Lies the government told you

by Andrew P. Napolitano

  Since the Continental currency was backed by neither silver nor gold, its value declined exponentially, and by the war’s end, very few would accept it as payment. All fiat money is the same, and each time the government issues such currency, it lies to us all, both by pretending that the arbitrary amount at which it prices the paper is its actual worth and then by portraying that paper as a stable currency that the American people will be able to use in the future. “Not worth a Continental” is a phrase meaning “of no value.”

  With the lesson of the Continental in mind, the Founding Fathers summarily rejected the proposal to grant Congress the ability to “emit bills of credit.” Rather, they drafted Article 1, Section 8, Clause 5 of the Constitution, which grants Congress the power “[to] coin money, regulate the Value thereof, and of Foreign coin, and fix the Standard of Weights and Measures” (emphasis added). Then, in Section 10, they prohibited the states from coining money and from “mak[ing] any Thing but gold and silver Coin a Tender in Payment of Debts.” Thus, since Congress is prevented by the Tenth Amendment from assuming any powers not delegated to it, the printing of paper money, known as bills of credit, since there is no specific authorization, is prohibited by the Constitution.

  When Congress printed Greenbacks during the Civil War, and they lost half their value within two years, the loss led to a series of historic decisions by the United States Supreme Court. In the 1869 case of Hepburn v. Griswold, Chief Justice Salmon P. Chase stated:

  [M]ost unquestionably there is no legal tender and there can be no legal tender in this country under the authority of this government of anything but gold and silver, either the coinage of our mints or foreign coins at rates regulated by Congress. This is a constitutional principle and of the very highest importance . . . Congress has no power to substitute paper or anything else for a coin as tender in payment of debts. (emphases added)

  Consider that Chief Justice Chase had, in his prior position as Lincoln’s Secretary of the Treasury, helped to formulate the Legal Tender Act of 1862, yet when asked to adjudge the Act’s constitutionality, he admitted that it was not derived from any constitutional power, and he caused the Supreme Court to invalidate it. As a governmental official, he swore an oath to uphold the Constitution, yet he was able to draft a law that he himself would later admit to be unconstitutional.

  Similarly, Rexford G. Tugwell, a member of FDR’s “Brain Trust,” who later became a Nuremberg prosecutor and ended his career as a Columbia Law School professor, stated, “To the extent that these [New Deal] policies developed, they were the tortured interpretations of a document [i.e., the Constitution] intended to prevent them”3 (emphases added).

  The same day that Hepburn was decided, two new justices were appointed to the Supreme Court. And only a year later, in the cases of Knox v. Lee and Parker v. David, the Supreme Court overruled the original legal tender decision. Straying from its one-year-old precedent, the Supreme Court in a 5 to 4 decision voted to reverse Hepburn v. Griswold and upheld the constitutionality of Congress’s claimed power to print money during times of war. And the final nail in the coffin of real money, based on hard currency, came swiftly thereafter with the case of Juilliard v. Greenman (1884), which upheld the constitutionality of fiat money even in peacetime, noting that “making the notes of the United States a legal tender in payment of private debts” is “included in the power to borrow money and to provide a national currency.”

  Inexplicably, the Supreme Court went from the notion that Congress not having the power to make anything except coins legal tender was a constitutional principle of the very highest importance, to claiming to read into the Constitution the exact opposite principle, that Congress had the implicit right to emit bills of credit because it had the right to borrow money! Two opposite opinions by the same Court can only mean that someone lied or someone changed his mind on a matter of the highest importance, considering that the Constitution was not rewritten between 1869 and 1870.

  In a telephone interview, Lawrence Parks, a noted expert on the legal tender cases, stated that a currently sitting justice on the Supreme Court has privately admitted to him that the 1870 Legal Tender Case was improperly decided and deeply flawed. Yet, the Supreme Court has done nothing to stop this sham from being perpetrated by our government. Supreme Court Justice Ruth Bader Ginsburg once claimed that “this is something best left to the politicians.”4

  Somehow, though, Congress allowed itself to read between the lines and find its power to emit bills of credit and then, even more astonishingly, to grant that right to a private corporation. In A.L.A.Schechter Poultry Corp. v. United States (1935), the United States Supreme Court held that Congress is not permitted by the Constitution to abdicate, or to transfer to others, the essential legislative functions with which it is vested. Considering that Congress has been given the right to regulate the value of money, and thereby the monetary policy of the United States, where did it get the power to delegate this enumerated power to a private entity like the Federal Reserve? Whatever Congress’s reasons, since that delegation in 1913, the dollar’s value decreased by 93 percent.5 From 1789 to 1913, without a central bank with real power or lasting duration, the dollar’s value increased by 13 percent.

  The Birth of a Monster

  The Federal Reserve scheme was not born in 1913, but rather has its roots with the proposals for a central bank dating to the earliest years of America. Alexander Hamilton, who wanted George Washington to be a king and thus serve for life, was a proponent of a large, centralized government and wanted to establish a central bank that would help finance the government. He was initially impeded from doing so by Thomas Jefferson, who argued that Congress did not have the authority to charter a bank, as it had only those powers granted to it under the Constitution. It was only in 1791, when George Washington offered his encouragement, that Hamilton’s financial behemoth, the Bank of the United States, was formed. Fortunately for the country, the bank only had a twenty-year charter that expired, and was not renewed, during Madison’s presidency.

  This might have been the end of the Bank if not for the War of 1812 and the ensuing financial strain it placed on the federal government. President James Madison, previously a critic of the central bank, adopted the attitude of so many in his position, that in times of great stress, the Constitution be damned. In dire need of money, he signed legislation that authorized the creation of the Second Bank of the United States in 1816, interpreting the Necessary and Proper Clause of the Constitution to allow for any laws to be passed which would be helpful in executing the federal government’s delegated constitutional purposes.

  The man credited as the Father of the Constitution, and its task of limiting the powers of the federal government, read into the document an idea that would in essence grant the federal government permission to do anything it chose—anything it found “helpful” rather than truly “necessary and proper.” Did he lie to us when, in no need of currency, he said that the federal bank was unconstitutional; or is it more likely that he was lying to the American people when, in dire need of money, he claimed that the creation of such a federal bank was within the powers of the federal government? How can “helpful” mean the same as “necessary and proper”?

  While branches of the federal bank sprang up around the country, the states began to balk at what they viewed as federal overreaching. They knew that the Constitution did not permit such a creation and that they could not sanction this sham by the federal government. Maryland made the first attempt to protect its sovereignty when its legislature imposed a tax on any bank not chartered by it. The only bank that fell under the statute was the Bank of the United States. Yet when it came time to pay the legally imposed tax, James McCulloch, head of the branch, refused to pay.

  The result was McCulloch v. Maryland, where the United States Supreme Court held that the Necessary and Proper Clause of the Constitution grants to the federal government unstated, never-delegated, implied powers. So even though the Court admitted
that the Constitution was silent on the creation of a bank, Chief Justice Marshall noted that the Constitution “had to be adapted to the various crises of human affairs.”

  In essence, Marshall read the Constitution to grant any and every power which was not expressly prohibited, as long as it was reasonably tied in to an express power. He stated that as long as the end was legitimate, then “all the means which are appropriate which are not prohibited . . . are constitutional.” Therefore, though the entire document centers on enumerating the powers of the federal government so as to limit them, Chief Justice Marshall held that this clause is different, that it grants to the government broad, elastic, and unrestrained implied powers. By reading these broad powers, Marshall lied to all of us and deceived us about the spirit of the Constitution, for if “necessary” means “helpful,” then the Constitution in essence allowed the federal government to do whatever it felt like, all under the guise of it being helpful to some other of its duties.

  Of course, the Court also noted that the power is not limitless, and when it does go outside its boundaries, then the law would be nullified. But if the Necessary and Proper Clause can stretch the taxing and spending powers to encompass the charter of a federal bank, then what boundaries exist?

  After McCulloch, the bank thrived until the presidency of Andrew Jackson. After an enormous struggle in the 1830s, he managed to bring it down and return to a system of free trade. Jackson was, coincidentally, the last president in American history to pay off the federal government’s debt.6

  Orchestrating Panic

  The country unfortunately was destined to build up a great debt in the post-Jacksonian era. The Civil War resulted in the National Banking Acts of 1863, 1864, and 1865. The Acts resulted in the creation of newly chartered federal banks. Then, by prohibiting the state banks from issuing notes, Congress forced state banks to keep their deposits at the federal banks, thereby granting a monopoly to the new federal banks. As well, the Acts created a new lower minimum reserve requirement, which opened the banking world to expanded lending possibilities due to decreased amounts of reserves required for each loan. Finally, the Acts created a hierarchal structure to these banks, ensuring in essence that the banks would not have to stand on their own and take responsibility for their own debts. The Banking Acts paved the way for a central bank, for unimaginable public debt, and for ruinous inflation.

  Still, many bankers voiced complaints that the system was not centralized enough, that there was not a large financial body which could serve as a “lender of last resort” to bail them out when they expanded beyond their capabilities. They complained of monetary “inelasticity,” shorthand speak for their inability to expand credit without any barriers and without worry about the consequences. The bankers were complaining that they could not create inflationary booms through massive credit expansion. The reserve requirements, which required that the banks have only 15 percent reserves, were still too high for them.

  Would you want your bank to be able to cover less than 15 percent of its obligations to its depositors? The bankers wanted to be truly insured against any chance of collapse, to ensure that there would always be more money to print and someone there to pick up after their mess. They envisioned one giant central bank creating regulations, ensuring maximum profits, and insulating them from the consequences of their own negligence and their own excess. Sounds familiar.

  But in order to create their behemoth, the bankers needed to derail the opposition: politicians who opposed a central bank and wanted to retain the decentralized system. The first step was the creation of committees in Indianapolis and New York, in 1897 and 1898, respectively, which would be composed of disinterested experts, many from the heartland of the country. The chief goal was to ensure a grassroots-type movement without the outward involvement of the bankers, as people would assume that any plan extolled by bankers would be bad for everyone but the bankers. The committees’ neutral evaluators included representatives of the Rockefellers and the Morgans who sent out questionnaires to financial executives and traveled to Europe to interview heads of European central banks. No one consulted those who would be most affected by the creation of a central bank, the persons who would be paying for it. At the end of their time, both committees predictably called for the establishment of a central bank.

  Less than a year after the committees decided that a central bank was the only way to ensure economic stability and prosperity for all, the inflationary tendencies of the secretary of treasury caught up with America. Some noted that J. P. Morgan, returning from a European vacation with the Rothschilds, was the originator of rumors that the Knickerbocker Bank could not afford to pay its debts. This was the same Rothschild family whose patriarch once stated, “Permit me to issue and control the money of a nation, and I care not who makes its laws.”7

  Once a run began at the Knickerbocker, panic quickly spread, and the inflationary spending habits of the country had a predictable result: The Panic of 1907.8 Soon after, politicians and the media called for federal regulations of the banks, claiming that those in charge could not be trusted with even local finances if they could adversely affect national liquidity. In essence, one well-placed rumor, stating only the truth that no bank could survive a run on its money, collapsed all relevant opposition to a central bank as the American people forgot their history and forgot their Constitution in the panic of the fear of losing their life savings. The American financial system was ripe for the taking.

  Legally Sanctioned Cartels

  This brings us back to the fateful train ride in 1910, and the secret passengers making their way from Hoboken to Jekyll Island, a privately owned island off the coast of Georgia. On that day, six men boarded that train, in furtive secrecy and deception. Only first names, and in some cases nicknames, were used to ensure secrecy. If one man saw another on the platform, he was instructed to feign ignorance of the other’s identity. No one was to know that they were traveling together or even where they were traveling. And if questions were asked, all men answered that they were to go on a hunting trip. One man even carried a shotgun with him, to ensure the deception appeared genuine; the shotgun was borrowed from one of his friends, and an autobiography would later note that the man had never in his life fired a gun.

  The question is, why such deception? Why did it matter that no one knew that the men were together? The associations of these men, and not their names, speak to this question. As one of the men later stated, if it was known that these men had drafted the banking bill, Congress would never have passed it, given that the stated purpose of the bill was to ensure that the grip of the few large banks controlling the banking industry was broken, yet it was they who were writing it.

  The list of passengers on that train reads like a Who’s Who of banking: Senator Nelson Aldrich, father-in-law of John D. Rockefeller; Frank Vanderlip, vice president of Rockefeller’s National City Bank of New York, the largest bank in America; Charles Norton, president of Morgan’s First National Bank of New York, America’s second-largest bank; Henry Davison, senior partner of J. P. Morgan Company; Benjamin Strong, head of J. P. Morgan’s Banker’s Trust Company; Paul Warburg, representative of the Rothschilds; and of course Abraham Andrew, the Assistant Secretary of the Treasury, ensuring that the federal government would have some say.

  These men represented approximately one-quarter of the wealth of the entire world. Yet they were willing to create the Federal Reserve, an entity whose stated purpose was to wrest away from them the control of America’s money. These men were not the types who would willingly part with the power they had thus far attained. And, given that the names of Morgan, Rockefeller, and Rothschild are recognizable to this day, it is apparent that they did not.

  Purportedly each other’s biggest competitors, having spent their lives fighting for dominance in banking and the financial markets, the men were able to come together for a week and agree on a draft of what was to become the Federal Reserve System. Their only debate was whether to c
hoose partial or full centralization. With the knowledge that Congress would not approve an entirely banker-controlled central bank, they chose the politically astute partial centralization, realizing correctly that once legally passed, the Act could easily be revised in the future as people adapted to the idea.

  They were not, as stated, preparing banking reform that was to ensure prosperity for the American people. Rather, they were able to come together so as to form a partnership that would secure their positions in the market and enhance their bottom lines. In other words, these bankers that day formed a cartel, a cartel that would ensure their continued dominance and survival: a cartel with legitimacy granted by the federal government and sold by deception.

  In order to ensure acceptance by the people, a fund of about $5 million was donated by the bankers to academics and scholars and created the National Citizen’s League for the Promotion of a Sound Banking System, whose sole task was expounding the importance of creating a Federal Reserve Bank.9 The league was tasked with issuing statements by expert economists stressing that Wall Street’s “control would be tempered by the influence of the Federal Government . . . which will be great.”10 One of the most outspoken supporters paid by the League was Professor J. Laurence Laughlin, from the University of Chicago, which had been endowed with nearly $50 million by Rockefeller.11 The public was easily swayed by “neutral” scholars, giving credence to what John Adams said 125 years earlier, “[a]ll the perplexities, confusion and distress in America arise, not from defects in the Constitution, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation.”