The Revolution of 1913

0:00Okay, the topic for today, or this morning, is what I call the revolution of 1913 and combining economics and history again, and then this afternoon I'm going to talk about antitrust and the history of antitrust. And in 1913 is an interesting year in terms of economics and liberty, Because in that one year, we had the creation of the Federal Reserve Bank, the 16th Amendment that created the income tax finally, and the 17th Amendment, which created the system of the direct election of United States Senators. Prior to that, Senators were appointed by state legislatures.

0:47And I want to explain why that was profoundly important. And there was also, I've wrote on the screen here, antitrust will run amok, but I'm going to talk about antitrust this afternoon, so I'm not going to really get into that now, but that was stepped up also at the same time, and so this was, you know, shortly after Woodrow Wilson was elected president, and so I'm going to talk about what I think is the significance of these things and make some generalizations and then we'll do the usual, take questions and answers later. Now let's start with the 17th Amendment. This is something that hardly anybody ever thought about, I think most students or even faculty who come here and talk about political economy, but the original system In the United States, under the Constitution, senators were appointed by state legislators and they were very clear of why they were doing that and I'll quote Roger Sherman, one of the early founders, in a letter to John Adams, President John Adams, eventually became

2:03president, as to why they were doing this, why they were not electing senators and having the state legislatures appoint them and he said this, the senators being dependent on on State Legislatures for Re-election will be vigilant in supporting their rights against infringement by the legislative or executive of the United States. So they saw this as an extra protection against the usurpation by the central government. They saw, you know, we need to be protected from the legislature and the nation's capital. We need to protect ourselves against the president, the executive, they didn't mention the Supreme Court here, but our, that is, we the citizens, our ability to appoint our senators via legislators, they thought would be a help in protecting against infringement of their liberties by the central government, different branches of the central government.

3:02Today, of course, you'll have the Senator from Alabama will head straight to New York City and Hollywood to raise money for his reelection campaign. And so what that means is that he is mostly beholding to the people who gave him money on Wall Street or in California much more than the average schmuck here in Auburn, Alabama. Not that they're all schmucks in Auburn, Alabama like him, right? For example, right there. And so, and that is exactly the kind of thing that they anticipated would happen with the direct election of senators, and they thought that they would be less likely to act against the interests of the people in their home states if they owed their job to the people who were elected by the people back in the home state directly, the state legislature. That was the idea anyway.

3:55Alexander Hamilton said, quote, the election of senators by legislatures was an absolute safeguard. George Mason, George Mason was known for more than having the name of a basketball team, believe it or not. He was author of the Virginia Bill of Rights, which is said to be the model of the Bill of Rights in the Constitution. The Election of Senators by Legislatures gives the states some means of defending themselves against encroachments of the national government. This was a practical mechanism of divided sovereignty that I talked about yesterday. They theorized about divided sovereignty, but this is where the rubber hit the road, so to speak.

4:40This is one of the vehicles which they intended to use to implement divided sovereignty, states' rights in other words, for the people of the states to protect them against these tyrants in the nation's capital. Fisher Ames said, senators are ambassadors of the states. of States, James Madison in the Federalist Papers, number 62, said this, the appointment of senators by state legislatures gives to state governments such an agency in the formation of the federal government as much secure the authority of the former. And he also said, Madison also said that the enumeration of power, you know, the Constitution as the Article 1, Section 8 says, these are the legitimate functions that the Congress can spend tax dollars on, about 18 different things that are listed there.

5:35And, you know, a lot of conservatives are always pointing to this, that if only we would enforce Article 1, Section 8, we'd get government back to its original size. Well, the founders never thought that this would be magically enforced. Even Madison himself said the mere enumeration of powers would never be sufficient. He said, as these were mere parchment barriers, he called them parchment barriers, mere paper. He said structural arrangements were necessary, that is, there has to be some mechanism for the people to stop the explosion of the central government beyond its bounds in Article 1, Section 8. And this is one of the vehicles. It wasn't just educating the public about the Constitution.

6:25And also what state legislators did is they instructed their senators how to vote. So they would take orders from back home on how to vote and the very first instruction they were given is vote in public because when the United States Senate first convened these guys all got together and said well let's go behind closed doors and talk about this. The people back home were alarmed immediately at that, and they said, no, no, the votes have to be in public and made public. And so that was the first instruction that was actually given to the United States Senate out there. And when I mentioned the Kentucky and Virginia Resolve yesterday, those were the work of state legislators. The ideas that were embedded in the Kentucky Resolve of 1798 authored by Thomas Jefferson, That was the work of the Kentucky State Legislature, which instructed its senators to promote this view in the nation's capital.

7:27And the same with Virginia and other states that did similar things. You know, and I mentioned also the opposition to the Bank of the United States. That was the state legislatures instructing their senators to vote against the Bank of the United States. That's how this happened. That's how Andrew Jackson was able to veto the rechartering of the Bank of the United States and not have his veto overturned by the Senate. The Senate took their, some of the Senate, enough of the Senate took their advice and their instructions from the people. In fact, the United States Senate did have a majority vote to censor Andrew Jackson for vetoing the re-chartering of this central bank, the Bank of the United States.

8:16But you know, you need a qualified majority to overturn a veto. You need more than just a 51% majority for that. And they weren't able to do that. But after that, after the United States censored Andrew Jackson for being opposed to central banking, Several southern states instructed their senators to vote against the censure. They didn't. They went up to the nation's capital, and they kind of liked all the power and the prestige and everything, and they wanted to get along, they wanted to cut deals. So they voted to censure Andrew Jackson, and all seven of them were recalled and fired by the state legislatures. They immediately said, you're out of here. And so that's a clear example of the intention of what occurred before the 17th Amendment, the appointment of senators.

9:10Because the people in the states, they didn't like this corrupt bank. They were on Andrew Jackson's side. But I forget who it was, some conservative commentator said a few years ago that conservatives who get elected to politics, Before they're in politics, they complain about what a swamp Washington, D.C. is, but then once they get there, they kind of think of it more like a hot tub. They kind of like it. And that's nothing new. It apparently has always been true. Once you get there, they kind of like it. What's not to like? Taking bribes can be fun and games for everybody. And so that's a good example. So the founders, they never believed that you could rely on the Supreme Court to protect the rights of the citizens of the states.

9:59And another forgotten part of American history is the Anti-Federalists. In many of their ideas I've been talking about the last couple of days, I just haven't identified them as Anti-Federalists. Federalists, but a lot of these essays were written under pseudonyms and one of them was Brutus, and he commented on this, on the appointment of senators. He said this, it would never be in the self-interest of the court, that is the Supreme Court, to strike down federal laws trenching on the inviolable and residuary sovereignty of the states, in the United States, because every extension of power of the general legislature, meaning the central government, as well as of the judicial powers of the central government, will increase the powers of the courts, end quote.

10:54And he also said that it would increase the court's remuneration, it would increase what the federal judges get paid. If you have a more and more powerful central government with more and more responsibilities it'll be easier to make the case that we need better people, we need to pay them more. Just the opposite of the great old H.L. Mencken who once said in one of his essays that politicians should be paid next to nothing. Don't encourage them with money. And this argument was never refuted during the time when the Anti-Federalists were debating over the Constitution here. And so these are some of the reasons why we originally had the appointment of United States Senators and not the direct election.

11:41And of course the 17th Amendment came in 1913, this all ended, and we had direct democracy. and you know among the reasons I wrote a little syllogism here down as an explanation maybe I'll share with you so why this came about let's see what I do with my paper well I'll just say it on the papers way over there can't read you the syllogism is democracy leads to corruption and plunder that's point number one point number two is everyone knows this the conclusion is therefore or We Need More Democracy. That seems to be what happened, and I'm going to explain what I mean by this.

12:26What happened was there was a law in 1866, as soon as the war to prevent southern independence was over, that mandated, a federal law mandated how the state legislatures were to appoint their senators. So right away, when states' rights had been all but abolished by Lincoln's war, they went The right to work, it's snuffing out any remnants of states' rights, and one of the very first things they did is to say, well, yeah, you're appointing your senators to come to Washington, D.C., but we're going to tell you how to do it. You can't decide for yourselves how to appoint these senators. And so the central government forced the states to first take a voice vote in each house on and the candidates and then a concurrent vote would be taken of both houses if there wasn't an overwhelming choice by a voice vote and so that was how they were instructed to do it by their new dictator, the President of the United States and the United States Congress

13:32and what happened was the voice vote revealed information about voting preferences and it And it gave the minority an idea of who the opposition was and what they had to do to defeat the opposition, who they had to bribe, who they had to threaten to change their vote and so forth. And so the voice votes were often inconclusive, they couldn't tell, but it did give the people there on the floor listening to the voices an idea of who the opposition was. And so they typically then went to work politicking to get their preferred candidate in, and this This involved a great deal of bribery. What else would it involve? That's politics. And so sometimes the bribery would go on and on and on for months, sometimes years.

14:19And so as a result, there were some states that would go for a long period of time without two senators because the state legislatures were busy haggling over how to choose a senator. This didn't happen before. This was a result of the new set of rules imposed by the central government. And so that was democracy, supposedly. That was the new form of democracy. This is how we're going to do it. We're going to tell you how to choose this. And so all the bribery led to calls for reform. We need more democracy to put an end to all the bribery. And so that was one of the main arguments for having the direct election of senators.

15:04Don't let the state legislatures do it anymore. They take too long, they haggle, look at all the bribery going on, but that was all a direct result of this law in 1866 that came. They didn't have this dilemma prior to that. And there's a congressman named James Blaine who commented on this aspect of it, of how Prior to the war, every power was withheld from the national government, which could be, by any possibility, be exercised by the state governments. After the war, it was believed that everything which may be done by either nation or state may be better done and more securely done by the nation.

15:51And so one of the legacies of the Civil War is this idea that the central government is a master problem solver. If there's any kind of problem, they'll solve it. Look what they did with the war. And another force, I guess, was progressivism and populism, which made a god of democracy. As Hans Hoppe will tell you, if you read his book, Democracy, the God that Failed, they really did make a god out of democracy. and this came and I of course blame it all on Lincoln when he said that the war was fought for about government of the people by the people democracy that's what he was claiming that was sort of the first step and then when he was made a god his ideas were made were deified also and I think that was the first step along the way of this is a worshiping of democracy and of course the American founders if you read James Madison and Federalist number 10 he says the whole

16:45The whole purpose of the Constitution is to block democracy, you know, we want as little democracy as possible here. He said he called it the violence of faction, but democracy is what he's talking about. But this had totally changed by the late 19th century, and the democracy was being deified by everybody. And there are relatively few scholars who have actually written about this. A pretty good book on this by Ralph Rossum, R-O-S-S-U-M, on the 17th Amendment. It has a lot of great references, very scholarly. Another scholar is Todd Zywicky, Z-Y-W-I-C-K-I, Todd Zywicky. He had an article in the Cleveland State Law Review in 1997, and I'm going to quote one line.

17:35And he said this, the ratchet effect of federal intervention persisting after the dissipation of a crisis, which purportedly spawned it, was absent from American history until 1913. So he was saying that beginning around 1913 with the 17th Amendment, if there was some kind of a crisis, like a war that led to a ratcheting up of government, he said prior Prior to that, the government tended to recede a great deal, almost back to where it was. But he's arguing, and he has some data there to back up what he was saying, is that after 1913, because of this glorification of democracy, once government power was ratcheted up during the emergency, a war or a deep recession, whatever it might have been, it tended to keep ratcheting and keep going up and up and up.

18:26And he blames the 17th Amendment on that. He Blames the Boon to Democracy that was created by the 17th Amendment. And so anyway, I was asked yesterday, what can we do practically to move in a direction of freedom? Abolishing the 17th Amendment would be a good thing, I think, getting rid of that. Now the bank, the Fed. Most of you have read a good bit about the Fed, and if you read Mises.org, you've read a lot about the Fed and central banking and so I was thinking what I would have to do in terms of talking about this this aspect of the revolution is to give you a little historical background about the fight for a central bank that I'm guessing a lot of you may not be that terribly familiar with but it does start in with the Whigs the Whig Party and Lincoln I've mentioned the last couple of days National Banking, a tariff and corporate welfare was what defined the Whigs and

19:32then later the Republicans and but to emphasize how important a central bank was it always was along with a protectionist tariff central bank was the thing because this is how the Whigs and then later the Republicans thought they would be in power forever if we could print money what a what a brilliant idea if we could just counterfeit then we could buy as many There's a very scholarly and very gigantic book called The Rise and Fall of the American Whig Party by Michael Holt, who's a historian at the University of Virginia, and talking about Lincoln himself, he said, you know, Lincoln crisscrossed the state of Illinois ardently and eloquently defending Whig programs like a national bank.

20:18He says few people in the party were so committed to its economic agenda as Lincoln. An economist named Richard Timberlake, who's a friend of the Austrian School, he's a Chicago School economist, but he's mostly friendly toward the eye, he's had some debates with the Austrians over monetary policy, but he's basically a pretty solid free market guy, Richard Timberlake, and he wrote a treatise called The Monetary Policy of the United States, sort of his life's work, he taught monetary theory at the University of Georgia for many years. To the Whigs, a national bank was their life, the vital principle without which they could not live as a party, the power which was to give them power.

21:20To lose it was to lose the fruits of the election with the prospect of losing the party itself. And so they certainly, that's why people like Lincoln, who was a Whig longer than he was a Republican, fought tooth and nail in the political trenches for decades over this. And one of the best books on the story of Andrew Jackson that I keep bringing up is by Robert Remini. Robert Remini is a well-known biographer, he's written biographies of a lot of famous This political figure is spelled R-E-M-I-N-I, Robert Vemini, and it's Andrew Jackson and the Bank War is the title of this book, and it's kind of interesting to read what people like Andrew Jackson said about central banking, and Jackson thought it was, quote, the instrument of the swindler and the cheat, sounds just like Murray Rothbard, doesn't it, if you ever read Murray's writings on the bank.

22:17Timberlake himself talks about this, Jackson and the Bank of the United States, and he explains why it was that so many of the people of the states back in Ohio and elsewhere were distrustful of this bank. And here's what Timberlake says, he says, the states were properly jealous and fearful of encroachment by the federal government, since a central bank would necessarily be be a federal bank and would maintain and operate state branches from a distant center. Proponents of states' rights found opposition to a national bank almost mandatory. And so they thought that no good could come from this bank run by politicians in Washington, D.C. or Philadelphia or wherever the capital happened to be at the time. But we got the bank. It was Alexander Hamilton's baby. And it was chartered for a period of years and then it had to be re-chartered by the Congress and voted by the President too.

23:17That's how it came to be unchartered in the 1830s. But the first, one reason why people were always suspicious of a central bank run by politicians in the nation's capital was the very first President of the Bank of the United States. You know, Alexander Hamilton wrote this big report making the case for a central bank. He presented it to George Washington and Thomas Jefferson argued against it to George Washington and Hamilton won the argument. There were all these big arguments. So who gets appointed to be the first president of this bank that Hamilton went through all this trouble and all this scholarship and everything? Well, it was a man named William Jones who was a U.S. Navy captain who had no banking experience at all and who had just gone personally bankrupt, but he was politically The Great Jefferson and the Great Hamilton and George Washington contemplating this for months and months and months, who do they point, some jackass who just went bankrupt, who knew nothing about banking?

24:28Well, you know, that might be the perfect candidate for a job like this, because if you want to be a politician who is really the controller of the bank, that's who you want. you want. You want a loser who owes everything to you appointing him in this job. He could never get a better job than that. He could never make more money than that. So therefore the politicians were really in charge of the bank, not ostensibly the political appointee. He's the kind of guy. FDR did the same thing. They appointed the head of the Fed as somebody And anyway, Murray Rothbard, his doctoral dissertation was The Panic of 1819, and he blames Jones for creating the panic of 1819 through his misguided monetary policies.

25:17So right from the very beginning of central banking, long before there was a Fed, this was almost a hundred years before the Fed came into being, a central bank was creating a boom and bust cycle. The second president was a man named Nicholas Biddle, and he was a highly skilled politician, among other things, and he was distrusted by the opponents of centralized governmental power just as well. Andrew Jackson's Treasury Secretary was Roger B. Taney, who would later be the Supreme Court Justice, who I talked about yesterday and who John Denson talked about yesterday. And Tawny, when he was Treasury Secretary, complained of this bank's corrupting influence and its patronage greater than that of the government.

26:07And what was he talking about? Well, they just had to observe what was going on. Henry Clay, who was a huge proponent of the bank, Lincoln's idol, his role model, Henry Clay accumulated about $40,000 in personal debt by 1822. And so that's a lot of debt. In 1822, $40,000 in debt, that's a lot of credit card debt today, $40,000. And so he needed to resign from Congress to work to make money to pay off this gigantic debt, $40,000, probably well over a million dollars in today's money easily, maybe a couple of million. And so how did he propose to make this money? Well, He became the general counsel to the Bank of the United States.

26:55He became the lawyer for the Bank of the United States. And after a mere two years, he made enough, his biographer, one of his biographers, a man named Maurice Baxter, wrote this. The amount he made apparently amounted to what he needed to pay off his personal debts. So he made a lot of money, not just in salary, but all sorts of inside deals that were orchestrated Daniel Webster, another big proponent of the bank, he didn't bother resigning from Congress in order to support the bank. He just demanded bribes. He didn't say, I'm going to resign from Congress and then you give me a job and I'll make a lot of money. He just demanded bribes. There's a letter that he wrote to Nicholas Biddle saying this, as a member of Congress.

27:44He says, he demanded a retainer if it be wished that my relation to the bank should be continued, end quote. So as a member of Congress, he said, if my relation to the bank, that is a proponent of the bank in Congress, if you wish this to be continued, I need a retainer. So back in those days, I guess politicians were a little more explicit than they are today about demanding bribes. It's all sort of hidden today, but they were explicit back there. And Biddle proved Andrew Jackson and all the critics of central banking right with his behavior. During the 1828 national election, he spent more than $100,000 on all the bank's deposits. These were deposits of tax revenues from American taxpayers.

28:33That's what funded the bank, tax dollars. $100,000 in support of Andrew Jackson's political opponents. So he literally financed the campaign of Andrew Jackson's political opponents. He promised Bank of the United States money to friendly politicians to spend on their internal improvement projects in their states, you know, vote for the bank and against Jackson. And he reprinted all of Henry Clay's speeches in support of the bank at taxpayers' expense. And so just proving all these people right. They were corrupt, you know, the use of tax dollars for... Thomas Jefferson once, and I've quoted him a thousand times in different publications from the Virginia Statute of Religious Liberty saying that to compel a man to pay for a political cause with which he disagrees is sinful and tyrannical.

29:24And Jefferson certainly would have thought that this would be sinful and tyrannical. Jefferson was referring to a state-sponsored religion, but to have the government use tax dollars to subsidize one side of a political debate certainly is tyrannical. I don't know about sinful, you have to ask somebody else about that, I'm a heathen, so I don't know about those things. And so anyway, it did end temporarily. Jackson won the battle, I'm not gonna repeat that story again. And then in his place was something called the Independent Treasury System, where the only recognizable money was gold and silver coins and all currency was redeemable on demand in gold and silver. And so Richard Timberlake in his book says this was probably the best monetary system America had ever had consistent with the gold standard up to that point and beyond that point.

30:21And Jeffrey Hummel, in his book, Emancipating Slaves and Slaving Free Men, which talks a lot about these economic issues, says the same thing, that this was probably the most stable economic system we had, certainly in the 19th century, and that lasted until the Lincoln administration. So we had this kind of solid money, sound money, but the Whigs and then the Republicans were the champions of fiat money and they were opposed to money that was backed or redeemable by gold and silver for obvious reasons. They wanted a printing press to be able to print money, to buy votes and keep themselves in power indefinitely, especially buying votes by distributing money here and there across the nation for internal improvements, railroad subsidies, canal building subsidies, whatever would be beneficial to them.

31:23And one funny story about Lincoln himself that I'll tell you is that when he was in the state legislature, there was a bill that had passed that would go into law January 1st, and what the bill would say was that the currency within the state of Illinois had to be redeemable in gold or silver. So they were moving back to sound money, okay, and the Whigs were desperate to do something to have this law not go into effect, and so they had to put an end to the legislature, they had to vote that we were done with our business, it was the end of the year, and they had to do this, and so they could move on, this would become law, and Lincoln was desperate for any tactic, and so he gathered up the Whigs and bolted for the door so that they couldn't vote to End the Session of the Legislature, and apparently the rules said if the session was still in progress, this legislation would still be pending, it wouldn't become law, and so the door was locked and under armed guard, and this story is told by David Donald in his biography of Lincoln, and so Lincoln, the only other alternative he had was to jump out the window, which he did, he jumped out a second story window and all the other wings followed him out the window,

32:50The legislature, after that, called him a leaping Lincoln and his flying brethren, because it ultimately didn't work, the law came into effect, but that's sort of a silly story that illustrates his devotion to the cause, I think, and he made some long-winded speeches in favor of the bank and against the independent treasury system and denouncing the redeemability of currency in gold and silver. And to understand what this means, And there's a great quote in Murray Rothbard's book, What Has Government Done to Our Money, and about this idea of not being able to redeem currency in gold and silver. Okay, here's what Murray said, the bluntest way for government to foster inflation is to grant banks the special privilege of refusing to pay their obligations while yet continuing in their operation.

33:46While everyone else must pay their debts or go bankrupt, the banks are permitted to refuse redemption of their receipts, at the same time forcing their own debtors to pay when their loans fall due. The usual name for this is a suspension of specie payment. That's what Lincoln was for and the Whigs and the Republicans. A more accurate name would be, quote, license for theft. Or what else can we call a government permission to continue business without fulfilling one's contract? So there's a license for theft, and of course the Fed multiplied this a thousand times over. So this independent treasury system foiled the plans of the Whigs, but they finally prevailed during the Lincoln administration.

34:34On February 25th, 1862, the Legal Tender Act empowered the Secretary of Treasury to The issue of paper money greenbacks that was not immediately redeemable in gold and silver. Then came the Currency Acts of 1863 and 1864 that created nationally chartered banks and at the same time they put a 10% tax on state chartered banks to drive them out of business and because if there was going to be counterfeiting they wanted the central government to have a monopoly in counterfeiting and this was the origin of the Secret Service also. The Secret Service was set up to police the state chartered banks against counterfeiting to assure a monopoly and counterfeiting by the central bank, by the central government.

35:22And so this was a big victory, and this was not 1913 yet, but this was a big step along the way to 1913 and the creation of the Fed. And what Murray Rothbard had to say about this particular episode is that, in this way, the Republican Party, which inherited the Whig admiration for paper money and governmental control and sponsorship of inflationary banking, was able to implant the soft money tradition permanently in the American system. So it was implanted, so to speak. And then after that came a 50-year crusade to establish a total central monopoly in banking.

36:08There was still too much competition, too much redeemability in gold and silver, which was allowed after the war was over. And so there was this big crusade for the Fed, which of course was finally achieved in 1913. But I'll just read one or two more quotes here to illustrate the proponents of the central bank and what they hope to achieve with the central bank in terms of comments on what happened during the Lincoln administration. Senator John Sherman, whose name is on the Sherman Antitrust Act, was the brother of General William Tecumseh Sherman. He was the chairman of the Senate Finance Committee during the 1860s, the mid-1860s.

36:55And he said this about the bank, the National Currency Act. He said that the Republican Party's objective was, quote, to nationalize as much as possible even the currency so as to make men love their country before their states. All private interests, all local interests, all banking interests, the interests of individuals, everything should be subordinate now to the interests of the government, end quote. That was always the objective, so that is exactly what Jefferson and Jackson and the rest always knew and always feared that this was what a bank would do, a central bank would do, would make the citizens of the states subordinate to the central government. That's why they were opposed to it. They didn't want that. That's tyranny. But they got it in the 1860s.

37:42The New York Times editorialized on March 9th, 1863 by saying this, The Legal Tender Act and the National Currency Bill crystallized a centralization of power, such as Hamilton might have eulogized as magnificence. And then there's a woman named Heather Cox Richardson who wrote a book on domestic legislation during the Civil War, so-called, called The Greatest Nation on the Earth. She looked at all this big government legislation, high tariff, central banking, and says, greatest nation on the earth. They did all these things. And she points out that even by that time, by the 1860s, the Republican Party, they weren't just only pork barrel politicians who wanted a central bank to finance pork.

38:34They also were imperialists, they wanted the US government to be able to finance imperialistic ventures, they were talking about trying to conquer Canada, Ulysses S. Grant wanted to conquer Santo Domingo, Cuba, there was always talk about China, going to China, as far as that goes, Mexico, Grant was itching to invade Mexico at the end of the Civil War, they had troops down there in Texas, they wanted to keep on going, in fact the British were terrified, and here's what Richardson says, she says, by 1863 the Republicans envisioned a dominant international role for a unified American government. They thought that since they had traded with the Confederate government a great deal all during the war, they were fearful that this army would then sail across the Atlantic and attack England in revenge for the War of 1812, burn down number 10 Downing Street and things like that. They were seriously concerned about that.

39:25and here's what Richardson says she says by 1863 the Republicans envisioned a dominant international role for a unified American nation and Sherman, Senator Sherman, promised that the bank bill with its implicit strengthening of the national government would advance that goal so they always saw this as advancing that goal but it still wasn't quite as powerful as the Fed was when the Fed came along it really did create an ironclad monopoly and the Creation of Money, and it's not just an accident that the Fed came along in 1913 and then the United States entered World War I a few years later. I really don't think the United States would have been capable of financing its entry into World War I without the Fed, and certainly not without the Fed and the income tax, which came in the same year.

40:16So this was all a part of the plan, in my view. The book I mentioned to you yesterday by Jim Powell, Wilson's War, he does make a compelling case that had the Americans not entered World War I, there may not have been a World War II, because it strengthened the hand of the Russian Communists as well as the Versailles Treaty leading to Hitler in Germany, and so I recommend the book very highly. He has another book coming out in a couple of months on Teddy Roosevelt, it's called Bully Boy, about Teddy Roosevelt, but anyway. So I'm not going to say much more about the Fed. Most of the people here have read about the Fed. Other than that, it was the second plank in the revolution of 1913, the 17th Amendment of the Fed. Now the income tax, the first income tax was, anybody know under whose administration we had the first income tax?

41:17Lincoln, during the war, income tax was put in place, and it was ended several years later, but it was the first income tax, and it started out as a flat tax, but then it was quickly turned to a progressive tax, and as far as I know, this may be where the ability to pay principle was first popularized, if not invented, it was first popularized, that is, the people The people with more money should pay a higher rate of tax than people who earn less money. And I call it the Willie Sutton Principle of Taxation. Anybody know who Willie Sutton was? He's kind of a famous, and sort of a folklore, an American folklore, he was a bank robber.

42:04And the part of the folklore is Willie got caught after robbing a bunch of banks and was asked, Willie, why did you rob all those banks? And he said, well, that's where all the money is. That's why I rob those banks. So the so-called ability-to-pay principle that sounds kind of scholarly and sober, the ability-to-pay principle, it's a principle. And it's in all the public finance textbooks. But it's essentially the Willie Sutton principle. Why do we tax people with more money? Because that's where the money is. That's who make more money. We tax people with more income because that's where the money is. Why would we rob a poor man when we could rob a rich man instead? It doesn't make any sense. And so that was first introduced when we had a slightly progressive tax.

42:50The rates were like three and five percent. They even introduced a version of withholding during the Lincoln administration. It only applied to corporations, not individuals, and they didn't raise much money. But they did introduce the idea of withholding taxes during the administration. and then it became defunct, it was 1877 I think, but it was sort of like giving somebody, giving a pot smoker a couple of good jolts of heroin, he sort of came to like it and want more of it and so a lot of people got addicted to his income tax, special interests especially like the income tax. They could fund all their their income transfers.

43:36And so that spawned a decades-long crusade to put the income tax in permanently. And they almost did it in the 1880s when Grover Cleveland was president, but he successfully fought it off. And as an interesting side effect of the whole tariff issue, you know, after the the war to prevent southern independence, as I mentioned, the Average tariff rate in America was wavered between 40 and 50 percent, extremely high, and that just killed the American farmers, disproportionately harmed the American farmers, and so they became a natural constituency for the income tax because they thought the income tax would take some of the burden off of them in terms of tariffs being the primary way of financing the of the U.S. Government.

44:24And so, we did get the income tax. That was sort of the deal that was struck. We'll have an income tax and a lower tariff. But that lasted for a while. The income tax came in finally in 1913. They did drop the tariff, but by 19, what was it, 22? I think it was 1922. The Fordney-McCumber tariff, the average tariff rate was raised back up to about 33% again. And then by 1929, the Smoot-Hawley tariff raised the average tariff rate up to around 60% from the 60% range. So it was a classic bait and switch.

45:10We'll cut the tariff rate and if you vote for the income tax, they voted for the income tax, tariff rate shot right back up. And this table I handed out to you, over here, this is taken from Bob Higgs's book, Crisis in Leviathan, where he has a section of a chapter on the origins of the income tax. There was also a big bait and switch that happened there too. The argument was, well, this is only going to apply to the very wealthy people, the Ted Kennedys of the world. I don't think they actually said Ted Kennedy back then, but it was only wealthy people. The first bracket was 1% and you had to earn $20,000 originally to be in the 1% tax bracket and back in 1913 $20,000 was a huge amount of income for most people.

45:56The top bracket was only 7% and you had to earn half a million a year in 1913 to be in the top bracket of 7%. by 1916, the top bracket edged up to 15%. And then by 1917, it was 67%, went up to 77% by 1918. That, of course, is to help finance World War I. And then even after the war was long over, by 1928, the top bracket still went down to only 25%. It didn't go down anywhere near back to 7%. And, and also the first bracket, the top bracket, You know, it went from $20,000 to be eligible to pay income tax down to $4,000. Now all of a sudden, anybody who made $4,000 was paying the federal income tax.

46:45And so that was sort of a big bait-and-switch game also, promising a low tax rate, only the other, the rich people are going to pay most of it, okay, we're going to reduce your tariffs. Good deal. Turned out to be not so good. and of course that it destroyed any restraint that there might have been on military interventionism in World War I because it provided the financing vehicle. And I'm going to close with a couple of statements on the significance of the income tax by Frank Chataroff. I mentioned a few times this excellent little book called The Income Tax, Root of All Evil and Charteroff really had a way of putting things straight. He said, let's see, where is this?

47:42About the income tax, he said, the income tax amendment puts no limit on governmental confiscation. The government can, under the law, take everything the citizen earns, even to the Whichever way you turn this amendment, you come up with the fact that it gives government a prior lean on all the property produced by its subjects. In short, when this amendment became part of the Constitution in 1913, the absolute right of private property in the United States was violated. That, of course, is the essence of socialism. And that certainly is true of the income tax.

48:29The implicit assumption is that the government owns all of your income. And by setting the rate and the exemptions and so forth, it tells you how much of your income that you earned that you may keep. But we're all at the mercy of the politicians telling us how much of our income we may keep. The American founders were dead opposed to an income tax. There was no such income tax at all. The 16th Amendment corroded the American concept of natural rights, ultimately reduced the American citizen to a status of subject, so much so that he is not aware of it.

49:24It enhanced executive power to the point of reducing Congress to inocuity, I assume that means neutered, and enabled the central government to bribe the states, once independent units, into subservience. So in other words, he's saying that was the final nail in the coffin of states' rights, the income tax. No kingship in the history of the world ever exercised more power than our presidency,

50:21So that's why I think this was a revolutionary year. I'm not the first one to say this, but it's one of those parts of economic history that is sometimes overlooked or praised. One of the books I've read on the history of the income tax by an author named Weissman, he gives the standard line. If you were to go and dig up over the Auburn Library a half a dozen books, if you could find a half a dozen books on the history of income taxation, And I would bet they would all say the same thing, essentially, that thank God we got the income tax in 1913, otherwise we would not have been able to get into World War I. And what a disaster that would have been if we wouldn't have been able to do that, and we wouldn't have had the New Deal and all these things. And of course, most people here would think that that's just the opposite.

51:10And so that's why it's a revolution, and that's about all I wanted to say for now. And I welcome your brilliant questions and comments, as usual, about anything. What was the economic logic originally used for a central bank? Well, Hamilton, a central bank, he was a nationalist, and even today's proponents of the Central Bank, and even today's defenders of Hamilton. There are some relatively new books out about Hamilton biographies and they talk about the whole bank controversy, and he wanted the ability to create money to pursue national objectives, whatever those might be, especially military, and he talked a lot about defensive military objectives, that if a war were to come, he advocated a standing army, and they needed money to finance it.

52:12and the Standing Army. You couldn't rely on contributions from the states to have a Standing Army. Jefferson and others were dead set against the Standing Army. The US Constitution only allows for a Standing Army for two years, and then it has to be disbanded or the law has to be renewed. And so this was all partly part of the debate over a Standing Army, that he wanted a central bank to be able to finance this, a depository of tax revenues that can be used by politicians to spend on whatever they want them to issue and to borrow money and another thing, Hamilton on public credit on debt, government debt, the reason he gave for a government going into debt or a government selling bonds to raise money to be put into his bank was he wanted to tie the affluent and wealthy people of the country to the government.

53:11He wanted them to vote for and to support the government, because they had to, because if they owned these government bonds, they wanted the government to be able to pay them off, pay them back in their interest and principle. And so he was very explicit in that he wanted the wealthy people of the country to be statists. And how could you make them become statists rather than being like Thomas Jefferson, his nemesis? He was a wealthy landowner who wasn't a statist. Well, if his financial self-interest was wrapped up in a growing state, in a more activist state, he would be bribed into becoming a statist. And that was basically, that's a paraphrasing of Hamilton's position, but that was his position. And I think he thought a central bank would be instrumental in issuing debt like this, and tying the money elite, if you will, or even the money masses, you know, and has to be an elitist to the government.

54:07And that's the whole debate between Hamilton and Jefferson ultimately is do we have a highly centralized and activist government or the opposite? Do we have a highly decentralized and not very activist government, one that will just protect live liberties and properties and that's it? Hamilton wanted much more. He wanted a permanent president too, which I would call a dictator of some sort, You can read his report if you're serious about some scholarship there. There's a little book called Hamilton's Reports. All his arguments are right there. It's not very big. It's about this big. It's like three reports. He did one on public credit, one on manufacturers, and one on the bank in particular, the central bank in particular.

54:57Well, I don't know what prompted that, you know, Ludwig von Mises and Zell Miller's resolution on how to deal with that. But I wondered if there had been any serious interference in the United States in terms of what the costs are. Well yeah, that's a good point. Zell Miller did propose a resolution to abolish the 17th Amendment, and I've written an article or two on the web, and Bruce Bartlett has written about it, and he has a syndicated column, he supported it at the time, but I don't think anything else has come of that. Well, there is, you know, if you go on the Internet, you could find, there's an abolish the 17th Amendment group.

55:48But I don't know who they are or how big they are, but I found it on the Internet. And the literature is very good, and their literature explains the history of the 17th Amendment and so forth. But I don't know, I don't know who they are. So there is some kind of a movement. If you do a little bit of searching, you could find them and see what they're about. Since this was so highly celebrated by statists, it would certainly be a good step in the right direction of reversing things in the United States, especially, not as good as secession. My ultimate plan is to break the country up into seven or eight different republics and then whittle away at all those republics so that we can have maybe 300 million republics.

56:37No, the movement by the government is a question that we cannot answer. We're not like the opposition.

57:07nd the central bank. The banking industry itself was a part of this whole cartel, if you will, that wanted the central bank. In fact, the Mises Institute had a conference on a Fed in Jekyll Island, Georgia some years ago, and that's where the Fed was created. and we actually went in the room that had all sort of the pictures of all the men who were there at the time plotting to get the government to adopt the Federal Reserve Bank and it has a big plaque, these men were indispensable in creating the Federal Reserve Act of 1913 and it was like mugshot after mugshot after mugshot and they were almost exclusively New York bankers and Wall Street bankers and so they wanted the Fed and so we went down and the Fed Bashing Conference in the belly of the beast, where it was created.

58:09And so that was a big part of the constituency. Murray Rothbard has written about this in his books on the Fed. It would be very easy to dig up the whole story with a cast of characters of who wanted the Fed. And there were also always, politicians always understood that this would be, Having a counterfeit operation would be an easy way to keep yourself in political power from day one, Hamilton, beginning with Hamilton, to Clay, to Lincoln, to Woodrow Wilson, and all the rest. Right down the line. Yes sir, I think that is him. Is it occasionally risky thinking about the rampant pace of politics at 16 million? Yeah. A little bit about that and have heard that it might not have been a...

58:57Yeah, usually if I bring this up in an audience of, a libertarian audience, there will be somebody who will stand up and say that I've been researching this for 57 years and I have an ironclad argument that the 16th Amendment is unconstitutional and that we do not have to pay income tax. and you can't argue with these people because they know that you don't have to pay the income tax and nothing you say can persuade them otherwise and they have been studying this for 57, maybe 157 years. That's the way they talk anyway, but I'm not a legal scholar, I've never looked into all these legal arguments but I've heard these people say these things, but I think it's bunk. The fact is the government has enough guns with which to enforce the income tax, therefore you must pay the income tax.

59:48And so there's this guy, Erwin Schiff, I think he might have passed away recently. He spent his whole life writing books saying it's unconstitutional, you don't have to pay the income tax. And he didn't pay the income tax. Then he went to prison. While in prison he would write another book saying you don't have to pay the income tax. Hey, get out of prison, wouldn't pay the income tax, go back to prison, write another book, spend his whole life doing that, and it just seems to me the people that say these things are crackpots, they're lunatics, I mean, even if they have what sounds like a logical argument, the government has the force to make us pay, so you have to pay, and that's what government is about. But I'm not schooled in all these arguments because I think it's a waste of time to become schooled in all these arguments, but I've heard long recitations You don't have to pay the income tax, but it just seems like a big waste of time to me to even entertain the thought as though the federal, the Supreme Court would ever say, oh, you know you're right, and outlaw the income tax, that would never happen, you know, elephants will fly out of my ears before that happens.

1:01:00I was told that the 50th Amendment was passed in very shady circumstances, all kinds of things, or from the physical presence at the time. I was told it was like a North Mountain one day, and basically like a holiday was passed on.

1:01:30I said that doesn't really mean anything in my opinion, that it's been in effect all these years and the government has the guns with which to make us pay. In one of my MBA classes, I made a statement once that the government actually literally has the right to kill you if you refuse to pay the income tax. And they thought I was crazy. But if you think about it, what if you do refuse to pay the income tax? What will happen? Well, they'll put a lien on your property, and then they'll have to take your property, your house, let's say, at some point, and then what happens if they come to take your house and you resist? You don't want them to take your house. Well, they will send armed federal marshals out there to get you out of your house. And if you resist, you know, could end up in a gunfight, and they would have the right to shoot you if you resist them taking your house to pay the income tax.

1:02:20That has happened and it could happen. And so, you have to pay the income tax, regardless of how, if there are any minor technicalities that were occurred in the passing of the income tax. The 14th Amendment is the same thing, the 14th Amendment was never legally passed, but that doesn't really matter. It's the 14th Amendment, it's enshrined into law, it doesn't really matter. The southern states were kicked out of the Union and forced to ratify the 14th Amendment as a condition of re-entering the Union. So after fighting a war to save the Union, the first thing the U.S. government did was to break up the Union to get this passed, and it never was fully ratified because Ohio and Oregon rescinded their ratification as a protest against this tyrannical act of the extortion of telling the southern states, you can't come back into the Union unless you ratify the 14th Amendment.

1:03:22So once Ohio and Oregon withdrew their ratification, it didn't get the sufficient number of states to ratify. But then the US Senate simply declared it ratified. They said, that doesn't matter. We think it's ratified. It's enough. We're two votes short, but that's close enough. And so it's been like that ever since. And so a lot of the libertarians who are champions of the 14th Amendment never seem to mention this. They're also champions of the proper procedure for putting into place laws like this. But it's a real problem with them because there wasn't a proper procedure. They never was legally ratified. But again, it doesn't matter. The government has the guns to declare the 14th Amendment also.

1:04:08How was Nicholas Fiddle politically connected such that he received the presidency of the bank?

1:04:38Right across the street from the 9-11 site, there's a little church there. I was there about a year ago and his grave was there. I stood over it for about 10 minutes and there was no movement, so I felt safe and I could move on somewhere else. But it was a church that had all charred and giant molting chunks of iron fell on some of the graves there. How was the first contact after the expansion of the 99? When was the first time you discussed it in the U.S. or in the United States?

1:05:35I was in the Lincoln administration, but when the Constitution came in, they were all dead set against a direct tax like that. That was actually enshrined in the Constitution, and any taxes were to be apportioned among the states according to population, and all we had was tariffs and excise taxes. And then after the Whiskey Rebellion, Jefferson said that he thought even the excise taxes was a bad idea, that they made a mistake and they shouldn't allow even that in the Constitution. So just from my reading of U.S. history at the very beginning, pretty much everyone understood that this was a bad idea to do this.

1:06:20And I don't know if there were, I can't, I don't know of any calls for income taxation before that because you know socialism didn't really come around as a prominent ideological force in the eye of the public until what the 1840s and 50s in Europe the communist manifesto was 1848 and so but I think once these ideas of all socialists have always advocated income taxation Karl Marx especially so there probably were some discussions after 1848 and in the US by Socialists who thought this was a good idea to have an income tax because like the quotation from Charterhouse's book says that this is essentially an abolition of the principle of private property. It essentially says the government lays claim to all your property in terms of your income anyway and will tell you how much of that property you get to keep for yourself. So it's a major blow against private property and that has always been and the top priority of socialists, hasn't it, the communist manifesto itself has a big

1:07:29bold letter, the abolition of private property, that's our agenda, and the income taxation was always one of their top vehicle for doing that. So I can't remember reading anything before the Lincoln administration, and of course after that socialism gained a lot of sway, and so there were a lot of arguments for the Income Tax, once it was in place temporarily. A good research topic for summer interns, the history of the American. There are, I often look up this book by Weisman on history of the income tax, maybe he has something about that, but I think, I'm pretty sure he starts at the Civil War in that book.

1:08:22Well, maybe the proposals put out by well-meaning people might not have bait and switch in them. But that is the nature of government, that if we had a flat tax put in, what's going to happen? If they say we'll have a flat tax of 20%, it'll be 25%, 30%, 40%, 40%. The next emergency that we have, whether it's a real emergency or not, will be used to justify raising the rate. So that's probably what would happen, just like the income tax, they'll say this has all these virtues, let's have this, and then it changes immediately to something different than what they had, but it all seems to me it's kind of rearranging the chairs on the Titanic, because the ultimate tax is government spending, because that determines how many resources will be taken out of the private sector one way or another, and it doesn't really matter that much whether it's a flat tax or a semi flat tax, The government is going to take our property from us to fund its unlimited appetite for spending.

1:09:32You can make some arguments that a flat tax has a little more advantage than a progressive tax in certain ways, but ultimately it's spending that is the ultimate tax and regulation that is the ultimate tax. and so and so as long as nothing is done about that I don't think it really matters that much you're only you're not even tinkering on the margins you're flicking at the margins and patting yourself on the back who's the guy Neil Bortz is he the guy who wrote the book he promotes it on his one his radio show and sells a million copies and it's not gonna have any effect even if they put it into place it won't be a good effect the flat tax politicians ideally would I've been saying to a few people in private conversations is that the whole way of thinking by reformers like this is to assume that we've got this centralized monster ruling over us and we always will and we always necessarily will have this and so our only hope is to try to move

1:10:47the monster to the right with a flat tax or term limits or you know elect Newt Gingrich or something like that but a different way of thinking is the devolution of power to strip the central government from power and what government functions you have move them closer to the people that way, that sort of vertical thinking as opposed to left and right horizontal thinking. And I think once you think about these things that way, then I think the focus ought to be more on such things as abolishing the 17th Amendment and the 14th Amendment for that matter and returning the power to the citizens as opposed to Washington, D.C. And so that all these reforms really are just sort of minor, trivial little attempts to to nudge the government to the right a little bit.

1:11:37And they might do that every once in a while. But we haven't had much success. The Reagan Revolution certainly didn't nudge things much. There were a few successes for about two years. And then that was over. You people, most of you are too young to remember firsthand the revolution of 1994, the Republican Revolution of 1994. And boy, what a revolution that was. Well, they really reversed the trend of government, didn't they, electing all those Republicans, ending up with George W. Bush? Well, somebody else had a hand up? Well, the 16th Amendment is, I call it the slavery amendment, because it really does make us all slaves.

1:12:33and if you're against slavery, you ought to be against the 16th Amendmental Income Taxation in general. Well, some years ago, Howard Phillips, who runs the conservative caucus in Washington, DC, he asked me and another author to write two reports for his organization, and the other author wrote a long paper on what government spending would be if the government actually did stick to its constitutional functions. Functions, then he asked me to write a paper about how to finance that, assuming we're going to have government in doing these things, how to finance it, and I basically said go back to the original design of tariffs, of revenue tariffs and a few excise taxes that will be perfectly enough to finance the constitutional functions of government.

1:13:24I think the other authors said that government spending would have had to be something like 500 Billion, which is what it was when Ronald Reagan took office. It wasn't ten times that, like what it is now, and I thought that was an exaggeration. I thought that was much too big of a government because it kept in place the whole military establishment that was meant to fight the Cold War, and the Cold War was over at this time, so I thought that was far too big, 500 billion was far too big, with the other author. But that's, you know, tariffs and Fiat-sized taxes was a pretty good idea while it lasted. That's why all the bad guys were against it for so many decades. But that all ended, it lasted about 70 years, something like that.

1:14:11You think that, or can you comment on the fact that the federalists, the waves and the republicans, were pushing for 120 years to get central bank entrenched like the followers of the Socialist Party? And then with the election of 2012, the Democrats come to power and there is progressive growth in the Democrats and then they are the ones that actually get the followers of the South. Is this happening in that, in our position as the leaders of the Democrats? Well, the Democrats had changed. One of my articles on lewrockwell.com was about Grover Cleveland. It was called The Last Good Democrat. Grover Cleveland was the last Jeffersonian. After that, the Democratic Party became totally different.

1:15:01The Democratic Party was the, if there were any classical liberals in American politics up until the late 1880s, they were likely to be Democrats. The statists and the nationalists and the imperialists were Republicans for the most part. There might have been some, surely probably some deviationists or some Republican classical liberals and some Democrat statists and nationalists, but in general, that's the way it was. But there was a, Grover Cleveland was the last good Democrat in the Jeffersonian tradition, but that was the end of it. After that, it changed. So the Democratic Party of 1913, I see as a continuation of the Federalists, the Whigs, and the Republicans and the Democrats kind of merged at that point, and there really was no sharp distinction with regard to the role of government.

1:15:51The Republicans simply raised the money, as the old saying goes, they raised the money to finance the programs of the Democrats, so that when they took office, they could run those programs. That's the way they are today. That's why, you know, if you think of it, it's a mystery, isn't it? How did the Republican Party ever get to be known as the party of limited government? Or if you're a conservative and you want smaller government, when did they ever limit anything? They were the party of big, explosive government from the very beginning. The Democrats were the party of limited government. And then, by the 1920s, Coolidge and Harding were probably the best Republican Presidents ever, because they didn't do much. But still, the apparatus of government, the Fed was there, that it was pumping out money like crazy all during the 1920s. And Coolidge and Harding didn't do a lot to pressure the Fed to stop that. And politicians can put pressure on Fed officials,

1:16:51and then Hoover comes in, he was a status, he was a big activist, most of the New Deal programs were modeled after his ideas, and then you know after that Eisenhower, he wasn't especially a limited government guy, Nixon, we got the EPA and OSHA and all these agencies, price controls, and then you know by the time we got to Reagan, he did a few good things for about two years, and then but then he raised taxes and but in 85 and the federal budget was literally double in 1990 of what it was in 1980 so you know where's the limited government it's that's it's I don't see it it's kind of a mystery the people think that Republicans are limited government they became pretty much the same party as far as I can tell by 1913 there was one lone Jeffersonian who ran in the 1912 election, but he didn't win anything, but he was sort of, what the heck was his name? I'll have to dig up his name, but he was sort of the last gasp of Jeffersonians in American politics.

1:18:04Gary North wrote an article about him on Lew Rockwell about a year ago. I'll dig it up maybe later. Any other questions or brilliant commentaries, declarations? Okay. A quick one. The footnote I have, I could dig it up for you. I don't have it right here in front of me, but I could dig it up for you. It's from the book on the 17th Amendment by Ralph Rossum. And I have the footnote and everything there, but I'll get it to you later. Okay, maybe we'll take a break then. It's time to, in a half hour, it's time to put on the feedback again.