Lies the government told you

by Andrew P. Napolitano

  In essence, Congress struck a deal with the private bankers who would run the Federal Reserve, granting them absolute power over the control of America’s money (a power delegated to Congress in the Constitution) in exchange for infinitely deep pockets. Whenever Congress needs money, the Federal Reserve prints it. And the more money printed by the Federal Reserve, the more inflation, and the less worth is attached to each day’s labor. And the best part, for Congress, is that this tax is not only invisible and infinite, but Congress also does not have to attempt to raise the money, either through taxation or transfer of funds from expenditures; it can just get it without any direct, immediate consequences. Rather, the consequences land on the American people, who are forced to work harder and longer hours in order to get the same buying power that they used to get with a shorter day’s work.

  Essentially, the Federal Reserve, through its inflationary policies, has found a neater way to do what used to be done by monarchs when they ordered their Treasury officials to shave off or clip coins as they passed through the Treasury. If a private person did that, or if the king’s treasury officials did that and helped themselves to whatever they could shave or clip, and got caught, that would be instantly recognized as theft and fraud; yet when the Federal Reserve does the exact same thing to paper money that the King did to coins, no one says a word, because Congress has legalized the theft. And the only person who pays is you, when you attempt to take out your 401(k) and notice that the money you put in for the past twenty years is really only going to buy you less than the amount you put in, less than had you accumulated the cash in a shoe box. The Federal Reserve has in essence diluted the value of the 1914 dollar to seven cents. But don’t worry; at least the same banks of today will always be doing business, having been bailed out by the Fed many a time before.

  What we have to understand is that nothing in life is free, everything has a price, and right now the invisible tax is having a large impact on the middle class, lowering standards of living and causing job losses, while the economic elite gain the benefit of being the first to spend any issue of money before it is deflated in worth. A one-time Chairman of the Fed, Alan Greenspan, even admitted that if the top-secret monetary policies sometimes leaked prior to the Fed’s actions,24 those to whom it leaked could make a fortune.

  For anyone who would question the impact on the value of the dollar without the backing by gold, and for whom the example of the Continental does not suffice, compare what you could buy with an ounce of gold only forty-five years ago as compared to today. In 1964, an ounce of gold was worth thirty-five U.S. dollars, which could buy a gentleman a very nice business suit; in 1979, the same suit could be bought for three hundred U.S. dollars, coincidentally, the price of an ounce of gold at the time;25 today, a nice suit can still be bought for three hundred U.S. dollars, yet the price of gold is now around twelve hundred dollars an ounce. And if that were not enough, the prices of oil, milk, and eggs have not actually risen; that is, they are worth the same if priced in 1908 twenty-dollar gold pieces; rather, the only thing that has changed is that the dollar of today has the same buying power as the nickel of a hundred years ago.26 These are just some illustrations of how unstable the purchasing power of fiat money is compared to gold, of which the same amount can buy today what it could buy forty-five years ago.

  Requiem for a Dollar

  Economist Jeffrey Sachs of Columbia University recently noted that “the US crisis was actually made by the Fed. Monetary expansion generally makes it easier to borrow, and lowers the cost of doing so, throughout the economy . . . The Fed, under Greenspan’s leadership, stood by as the credit boom gathered steam, barreling toward a subsequent crash.”27 This is shocking candor and a damning admission from a Big Government guy.

  It looks as if we haven’t learned from our mistakes, as recently a new proposed bill would grant the Federal Reserve sweeping new powers. Even the Washington Times sometimes forgets that the Federal Reserve is a privately run corporation, as it claimed the Fed is “. . . already arguably the most powerful agency in the U.S. government.”28 When even the conservative media reports the Fed to be a government agency, you know that the deception spawned by the government has been so pervasive that no one thinks to question the myth. Until we realize that our monetary situation is run by a private banking cartel, we cannot gain stability in the economy and the dollar will continue to plummet.

  In the same article, the Washington Times quotes Treasury Secretary Timothy Geithner, attempting to justify the new, broad powers being granted to the Fed, stating that we need to prevent future crises, and in order to do that, in order to make our system stronger, we have to give one entity “clear accountability, responsibility and authority for preventing future crises.” This sounds like a recycled Wilson speech right before enactment of the Federal Reserve Act. It also sounds like someone utterly ignorant of history or willfully deceptive about it.

  Once again, an expansion of the Federal Reserve Act is being called for in the guise of a need for economic stability. Proponents claim that granting expanded powers to a central regulatory authority is the only way to ensure that stability occurs. Will we keep ignoring the lessons of history and allow the government to continue to delude us into believing that it is running the Fed and we need the Fed to keep our economy stable? How can one say with a straight face that because we worry that private bankers will go off the deep end and cause an inflation, we should therefore ensure that a group of bankers working together will ensure that this does not happen? They never have in the past and won’t do so now. And the government now appears to believe its own lies, as President Obama is expounding the Fed’s role as supercop of the markets and is expounding that he will not let the country forget history.

  The President might not let us forget the federal government’s version of history, but maybe he should take a look a little bit further back and note that the economy has become more and more unstable the more that power has been given to the Fed. As Senator Christopher J. Dodd, Chair of the Senate Banking Committee, once made clear, giving the Federal Reserve more power is like awarding your son a bigger, faster car right after he crashes the family sedan. Maybe this time we should listen. Thomas Jefferson foresaw this two hundred years ago, when he said: “If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property until their children wake up homeless on the continent their fathers conquered.”

  Lie #9

  “It’s Only a Temporary

  Government Program”

  Milton Friedman, the esteemed Nobel prize–winning free market economist, famously noted, “Nothing is so permanent as a temporary government program,”1 and, “The government solution to a problem is usually as bad as the problem.”2 Examples of temporary government programs that have become permanent fixtures include income tax withholding, rent control, and social security.

  Another example is the National Defense Act, which was created in 1916 during World War I and was also used in World War II. It is known to be the most comprehensive piece of military legislation ever passed by Congress. The Act permitted the President to make obligatory orders in times of war that take precedence over any market forces or lawful private contracts. The government is then allowed to seize operations of private companies for the purpose of wartime efforts at whatever price it has deemed appropriate, and any resistance would result in a felony. By setting prices below market value, the federal government was able to conceal the true costs of both World Wars. The Act was a violation of private property rights, and the Supreme Court has since eliminated executive wartime power to seize private property unless that power is expressly given by Congress. So, therefore, in the realm of “temporarily” seizing private property, it requires two branches of the federal government to make an unconstitutional act constitutional!

  Although the National Def
ense Act has been phased out, several similar programs that were passed in times of crisis as a “temporary fix” still linger today. It seems the American government has never refrained from using the “opportunity” presented in a crisis as an excuse to expand the government and indulge in the money of taxpaying Americans.

  America was founded on basic principles of limited government. Then, throughout American history when situations such as war or economic downturn became apparent, these principles were often abandoned and the federal government expanded. These expansions, which run counter to fundamental American values, were often permitted because they happened in times of emergency. Yet, instead of going away once the emergency situations subside, these programs have lingered and eroded the way our government functions. Over and over, these “temporary” government programs have proved to be nothing but permanent.

  “Temporary” Government Program #1: Taxation

  At the root of government expansion lie taxes. The government funds its wars, its welfare system, and its programs through the taxes it places on citizens. Sadly, Benjamin Franklin’s old adage, “In this world nothing can be certain, except death and taxes,” has proven to be an immutable truth.

  Big government and high taxes were far from what the Founding Fathers had in mind. Paradoxically, taxes acted as a catalyst to America’s revolt from Britain. In his book about America’s tax system, Timothy J. Gillis explained:

  The rebel colonists remembered why they and their forefathers had come to the New World. The colonists were people, or offspring of people, who fled environments where royal favor and grants were common and success could depend much less on what a person did than on whom he knew. They remembered that government taxation and fiscal policy were primary means of subjugating liberty and imposing tyranny, both petty and great. This influenced the colonists to construct limited and frugal government.3

  In America’s youth, the possibility of freedom from taxes was alive and well for its citizens. So, what has happened over the years to make no taxes seem like an impossible dream?

  As the United States grew, so did the federal government. The idea of limited government was pushed aside in favor of collecting funds for various crises. The first big expansion of the federal government’s budget, and in turn the people’s taxes, came in 1861 with the start of the Civil War. The federal income tax laws that were passed in the 1860s by the Union and Confederacy were unpopular, unconstitutional, and immoral, and they were repealed by Congress in 1871. After the federal income tax was repealed, the government paid off the rest of the Civil War debt in twenty-four years with money from excise taxes and customs duties. There were excise taxes on items such as playing cards, gunpowder, feathers, telegrams, iron, leather, pianos, yachts, billiard tables, drugs, patent medicines, and whiskey. Many legal documents were also taxed, and federal license fees were collected for almost all professions and trades.4

  In 1893, the income tax returned. This time, however, the country was not at war, and many citizens viewed the tax as unjustifiable. In 1895, a lawsuit claiming that the federal income tax was unconstitutional was brought and eventually reached the Supreme Court. The Court held that since the income tax was based on income from real estate, it was unconstitutional because the Constitution requires that direct taxes imposed by the federal government on the states be proportional based on population.5

  A little over a decade after this ruling, President William Howard Taft proposed a law which circumvented many of the Constitution’s impediments to the 1893 income tax. Get this: A president who swore an oath to uphold, preserve, protect, and defend the Constitution proposed a way to avoid and evade it, a way that would purport to allow the federal government to steal cash from groups of individuals with impunity. This law would allow the federal government to tax corporations (as opposed to individuals), and was passed by Congress with near unanimity. Later, in 1913, the United States ratified the Sixteenth Amendment, which permits the federal government to tax the income of individuals.

  The government did not waste any time before taking advantage of its new power. Just eight months after the Sixteenth Amendment was ratified, President Woodrow Wilson signed a law that levied a 1 percent tax on net personal incomes over $3,000.6 The law also provided for a 6 percent surtax on incomes exceeding $500,000.7 These taxes were aimed at the wealthiest Americans, however, and did not reach the vast majority of the people.8 In 1918, only 5 percent of Americans paid income tax, and the income tax remained a “class tax” until World War II.9

  During World War II, however, the federal government expanded its assaults on personal income. The government passed the Revenue Act of 1942, declaring that it was just a war measure. It significantly increased the marginal tax rates, and added a 5 percent “Victory Tax” on annual income exceeding $624.10 Under this Act, the income tax rolls increased from 13 million persons to 50 million persons in just one year.11 The government also implemented a system requiring that employers withhold federal income taxes from employee wages and salaries.12 Finding it unrealistic to arrest all tax evaders, the government saw income tax withholding as a device to extract income automatically from the taxpayers.13 It also helped folks “save” money for the government, as it guaranteed the government a steady revenue stream during the costly war.

  Milton Friedman, who worked at the Treasury Department during World War II, was involved in the development of the withholding tax.14 Recently, Friedman stated that the tax was developed because the government needed to raise massive amounts of money quickly and temper the growth of inflation.15 Friedman explained, “I wasn’t as sophisticated about how to do it then as I would be now, but there’s no doubt that one of the ways to avoid inflation was to finance as large a fraction of current spending with tax money as possible.”16

  In his memoir, Two Lucky People, which he coauthored with his wife, Rose, Friedman conceded that during World War II, he “was helping to develop machinery that would make possible a government that I would come to criticize severely as too large, too intrusive, too destructive of freedom.”17 According to Friedman, “I really wish we hadn’t found it necessary and I wish there were some way of abolishing withholding now.”18 The author of the truism about the permanence of temporary government programs was himself the regretful author of the most pernicious and permanent of temporary government programs whereby the federal government steals money from each of our paychecks, every time we receive one.

  Through income taxes, the government taxes our personal production, only to redistribute our hard-earned cash to others (often wastefully). This is an oppressive infringement on personal liberty and one that we should not passively accept. The idea of abolishing income taxes is hardly radical. The Founding Fathers did not support them, and they are a relatively new custom in America. Nevertheless, the only politicians who had the backbone to suggest such a policy in the 2008 presidential election were Ron Paul and Bob Barr.

  Congressman Ron Paul’s plan to abolish the income tax and, consequently, eliminate wasteful federal programs like the wars in Iraq and Afghanistan, foreign aid, agricultural subsidies, and the United States Department of Education, is absolutely consistent with the intent of the Framers.19 Under Paul’s plan, much more responsibility would be taken on by the States, within which funds would be handled by local politicians who can better gauge the needs of their citizens than the federal government can.

  When explaining his stance on taxes, former Congressman Bob Barr stated, “It is not enough to eliminate the income tax. We also must also repeal the 16th amendment, which authorizes Congress to levy an income tax. Without doing so, there would be an ever-present danger that a future Congress would attempt to bring back the income tax on top of the Fair Tax or any other alternative to the income tax.”20 These ideas are in step with the Framers’ intent, but until Americans wake up and realize that they do not need to accept an oppressive income tax, these plans will remain far from mainstream.

  Frank Chodorov argued,
in “Taxation Is Robbery,” that the government immorally pilfers our money from us through any and all forms of taxation. He wrote, “Those who hold to the primacy of the individual, whose very existence is his claim to inalienable rights, lean to the position that in the compulsory collection of dues and charges the State is merely exercising power, without regard to morals.”21

  When the government takes from us, it is just as immoral as any other type of burglar. Because humans have an indisputable right to life, it follows that we have the same right to enjoy the products of our life’s labor. Yet, when the government taxes us, the right to our own existence is qualified. Do you know anyone—anyone—who comes home with his paycheck and check stub and after examining what he earned and what the government took from him says: “I don’t think I gave the government enough money this week”?

  In addition to taxation itself, there is a whole host of government programs funded by our tax dollars that were originally proposed as “temporary,” but then stuck around for the long haul.

  “Temporary” Government Program #2:

  Rent Control

  During World War I, the federal government introduced rent controls, which are ordinances or laws that place a ceiling on the amount a landlord can charge for rent, but stopped them in the late 1920s.22 Rent controls were implemented again during World War II, via the Emergency Price Control Act (EPCA) of 1942. They were brought back strictly as a temporary “emergency measure,” mainly in order to help the wives and children of soldiers who were serving in the war, and were to be dismantled after the war.23 The EPCA allowed the federal government to regulate the maximum price of residential rents in an effort to counteract inflationary prices and housing charges. It helped tenants, but it severely harmed the landlords who owned the apartments the tenants leased. Nevertheless, in a few American cities, like New York City, rent control is far from temporary.