this.  Only by reverting to a gold standard of the kind destroyed by FDR’s New Deal can we effectively prevent inflation.

Don’t take comfort from the last 25 years’ experience under Fed chairmen Paul Volcker and Alan Greenspan, both of whom set limiting inflation as a primary goal.  Under a future liberal administration we will again have chairmen like FDR’s Mariner Eccles, a whole-hearted advocate of inflationary expansion of government spending.

Paraphrasing James Madison’s famous phrase in Federalist No. 51, “A dependence on the goodwill of the Fed chairman is, no doubt, the primary control on the government’s money supply; but experience has taught mankind the necessity of auxiliary precautions.”

Visit MoveOff Network Members