By MAJ (RET) Montgomery J. Granger
In 1913, our money system changed for the worse. While the Federal Reserve Act of the time promised to end banking woes and financial uncertainty, it seized constitutional money powers from the people and transferred them to the elite bankers and super-wealthy of the time.
Before then, if the government wanted money, they had several methods to do so. Here are a few of the tools available before 1913.
- Tariffs -The federal government imposed tariffs on imported goods, which generated revenue for the government. Tariffs were a significant source of revenue for the U.S. government throughout much of its early history, particularly in the 19th century.
- Excise Taxes -The government also levied taxes on domestically produced goods such as alcohol, tobacco, and luxury items. These taxes provided additional revenue to fund government operations.
- Land Sales -The federal government sold public lands to individuals, businesses, and settlers, particularly during the westward expansion period. Revenue from land sales contributed to the government’s finances.
- Borrowing -In times of need, such as wars or economic crises, the government borrowed money by issuing bonds and other debt securities. Bonds were then sold to both domestic and international investors, both domestically and internationally, to raise funds for government spending.
- Additional Sources -The government also collected various other fees, fines, and miscellaneous revenues, such as fees for patents and licenses, customs duties, and sales of government assets.
How the 16th Amendment Changed Money
After 1913, the 16th Amendment to the U.S. Constitution passed and fundamentally changed the way the federal government operated financially by granting Congress the power to levy and collect income taxes directly from individuals’ earnings. This amendment marked the establishment of the modern income tax system in the United States, significantly expanding the federal government’s revenue-raising capabilities.
The introduction of the income tax allowed the government to tap into a new, more stable source of revenue by taxing individuals’ incomes, profits, and other earnings. This enabled the government to raise substantial funds to finance its activities, including national defense, infrastructure development, social programs, and other government services.
Article I, Section 8 of the U.S. Constitution outlines the financial powers of Congress. It grants Congress the authority to levy taxes, borrow money, regulate commerce, coin money, establish post offices, and more. Specifically, Clause 2 of Section 8 states that Congress has the power “To borrow Money on the credit of the United States.”
So why did Congress feel it needed to rob the citizens of their hard-won earnings directly through establishing income tax, rather than ask permission, or sell bonds for future needs not covered by other means?
Greed.
And greed is not good.
Finance, the Central Bank, and the Federal Reserve
Currently, a Central Bank Digital Currency, otherwise known as a CBDC, includes any digital currency issued by central banks that is considered legal tender and is backed by the government or central authority issuing it. CBDCs are distinct from cryptocurrencies like Bitcoin because they are centralized, and/or controlled by a government entity. They are often seen as a digital equivalent to physical cash.
The United States is exploring the possibility of establishing a CBDC through the Federal Reserve (which is neither federal nor a reserve of anything). The Federal Reserve, the country’s central bank, has been conducting research and pilot programs to assess the feasibility and potential implications of introducing a digital dollar. The FED has published discussion papers on the pros and cons of such a system arguing that “a CBDC would be the safest digital asset available to the general public, with no associated credit or liquidity risk.”
The major problem with CBDCs here is that, unlike physical cash, you never actually possess, or own, them. They are government property, just like the evidence of debt we all carry around in our wallets and our piggy banks, under our mattresses, etc., aka cash, but at least with cash, we can hold it in our hands. Those are Federal Reserve Notes. In financial terms, a note is a promise to pay, not a payment in and of itself. Carrying the phrase “good for all debts, public and private,” however, a note still retains value insofar as businesses accept them as payment, for now, and they still have at least psychological value.
Federal Reserve Notes are “borrowed” into circulation. Congress, through the US Treasury, orders money through the Federal Reserve, which loans us our own money at interest, creating the National Debt. As a result, the national debt is owed by every US citizen through the FED and monitored via the Internal Revenue Service (IRS). Even so, the total of all taxes on the American people and businesses barely covers the interest on the national debt.
The last time the ReserveUS printed U.S. notes (1963), a president was assassinated (Kennedy). And then they were no more.
We have, in effect, an all-debt economy.
To add insult to injury, we also practice fractional reserve banking. This means that banks only need to have a fraction of the total amount of money required to fully finance a loan before loaning it to a borrower, say 10 percent. The rest is created out of thin air, by permission of the FED. By contrast, borrowers must put up personal assets as collateral against those loans. Since interest on those
loans (a free gift to banks) are never created and not all of the loans can be repaid, the banks confiscate the real property (collateral) from those who default on their loans.
Creating and using CBDCs will further enrich the FED and banks that loan them to unsuspecting borrowers. Only this time it will all be controlled, and not by us, the consumers.
The rationale for CBDCs is illogical on its face. Most of the M1, or money in circulation, is digital ones and zeroes, but they represent dollars, not some cryptocurrency or government-controlled fantasy money. Financial transactions that use dollars are just as easy and efficient as those that use CBDCs or cryptocurrency. Electronic banking is easy and effective, and it meets all of the necessary security requirements of any other type of electronic transaction.
The only difference between what we do now and CBDCs is who owns and has access to the purpose, origin, and destination of the money. You can never hold cryptocurrency or CBDC in your hand.
Currency Rights Demand Cash-Based Economies
Our right to privacy and money is God-given and guaranteed in the Constitution. We have the right to life, liberty, property, and the pursuit of happiness, which includes the freedom to make, save, or spend money as we see fit. If CBDCs come into the picture, all that would change. The government would know every detail of every digit received and spent.
This is why I believe we need to return to a cash-based economy. Restoring higher denomination currency would ensure that private transactions stay private.
Further, we need to repeal the 16th Amendment and the Federal Reserve Act and return the power to “coin money and set the value thereof” to Congress, where it was intended and where it belongs. We the People control who gets to Congress and can vote them out if they do the wrong thing. We have no power or control over the Federal Reserve.
Federal Reserve economists and money managers are no different than Sunday morning NFL prognosticators. Half are right and half are wrong, but both will tell you they’re needed regardless. Without them, the information is just “too difficult” for the common person to understand.
Wrong! The average American knows how much money is in their wallet, bank account, and cookie jar. We can count. We are tired of inflation, taxes, and government intrusion into our financial lives. CBDCs would make the American economy our worst nightmare.
We know things have to be paid for, and for about 140 years (before the FED was established) we did well with finances until the money powers wanted more. We can pay for things as we go. We can purchase government bonds. We can pay usage fees. But income tax taken directly from our paychecks without our consent must go. It’s time for the government to become responsible and accountable.
Some will say cash is dirty, cumbersome, can be counterfeited, costs money to move around, and is not secure, etc. True, to a certain degree, and that is what’s called the cost of doing business.
Benjamin Franklin said, “Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.” Which can be easily applied to our financial situation.
Franklin also invented the first money system in the Colonies, creating Colonial Scrip, a paper money note that promised to pay in gold or silver upon demand at any Colonial Bank. The notes had handwritten serial numbers, and after being returned, would be destroyed so as to avoid inflation through debt or interest.
The scrip was spent into the economy for public projects, such as bridges, ports, roads, and markets, and then taxed out until the original investment debt could be retired. This system was a phenomenal success and caught the attention of the British. Some say the real cause of the Revolutionary War was the fact that the British outlawed Colonial Scrip and made the colonists purchase British pounds from the Bank of England at interest!
Paper money has its pitfalls, but it remains a valid way for We the People to enjoy the liberty and freedom promised by our founding documents, and to keep a greedy federal government and its financial watchdog out of our business.
NOTE: Major Granger, a Libertarian, is a citizen economist and numismatist.