Fiat Money, Income Taxes, & Freedom
Posted by Orrin Woodward on February 21, 2012
Permitting government to produce fiat money is like giving a compulsive gambler unlimited poker chips. In neither case should we be shocked when runaway debt and excuses are all that ensue. Indeed, Alexander Hamilton, in a 1790 paper to the House, wrote, “The emitting of paper money by the authority of Government is wisely prohibited by the individual States, by the national constitution; and the spirit of that prohibition ought not to be disregarded by the Government of the United States.” Thomas Jefferson, furthermore, concurred, saying, “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” Even the founder of Keynesian Economics, John Maynard Keynes, opined on the dangers of fiat money, writing, “Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of Society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
Nonetheless, despite the many warnings on the dangers of fiat money, in 1913, the Federal Reserve was created. The name “Federal Reserve” is a misnomer, since this privately held company isn’t federal and doesn’t have reserves. In truth, because the Federal Reserve is a private company, it, unlike our government, is designed to make money. It accomplishes this by loaning money to our federal government for fees plus interest. However, in order to ensure the interest debt was serviced promptly, the income tax amendment, not coincidentally, was passed in 1913 also. By permitting direct taxation on a citizen’s income, the income tax amendment erased one of the last checks (proportional taxation of states) remaining upon government’s nearly unlimited avarice. The founders, by regulating the taxation with the State populations, tied the federal government’s hands, ensuring the individual citizen’s wealth was free from government expropriation. Sadly, with the passage of the income tax amendment, this federal constraint was removed. Since 1913, individual citizens, instead of the respective citizen’s state, have had the unequal task of squaring off against the federal government (IRS) whenever a tax dispute arises. This was not the intention of the founders.