Friday, December 4, 2009

The Fatal Combination

Two factors are driving the United States to totalitarianism and bankruptcy—unbridled state spending and fiat money manufactured by government. Either one is enough to destroy a country, but together the fuse to destruction is much shorter, because the two complement and build upon one another.

Spending Outside the Constitution’s Enumerated Powers

Consider. Federal spending has exploded beyond all comprehension, with the Obama administration desiring to spend even more on new entitlements. He is emboldened to do so, because his party controls a majority of votes in both the House of Representatives and the Senate. It’s a done deal. When I complain about all this, some of my friends say “Well, Pat, we have a democracy and the majority has spoken.” This is suppose to end all debate. A majority wants to spend more on entitlements and that is the end of the matter. But our Founding Fathers would scoff at such a conclusion. They would bring out the masterpiece of their time of trial, our blueprint for the happy society, our glorious Constitution. They would ask my friends to point to that clause in our founding document that authorizes welfare entitlements. It is nowhere to be found. Oh, I know that supreme courts have interpreted things in big government’s favor, but pardon me if I claim that I know how to read just as ably as any of them. Our founding document was designed to be read and to be understood by the common people, not by lawyers and academics alone. Ignoring the enumerated powers listed in our Constitution was one of the most serious breaches of liberty to befall our nation, for it opened the door to corruption. I use the term “corruption” in the Jacksonian meaning of allowing people to use government to attain advantages for themselves, their friends, and their constituents that they could not attain through voluntary means. This is impossible if our government adhered to the very words of the Constitution.

Manufacturing Its Own Money

So, for all practical purposes we have scrapped our Constitution and have opened the door to raiding the productive sector of the economy via the police power of the state. And yet, this is not sufficient for a complete collapse of our nation. That mechanism was set in place in 1913 with the establishment of our third national bank, the Federal Reserve Bank. Prior to 1913, the U.S. had enjoyed what was perhaps the greatest fifty-year period of economic growth of any nation in the history of the world. And it did it without a central bank or government money. Two forces restrained government spending, which is mere consumption of the product of the wealth generating forces in society. One, our political class still held within its bosom a reverence for our Constitution. And, two, the government was required to obtain the money it wished to spend from the people themselves. Government did not have a central bank with its own printing press and, therefore, it could not spend money that it had neither taxed nor borrowed honestly from the people. It was in the position of state governments today. This placed a natural limit upon its spending. High taxes would be political suicide. Heavy borrowing would raise interest rates—the crowding out effect—and harm business. So peacetime spending operated within fairly narrow bounds that were naturally set by the reality of society’s ability to produce and to pay.

But the Federal Reserve Act of 1913 changed all that. Now the government could spend the very money that it itself manufactured. It became a counterfeiter, and not just ANY counterfeiter. It became the one and only LEGAL counterfeiter, with the power to forbid its citizens to use any money not of its own manufacture. In fewer than one hundred years, our dollar has dropped to less than on twentieth of its 1913 value.

Unlimited Government Funded by Unlimited Money

When FDR threatened to pack the Supreme Court during the Great Depression, a frightened court suddenly found that his spending programs were invisibly enumerated in the Constitution. Thereafter, there has been no institutional restraint upon government, and we have arrived at the situation today where no one in government expresses any concern over whether its spending promises can be fulfilled. Of course they can be fulfilled! The government just prints the money and spends it! Fed Chairman Ben Bernanke himself has famously stated that the Fed can expand the money supply to accommodate ANY level of government spending. Zimbabwe, here we come!


There is much agonizing and hand wringing over What, Oh, What can we do to solve our financial crisis. The answer has lain before us all along. It is to be found in a strict adherence to the very words of the Constitution that limit spending only to those areas so enumerated and lays a sacred obligation at the foot of the federal government to PROTECT (and not to manufacture) our money. Let the political process operate within those natural bounds and the U.S. can solve its problems rather quickly. The fatal combination of unlimited government funded by unlimited fiat money will be broken. Government spending will be limited to that expressly enumerated in the Constitution, and the government’s counterfeiting monopoly will be abolished. Ours will once again be a nation in which the government is our servant, limited to protecting our lives and our property, and not our master. All that is required is renewed dedication to our nation’s founding document, our supreme law of the land. I do not see how any politician can take a public stand against the Constitution, for such a stance is tantamount to a call for the repeal of the most precious gift from our Founding Fathers.

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