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Got Choices?


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Federal Centralization

The Federal Reserve act was not the only thing happening around 1913 that would go on to seriously limit the choices of the American people. Among other things, there were two key amendments to the Constitution that dramatically affected the way things were done in Washington.

The 16th amendment changed the way the federal government would relate to the people of the country. Prior to that time, the Constitution contained very specific limitations preventing the federal government from laying a direct tax on American citizens. So it was widely understood that a federal income tax would be unconstitutional.

The idea was, people were to be first and foremost, citizens of their individual state. If they were to be taxed, they would be taxed by that state and not the federal government. The federal government would be much more involved in foreign policy, leaving domestic matters to the States. Indeed, the federal government would earn much of its revenues from taxes and tariffs laid on goods and services transacted with other countries.

The federal government was supposed to interface with the rest of the world on behalf of the United States. It would provide protection to the people and to the states, so we could live within a system of civil society based on the rule of law, justice, and enforcement of our private contracts.

We would be free to move from state to state and enjoy the benefits afforded by that diversity. Individual states might adopt their own policies for better or for worse, but the fruits of those choices would become evident over time. Just like natural evolution, those states would begin to flourish where government policies and practices were most conducive to a pleasant and abundant life.

Many have described this concept as the states being “individual laboratories of democracy.” It was conceived and built to foster a diversity of varying beliefs. Individual people who have different Faiths, or ways of looking at the big questions, would have increased power of choice to move to one state or another and to find a set of laws and a group of peers most compatible with their own individual beliefs.

The States would be protected from the potential of foreign invasion and plunder. And through a system of laws and justice, people would be protected from domestic predators as well. The weak would be protected from the strong. And people would be free to choose the direction of their own lives, rather than having the will of others forced upon them.

At the federal level, the United States was not intended to be a strict democracy. Rather, the Founders envisioned a republic of individual states, each of which would retain a great deal of independence and autonomy.

Interestingly, the Constitution guarantees the American people a “republican form of government.” It says nothing about democracy.

Still, a democratic process would be used to elect representatives to the government of our federal republic. Likewise, it was expected that states would employ fair and democratic processes within their own legislative processes.

We might think of our representative republic as a hybrid. The Founders understood, pure democracy would result in a powerful majority, enslaving a powerless minority. But other more authoritarian systems lacking democratic representation would result in a very small and powerful elite enslaving everyone else.

They wanted to create a society in which everyone could enjoy their rights to live according to their own beliefs and desires. Many felt that too much federal power would only endanger those rights. So they sought to limit the scope of what the federal government would do.

But when the constitution was changed to allow direct federal taxation of the people, the system of power was turned up-side-down. Previously, states held a stronger position to petition the federal government for the protections they needed. States held a fair amount of power to enact laws and regulations as their internal systems of representative democracy could support. And the federal government was left only those powers specifically enumerated by the Constitution.

But once the federal government could tax citizens directly, this all changed. Now money could be raised in Washington independent of any interest the individual states might have. Then, grants could be offered back to the states in exchange for “voluntarily” abiding by federal policies or guidelines which might otherwise be in excess of Federal power.

As the federal budget has increased and federal income taxes have become the dominant method of public funding, we see this at work throughout each state’s political process. Now the key factor behind many state policy decisions is whether they will allow the state to receive, or to continue to receive huge federal grants and allocations. In every area from public works to education, states now have to conform to Washington dictates or they miss out on a huge portion of the ever-growing tax base.

It is hard for people alive today to imagine life without the federal income tax. But the fact is, our country survived for over half of its history without it. There are other alternatives, most notably the concept that states retain the power to manage and regulate their own individual methods of taxation. Perhaps we should consider the possibility that our founding fathers, fresh in their escape from the tyranny of Mother England, actually knew something when they specifically prohibited the federal government from taxing American citizens directly.

The 17th amendment is often misunderstood, but perhaps equally detrimental to the choices individual citizens ultimately enjoy. Of most interest here is the language changing the way United States Senators are elected. Prior to the amendment, senators were elected by individual state legislatures rather than by a popular vote of the people. And to a great degree, it was up to the individual states to determine exactly how that process would take place. After the amendment, senators had to be elected by a popular vote and the state governments were removed from the process.

As an example, consider the legislators you voted for in a recent election. You probably voted for one United States senator and one United States House representative. Very likely, you also voted for a state senator and a state representative.

Prior to the 17th amendment, you would have still voted for your U.S. representative and you would have elected state senators and representatives. according to your particular state’s constitution. But you would not have voted directly for your state’s U.S. senator. Rather, the senators and representatives of your state would have voted, also according to your state’s constitution, to elect your state’s two United States senators.

It seems ironic that a move to elect U.S. senators by popular vote would somehow result in fewer choices for citizens. But it is important to understand the unique way in which the U.S. legislature was originally split into two bodies, the senate and the house. Because we see this structure mirrored in state legislatures, we may often take it for granted.

But this arrangement, originally called the “great compromise,” was a result of a great deal of deliberation and debate between the drafters of the Constitution. Previously, the legislature was envisioned to include only a single body. But there was heated disagreement about how it would be constituted.

Some believed the federal legislature should strictly represent the interests of member states and so delegates should be elected by those state governments. Furthermore, they believed each state should have the same number of delegates or votes. This arrangement would clearly make the federal government responsive to the states. It would benefit all states equally, regardless of whether they were large or small. But it would not allow the voting public a direct voice in who would be elected to federal office.

Other founders believed the people should be more directly electing their representatives. This way the federal government would better represent the wants and needs of the people. Furthermore, they suggested the number of delegates should be proportional to the population so larger states would get more delegates and hence, more votes.

The great compromise involved splitting the legislature into two separate bodies: the House and the Senate. The House, or “The People’s House,” would be composed of representatives elected by the popular vote of the people and proportional to their state populations. The Senate would be composed of two representatives of each state’s government. In this way, it was intended to foster a balance between the powers of the states and the powers of the federal government.

Most people think it is much more democratic to elect our senators by a popular vote so it must be a good idea. It seems like this should give us more choice in the matter—not less. After all, who wants a bunch of crafty politicians, even at the state level, electing our senators? Shouldn’t regular people get to choose?

But in reality, this change in the 17th amendment was very similar in effect to the 16th amendment allowing the federal government to tax the people directly. It stripped power away from the states and moved that power up to the federal level. Now senators only had to promise ever increasing federal benefits to the people and they would enjoy long and uninterrupted terms in office.

Meanwhile, they could create lots of new federal policy and push it down upon the states. Whereas U.S. senators were previously accountable to the state legislatures who elected them, now the state legislatures became subject to those U.S. senators. As states lost power, their ability to implement their own legislative priorities was lessened. Accordingly, diversity among the states decreased. Every state began to become more and more like the others. This only diminished our freedom to choose things like how we will be taxed, how our government will work, and how we will educate our children.

It is difficult at first for most people to comprehend how getting to vote directly for our U.S. senators could possibly lessen our freedoms. But this is what happened. And since that time, our national memory has gradually slipped to forget the principles of representative republicanism our founders intended for us. In its place, we have placed a blind trust in democracy, in spite of its serious problems and limitations.

So why discuss these amendments in a chapter on monetary policy? Together with the Federal Reserve act, they worked to provide the degree of power necessary at the federal level to form a complete and total monopoly over the business of generating, regulating and sometimes manipulating our money supply.

Using this new privately managed, but government sponsored, central bank, loans could be made to the federal government and the people would be on the hook to repay them. Now that the federal government could directly tax the people’s income, it could now harness, and exploit the working citizens to produce the revenues necessary to service the debt.

This was good for elected officials because they could now spend money at unprecedented levels, rewarding voters for keeping them in office. It was also good for big banks who now had the benefit of an ever-increasing flow of interest income, courtesy of the American tax payer.

Because both branches of the federal legislature were now better aligned with the agenda of increasing federal power, it was much less likely the central banking system would experience the type of opposition it had faced in the past, as during the tenure of President Andrew Jackson. Rather, the power of big government and big banks to monopolize the financial market was absolute and complete and would last well through the following century.

How long will we allow it to continue beyond that?
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