"The public debt scam" origins

A CROSS OF DEBT

By Dr. Edwin Vieira, Jr., Ph.D., J.D.
February 10, 2012

NewsWithViews.com

[An highly abbreviated version of this paper was presented at the Committee for Monetary Research & Education Spring Meeting of 12 May 2011 in New York City.]

At the Democratic National Convention in 1896, Williams Jennings Bryan intoned: “You shall not crucify mankind on a cross of gold!” No society, though, has ever been crucified on a cross of gold—at least when gold functioned as actual money. But many have been crucified on a cross of debt—particularly when debt masqueraded as currency. And America is now on the road to her Golgotha, leading to her crucifixion. Being no saint myself, I am not inclined to say of those planning to perform this crucifixion: “Forgive them Father, for they know not what they do.” Because they know perfectly well what they are doing.

At base, the problem reduces to an alliance between two voracious crime families: avaricious bankers and financial speculators, on one side, in league with ambitious careerist politicians, on the other. Their strategy has always been to link the moneyed class with the government’s treasury, so as to advance the special interests of both families. The bankers and speculators incorporate the treasury as an integral part of their business plans. The politicians agree to coördinate the treasury with, if not subordinate it to, the bankers and speculators in order to ensure their own continuance in office. And the common people pay the costs.

This is an old scheme. Well before America’s War of Independence, in his Commentaries on the Laws of England, Sir William Blackstone trenchantly explained how it worked in the Mother Country.
After discussing the “several branches of the revenue” under English law, Blackstone turned to how these sums were appropriated,

first and principally, to the payment of the interest of the national debt.
In order to take a clear and comprehensive view of the nature of this national debt, it must first be premised, that after the [English] revolution [of 1688], when our new connexions with Europe introduced a new system of foreign politics, the expenses of the nation, not only in settling the new establishment, but in maintaining long wars, * * * increased to an unusual degree: insomuch that it was not thought advisable to raise all the expenses of any one year by taxes to be levied within that year, lest the unaccustomed weight of them should create murmurs among the people. It was therefore the policy of the times to anticipate the revenues of their posterity, by borrowing immense sums for the current service of the state, and to lay no more taxes upon the subject than would suffice to pay the annual interest of the sums to be borrowed: by this means converting the principal debt into a new species of property, transferrable from one man to another at any time and in any quantity. * * * This laid the foundation of what is called the national debt * * * .
By this means the quantity of property in the kingdom is greatly increased in idea, compared with former times; yet if we coolly consider it, not at all increased in reality. We may boast of large fortunes, and quantities of money in the funds. But where does this money exist? It exists only in name, in paper, in public faith, in parliamentary security: and that is undoubtedly sufficient for the creditors of the public to rely on. But then what is the pledge, which the public faith has pawned for the security of these debts? The land, the trade, and the personal industry of the subject; from which the money must arise that supplies the several taxes. In these therefore, and these only, the property of the public creditors does really and intrinsically exist: and of course the land, the trade, and the personal industry of individuals, are diminished in their true value just so much as they are pledged to answer. * * * In short, the property of a creditor of the public consists in a certain portion of the national taxes: by how much therefore he is the richer, by so much the nation, which pays these taxes, is the poorer.
The only advantage, that can result to a nation from public debts, is the encrease of circulation by multiplying the cash of the kingdom, and creating a new species of money, always ready to be employed in any beneficial undertaking, by means of it’s transferrable quality; and yet producing some profit, even when it lies idle and unemployed. A certain proportion of debt seems therefore to be highly useful to a trading people; but * * * [t]his much is indisputably certain, that the present magnitude of our national incumbrances very far exceeds all calculations of commercial benefit, and is productive of the greatest inconveniences. For, first, the enormous taxes, that are raised upon the necessaries of life for the payment of the interest of this debt, are a hurt both to trade and manufactures, by raising the price as well of the artificer’s subsistence, as of the raw material, and of course, in a much greater proportion, the price of the commodity itself. Secondly if part of this debt be owing to foreigners, either they draw out of the kingdom annually a considerable quantity of specie for the interest; or else it is made an argument to grant them unreasonable privileges in order to induce them to reside here. Thirdly if the whole be owing to subjects only, it is then charging the active and industrious subject, who pays his share of taxes, to maintain the indolent and idle creditor who receives them. Lastly, and principally, it weakens the internal strength of a state, by anticipating those resources which should be reserved to defend it in case of necessity. The interest we now pay for our debts would be nearly sufficient to maintain any war, that any national motives could require.[1]

This system of not “rais[ing] all the expenses of any one year by taxes to be levied within that year, lest the unaccustomed weight of them should create murmurs among the people”, plainly proceeded from distrust that the people would actually agree with their governors that the “unaccustomed weight” of taxation the officials wanted them to bear was justified—which reflected either a malign opinion of the people’s intelligence, or the officials’ guilty consciences that the people were right. The “funding” scheme operated under the deception of “anticipat[ing] the revenues of [the people’s] posterity, by borrowing immense sums for the current service of the state, and * * * lay[ing] no more taxes upon the subject than would suffice to pay the annual interest of the sums to be borrowed”—while shifting the “unaccustomed weight” of taxation to unknown individuals in some distant future, individuals who neither were represented nor were capable of being represented in the Parliament which imposed such burdens on them. And, ultimately, this system manifested the contempt in which officialdom held both the present and future generations of citizens: the present generation, as greedy fools ever ready to pile their own burdens onto the backs of posterity; future generations, as fit subjects for the very epitome of tyranny, “taxation without representation”.

As Blackstone pointed out, the British “funding” system “convert[ed] the principal debt into a new species of property”: a claim by the public creditors on “[t]he land, the trade, and the personal industry of the [people]; from which the money must arise that supplie[d] the * * * taxes” to pay interest on the debt. This “new species of property” amounted to alienation by the present generation of politicians to the public creditors of the labor of future generations of workers, without those workers’ knowledge, let alone consent. Future generations were condemned, without votes or even a hearing, to be born with crushing burdens already laid upon their backs, their lives mortgaged to the involuntary servitude of paying perpetual taxes to defray perpetual interest on perpetual indebtedness. This was a formula for intergenerational serfdom, and for irreconcilable class conflicts that would inevitably and inexorably lead to a national disaster: the public creditors in the present seeking to expand the national debt and bring more and more private resources under governmental control so as to assure the payment of interest; the taxpayers in the future seeking to limit the disappearance of social wealth into the black hole of political redistribution before the national economy collapsed—and the struggle raging until either the debt crushed the country, or the country somehow repudiated the debt.

Upon her separation from Great Britain, America did not distance herself from the Mother Country’s “funding” scheme. To the contrary: The tainted genius of Alexander Hamilton, as the first Secretary of the Treasury, fastened that incubus onto this country’s throat, from which it has sucked America’s lifeblood since then. In the estimation of historian Claude Bowers, Hamilton

hoped to “array property on the side of the Government,” by giving it a financial interest in the Government, and “to assure to the property of the country a powerful influence upon the Government.” Having “been unable to introduce a class influence into the Constitution by limiting the suffrage . . . with a property qualification,” he hoped through his financial system to accomplish his purpose in another way.

* * * His obsession was a strong, stable government—and to sustain it he required the interested devotion of the propertied class.[2]

By itself, the “funding” scheme was bad enough. Worse yet, Hamilton’s system included not only permanent public indebtedness, but also a nascent national bank—the first Bank of the United States—intended to assert control over the nation’s currency by creating “money” out of nothing through the financial card-trick of fractional reserves. Although sometimes met with strong political resistance—as during the Jacksonian era, when the second Bank of the United States was disestablished—Hamilton’s system gradually expanded in institutional scope and power with the creation of the National Banking System in the 1860s and then the Federal Reserve System in 1913. Upon the complete integration of bank and state arrived the potential for—indeed, in light of fallen human nature, the certainty of—the elephantiasis of public indebtedness. For the encouragement of which, propagandists during Franklin Roosevelt’s New Deal broadcast the Keynesian apology that no amount of public debt is really a burden because “we owe it to ourselves”. Unfortunately, the truth of the matter is that “we” do not owe it “to ourselves”. Rather, some Americans, present and future, supposedly owe it to a different group composed of both Americans and foreigners. Effectively, the public debt mortgages the property and productive capacity of the entire country to the speculators in government paper and the money-managers whose control over paper currency and bank-credit enables that debt to be floated on the froth of Ponzi finance.

The grotesque size of the National debt which Americans now purportedly owe as a consequence of the actions of their putative “representatives” in Congress—and the impossibility of this sum’s ever being paid in real terms—should by now have awakened every thinking person to the realization that Hamilton’s system, as refined in technique and expanded in scope by Woodrow Wilson, Franklin Roosevelt, and their successors in office, has dragged this country into the worst financial crisis in its history.

More importantly yet, this crisis is not merely accidental, or coincidental, but the necessary, inevitable, inexorable, and even intended consequence of the operation of Hamilton’s system. As Hamilton’s opponent, Thomas Jefferson, warned the Americans of his day in words that should resonate even more vibrantly now: “the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale”.[3] Today, it is no longer a matter of “swindling futurity on a large scale”; rather, the “swindling” has swelled to such a stupendous scale that numbers of near-astronomical magnitudes must be employed to describe it.  

“[S]windling”, however, is not the product of the unconscious forces of Nature. It cannot occur without human action—that is, without purposeful behavior by identifiable individuals. So the critical questions become, “With respect to America’s National debt, who is ‘swindling futurity on a large scale’?” and “Why are they not being punished in proportion to their crimes?”

In its origin and structurally, public debt is not the same as private debt. Although formal “lenders” and “borrowers” are to be found in both cases, where public debt is concerned the actual borrowers are never also the primary payors. Although the people’s purported “representatives” arrange the loans, they pledge their constituents’ assets as collateral. Here lies the fatal defect in the Hamiltonian “funding” system: Because the individuals who borrow are different individuals from those who will ultimately be forced to pay, the interests of the borrowers, as well as of the lenders, can (and usually do) become so disconnected from the interests of the payors that the borrowers collude with the lenders at the expense of the payors.

At that point, the “funding” system becomes an exceedingly dangerous combination amongst rogue public officials and financial speculators against the general public, for at least two reasons:

• First, it is a combination especially easy to contrive and manage. On the one hand, the “representatives” can be cöopted or captured by the lenders and the well organized and funded special-interest groups allied with them. On the other hand, many among the affected population can exert no countervailing political influence—indeed, can have no way of knowing, let alone doing anything, about what is being imposed upon them—because they are either in their minorities or not even in existence at all when are incurred the debts for the repayment of which they will eventually be held liable.
• Second, it is a combination especially prone and likely to get out of hand, because of the synergistic interaction among human avarice, ambition, and the appetite for abusive powers.
On the one hand, the lenders are intent upon securing for themselves a stream of income guaranteed by “the full faith and credit” of the government—which means, in actuality, the government’s ability and willingness to apply unlimited force to the people in order to extract from them the wherewithal to pay the debt. For that reason, the lenders will promote expansion of the government’s power to tax and otherwise loot the citizenry. As a practical matter, the lenders “invest” in the metastasis of the apparatus of governmental coercion. In addition, the lenders “invest” in the metastasis of governmental powers across the board, so as to create new excuses for the government to spend and therefore to borrow.[4] Thus, on the side of the lenders, the Hamiltonian “funding” system is a formula for ever-expanding statism.
So, too, on the side of the public officials who incur the debts. Rogue officials favor ever-increasing public debt as a means to increase governmental spending, which rationalizes ever-increasing governmental power. The larger and more powerful the government, the more secure their political careers, and the greater the authority, personal prestige, and financial benefits that accrue to them.
Worse yet, in the process of incurring public debt, the lenders often effectively sit on both sides of the bargaining table. Of course, on one side, the lenders represent themselves. But, on the other side, the public officials represent the lenders, too, because the lenders either secure the election of those officials through campaign-contributions or capture them later on through lobbying and other forms of behind-the-scenes influence. No one at the table stands up for Mr. and Mrs. America and their children, who will be made to foot the bill.
Finally, because the borrower is always the servant of the lender, once the public debt has grown sufficiently large that public finance has degenerated effectively into a Ponzi scheme, the lenders hold even honest public officials hostage. Just as with the dope-fiend who is always dependent upon his next fix, public officials must enter into more and ever more loans—constantly raising “the debt ceiling” of their addiction—or the government will collapse in financial ruin. So, just as with the dope-fiend who steals from his family and friends in order to support his habit and to avoid having to “go cold turkey”, public officials will impose any financial burden on the masses in order to salvage their own careers.

It is no answer to these objections to posit the possibility that a significant proportion of the general public may, directly or indirectly, hold some large part of the public debt.[5] First, as this proportion of the public always exists in the present, not the future, its mere size does not obviate—but in fact on that score may exacerbate—the intergenerational conflict inherent in public debt. Second, no reason exists why a significant proportion of the public—even comprising a majority—cannot constitute a “faction” inimical to the common good.[6]

Today in America, this process has progressed to the point at which the interests of the borrowers and the lenders have become, not simply adverse, but even aggressively antagonistic, to the interests of the payors. The speculators in New York City and their political puppets in Washington, D.C., are arrayed against the vast mass of Americans, both present and future, in a conflict that is not amenable to compromise.

The question is, “Can common Americans prevail?”

It has become somewhat trite to point out that the Chinese ideograph for “crisis” includes the ideas “danger” and “opportunity”. But that observation still has merit.

At this juncture, the “opportunity” is for Americans to realize that Hamilton’s system has not worked, and can never be made to work, and therefore must be replaced—immediately, if not sooner. The present situation provides Americans with the best chance they have ever had to kill two vultures with one stone: first, the link between excessive governmental debt and excessive governmental power; second, debt-currency, fractional-reserve central banking, and the integration of bank and state, without which the present gigantic Ponzi-pyramid of supposed public debt could never have been erected.

The “danger” is that while Americans are mulling over what do to about this situation, the rogue politicians and crowd of bankers and financial speculators that pull their strings will betray this country once again—and in their expectation finally and decisively—by

(i) “stabilizing” the tottering Federal Reserve System through the banking cartel’s integration into a supra-national central bank capable of emitting a supra-national currency,[7] closely followed by
(ii) “stabilizing” America’s National debt with loans made and payable in the new currency—complete, of course, with severe “conditionalities” that will set in stone the pyramid of perpetual public debt with the cement of the people’s permanent penury.[8]

I describe this as a “decisive” betrayal, because the Forces of Darkness expect that, once a supra-national central bank and fiat currency have been set into operation, and this country’s crushing load of National debt has been tied to that new régime, Americans will be unable to do anything—economically, politically, or legally—about it for generations, if ever. For the borrower is servant to the lender; and if the debt can never be paid off, the servitude can never be ended. After all, what have Americans been able to do about the depredations of the Federal Reserve System in the nearly one hundred years since its illegitimate birth in 1913? From the collapse of the economy in 1932 and the seizure of the people’s gold in 1933-1934, to the palpably criminal “bail outs” and “quantitative easings” of the present day, no crime has been too outrageous for the banking and financial racketeers to commit—yet next to nothing has been done about any of them. So, if a domestic central bank has proven to be largely immune from popular control, how much more immune will a supra-national central bank be?

Moreover, this immunity will have the most serious of consequences. For, just as the erection of the Federal Reserve System effectively transferred supreme domestic governmental power to bankers and financial speculators, so that Congress has become shamelessly subservient to them, so will the establishment of a supra-national central bank effectively transfer America’s very national sovereignty to that cabal, so that Congress will become, not merely impotent, but completely irrelevant to the scheme of financial control that will be fastened on the American people. This is a scheme, not simply for violating the Constitution of the United States, but beyond that for overthrowing the Declaration of Independence.

So, the main thing is to recognize that, at base, America is confronted, not with a merely economic problem, but with a profoundly political and legal problem. If the latter is not solved in time,the former will eventuate in catastrophe.

Politically, Americans must decide once and for all who is in control of the government of the United States—WE THE PEOPLE, or the bankers, the financial speculators allied with them, and their lap-dog political front-men. And once the proper order of precedence has been established, Americans must determine to use the Constitution and laws

[1] to separate the Treasury from financial speculators to the greatest degree possible, and
[2] to separate bank from state finally and absolutely.

As I have already dealt with the second of these in my address “Cross of Gold”, presented to this assembly at its October meeting in 2010 (and available in full on NewsWithViews), I shall focus only on the first of these goals.

How might Americans go about separating the Treasury from financial speculation to the greatest degree possible?

I believe that the best way to proceed is for WE THE PEOPLE to act through their States, as economic, political, and especially legal vehicles for “change we can believe in”.

A. The first step in this corrective process must be to prevent the present problem from becoming any more serious, by imposing strict limitations on public indebtedness in the future.

To saddle future generations of Americans with a staggering load of public debt is more than just financially imprudent or even morally problematic. At some point, it becomes positively illegal. The only time the Constitution expressly addresses the concerns of the future is when it declares WE THE PEOPLE’S intent “to * * * secure the Blessings of Liberty to ourselves and our Posterity”.[9] Now, generally, a servant is subject to the control of his master. Therefore, relative to his master, the servant is deprived of liberty. Specifically, “the borrower is servant to the lender”—his servitude proportional to the degree of his indebtedness. So, if “our Posterity” are cast in the rôle of involuntary “borrowers” of sums so huge that repayment is impossible, they are thereby consigned to the permanent status of “servants”—and worse than even indentured servants, because they never agreed to their servitude—and in that thralldom are not “secure[d]” in “the Blessings of Liberty”, but instead are stripped of them.

This is contrary to the explicit purpose of the Constitution “to * * * establish Justice” as a permanent condition.[10] For “our Posterity” will have had no notice of, will have been afforded no hearing as to, will have taken no other part in, and certainly will never have given their permission for, the transactions that incurred the supposed public debt for the repayment of which they will be taxed or otherwise mulct. It will have been physically impossible for those of “our Posterity” who were not even alive at the time to be observers of, let alone parties to, these transactions. Therefore, imposing a liability upon them to pay off these debts—ultimately to be enforced through taxation imposed at the point of bayonets—amounts to the quintessential case of “taxation without representation”.

It is bootless to contend that “our Posterity” will have been “virtually represented” by the past and present generations of Americans. Historically, this apology is lame. America’s Founders were “virtually represented” by members of Parliament who were actually their contemporaries—and nonetheless they rejected such “representation” as insufficient, if not fraudulent. Indeed, “imposing Taxes on us without our Consent” in the present was one of the “Facts submitted to a candid world” which the Declaration of Independent set out as evidence that “[t]he history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny”. One wonders how “imposing Debts on us without our Consent”, on an intergenerational basis, could sound any less in usurpation and tyranny. 

In principle, too, the apology of “virtual representation” is nonsensical.

• First, even if “representatives” elected in the present can properly “represent” the generation that ensconced them in office—which is an highly debatable point—they cannot “represent” future generations the circumstances of which must be entirely unknown to and unknowable by them. How can “representatives” today possibly judge whether “our Posterity” in some future time will be able to afford such a gargantuan debt in the face of the vicissitudes that may then plague them?
• Second, “representatives” elected in the present cannot presume, let alone know, that “our Posterity” would even concur in the actual process—always convoluted, often corrupt—by which the public debt is incurred today, let alone accept the results of that process. To the contrary: As rational beings, “our Posterity” would never agree to afford carte blanche to intertemporal “virtual representation”, because both the “representatives” and their constituents in the present are not neutral arbiters, but instead are patently self-interested parties intent upon enjoying the immediate benefits of deficit finance in the present while sloughing off its inevitable burdens onto the future. Such “representatives” are absolutely disqualified as “trustees” of the public interest as far as “our Posterity” is concerned, because their own interests are inexorably adverse to those of the purported “beneficiaries” of their actions.

The complete corrective to this intergenerational conflict of interests would be to eliminate altogether, or at least drastically curtail, the power of Congress “[t]o borrow Money on the credit of the United States”.[11] That course of action, however, would be cumbersome, because it would require a very specific amendment of the Constitution, which would have to be “propose[d]” by Congress itself—unless Americans want to play political Russian Roulette by calling for a constitutional convention.[12]

In the interim, the best that can be done is to recognize that, if some public debt is arguably justified on the ground that it may become unavoidably necessary—perhaps, for example, during a properly declared and legally justifiable “War”[13]—nonetheless in incurring any such debt the fiduciary responsibility of the present generation to “our Posterity” must be of the very highest order. No debt should be incurred that is not constitutionally “necessary and proper” beyond a reasonable doubt.[14] So, the prudent as well as circumspect approach for the present should be to enforce strict “checks and balances” on the exercise of the power “[t]o borrow Money”.

Now, the ultimate practical “check and balance” on speculation isuncertainty. Lenders do not lend freely to borrowers who are not likely to repay. Public officials have been able to amass the present gargantuan debt, because they have purported to “borrow Money on the credit of the United States”.[15] And lenders have relied on what is called “the full faith and credit of the United States”—or, more descriptively, what has always been the robotic willingness of common Americans to continue to pay the bills passed on to them by public officials in the name of the United States.

At base, though, “the credit of the United States” is a legal fiction. It can extend only to those actions of public officials that are constitutional. So not all purported “public debt” is lawful simply because it comes forth stamped with some official’s approval. The legitimacy of any ostensible “public debt” is contingent upon its rectitude, not simply its naked existence.

The Constitution itself declares that “[t]he validity of the public debt of the United States, authorized by law, * * * shall not be questioned”.[16] This statement embodies the recognition that some supposed “public debts” may not, after all, be “authorized by law”—as, for instance, when they are unconstitutional or otherwise illegal—and that all alleged “public debts” may be “questioned” on that very ground.[17]

Only if these principles are actually applied to the present “public debt” will America burn the bridges between the financial speculators on Wall Street and the Treasury on Pennsylvania Avenue. And the time for such incendiary action has arrived. Under contemporary circumstances, the purported “public debt” of the United States not only should be but shall have to be more than just “questioned”, because its cancerous growth has set into motion an autocatalytic reaction which, unless soon quenched, will ignite the worst of all possible economic conflagrations: an hyperinflationary depression.

Indeed, the supremacy of the Constitution[18] requires that all ostensible “public debts”—no less than any and all other actions of public officials—should be capable of being “questioned” at all times. For “[i]t cannot be presumed that any clause of the constitution is intended to be without effect”.[19] And inasmuch as the power of Congress “[t]o borrow Money on the credit of the United States” is a delegated power, limited by its terms, therefore the burden of establishing that it has been properly exercised in any and every case “is upon those making the claim”—namely, the public officials and the lenders who purport to incur the debt.[20] If that burden cannot be carried with respect to any portion of the purported “public debt”, then such part is null and void. For the alleged assumption of “public debt” always involves some supposed “law”. And if that “law” is unconstitutional, then it is no “law” at all. “[I]t confers no rights * * * imposes no duties * * * [and] is, in legal contemplation, as inoperative as though it had never been passed”.[21]

The formula for calculating what portion of the purported “public debt” is legitimate and what portion is not is straightforward.

Bills for raising revenue are inevitably tied to governmental spending, the former being the effect and the latter the cause. As the Constitution declares, “Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States”.[22] In any particular year, the government’s budget typically provides that so much is to be spent on certain activities—and to pay for it, so much is to be raised through taxes;[23] so much through borrowing;[24] so much (perhaps) through “dispos[al] of * * * the Territory or other Property belonging to the United States”;[25] and so much through other sources of governmental income.

So, because governmental income and expenditures are thus inextricably linked, in order to determine the unconstitutional portion of any amount of ostensible “public debt” incurred in any fiscal year, one need only determine what proportion of the expenditures for that year, related to that debt, are unconstitutional.

If a specific program is tied to a particular loan, then the unconstitutionality of that program will determine the unconstitutionality of that loan. If the program is unconstitutional, the debt incurred to float it is null and void.[26]

But if the money the Treasury borrows goes into its general fund, not tied to any particular program, then some formula for allocating the reduction of debt in relation to unconstitutional activities must be employed. For example, let T (TAXES COLLECTED) + D (DEBT INCURRED) + S (SALES OF PROPERTY) = E (EXPENDITURES), and X = THE AMOUNT OF E THAT INVOLVES UNCONSTITUTIONAL ACTIVITIES.

Now, X cannot easily be applied to reduce S, because, in contradistinction to “Taxes, Duties, Imposts and Excises” which may be expended “to pay the Debts and provide for the common Defence and general Welfare of the United States”,[27] and to borrowing which must be “authorized by law”,[28] the Constitution imposes no specific limitation on the discretion of Congress to “dispose of * * * the Territory or other Property of the United States”.[29] Of course, any such disposal would have to further the goals set out in the Constitution’s Preamble. So, if some same of property were made specifically in order to finance an unconstitutional program, that sale could be rescinded. As of now, though, few of these transactions occur. So, for the sake of simplicity at this point, this source of income may be disregarded. (In the future, though, things may be different, as will be discussed below.)

X should be applied to D before T, precisely in order to discourage lending to the General Government, because, more than any other source of governmental income, lending facilitates and encourages unconstitutional expenditures. After all, unlike taxpayers, lenders act voluntarily and presumably with access to adequate information from the General Government’s budget and other official sources. Thus, they lend their money knowing full well (or at least on adequate notice of) how it will be spent and implicitly approving of those expenditures. In addition, just as are the public officials with whom they deal, lenders are chargeable with full knowledge of the powers—and the disabilities—of the General Government, and therefore of which portions of the budget are legitimate or not. So, to the extent that some portion of the public debt subsidizes unconstitutional or otherwise illegal expenditures in the relevant budget, the lenders are in pari delicto with the rogue public officials who borrow the money, aiding those officials in perpetrating a fraud on the American people by purporting to impose a liability on the people to repay a debt for expenditures which cannot be charged to them in the first place. Therefore, when the time comes for repayment of the alleged debt, the lenders are surely not entitled to that portion which was illegally incurred in the first place. Indeed, because of their wrongdoing, arguably they are entitled to nothing at all.

This result is well supported by judicial precedent of long standing. For example, in Hanauer v. Doane,[30] the Supreme Court considered whether a loan, a portion of which was known by the lender to be applied to the purchase of supplies for the Confederate States Army, was repayable, in whole or in part. The Court held that “[i]f either of the[ ] portions of the consideration on which the notes were given was illegal, the notes are void in toto. Such is the elementary rule, for which it is unnecessary to cite authorities.”[31] As the Court explained,

[w]ith whatever impunity a man may lend money or sell goods to another who he knows intends to devote them to a use that is only malum prohibitum, or of inferior criminality, he cannot do it without turpitude, when he knows or has every reason to believe that such money or goods are to be used for the perpetration of a heinous crime, and that they were procured for that purpose,
No crime is greater than treason. He who, being bound by his allegiance to a government, sells goods to the agent of an armed combination to overthrow that government, knowing that the purchaser buys them for that treasonable purpose, is himself guilty of treason or a misprision voluntarily aids the treason. He cannot be permitt d to stand on the nice metaphysical distinction that, although he knows that the purchaser buys the goods for the purpose of aiding the rebellion, he does not sell them for that purpose. The consequences of his acts are too serious and enormous to admit of such a plea. He must be taken to intend the consequences of his own voluntary act.[32] 

Support for the Confederate States Army in the field was, of course, a treasonous activity, explicitly so defined by the Constitution.[33] The fundamental point, though, is not that such support was specifically “Treason”, but that it was a violation of the Constitution. “Treason” is a crime only because the Constitution makes it so. But every unconstitutional act into which rogue public officials enter knowingly and willfully, or with reckless disregard for the consequences, or in willful blindness to the truth, is also a crime, because various statutes so declare.[34]And if those rogue officials or their myrmidons then accost WE THE PEOPLE with arms, in order to collect the money to pay for their illegal acts, their assaults amount to no less than “Treason”. For every unconstitutional act on the part of rogue public officials constitutes a “combination to overthrow th[e] government”, in the sense of setting aside the Constitution, at least in part; and every attempt forcibly to compel obedience from WE THE PEOPLE through the deployment of “law-enforcement agencies” constitutes “an armed combination to overthrow th[e] government”. So any loan for which any part of the consideration is the performance of an act that is a violation of the Constitution is “void in toto”.

Thus,
• If X is less than D, then each bond, note, or other evidence of obligation that makes up the total debt is declared null and void to the extent of X/D times its face value. This relieves the taxpayers of any liability to repay this amount of debt.
• If X is equal to D, then the total debt is declared null and void. This relieves the taxpayers of any liability to repay any of the debt. And,
• If X is greater than D, then the total debt is declared null and void, and a credit to the extent of (X - D)/T times the tax paid by each taxpayer for the year in question is to be applied to the taxpayer’s next year’s tax. This relieves the taxpayers of any liability to repay any of the debt, and refunds to them the excessive taxes that they paid.

This calculation may become arithmetically more complicated if some expenditures for a particular year are for service of debts incurred in relation to budgets of previous years. But the same principle applies. A further complication is that some public debt will have to be excluded from the calculation altogether on equitable grounds. For example, the Social Security System’s so-called “trust fund” has been compelled to “invest” its receipts in public debt. In equity, then, that portion of the debt cannot be liquidated, except to the extent that the Social Security payments it finances can themselves be constitutionally reduced or even cancelled.[35]

Notice that, through this procedure, invalid “public debt” is not “repudiated”; it is not “nullified”; it is not “cancelled”; it is not even “dishonored”—rather, it is recognized as never having come into legal existence in the first place. Neither can it be said that invalid “public debt” is left unpaid. No debt is ever “unpayable” in principle. And all debts are always paid in practice: if not by the debtor, then by the creditor, or by some third party surety or guarantor. The only question is, “Who pays what?”

Were this procedure applied today, financial speculators would lose their enthusiasm for buying public debt, unless they were legally assured that whatever part of the General Government’s budget that debt financed was completely constitutional. Astute lenders would purchase only public debt that was explicitly tied to specific expenditures for specific programs, the legality of which could easily be assessed. Even then, they would likely demand official “certificates of constitutionality” for any program that could not be fully justified on the very face of the Constitution. As any such certificates coming from Congress or the Executive would be merely indicative, but not dispositive, without a judicial determination—which would require at least some sort of formal declaratory judgment on the matter—uncertainty would discourage any but the hardiest lenders from risking their capital on any loan that had the least taint of unconstitutionality attached to it.

The States should take the lead in the process of identifying those portions of the budget (and derivatively of the public debt) that are illegal, if only to reassert their authority under the Tenth Amendment. After all, in order to begin to enforce that Amendment, Americans need to become clear on what “powers [are] not delegated to the United States by the Constitution”, but “are reserved to the States respectively, or to the people”. Inasmuch as no one can reasonably expect officials of the General Government to investigate, educate, and mobilize the people on this subject, the task devolves upon the States.

B. This still leaves the legitimate part of the existing debt. And that is no small amount, by any means. It can be reduced, though, (i) by exercising the General Government’s reserved right to cancel certain contingent liabilities, (ii) by liquidating the assets that the government can best spare, and (iii) by raising some additional revenue.

The rather piquant irony is that Americans can both combine reduction of the public debt with separation of bank and state, and turn the present fiat-currency system, which the speculators and politicians created in order to increase the public debt, into the means to eliminate it.

1. The first step in resolving this problem will be to repeal the provision of law that requires the Treasury to redeem Federal Reserve Notes for “lawful money”[36]—thus beginning the separation of bank and state by imposing the entire burden for redemption on the Federal Reserve regional banks alone, where in economic rationality and justice it belongs. This reform can be accomplished simply by statute, and immediately, under the aegis of Section 30 of the original Federal Reserve Act, in which Congress “expressly reserved” “[t]he right to amend, alter, or repeal th[at] Act” at any time, in any particular, and for any reason.[37]

2. The second step in dealing with the legitimate portion of the existing public debt requires one to understand that, today, all public debt is payable in only notional “dollars”. Notice, I did not say merely “nominal”, but instead notional, “dollars”—because under Congressional practices and the Supreme Court’s precedents, the “dollar” is anything that Congress says it is. As a matter of this body of supposed law, the understanding when public debts are contracted is that the plenary power of Congress is then and thereafter always to be read into the word “dollar”.

In addition—again, under Congressional practices and the Supreme Court’s precedents—Congress may make anything a “legal tender” for a “dollar”. For instance, Congress can declare that a contract originally payable in some number of gold or silver “dollars” can be paid instead with pieces of paper labeled “legal tender”. As a matter of this body of supposed law, the understanding when public debts are contracted is that the plenary power of Congress to declare things “legal tender” for “dollars” is then and thereafter always to be applicable to any debt denominated in “dollars”.

Moreover, according to its own practices and the Judiciary’s precedents, Congress can “regulate the Value” of an ounce of coined gold at a nominal “$50”, and an ounce of coined silver at a nominal “$1”, and a base-metallic coin at a nominal “$1”, and a piece of paper at a nominal “$50” or a nominal “$1” or any other nominal value it chooses. And no one can legally complain that the purchasing power (say) of the pieces of paper or the base-metallic coins with an aggregate nominal value of “$50” is nowhere near the purchasing power of fifty one-ounce silver coins, let alone a one-ounce gold coin.[38]

(Of course, I do not concede that any of these practices or precedents are in any way constitutional. But, in the present crisis, I am willing to seize upon the old adage that “it takes a crooked stick to beat a mad dog”.)

Now, it was said of John Law that he tried to “coin the soil of France”. But John Law’s monetary powers were next to nothing compared to those that Congress, with the Supreme Court’s approbation, claims to exercise today. So, if Congress can declare anything to be a “dollar”, and to be “legal tender” for a “dollar”, and to be taken at whatever monetary value it so chooses, why cannot Congress also declare that some area of the public lands shall be a “dollar” or “legal tender” for a “dollar” specifically for and in payment of the public debt, “dollar for dollar”, and for no other purpose—and thus “coin the soil” of the United States?[39] Certainly, such action falls within the explicit constitutional powers of Congress “to dispose of * * * the Territory or other Property belonging to the United States”; and within the putative power “[t]o * * * regulate the Value [of Money]” any old way,[40] and to declare “legal tender”, which powers, although they lack any constitutional basis, Congress and the Supreme Court nevertheless say that Congress enjoys. And no relevant statute precludes such action.[41]

This method of paying off the public debt would be triply beneficial:
First, it could eliminate a very large portion, if not the entirety, of the debt all at once—because the new “public-debt-reduction dollar” can consist of any area of land that Congress might choose to stipulate. No need exists for Congress to establish that the unit of payment in land be equivalent in value, according to some external standard, to any other “dollar” in circulation when the debt was incurred, or when it is paid.[42] Indeed, because the “dollar” is today purely notional, no such standard can possible exist. Rather, the unit of land designated as the “dollar” for the specific purpose of paying off the public debt must itself constitute the only standard of monetary value applicable to that transaction, because so defined by Congressional edict.
Second, this method of paying off the public debt would liquidate the vast holdings of territory for which the United States lack any constitutional sanction, and return ownership, use, and regulatory authority over these lands to the States and private parties, where they belong.[43] The sudden increase in the real wealth of the States and their people would significantly mitigate the present economic doldrums in which they find themselves, and augur well for future economic prosperity and growth.
Third. both the lenders and the borrower (the General Government) would find the transaction advantageous. The General Government, of course, would benefit, because its debt would be more or less eliminated, and because the elimination of the debt would relieve a great deal of the pressure now being exerted on the Federal Reserve System and the Treasury which, if not somehow vented, is likely to cause an hyperinflationary explosion of the System’s paper currency, with Heaven know what terrible consequences. The lenders would approve, too, because they would receive real value in land for their bonds right now, instead of grossly depreciated paper “dollars” that almost certainly would be worth next to nothing when finally paid.

To be sure, the initial practical problem in effectuating this proposal will be that the unit of land designated as the “dollar” exclusively for the purpose of paying off the public debt will be, not only quite small in size, but also not localized in any particular place. Rather, each unit will comprise a very small fraction of—as the lawyers say, “an undivided interest in”—the total public lands available for distribution. So a mechanism will need to be created to regulate a market for trading these new “land-unit dollars”, in order to pass particular areas of the available territory into private control. Also, careful regulation will be necessary so that, although many of the “land-unit dollars” may initially have to be paid out to foreign interests, none of the territory shall come or remain under foreign control when final allocation, division, and disposition of the land takes place.

3. If, for legitimate strategic reasons, distribution of the entirety of the public lands is deemed undesirable for sufficient constitutional reasons,[44] then what remains of the public debt should be paid off with specially targeted taxes, including:

a. A confiscatory “Excise[ ]” on all nonproductive “financial transactions”, such as “credit default swaps” and other speculative gambling contracts, both when they are entered into and when they are paid off.[45]“[T]he power to tax involves the power to destroy”.[46] And in this case, rightly so.
b. A non-apportioned tax on the possession of certain types of non-productive assets held for personal consumption and use.[47]
c. A complex of “Taxes, Duties, [and] Imposts” aimed at curbing all manifestations of “globalism” and “the new world order” that are detrimental to the national independence, sovereignty, and security of the United States.[48] At the minimum, every job transferred from an American to some foreign worker, every unit of capital exported for overseas investment, and every product of strategic value imported into this country, when it could (and should) be produced in this country, should result in a significant tax being imposed on the enterprise or persons responsible.
d. A “Dut[y]” on all goods imported from Mexico (and, to be fair, from Canada, too), calculated on the basis of the costs of apprehending and deporting illegal aliens who have crossed into the United States across the Mexican (or the Canadian) border.

C. After the public debt is thus radically reduced, the General Government should be required to finance itself largely on a “pay as you go” basis, through taxation. After all, if the money is there to be borrowed, it is there to be taxed. (If it is not already there—and subject to taxation—then what is its source?) Of course, foreign money that might be available to be borrowed may not be taxable. But because “the borrower is servant to the lender”, the government should not be to any significant degree dependent upon foreign money in the first place. Foreign loans inevitably create political entanglements, subjecting the government to financial pressures applied for alien political ends always detrimental to America’s rational self-interest.

“Pay as you go” will return control of the government to the people. For taxpayers will simply refuse to “pay the freight” for governmental programs that are either unnecessary or wasteful—and will so instruct their representatives. Or, if their representatives prove recalcitrant, the people will remove them from office.

Self-evidently, the necessary reforms will not come from any in or aspiring to Congress, at least not without pulling a mouthful of political teeth. So WE THE PEOPLE must turn to the States. The first step must be the formation of a “blue-ribbon” investigatory commission, formed initially by one or a few far-sighted State legislatures, to determine and widely publicize the percentage of the General Governments’s expenditures (and therefore its debt) that is arguably illegitimate, and to explain how the legitimate portion can be paid off in whole or in large measure through “coining” the public lands. With these data and recommendations in hand, the States would then admonish the General Government that, if suitable reforms were not implemented immediately in Washington, the States would take direct action themselves.D. The practical question then becomes, “Who will come forward to bell this cat?”

Precisely what that action would be, I must leave for another day.

Footnotes:

1, Commentaries on the Laws of England (Philadelphia, Pennsylvania: Robert Bell, American Edition, 4 Volumes & Appendix, 1771-1773), Volume 1, at 325-328.


2, Claude G. Bowers, Jefferson and Hamilton: The Struggle for Democracy in America (Cambridge, Massachusetts: The Riverside Press, 1925), at 45 (footnotes omitted).


3, Letter to John Taylor, Monticello, 28 May 1816, in The Works of Thomas Jefferson, Paul Leicester Ford, Editor (New York, New York: G.P. Putnam’s Sons, Federal Edition, 12 Volumes, 1904-1905), Volume 11, at 533.


4, A frugal government is the financial speculators’ worst nightmare, because then they would have to invest in private enterprises that, lacking the ability to coerce customers into buying their products, might fail.


5, See 31 U.S.C. § 3102(b). And many investment funds open to the public maintain public debt as significant parts of their portfolios.


6, See The Federalist No. 10 (James Madison) (emphasis supplied): “By a faction I understand a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community.”


7, This is a plan on which the Forces of Darkness have long cogitated. See, e.g., the detailed charts between pages 150 and 151 in Hans Heymann, Plan for Permanent Peace (New York, New York: Harper & Brothers Publishers, 1941).


8, See, e.g., the “conditionality”—or, perhaps more descriptive, the dictate—the EU and the IMF have imposed on Ireland, commanding the Irish government to extract a new property tax from homeowners within the next year. [Link]


9, U.S. Const. preamble (emphasis supplied).


10, U.S. Const. preamble.


11, U.S. Const. art. I, § 8, cl. 2.


12, See U.S. Const. art. V.


13, See U.S. Const. art. I, § 8, cl. 11.


14, See U.S. Const. art. I, § 8, cl. 18.


15, U.S. Const. art. I, § 8, cl. 2 (emphasis supplied).


16, Amend. XIV, § 4 (emphasis supplied).


17, See also 31 U.S.C. 3102(a) (emphasis supplied): “With the approval of the President, the Secretary of the Treasury may borrow on the credit of the United States Government amounts necessary for expenditures authorized by law and may issue bonds of the Government for the amounts borrowed * * * .”


18, See U.S. Const. art. VI, cl. 2.


19, Marbury v. Madison, 5 U.S. (1 Cranch) 137, 174 (1803). Accord, Knowlton v. Moore, 178 U.S. 41, 87 (1900); Blake v. McClung, 172 U.S. 239, 261 (1898).


20, See Bute v. Illinois, 333 U.S. 640, 653 (1948).


21, Norton v. Shelby County, 118 U.S. 425, 442 (1886).


22, U.S. Const. art. I, § 8, cl. 1.


23, U.S. Const. art. I, § 8, cl. 1.


24, U.S. Const. art. I, § 8, cl. 2.


25, U.S. Const. art. IV, § 3, cl. 2.


26, See the discussion of Hanauer v. Doane, 79 U.S. (12 Wallace) 342 (1871), post.


27, U.S. Const. art. I, § 8, cl. 1.


28, Compare U.S. Const. amend. XIV, § 4 with art. I, § 8, cl. 2.


29, See U.S. Const. art. IV, § 3, cl. 2.


30, 79 U.S. (12 Wallace) 342 (1871).


31, Id. (12 Wallace) at 345 (emphasis supplied).


32, Id. (12 Wallace) at 346, 347.


33, See U.S. Const. art. III, § 3, cl. 1 and Ex parte Bollman, 8 U.S. (4 Cranch) 75, 126 (1807).


34, See 18 U.S.C. §§ 241 and 242.


35, See Flemming v. Nestor, 363 U.S. 603 (1960).


36, 12 U.S.C. § 411.


37, An Act To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes, Act of 23 December 1913, CHAP. 6, § 30, 38 Stat. 251, 275.


38, See, e.g., Thompson v. Butler, 95 U.S. 694 (1878).


39, What effectively amounts to a “dirt dollar” would hardly be such an innovation as it sounds. After all, silver and gold are simply specific components of “dirt” (that is, earth or ground), that happen to exhibit greater purchasing powers, ounce for ounce, in the marketplace than most other components, such as zinc, copper, lead, or iron. Yet some components of dirt—such as platinum, palladium, rhodium, and rubidium—are more valuable, ounce for ounce, than either silver or gold. So (all constitutional objections aside) if a refined “dirt dollar” of silver or gold is legitimate, no principled objection to an unrefined “dirt dollar” should be tenable.


40, U.S. Const. art. VI, § 3, cl. 2. and art. I, § 8, cl. 5, respectively.


41, E,g., 31 U.S.C. § 5118(b) declares that “[t]he United States Government may not pay out any gold coin”. It does not say that the government may not pay out aliquots of public land.


42, See Perry v. United States, 294 U.S. 330 (1935).


43, See U.S. Const. art. I, § 8, cl. 17. See generally Bill Howard and Bill Redd, Statehood: The Territorial Imperative (Helper, Utah: Bookcliff Publishing, 2005).


44, See U.S. Const. art. I, § 8, cl. 17.


45, See U.S. Const. art. I, § 8, cl. 1.


46, McCulloch v. Maryland, 17 U.S. (4 Wheaton) 316, 431 (1819).


47, See Hylton v. United States, 3 U.S. (3 Dallas) 171 (1796). See also Billings v. United States, 232 U.S. 261 (1914).


48, See U.S. Const. art. I, § 8, cl. 1.

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