I was in discussion yesterday with a seemingly intelligent scientist type, who proclaimed that our present economic system is capitalist because it allows a private party(The Federal Reserve) to create money and loan it to other people at a profit.
I pointed out to him that this was certainly a basic definition of capitalism for private businesses, but the essence of capitalism is that there is free competition among all businesses, and if a monopoly is achieved, it is achieved by the one that provides the best, most efficient service at the most economical prices. This means there should be more than the Federal Reserve Bank.
I am constantly amazed at how proponents of government regulation or socialism will twist the simplest arguments to hammer a square peg into a round hole. I am even amazed that so-called capitalists will nod their head in agreement to such arguments. But the real foundation of his argument was this:
Since the banks loaning money as private institutions are capitalism, this makes government necessary to control runaway capitalism, since unregulated bankers will control all wealth. His argument was seriously flawed, as I pointed out to him, by the simple fact that:
1.If such a system is to be truly capitalist, there must be competition among currency systems
2.If there was such competition, people would naturally turn to that system which best served the interests of each person
When I pointed out that the Federal Reserve was nowhere allowed in the Constitution, that only gold and silver were the recognized tender for all debt, he responded “Sure, go back to gold and silver, and watch our economy collapse”.
This is another red herring argument similar to the one he proposed in definition of capitalism. No doubt the economy would collapse if we went back to gold and silver, but that still doesn’t change the fact that only gold and silver are recognized as legal tender by the Constitution. By that simple definition , the Federal Reserve is unconstitutional.
His next argument was that, since the Constitution was the supreme law of the land, it had sovereign power to declare paper money as legal tender. Where have I heard that before? Oh yes, the “Legal Tender cases” argued just after the Civil War. SCOTUS had clearly declared, in early cases, that paper money was unconstitutional as legal tender. President Grant got elected, and there was some court packing with new justices sworn in, and suddenly paper money was constitutional!
What was their argument? That the Constitution was sovereign, so it could recognize paper money as legal tender. Specifically no authority is given, and the only place mentioned is in restriction to the states, so, argues my deceptively intelligent adversary, only the states are prohibited from issuing paper money.
Of course this has no weight at all, since one only has to look to the 10th amendment:
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people”.
A simple statement. If a power is not delegated to the United States, it remains to the states or the people. Since the states can only recognize gold or silver as legal tender, the federal government is bound by the same rule. If no power is given, then no such power can be claimed. You might break it down even simpler, but there simply is not and cannot be any federal authority to recognize paper money as legal tender. By obvious and plainly written law, neither the states nor the federal government can declare paper money constitutional.
John Marshall had written, as Chief Justice, that so long as a law promotes an end within the scope of some enumerated power, extraneous objectives do not render it unconstitutional. Unfortunately, there is no enumerated power for legal tender.
The argument for the first central bank, the Bank of the United States, actually was proposed for reasons consistent with capitalism. Hamilton himself had argued that a federal bank could make private loans to augment business capital or satisfy consumer wants. certainly, under a general idea of capitalism, there is no reason why banks should not freely compete for business. But such competition opened up a can of worms in “McCulloch v Maryland”. Could the state tax federal banks? Certainly if it could tax state banks, it ought to have the right to tax federal banks, in the interest of free competition.
Marshall pointed out that the power to tax is the power to destroy, and the Bank of the United States could be destroyed by unregulated power to tax. Therefore, it could not be taxed. The argument from capitalism broke down right there. The fact that the federal banks were not taxed, while state banks were taxed, created a monopoly by the federal banks, who could ignore state taxes as part of their costs. They were immune in their functions to state scrutiny.
Not only is there no power given to create a federal bank, there is no authority given to create a corporation as a federal bank. Marshall had, in one act, given legitimacy to both federal corporations and federal banks with no evidence of any constitutional authority. But keep in mind that there was no argument on the abandonment of gold and silver as legal tender. The only issue was, can a federal bank be taxed by a state?
It wasn’t until the Legal Tender Act of 1862 that gold and silver were gradually abandoned as legal tender. In support of Lincoln’s war efforts, paper money was used to finance the needs of the war, and the confederacy was no different, issuing its own currency to finance the war for the South.
In 1789, the founders had eliminated the clause giving power to congress to “emit bils of credit” for financing its needs. By eliminating this clause, the 10th amendment became the true authority in such considerations, and no such power was permitted.
The court decided, in regard to paper as legal tender, that, “the degree of the necessity for any congressional enactment or the relative degree of its appropriateness, if it has any appropriateness, is for consideration in congress, not here”.
Passing the buck, not acting on plainly written laws, but simpy looking the other way. That’s what SCOTUS did in the interest of winning the war for the North, and later for giving almost unlimited power to the North for monetary expansion.
SCOTUS had not one law to support paper money as legal tender, so they threw it to congress. In “Knox v Lee” SCOTUS held that the government’s monetary power was inherent in its sovereigny; thus it need not be enumerated in the Constitution.
IOW, the federal government could do precisely what the constitution said it could not do!
In dissent, Justice Stephen J. Field declared:
“If there be anything in the history of the Constitution which can be established with moral certainty, it is that the framers of that instrument intended to prohibit the issue of legal tender notes by the general government and by the states; and thus prevent interference with the contracts of private parties”.
So, if the power of the Fed to issue paper money is capitalism, then so can other parties issue paper money as a competitive enterprise.
But the issue, as presented by my pseudo-intellectual friend, completely ignored the difference between “legal tender” which presents a monopoly on all transactions, and free competition among systems of “tender” for private contract. If, as he said, the Fed is a private banking business, the best it can offer is “tender” for payment, and not legal tender, since it is not an agency of government. If it IS an agency of government, all notes would of necessity be backed by gold and silver, since the Constitution plainly declares that only gold and silver are recognized tender.
These are simple arguments; logical, consistent with law, and presented many times, yet SCOTUS, which originally offered no resistance to congress to create legal tender, and now enforces congress on legal tender, actually refuses to look at the plainly written law itself and make a ruling on constitutionality. In fact, SCOTUS has forfeited all claim to judicial authority in that act alone, by their own statements!
You can’t actually call them a lawbreaker, since they stepped back and let congress decide on what was obviously unconstitutional, and then forfeited all authority to a private banking institution, but you CAN call them irresponsible and incompetent, and by law, you can simply ignore them.
Where does “God” come in on all of this? Even God has declared no monopoly on our actions. He has shown no claim on one belief over another, nor has He determined that any one system of government or religion has a power over any other, yet our states and federal government declare themselves “under God” doing exactly what God himself has never done!