The Right of Self-Determination

The proper question in any political system is who are the sovereigns?  Is the President the Sovereign?  Is Congress the Sovereign?  Is a King the sovereign?  Are the people the Sovereigns?  Why is there so much confusion over the question of whether the Union is a democracy or a republic?  These questions purposely ignore military dictatorships and totalitarian regimes legitimized by state sponsored violence or military power as sovereigns is a foreign concept under those political systems.

The answers to those questions seem to puzzle many commentators.  Though the Union is a constitutional republic, for arguments sake, let us assume the Union was a democracy.  It doesn’t alter the fundamental truth regarding sovereignty.  The people are the sovereigns and the people are the source of all power in our political system.  However, the system is not majority rule, nor it is a system of absolute power where might makes right.  Our entire political system rests on a single fundamental principle — the consent of the governed; the right to self-governance and self-determination.

Self-determination means the right of the people to decide upon their own political status or form of government without outside influence.  Consent of the governed is a phrase based upon the principle of self-determination.  Any political society – government—that prohibits self-determination explicitly rejects popular sovereignty, and whether the form and style of government is a republic or a democracy is, therefore, completely irrelevant and inconsequential.

States were our initial political societies.  The people of each state, through independent acts and without any outside influence, created a State.  The people delegated certain powers to their State.  Thirteen of these states were formally recognized as of July 4, 1776.  In modern contemporaneous definitions states are countries or nations.  The term, State, may have several definitions but for purposes of our governing documents and historical understanding it means “the people composing those political societies in their highest sovereign capacity”.

The people of each free, independent, and sovereign state organized their political society according to a written constitution.  The people of each state decided which powers to delegate and which to retain.  Thus, the principle of self-determination was firmly established in each and every state.

Likewise, both the Articles of Confederation and the Constitution were compacts amongst the States.  Both formed a federative union with the goal of the latter to “form a more perfect union”.  The differences between the two Constitutions are the powers delegated and the structure of the government itself.     Neither was a consolidation of the states into a single unitary national state.

The Constitution was not ratified by the people of all the states as one body politic.  Nor was a majority or super-majority vote of the people stipulated as the process for ratification.  The Constitution was acceded to by the free, independent, and sovereign states (the people of those specific political societies acting in their highest sovereign capacity).  Neither a majority of people as one body politic nor a majority of states could bind another state whether they acceded to or rejected the Constitution.  It was the voluntary act of the people of each State to determine whether to join together in a federative union with the people of other States so disposed to do so.  The Constitution was clearly a federal compact amongst the states that so ratified the document.

In practice, the new government under the Constitution was established and put into effect by only eleven states.  The States of North Carolina and Rhode Island had not ratified the Constitution and were excluded from the operations of the new government under the Constitution.  The other eleven states could not compel those states to accede to the Constitution, nor could the newly formed federal government coerce those states through the use of force.  The process was voluntary not coercive.  It was the sovereigns exercising their right of self-determination.

Demonstrably, the accession to join the Union through ratification was never done by one body politic but by thirteen free, independent, and sovereign bodies politic known as States.  Article VII of the Constitution is clear; the votes of nine states (the people or their delegates) would serve to put the Constitution into effect.   The historical record has no reference to a majority of states obligating other states to join the Union.  That point was proven beyond any doubt when the new government went into operation.  Neither Rhode Island nor North Carolina had any Electoral College votes when it came to electing George Washington as the first president.  Likewise, neither state appointed Senators and neither state held elections for the House of Representatives.  Congressional laws had no authority over these two states.

Established in the Declaration of Independence and embodied in both federal constitutions political power is based upon the consent of the sovereign people; initially through forming political societies known as states, and the people of each State – independent from every other state – forming a federative Union with the people of other States under a written Constitution.  The federal government was the creature created by the act of the States.  The federal government was not a party to the Constitution as it was the result of the Constitution.  Thus, the Union, under the Articles of Confederation or the Constitution was birthed from an act of the States (the people of those specific political societies acting in their highest sovereign capacity).

Remarkably, the historical record is abundantly clear on this issue, yet some believe the Union pre-dated the States, the States are administrative units (like counties to a State) to the federal government, and the Constitution established a consolidated national government.   This assertion is nothing more than what the Tenth Amendment Center calls it; a crackpot post-antebellum theory.   The theory was espoused by those like Supreme Court Justice Joseph Story, Senator Daniel Webster, and President Abraham Lincoln.  Generations of people now view this crackpot theory as historical fact.  In reality, it is a historical lie.

Does it matter if the prevailing orthodoxy is considered the truth?  Indeed it does.

If viewed hierarchically, the people formed the States, than the people of the States formed the Constitution which formed the federal government consisting of three branches which are governed by the rules set forth in the Constitution.  The elected and appointed officials are beneath each of the three branches.

The crackpot post-antebellum theory posits that the federal government created the States and that the federal government is supreme in everything it does.  Implicit in this theory is that the government itself is the sovereign, not the people.  If this were true the entire political society is not based upon self-determination (consent of the governed).  Paradoxically, it turns self-determination on its head and supplants it with absolute rule and power by government as the source of all political power and rights.  This was Lincoln’s belief and his justification for war to preserve the Union.

Ironically, the federal supremacists purposely refer to the union as a nation, and the republic as a democracy, and often refer to the government as one that is by the people, of the people, and for the people.  The federal supremacists even reference the Constitution’s preamble “We the people of the United States” to reinforce the idea of national democracy.  Furthermore, the federal supremacists reference the Supremacy Clause to support the assertion that the federal government is supreme in everything it does.  These are the arguments of tyrants and despots.

First, the original Constitution says “We, the people of the United States,”.  The commas are generally not included any longer in the text of the Constitution.  Secondly, the term United States is used to refer to each of the several states without explicitly naming them.  The first two drafts of the Constitution said “We, the people of Maryland, Virginia, New Jersey, etc.”  The states were enumerated.  However, the Committee on Style modified this to the United States primarily to avoid embarrassment.   The drafters did not know which states would ratify the Constitution and which states would not.  If all thirteen states were enumerated and only nine states were required to put the Constitution into effect what would they have done to eliminate the names of the States that did not ratify the Constitution.  The term “United States” is shorthand for all the several States ratifying and acceding to the Constitution.  Lastly, the term does not refer to any one body politic nor does it mean the consolidation of the States.  If the states were intended to be consolidated the preamble would say “We, the people of a United State,” and the ratification process would have been by all the people as one body politic where the minority could be bound by the majority.

The Supremacy Clause does not establish the federal government as supreme.  In fact, the Supremacy Clause establishes Supremacy of Law.  The federal government is one of few and defined powers.  All powers under the Constitution fall under one of three categories; those exclusive to the federal government (or prohibited to the States), concurrent powers (both federal and state can exercise the power), or everything else.  We know through the historical record the federal government is one of limited powers.  The proponents for ratification (the Federalists) gave explicit guarantees at the state ratifying conventions that the powers delegated are limited to those enumerated.  In fact, in many cases, the Federalists said any law made that was not in pursuance of the Constitution was null and states were not obligated to abide by any law afoul of the Constitution.

A few powers fall into the first category – those exclusive to the federal government or prohibited to the States.  Even less powers fall into the second category of concurrent powers. Typically, taxation and commerce are the two powers referenced in this category.  Finally, the third category encompasses all other powers.  All other powers are too numerous to document or enumerate.  Those powers are reserved to the states or the people.  Supremacy of Law dictates that if a power is a state power then the State power is supreme.  Likewise, if a power is exclusively a federal power then the federal power is supreme.  Only those laws made by Congress that are in pursuance of the Constitution (meaning within the powers in the first two categories) are supreme.

Any law passed by Congress is not in and of itself supreme.  Even a law that is upheld by the Supreme Court doesn’t make the law supreme.  The Supreme Court is not the sole and final arbiter of the Constitution.  If that were true it would make the judicial branch supreme over the other two branches and violate the principle of co-equal branches, and it would place the Supreme Court above the Constitution itself.   Since the Constitution and the three branches are creatures of the states (the people of each state) it is the people of the States in their political sovereign capacity that are above the Constitution not the Supreme Court.  If the Supreme Court were the sole and final arbiter then any law could be, in theory, constitutional including the most absurd laws one could dream up.  The people of the States did not create a federal government to then empower it to judge its own powers.  The people of the States did not agree to unlimited submission to a central power.  The States, as parties to the compact that created the Constitution and the federal government, have the power to judge for themselves whether a law is constitutional or not.

Some people argue the States adjudicating a law as constitutional or not would result in chaos and anarchy.  Undoubtedly, there could be differences amongst the states.  However, under federalism, the character of each state was never intended to be uniform or held to a national standard.  Conversely, to believe in the Supreme Court as the sole and final arbiter places power in the hands of the creation not the creator.  And, under this situation any law upheld by the Supreme Court would be constitutional.

Historically, there have been terrible rulings from the Supreme Court.  The Dred Scott case, the Fugitive Slave Law of 1850, the Legal Tender Cases of the 1860s and 70s, the Wickard Case and the separation of church and state case in the 1940s are examples of cases where the Supreme Court declared something that was unconstitutional, constitutional.  In theory, the most heinous laws could be enacted such as forced sterilizations, a one child per couple law, a tax on 100% of your income, a law declaring a single national religion, a law putting disabled or handicapped children to death, etc. Any law could be constitutional under this system.

The federal supremacists are the ones promulgating the idea we are a democracy and it is a country by the people.  The very same people deny the right of self-determination through coercion and violence.  The very same people then point to the Supreme Court as the politically appointed guardians of the prevailing orthodoxy to subvert the right of self-determination.  The contradiction is astounding.  If the people are the sovereigns why do so many support the federal supremacists who assert one person can decide anything and everything that is lawful.  If the Supreme Court rules 5-4 on any case, no matter how heinous or repulsive, then one person rules over 310 million people.  If the people are sovereigns, how can the will of the people be supplanted by the will of one person?  If government is based upon self-determination (consent of the governed) how can one person’s (a judge) decision be authoritative and binding over the sovereigns?  If mankind is incapable of governing himself then why would anyone believe man is capable of governing other men?

Lastly, as our political societies are based upon self-determination violence cannot be used to force compliance against the will of the people.  Might makes right annihilates consent of the governed.  As the people of the States each acceded to the Constitution, the people of the States can secede from the Constitution.  If you reject this idea then you reject self-determination and your embrace the federal supremacist’s position that might makes right and absolute power is the basis for all political societies.  That means you believe this question is only answered on a battlefield rather than a peaceful resolution based upon the self-determination of the people.  If you believe your view and your opinion is right then you’ll use violence to validate it.  And that very belief and the subsequent use of violence to enforce it is the antithesis of self-determination.

When push comes to shove and the people of one or more states exercise their right of self-determination, will you use violence against them and force them to remain in a political society against their wishes?  Will you ask the government to call out the military to kill your fellow citizen because they simply want to exercise their most basic fundamental right of self-determination?   If so, then you support the totalitarian regimes under Lenin, Stalin, Mao, Pol Pot, and Hitler as their entire political system was diametrically opposed to self-determination.  Those political systems were based upon state sponsored violence and military domination over the people.

Virginia, Popular Sovereignty, and the Federal Supremacists

This May, one hundred and fifty two years ago, Virginia seceded from the Union.  Historically, April 1861 is considered the official date when Virginia seceded, but that date represents the vote of a special convention on the topic of secession.  By early March 1861 seven states seceded from the Union. Virginia’s special convention was convened in February 1861 and two votes for secession failed.  The second vote failed by a 2/3^rd to 1/3^rd margin. It wasn’t until the third vote that the Virginia convention voted to secede.  What changed their minds?

The third vote occurred on April 17, 1861 exactly two days after Lincoln’s proclamation calling for 75,000 volunteer troops to invade the south.  It was the threat of federal coercion and invasion by Lincoln that persuaded convention delegates to vote 88-55 in favor of secession.  However, the secession vote was not binding on the people and the issue went to referendum.  On May 23, 1861 the referendum took place and the citizens of Virginia voted overwhelmingly to secede from the Union.

The vote was 125,970 to 20,373.  To deem this a landslide would be an understatement.

Let’s pause here and recall events from 1776 through the late 1780s.  Virginia seceded from Britain in June 1776 before the Declaration of Independence was signed.  Virginia, like every other state, was a free, independent, and sovereign state.  Each of the thirteen colonies seceded from Great Britain.  The Declaration stated, “That these United Colonies are, and of Right ought to be Free and Independent States; that they are absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do.”

In other words each state was a country.  Notice Great Britain is referred to as “the State of Great Britain”.  All thirteen states were free and independent States (countries).

The Declaration of Independence also established certain fundamental principles:

• All men are created equal.
• They are endowed by their Creator with certain unalienable rights.
• The purpose of government was to better secure these unalienable rights.
• Government gets its power from the consent of the governed.  This is the basis for self-governance and self-determination.
• The people always possess the Right to alter, reform, or abolish government when it no longer serves the purpose for which government was instituted.  This applies to all governments (state and federal).
• The States are sovereign.  The States are free and independent.  In modern terms, the States are countries.

The second secession occurred when states ratified the Constitution.  The states seceded from The Articles of Confederation and Perpetual Union (one form of government) and created another form of government under the Constitution.  This was a peaceful secession.  The people of each state acted independent from the people of every other state.  A vote by the people of New Jersey had no binding impact on the people in any other state.  We, the people of the United States, simply meant the people of Virginia, and the people of New Jersey, and the people of New York.  There was no single body politic referred to as “the people”.  There was no vote of all the people of all thirteen states.  The method of ratification was not based on a majority vote of people or even a majority vote of delegates across all the States.  The method of ratification was an up or down vote on a state by state basis.

Recall, the Constitution went into effect once the ninth state ratified it.   The states remained free, independent, and sovereign.  Each state remained a country.  The Union created by the States ratifying the Constitution did nothing to change this fact.  The Constitution delegated limited powers to the new government, established the structure of the new government, and reserved all other powers to the States or the people.

Federal supremacists such as Supreme Court Justice Joesph Story, Daniel Webster, and Abraham Lincoln maintain a diametrically opposing view on this issue.  The federal supremacists believe the states were created by a national government and were nothing more than counties or administrative units to the national government.  In other words, states were no longer sovereign, free, or independent.  Instead, the federal supremacists believe the states are subordinate to the national government as mere administrative units or counties.

There is much debate on whether the Constitution created a confederated Union or a consolidated Union.  Federal supremacists believe the latter in all cases.  The answer is the Constitution created a primarily confederated union with some consolidated features.  I believe it is best described as a consolidated union when dealing with external issues such as war, relations with foreign countries, and international commerce; and a confederated union when dealing with internal issues.  James Madison echoes these sentiments in Federalist 51.

Another way to view the issue of confederated versus consolidated Union is in the study of the powers delegated.  All powers fall into one of three categories; those powers exclusive to the federal government (and those prohibited to the States), concurrent powers (where both federal and state governments have powers), and everything else is retained by the States (or the people of each State).  It is beyond any reasonable doubt that the powers delegated to the federal government are limited to those enumerated.  The documentation from the state ratification conventions proves demonstrably this to be true.  In every state where documentation is available the proponents for ratification repeatedly stated that the new government is one of limited and enumerated powers.  It was the proponents of ratification that insisted the Constitution would be strictly constructed.  These assurances regarding the meaning of certain phrases and the new government’s strict adherence to enumerated powers are the authoritative sources for understanding the original meaning of the Constitution.  Lastly, the proponents repeatedly state that what wasn’t delegated was reserved.  In other words, if the Constitution is silent on a power or an issue that means it wasn’t delegated to the new government.

In their ratification documents several states also included statements to the effect, “the state reserves the right to withdraw or rescind any delegated powers if it deems it is best for the people of the State”.  Furthermore, many states insisted on a Bill of Rights as part of their ratification.  Opponents of ratification were concerned that even with the assurances made by the proponents of ratification, that they wanted further restrictions and declaratory clauses secured in a Bill of Rights.   So, the Bill of Rights was passed as restrictions on the federal government or declaratory clauses regarding rights not enumerated and powers not delegated are reserved.

Fast forward to modern times and too many people believe the federal government is supreme in anything it does.  People also believe we are a nation instead of a union, and a democracy instead of a constitutional republic.  What’s more astounding is the contradiction between those that believe we are a democracy and the idea that nine people in black dresses can override the popular sovereignty of the people.  If the people are the sovereigns and the government is our agent then it is the people that sit above the Constitution.  If you believe we are a Democracy – where the majority of the people rule – it contradicts the very premise that one person in a black robe can rule over everyone else (in a 5-4 decision it is the opinion of one person).  How could one judge know better than the majority of people?  How can one judge’s opinion outweigh the will of the people for whom that judge serves?  The three branches are subservient to the Constitution including all the judges.  This means the judges serve the people.  Whenever the people acquiesce to allow nine judges to decide everything on their behalf and blindly believe it is binding upon them, the people wittingly (or not) surrender their popular sovereignty – their ability for self-governance and self-determination — to nine other human beings with deleterious and calamitous consequences.

This mindset is the antithesis of federalism and republicanism.  This mindset transforms the people from citizens with all the political power to subjects begging the very government they instituted for their life, liberty, and property.  It would be hysterical if it weren’t so perilous.

Now, let’s return to Virginia seceding from the Union in 1861.  The question of secession remains unsettled to this day.  There have been three secessions in our history.  Though I don’t believe secession is a legal question, for those that do the legal question has never been adjudicated.  There were no trials, court hearings, or rulings by the courts on the question of secession.  The federal supremacists believe the Constitution empowered them to preserve the Union though this power was never delegated in the Constitution.  Moreover, the federal supremacists do not believe in the founding principles established by the Declaration of Independence.  In fact, since the federal supremacists do not believe the people have the power or right to secede, why aren’t they fighting for reunification with Great Britain?  For those that don’t believe in secession, why do you celebrate Independence Day every Fourth of July?  You are celebrating secession.

The southern states did precisely what the colonies did… they seceded.  They seceded based on the will of the people in the State, not as one large body politic (across the entire Union).  What Virginians did in 1861 is precisely the same thing they did in June 1776.  The first time they seceded from Great Britain.  The second time they seceded from the Constitution and the government formed by it.  The result of the Virginia referendum of 1861 was an overwhelming statement that the people are exercising their right of self-governance and self-determination.  The people were exercising their right to alter or abolish their government.  This right is a political right that the people reserve (to alter or abolish their government).  This is not a legal question, for if it were, then one person would be empowered with all the political rights of the people of a state.  That power was never delegated nor was the Constitution established to elevate one person to such a prominent role over the will of the people.

Today, too many people believe the government can compel, through violence and force, people to remain within a political society against their will.  How is this any different from slavery where people are forced to work for others against their will?  How can the people who retain the Right to alter or abolish their government expect to exercise that right if government refuses to recognize the popular sovereignty of the people and use violence against them to force compliance?   That’s not freedom.  That’s not liberty.  Freedom and liberty loving people would never subject the people of a State to remain in a Union against their wishes.  On the other hand, federal supremacists reject the idea of self-governance, freedom, and liberty and will use all force necessary against the will of the people.

Do we have Constitutional Rights?

The idea that we have constitutional rights relies upon faulty logic and makes a mockery of unalienable rights and other rights antecedent to the Constitution.   It is common to hear someone utter the term “constitutional rights”.  The term is nothing more than a colloquialism just as states’ rights is a colloquialism for states’ powers.

The formative thoughts and ideas to develop a written Constitution are encompassed in the Declaration of Independence.  The reason for government is to better secure our unalienable rights.  People exercise their unalienable right of association to form political societies.  The transition from a state of nature to a civil society creates what we know as government.  This transition requires that people give up some rights to better secure the remainder that they retain.  Typically, the rights relinquished relate to interpersonal adjudication.

The founders were studious guardians of their unalienable rights as well as their rights as Englishmen.  Over the period of several centuries Englishmen had secured certain rights under the Anglo-Saxon legal system known as common law and they had an unwritten constitution.  It is important to note that Britain did not have a written constitution but used a common law system that was supplemented by equity law over time.  Rights to due process, rights to property, rights to bear arms, rights to a trial by jury in the vicinage of the crime are a few examples of the rights of Englishmen.

As a point of distinction, common law is essentially judge-made law.  The two functions performed by a judge under a common law system are; 1) judge the facts of the case and 2) to make the law.  Common law relies upon the principle or doctrine of stare decisis – which is that a decision in one case will be followed in the next case.  In other words it is based upon precedence and precedence must be adhered to.  All thirteen colonies adopted common law as the basis of their legal system when they declared independence from Britain.  Today, every state except Louisiana has common law (as well as equity law).

The Constitution is based upon a civil law system which means that laws are written and codified.  There wasn’t a concept or idea that there was one federal or national common law system.  Those involved in writing, debating, and ratifying the Constitution understood this distinction.  Moreover, in structuring the federal government and distributing the power amongst the three branches the power to make law was placed with the legislative branch, whereas the power to judge was placed in the judiciary.  In Federalist 47 Madison said “Were the power of judging joined with the legislative, the life and liberty of the subject would be exposed to arbitrary control, for the judge would then be the legislator.”  The main point to take away from this – there is no such thing as common law in the federal government.

In examining the Constitution there is not a single so-called constitutional right granted to the people.  I challenge anyone to point out where the Constitution has created a right and granted that right to the people.  If the Constitution did create and grant a right, it is fair to assume that a textual analysis of the Constitution and the Bill of Rights would lead to the discovery of words, clauses, sentences, or paragraphs that, indeed, do grant some sort of right.  However, in my textual analysis of the Constitution I fail to find a single right “created and granted” by the Constitution.

Article 1 defines the Legislative branch, the powers delegated to it, prohibitions against certain laws, and prohibitions placed on the States.  Nowhere within Article 1 is any right granted to the people.

In Article 1, Section 9, Clause 2 says the privilege of the writ of habeas corpus shall not be suspended.  Did the Constitution grant the privilege of habeas corpus?  No.  Habeas corpus was established long before the Constitution and was a privilege that was recognized through common law.  The framers and the ratifiers of the Constitution thought it was such an important privilege that it was called out within the Constitution itself to ensure the federal government could not infringe upon it.  By no means did the Constitution create or grant the privilege of habeas corpus.  To the contrary, they prohibited suspending it except under the provisions stipulated in the Constitution itself.

Article 2 defines the powers of the Executive branch.  No rights are granted in this Article.

Article 3 defines the powers of the Judicial branch.  No rights are granted in this Article.

Article 4 generally deals with issues regarding federalism.  Section 2, clause 1 is the privileges and immunities clause (a.k.a. the Comity Clause).  This clause is only saying that if a citizen of one state is in another state that the state they are in must grant them the same privileges and immunities that their own citizens receive.  For instance, if a citizen from Virginia goes to Maryland, while in Maryland the Virginia citizen must be extended the same privileges and immunities as a Maryland citizen.  This is not a grant of rights for there is no such thing as a “federal” set of privileges and immunities.  Instead, privileges and immunities are a state power and varied from state to state.

Article 5 defines the process to amend the Constitution.  No rights are granted in this Article.

Article 6 deals with the debt under the Articles of Confederation, includes the Supremacy clause, and oaths of office.  No rights are granted in this Article.

Article 7 defines how the Constitution would be ratified.  No rights are granted in this Article.

The Bill of Rights are declaratory laws (statements) and restrictions placed upon the federal government.  Certain unalienable rights and other rights of Englishmen were further protected by the Bill of Rights.  The rights of the people are stated through these declaratory laws as they do not give to the people something they did not have before, rather they assert and assure the rights they already possess.

The preamble to the Bill of Rights says, “THE Conventions of a number of the States having at the time of their adopting the Constitution, expressed a desire, in order to prevent misconstruction or abuse of its powers, that further declaratory and restrictive clauses should be added: And as extending the ground of public confidence in the Government, will best insure the beneficent ends of its institution.”

1^st Amendment – Protects certain unalienable rights and restricts Congress from establish a religion or prohibiting anyone from exercising their religious beliefs, from abridging freedom of speech or assembly, and protecting the right to petition for a redress of grievances.  None of these can be construed as rights being granted.  Demonstrably, these are rights being protected from government interference.

2^nd Amendment – Protects a person’s unalienable right to self-defense and to bear arms.  It is a complete prohibition on the federal government from “infringing” upon those rights.   The right to self-defense is unalienable and to bear arms is an extension of that.  That is not a right granted by government, rather it restricts government.

3^rd Amendment – Prohibits the government from quartering troops in a person’s home.  No right is granted in this amendment.

4^th Amendment – Protects certain rights of Englishmen that were secured over several centuries through common law, Magna Carta, or the English Bill of Rights.  These were not “new” under the Constitution as Englishmen already had these things.   No rights are granted in this amendment.

5^th Amendment – Protects certain rights of Englishmen that were secured over several centuries through common law, Magna Carta, or the English Bill of Rights.  These were not “new” under the Constitution as Englishmen already had these things.   No rights are granted in this amendment.

6^th Amendment – Protects certain rights of Englishmen that were secured over several centuries through common law, Magna Carta, or the English Bill of Rights.  These were not “new” under the Constitution as Englishmen already had these things.   No rights are granted in this amendment.

7^th Amendment – Protects certain rights of Englishmen that were secured over several centuries through common law, Magna Carta, or the English Bill of Rights.  These were not “new” under the Constitution as Englishmen already had these things.   No rights are granted in this amendment.

8^th Amendment – Prohibits the government from imposing certain “cruel or unusual” punishments on citizens.  No rights are granted in this amendment.

9^th and 10^th amendments – Both are amendments of construction.  In other words, both are meant to guide and instruct a person on how to read and understand the Constitution in regards to both powers delegated and reserved, and rights (enumerated or not) reserved.

Future amendments to the constitution do not grant rights either.  For instance, nowhere in the Constitution is there a political right to suffrage.  Suffrage is a power reserved to the States.  Amendments 15, 19, and 26 do not grant a right to vote for blacks, women, or those over the age of 18.  Those amendments prohibit discrimination on account of race, gender, or age, respectively.  States retain the power to define the qualifications for voters.  Today, a state could enact a law that says only those citizens of the State that own real property and have a net worth greater than $1 million can vote.  Assuming that law doesn’t violate the State’s Constitution only those people meeting that criterion can vote.  Since the law does not discriminate based on race, gender, or age the law is valid.

In conclusion, the Constitution doesn’t grant rights.  The very idea is a fallacy and a dangerous assertion.  If the Constitution granted rights to people it implies that either the people of the States or the government is granting those rights.  The people aren’t granting themselves rights as they already possessed those rights and declared them so through the Bill of Rights.  Likewise, if the government grants rights to men then government can abridge, deny, infringe or revoke those rights.  To believe or concede that government grants rights means government decides what rights you have and do not have, which rights you can and cannot exercise and under what circumstances, and that government can rescind or revoke those rights at any time.  At best it is wrong-headed and makes a mockery of unalienable rights and the long history of the rights of Englishmen.  At worst it endangers the very lives, liberty, and property of all members of society to concede government has this power of the people.

The Constitution protects rights  that already existed before the document was even drafted.  The right to trial by jury, the right to due process, the right to bear arms, the right of conscience to worship as one desires (or not), etc.   People should refrain from using the term constitutional rights and supplant it with the term rights protected (or secured) by the Constitution.

Do we Need a Bill of Rights?

The Bill of Rights is often misconstrued by many people claiming to understand rights and the Constitution.  On numerous occasions I’ve discussed and debated the BOR with people that believe either the Bill of Rights was intended to apply to the States or that the 14^th amendment was originally intended to incorporate the Bill of Rights on the States.  Both views are demonstrably wrong.  Unfortunately, nearly everyone that argues one or both of those points basis their argument on Supreme Court rulings.  Rulings that were made decades or even centuries after the Bill of Rights or the 14^th amendment were ratified.

More importantly, do we even need a Bill of Rights and why is there a Bill of Rights?  According to advocates in favor of ratification the answer was emphatically, NO!  That is correct.  The proponents did not feel it was necessary to include a Bill of Rights and this article explains why that was the case and why there is a Bill of Rights.  I agree with the Federalists on this issue with one caveat.  That caveat is, if the Constitution was constructed precisely how the Federalists represented it to the state ratification conventions then there would be no need for a Bill of Rights as future generations would follow the identical understanding and know the federal government is very limited in its powers.

The Constitution was drafted by delegates at the Philadelphia convention in 1787.  They produced a document that was merely a proposal.  The document had no force and no authority in the United States. 

How was the Constitution ratified?  It was ratified by State ratifying conventions.  Delegates were selected by the people to represent them at these conventions.  Each state considered and assessed the Constitution independent of all other States.  One state could not bind another state or the people of another state to their decision.  The debate over We, the people of the United States, rages on because of the word people in the preamble.  The term “the people of the United States” means the people of the state of Virginia, the people of the state of New York, the people of the state of Maryland, etc.  In other words, there wasn’t a national vote that transcended state boundaries nor was there a majority vote of the people of the thirteen states.  It was an act of the people of each free, independent, and sovereign state to decide on assenting to the Constitution. 

This point is essential to any original understanding of the Constitution.  Since the people of each state independently assented to and ratified the Constitution, they are the bodies that put the instrument into effect.  To properly understand what the Constitution meant, we must look to the understanding of those that ratified the document.  Those are the delegates at the State ratifying conventions.  At those conventions there were proponents and opponents to ratification.  The former called The Federalists and the latter called The Anti-Federalists.  In a very general sense, The Anti-Federalists believed certain Articles, Sections, or Clauses of the Constitution were deficient because:

 

1)      The delegation of powers could be construed to be vast and beyond the enumeration.

2)      The new Constitution would consolidate the States into one national government rather than confederate the States into a federal government.  In other words the Constitution would annihilate the State governments and State constitutions.

3)      That essential rights and liberties of freemen were not protected under the Constitution by a Bill or Declaration of Rights.

The focus of our examination will be on the third item; the essential rights and liberties of freeman were not protected under the Constitution by a Bill or Declaration of Rights. To do so also brings into explanations regarding the first two items.  In totality, these three items provide an original understanding of the powers of the general government as opposed to those powers retained by the States or the people.

Massachusetts, Virginia, New York, North Carolina, New Hampshire, South Carolina, and Rhode Island all submitted amendments to the Constitution as part of their ratification document.  Maryland proposed amendments but they were not submitted as part of their ratification.  The other states, all early ratifiers of the Constitution, did not submit amendments. 

Of this list the largest and more important states were Massachusetts, Virginia, and New York.  These three states represented 40% of the population.  If Pennsylvania were included, those four states represented 54% of the population.  The focus of the arguments will come from those states that insisted upon a Bill of Rights, as well as writings from the Federalist Papers and additional commentary from the 1^st Congress that proposed and debated amendments to the Constitution. 

Proponents for ratification of the Constitution insisted a Bill of Rights was unnecessary.  Some commented that the inclusion of a Bill of Rights was actually dangerous.  On what grounds did they make these assertions?  The prevailing arguments set forth by the Federalists were:

1)      The powers delegated by the Constitution to the federal government were expressly defined.  What was not given was retained; therefore the federal government cannot abridge or deny your unalienable rights such as your right to speech, to associate, to contract, to self-defense, to conscience, etc.  Likewise, certain civil rights such as trial by jury in the vicinage of the crime, due process, etc. could not be denied or infringed.

2)      The rights retained by the people are so expansive that an attempt to enumerate rights that are protected implies those not listed are implied to be given to government. 

Below are numerous excerpts made at State Ratification Conventions:

North Carolina Ratification Convention:

Mr. Maclaine:  The gentleman has wandered out of his way to tell us — what has so often been said out of doors — that there is no declaration of rights; that consequently all our rights are taken away. It would be very extraordinary to have a bill of rights, because the powers of Congress are expressly defined; and the very definition of them is as valid and efficacious a check as a bill of rights could be, without the dangerous implication of a bill of rights. The powers of Congress are limited and enumerated. We say we have given them those powers, but we do not say we have given them more. We retain all those rights which we have not given away to the general government… ? If they can assume powers not enumerated, there was no occasion for enumerating any powers. The gentleman is learned. Without recurring to his learning, he may only appeal to his common sense; it will inform him that, if we had all power before, and give away but a part, we still retain the rest.

Governor Johnston:  But the gentleman says that a bill of rights was necessary. It appears to me, sir, that it would have been the highest absurdity to undertake to define what rights the people of the United States were entitled to; for that would be as much as to say they were entitled to nothing else. A bill of rights may be necessary in a monarchical government, whose powers are undefined. Were we in the situation of a monarchical country? No, sir. Every right could not be enumerated, and the omitted rights would be sacrificed, if security arose from an enumeration. The Congress cannot assume any other powers than those expressly given them, without a palpable violation of the Constitution… The rights of the people, in my opinion, cannot be affected by the federal courts. I do not know how inferior courts will be regulated.

Mr. Iredell:  Of what use, therefore, can a bill of rights be in this Constitution, where the people expressly declare how much power they do give, and consequently retain all they do not? It is a declaration of particular powers by the people to their representatives, for particular purposes… A bill of rights, as I conceive, would not only be incongruous, but dangerous. No man, let his ingenuity be what it will, could enumerate all the individual rights not relinquished by this Constitution. Suppose, therefore, an enumeration of a great many, but an omission of some, and that, long after all traces of our present disputes were at an end, any of the omitted rights should be invaded, and the invasion be complained of; what would be the plausible answer of the government to such a complaint? Would they not naturally say, “We live at a great distance from the time when this Constitution was established. We can judge of it much better by the ideas of it entertained at the time, than by any ideas of our own. The bill of rights, passed at that time, showed that the people did not think every power retained which was not given, else this bill of rights was not only useless, but absurd. But we are not at liberty to charge an absurdity upon our ancestors, who have given such strong proofs of their good sense, as well as their attachment to liberty. So long as the rights enumerated in the bill of rights remain unviolated, you have no reason to complain. This is not one of them.” Thus a bill of rights might operate as a snare rather than a protection. If we had formed a general legislature, with undefined powers, a bill of rights would not only have been proper, but necessary; and it would have then operated as an exception to the legislative authority in such particulars. It has this effect in respect to some of the American constitutions, where the powers of legislation are general. But where they are powers of a particular nature, and expressly defined, as in the case of the Constitution before us, I think, for the reasons I have given, a bill of rights is not only unnecessary, but would be absurd and dangerous.

Mr. Maclaine:  The gentleman surely must know that, if there be certain rights which never can, nor ought to, be given up, these rights cannot be said to be given away, merely because we have omitted to say that we have not given them up. Can any security arise from declaring that we have a right to what belongs to us? Where is the necessity of such a declaration? If we have this inherent, this unalienable, this indefeasible title to those rights, if they are not given up, are they not retained? If Congress should make a law beyond the powers and the spirit of the Constitution, should we not say to Congress, “You have no authority to make this law. There are limits beyond which you cannot go. You cannot exceed the power prescribed by the Constitution. You are amenable to us for your conduct. This act is unconstitutional. We will disregard it, and punish you for the attempt… Shall we give up any hing hut what is positively granted by that instrument? It would be the greatest absurdity for any man to pretend that, when a legislature is formed for a particular purpose, it can have any authority but what is so expressly given to it, any more than a man acting under a power of attorney could depart from the authority it conveyed to him, according to an instance which I stated when speaking on the subject before.  As for example: — if I had three tracts of land, one in Orange, another in Caswell, and another in Chatham, and I gave a power of attorney to a man to sell the two tracts in Orange and Caswell, and he should attempt to sell my land in Chatham, would any man of common sense suppose he had authority to do so? In like manner, I say, the future Congress can have no right to exercise any power but what is contained in that paper. Negative words, in my opinion, could make the matter no plainer than it was before. The gentleman says that unalienable rights ought not to be given up. Those rights which are unalienable {167} are not alienated. They still remain with the great body of the people. If any right be given up that ought not to be, let it be shown. Say it is a thing which affects your country, and that it ought not to be surrendered: this would be reasonable. But when it is evident that the exercise of any power not given up would be a usurpation, it would be not only useless, but dangerous, to enumerate a number of rights which are not intended to be given up; because it would be implying, in the strongest manner, that every right not included in the exception might be impaired by the government without usurpation; and it would be impossible to enumerate every one. Let any one make what collection or enumeration of rights he pleases, I will immediately mention twenty or thirty more rights not contained in it. In my opinion, there is no man, of any reason at all, but must be satisfied with so clear and plain a definition. If the Congress should claim any power not given them, it would be as bare a usurpation as making a king in America. If this Constitution be adopted, it must be presumed the instrument will be in the hands of every man in America, to see whether authority be usurped; and any person by inspecting it may see if the power claimed be enumerated. If it be not, he will know it to be a usurpation.

Governor Johnston:  When Congress makes a law in virtue of their constitutional authority, it will be an actual law. I do not know a more expressive or a better way of representing the idea by words. Every law consistent with the Constitution will have been made in pursuance of the powers granted by it. Every usurpation or law repugnant to it cannot have been made in pursuance of its powers. The latter will be nugatory and void. I am at a loss to know what he means by saying the laws of the Union will be unalterable.

South Carolina Ratification Convention

Gen. CHARLES COTESWORTH PINCKNEY:   With regard to the liberty of the press, the discussion of that matter was not forgotten by the members of the Convention. It was fully debated, and the impropriety of saying anything about it in the Constitution clearly evinced. The general government has no powers but what are expressly granted to it; it therefore has no power to take away the liberty of the press. That invaluable blessing, which deserves all the encomiums the gentleman has justly bestowed upon its is secured by all our state constitutions; and to have mentioned it in our general Constitution would perhaps furnish an argument, hereafter, that the general government had a right to exercise powers not expressly delegated to it. For the same reason, we had no bill of rights inserted in our Constitution; for, as we might perhaps have omitted the enumeration of some of our rights, it might hereafter be said we had delegated to the general government a power to take away such of our rights as we had not enumerated: but by delegating express powers, we certainly reserve to ourselves every power and right not mentioned in the Constitution.

Charles Pinckney:  No powers could be executed or assumed [by the federal government], but such as were expressly delegated.

Charles Pinckney address to the South Carolina House of Representatives defending the proposed Constitution said, “The distinction which has often been taken between the nature of a federal and state government appeared to be conclusive:  that in the former no powers could be executed or assumed, but such as were expressly delegated; that in the latter, the indefinite power was given to the government, except upon points that were, by express compact, reserved to the people.”  In Massachusetts, newspapers published Pinckney’s “Observations on the new federal Constitution” where he said “The powers vested in the federal government are particularly defined, so that each state still retains its sovereignty in what concerns its own internal government, and a right to exercise every power of a sovereign state not expressly delegated to the government of the United States.”

Virginia Ratifying Convention

James Madison:  In some respects it is a government of a federal nature; in others, it is of a consolidated nature. Even if we attend to the manner in which the Constitution is investigated, ratified, and made the act of the people of America, I can say, notwithstanding what the honorable gentleman has alleged, that this government is not completely consolidated, nor is it entirely federal. Who are parties to it? The people — but not the people as composing one great body; but the people as composing thirteen sovereignties. Were it, as the gentleman asserts, a consolidated government, the assent of a majority of the people would be sufficient for its establishment; and, as a majority have adopted it already, the remaining states would be bound by the act of the majority, even if they unanimously reprobated it. Were it such a government as is suggested, it would be now binding on the people of this state, without having had the privilege of deliberating upon it.

If Virginia was separated from all the states, her power and authority would extend to all cases: in like manner, were all powers vested in the general government, it would be a consolidated government; but the powers of the federal government are enumerated; it can only operate in certain cases; it has legislative powers on defined and limited objects, beyond which it cannot extend its jurisdiction.

Mr. Lee of Westmoreland:  I say that this new system shows, in stronger terms than words could declare, that the liberties of the people are secure. It goes on the principle that all power is in the people, and that rulers have no powers but what are enumerated in that paper. When a question arises with respect to the legality of any power, exercised or assumed by Congress, it is plain on the side of the governed: Is it enumerated in the Constitution? If it be, it is legal and just. It is otherwise arbitrary and unconstitutional. Candor must confess that it is infinitely more attentive to the liberties of the people than any state government… [b]ut that, in the federal government, the rulers of the people were vested with certain defined powers, and that what were not delegated to those rulers were retained by the people. The consequence of this, he said, was, that the limited powers were only an exception to those which rested in the people, and that they knew what they had given up, and could be in no danger. He exemplified the proposition in a familiar manner. He observed, that, if a man delegated certain powers to an agent, it would be an insult upon common sense to suppose that the agent could legally transact any business for his principal which was not contained in the commission whereby the powers were delegated; but that, if a man empowered his representative or agent to transact all his business except certain enumerated parts, the clear result was, that the agent could lawfully transact every possible part of his principal’s business except the enumerated parts; and added, that these plain propositions were sufficient to demonstrate the inutility and folly (were he permitted to use the expression) of bills of rights.

Mr. George Nichols:  But it is objected to for want of a bill of rights. It is a principle universally agreed upon, that all powers not given are retained. Where, by the Constitution, the general government has general powers for any purpose, its powers are absolute. Where it has powers with some exceptions, they are absolute only as to those exceptions. In either case, the people retain what is not conferred on the general government, as it is by their positive grant that it has any of its powers… In disputes between Congress and the people, the reverse of the proposition holds. Is the disputed right enumerated? If not, Congress cannot meddle with it… Which is the most safe? The people of America know what they have relinquished for certain purposes. They also know that they retain every thing else, and have a right to resume what they have given up, if it be perverted from its intended object.

It is agreed upon by all that the people have all power. If they part with any of it, is it necessary to declare that they retain the rest? Liken it to any similar case. If I have one thousand acres of land, and I grant five hundred acres of it, must I declare that I retain the other five hundred? Do I grant the whole thousand acres, when I grant five hundred, unless I declare that the five hundred I do not give belong to me still? It is so in this case. After granting some powers, the rest must remain with the people.

But the gentleman says that, by this Constitution, they have power to make laws to define crimes and prescribe punishments; and that, consequently, we are not free from torture. Treason against the United States is defined in the Constitution, and the forfeiture limited to the life of the person attainted. Congress have power to define and punish piracies and felonies committed on the high seas, and offences against the laws of nations; but they cannot define or prescribe the punishment of any other crime whatever, without violating the Constitution.

James Madison:  [w]as surprised that any gentleman should return to the clauses which had already been discussed. He begged the gentleman to read the clauses which gave the power of exclusive legislation, and he might see that nothing could be done without the consent of the states. With respect to the supposed operation of what was denominated the sweeping clause, the gentleman, he said, was mistaken; for it only extended to the enumerated powers. Should Congress attempt to extend it to any power not enumerated, it would not be warranted by the clause. As to the restriction in the clause under consideration, it was a restraint on the exercise of a power expressly delegated to Congress; namely, that of regulating commerce with foreign nations.

Governor Randolph:  Let me say that, in my opinion, the adversaries of the Constitution wander equally from the true meaning. If it would not fatigue the house too far, I would go back to the question of reserved rights. The gentleman supposes that complete and unlimited legislation is vested in the Congress of the United States. This supposition is founded on false reasoning. What is the present situation of this state? She has possession of all rights of sovereignty, except those given to the Confederation. She must delegate powers to the confederate government. It is necessary for her public happiness. Her weakness compels her to confederate with the twelve other governments. She trusts certain powers to the general government, in order to support, protect, and defend the Union. Now, is there not a demonstrable difference between the principle of the state government and of the general government? There is not a word said, in the state government, of the powers given to it, because they are general. But in the general Constitution, its powers are enumerated. Is it not, then, fairly deducible, that it has no power but what is expressly given it? — for if its powers were to be general, an enumeration would be needless.

But the insertion of the negative restrictions has given cause of triumph, it seems, to gentlemen. They suppose that it demonstrates that Congress are to have powers by implication. I will meet them on that ground. I persuade myself that every exception here mentioned is an exception, not from general powers, but from the particular powers therein vested. To what power in the general government is the exception made respecting the importation of negroes? Not from a general power, but from a particular power expressly enumerated. This is an exception from the power given them of regulating commerce. He asks, Where is the power to which the prohibition of suspending the habeas corpus is an exception? I contend that, by virtue of the power given to Congress to regulate courts, they could suspend the writ of habeas corpus. This is therefore an exception to that power.

But the rhetoric of the gentleman has highly colored the dangers of giving the general government an indefinite power of providing for the general welfare. I contend that no such power is given. They 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.” Is this an independent, separate, substantive power, to provide for the general welfare of the United States? No, sir. They can lay and collect taxes, &c. For what? To pay the debts and provide for the general welfare. Were not this the case, the following part of the clause would be absurd. It would have been treason against common language. Take it altogether, and let me ask if the plain interpretation be not this — a power to lay and collect taxes, &c., in order to provide for the general welfare and pay debts.

The honorable gentleman has praised the bill of rights of Virginia, and called it his guardian angel, and vilified this Constitution for not having it. Give me leave to make a distinction between the representatives of the people of a particular country, who are appointed as the ordinary legislature, having no limitation to their powers, and another body arising from a compact, and with certain delineated powers. Were a bill of rights necessary in the former, it would not be in the latter; for the best security that can be in the latter is the express enumeration of its powers.

Virginia went on to propose amendments to the Constitution that encompassed representations made by The Federalists that the general government is limited to powers expressly delegated.  The 1^st amendment read  “1st. That each state in the Union shall respectively retain every power, jurisdiction, and right, which is not by this Constitution delegated to the Congress of the United States, or to the departments of the federal government.”

Connecticut

Roger Sherman – Member of the Philadelphia Convention in a letter published December 25, 1788 in the New Haven Gazette written under the title “A Citizen of New Haven II”.  Sherman said, “The powers vested in the federal government are clearly defined, so that each state still retain its sovereignty in what concerns its own internal government, and a right to exercise every power of a sovereign state not particularly delegated to the government of the United States.”

The Federalist Papers

Federalist 39 – But it was not sufficient,” say the adversaries of the proposed Constitution, “for the convention to adhere to the republican form. They ought, with equal care, to have preserved the FEDERAL form, which regards the Union as a CONFEDERACY of sovereign states; instead of which, they have framed a NATIONAL government, which regards the Union as a CONSOLIDATION of the States.” And it is asked by what authority this bold and radical innovation was undertaken? The handle which has been made of this objection requires that it should be examined with some precision.

On examining the first relation, it appears, on one hand, that the Constitution is to be founded on the assent and ratification of the people of America, given by deputies elected for the special purpose; but, on the other, that this assent and ratification is to be given by the people, not as individuals composing one entire nation, but as composing the distinct and independent States to which they respectively belong. It is to be the assent and ratification of the several States, derived from the supreme authority in each State, the authority of the people themselves. The act, therefore, establishing the Constitution, will not be a NATIONAL, but a FEDERAL act.

That it will be a federal and not a national act, as these terms are understood by the objectors; the act of the people, as forming so many independent States, not as forming one aggregate nation, is obvious from this single consideration, that it is to result neither from the decision of a MAJORITY of the people of the Union, nor from that of a MAJORITY of the States. It must result from the UNANIMOUS assent of the several States that are parties to it, differing no otherwise from their ordinary assent than in its being expressed, not by the legislative authority, but by that of the people themselves. Were the people regarded in this transaction as forming one nation, the will of the majority of the whole people of the United States would bind the minority, in the same manner as the majority in each State must bind the minority; and the will of the majority must be determined either by a comparison of the individual votes, or by considering the will of the majority of the States as evidence of the will of a majority of the people of the United States. Neither of these rules have been adopted. Each State, in ratifying the Constitution, is considered as a sovereign body, independent of all others, and only to be bound by its own voluntary act. In this relation, then, the new Constitution will, if established, be a FEDERAL, and not a NATIONAL constitution.

Federalist 41 – Some, who have not denied the necessity of the power of taxation, have grounded a very fierce attack against the Constitution, on the language in which it is defined. It has been urged and echoed, that the power “to lay and collect taxes, duties, imposts, and excises, to pay the debts, and provide for the common defense and general welfare of the United States,” amounts to an unlimited commission to exercise every power which may be alleged to be necessary for the common defense or general welfare. No stronger proof could be given of the distress under which these writers labor for objections, than their stooping to such a misconstruction.

Had no other enumeration or definition of the powers of the Congress been found in the Constitution, than the general expressions just cited, the authors of the objection might have had some color for it; though it would have been difficult to find a reason for so awkward a form of describing an authority to legislate in all possible cases. A power to destroy the freedom of the press, the trial by jury, or even to regulate the course of descents, or the forms of conveyances, must be very singularly expressed by the terms “to raise money for the general welfare.

For what purpose could the enumeration of particular powers be inserted, if these and all others were meant to be included in the preceding general power? Nothing is more natural nor common than first to use a general phrase, and then to explain and qualify it by a recital of particulars.

Federalist 45 – The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.

The operations of the federal government will be most extensive and important in times of war and danger; those of the State governments, in times of peace and security. As the former periods will probably bear a small proportion to the latter, the State governments will here enjoy another advantage over the federal government. The more adequate, indeed, the federal powers may be rendered to the national defense, the less frequent will be those scenes of danger which might favor their ascendancy over the governments of the particular States.

June 8, 1789 – Madison proposes amendments to the Constitution

But whatever may be form which the several states have adopted in making declarations in favor of particular rights, the great object in view is to limit and qualify the powers of government, by excepting out of the grant of power those cases in which the government ought not to act, or to act only in a particular mode.

It has been said that in the federal government they are unnecessary, because the powers are enumerated, and it follows that all that are not granted by the constitution are retained: that the constitution is a bill of powers, the great residuum being the rights of the people; and therefore a bill of rights cannot be so necessary as if the residuum was thrown into the hands of the government. I admit that these arguments are not entirely without foundation; but they are not conclusive to the extent which has been supposed.

It has been objected also against a bill of rights, that, by enumerating particular exceptions to the grant of power, it would disparage those rights which were not placed in that enumeration, and it might follow by implication, that those rights which were not singled out, were intended to be assigned into the hands of the general government, and were consequently insecure. This is one of the most plausible arguments I have ever heard urged against the admission of a bill of rights into this system; but, I conceive, that may be guarded against. I have attempted it, as gentlemen may see by turning to the last clause of the 4th resolution.

I wish also, in revising the constitution, we may throw into that section, which interdicts the abuse of certain powers in the state legislatures, some other provisions of equal if not greater importance than those already made. The words, “No state shall pass any bill of attainder, ex post facto law, &c.” were wise and proper restrictions in the constitution. I think there is more danger of those powers being abused by the state governments than by the government of the United States. The same may be said of other powers which they possess, if not controlled by the general principle, that laws are unconstitutional which infringe the rights of the community. I should therefore wish to extend this interdiction, and add, as I have stated in the 5th resolution, that no state shall violate the equal right of conscience, freedom of the press, or trial by jury in criminal cases; because it is proper that every government should be disarmed of powers which trench upon those particular rights.

Conclusions

The Federalists made numerous representations emphatically declaring that the powers delegated to the general government were limited and enumerated at the State Ratifying Conventions, in writings in the New York Papers that eventually became known as The Federalist Papers, during the debates in Congress when amendments were proposed and debated, and even after the Bill of Rights were adopted.  Those Federalists that opposed a Bill of Rights argued that because the powers were enumerated that no others could be assumed without resulting in a usurpation of power.   According to The Federalists the maxim “what was not given was retained” governed construction of the Constitution.  It was The Federalists that insisted the Constitution would be constructed strictly and in accordance with the understandings provided at the State Ratifying Conventions. 

Likewise, the Bill of Rights was seen as a dangerous and unnecessary proposition.  The Federalists argued that because the powers delegated were limited and enumerated, and the Constitution would be constructed strictly according to the understandings they provided, any attempt to enumerate a vast number of rights retained by the people would be dangerous.  The danger perceived by The Federalists was those rights not explicitly protected under a Bill of Rights would be assumed to be given up to the general government.  The challenge facing Madison and others in Congress when proposing amendments was to further restrict the powers delegated or to protect the rights.  The Bill of Rights is a blended solution where powers over certain rights and objects were further restricted and rights were enumerated to ensure their protection.

Demonstrably, the amendments that became known as the Bill of Rights applied to the federal government.  The style of the document and the amendments is consistent.  When prohibitions were made against the states such as those in Article I Section X, those prohibitions say “No state shall”.  In cases where Madison proposed amendments to Congress he also proposed some that restricted states and in all cases the style was “No state shall”.  In future amendments the same style, or one nearly identical, to “No state shall” was used. 

Finally, the two most important amendments in the Bill of Rights are arguably the only two that are necessary.  They are the ninth and tenth amendments.  Both are amendments of construction and go hand in glove with each other.  The ninth amendment is meant to protect the vast number of rights not otherwise enumerated in the Bill of Rights.  Future generations would not be able to use sophistry or construction to abridge or deny other rights not enumerated.  The amendment addressed the concerns of those that feared any rights not included in the enumeration would be given.   This amendment protects those rights and acts as a further restriction on enumerated and delegated powers to ensure laws are not passed that violate all rights – enumerated or not.  For instance, if there was no second amendment restricting the federal government from infringing upon the right to bear arms, that right would still be protected under the ninth amendment.

The tenth amendment was meant to ensure that future generations did not use sophistry or construction to enlarge the powers enumerated in the Constitution.  In other words, if the power was not delegated or the Constitution remained silent on a power – delegated or reserved – that the power was reserved to the States or the people.  Given the Federalists representations that the powers delegated were enumerated, few and defined, and that was reason enough to not require a Bill of Rights, then anyone attempting to understand the constitutional powers delegated should easily determine what was delegated and in the multitude of cases where power wasn’t delegated or the Constitution remains silent, the powers are reserved to the people or the States.

 

Can Cyprus Happen Here?

Cyprus is a small island in far eastern part of the Mediterranean Sea many people know nothing about.  But the recent banking crisis in Cyprus has raised many eyebrows; not only in the Euro Zone but also in Russia and the United States.

The question is not so much what happened in Cyprus, but could what happen in Cyprus occur in the United States?  The answer will come, but first some background on the U.S. current monetary regime that started in 1971.

Global banking systems, whether in Europe, Japan, China, or the United States, are debt-based systems using fiat currencies.  In every case Central Banks control two critical money components; the printing of money and the cost of money.  Most Central Banks can simply print money at will and control the cost of money because they set the interest rates.  Based on current monetary policy across major Central Banks the major beneficiaries are governments and the banking sector.

The entire banking system creates an inherent conflict with those that created the system and the people.  Money (as we use the term today) is used as deposits by savers (asset to the saver and a liability to the bank) and debt is created when banks extend credit to borrowers (debts by the borrowers and assets to the banks).  This is how real people interact with the traditional banking system.

On the other hand, our Government borrows the difference between its expenses and its revenues.  In budgetary terms this is a deficit and deficits add to the national debt.  When government borrows it sell securities to buyers such as foreign governments, primary dealers, and direct and indirect bidders.

Once debt is incurred it becomes nominal because the price is reflected at the time of the transaction.  The debt isn’t adjusted for inflation.  In other words, if you incur a dollar of debt twenty years ago you only need a dollar to pay the debt, regardless of what that dollar may purchase today.  In real terms, for purchases made today, the dollar’s purchasing power is adjusted for inflation.  In real terms (purchasing power) the dollar buys fewer goods.  In nominal terms, a dollar pays off a dollar of debt.

This is an important distinction for many reasons.  Government funds its deficits by borrowing money through the sale of securities.  Those securities have different lengths of maturity (2 year, 7 year, 10 year, 30 year, etc.), and pay interest when redeemed.  If the government wants to run bigger deficits it simply sells more securities.  The result is a larger debt and an increase in interest payments.

The Federal Reserve receives dollars from the buyers of the Government’s securities, deposits those funds, and transfers them to the U.S. Treasury for the government to pay for its profligate spending.  As the U.S. debt increases and annual deficits expand into the trillions of dollars, buyers become concerned as the repayment risk increases.  Buyers may demand higher interest rates to continue buying our debt.  But if the Fed increases interest rates it also means the interest payments on the outstanding debt increase requiring a larger percentage of total government payments to service that debt.

This is where the Fed steps in and monetizes the debt.  The Federal Reserve is also a buyer of the securities it sells.  The Fed holds many auctions of different securities every month.  If one auction is $30 billion of 7 year notes at x % interest and the total buyers (excluding the Fed) only buy $20 billion of the debt, the Fed steps in and buys the $10 billion not otherwise sold.  The Federal Reserve buys it as a direct bidder (who is anonymous). And makes digital entries to transfer $10 billion to the U.S. Treasury and adds $10 billion onto the Federal Reserve’s balance sheet.  Ten billion dollars is now with the U.S. Treasury for the Government to “spend”.  This is how debt is monetized.

Interest rates have both advantages and disadvantages depending on your perspective.  If you are a net producer (a saver), someone living on fixed income like Social Security, etc. low interest rates are inimical to your interests.  After your expenses if you have excess earnings you are a net producer.  If you deposit your excess earnings into a savings account and earn < 1% interest there is no incentive to save (especially when inflation exceeds the interest rate you have real negative interest rates and lose money by depositing it in a savings account).

When Governments run deficits and accrue large national debts high interest rates are inimical to its interest because higher interest rates result in more debt service.  For a net producer, higher interest rates are good.  So, the interests of the government and the interests of a net producer are, for the most part, diametrically opposite.

Likewise, there are net consumers that spend more than they earn.  These people are borrowers who take on debt through credit expansion.  For these people, low interest rates are good.  In fact, we can be a net producer and take on debt (like a mortgage) where we’d prefer a low interest rate on our mortgage but a high interest rate on our savings.  The issue with low interest rates is they are often kept low not only because of government debt but because the Fed is trying to encourage economic activity through consumerism.  In other words, the Fed wants to discourage savings and encourage spending; including taking on more debt through credit expansion.

The Gross Domestic Product (GDP) is a nominal measurement of economic activity.  GDP can grow through real production of goods and services desired by people.  More importantly, GDP can grow through the expansion of the credit market and through inflation.  In other words, GDP can be manipulated higher by printing money even though real production of goods and services are stagnant or falling.

Likewise, increasing credit market debt also drives up GDP.  Credit is nothing more than making a future purchase today.  If you buy a good for $500 you can pay for it today with cash or you can pay for it later through credit.  Credit merely brings future purchases forward to today.  Likewise, for people it is future earnings that pay off this past purchases.  That’s not the case for government as you’ll see.

Below is a chart that overlays the total credit market debt outstanding, Gross Domestic Product, and the National Debt from 1971 through 2012.  I purposely picked 1971 as the starting point because that is when President Nixon broke the 1944 Bretton Woods agreement and removed the United States from the international gold standard which is the starting point of our current monetary regime.

On the Total Credit Market Debt Outstanding (TCMDO) series I’ve ticked off every doubling of the TCMDO.  From 1970 through 2007 the TCMDO has doubled 5 times which, on average, is roughly once every seven years.  Compare the rate of growth in the TCMDO to the growth rate of the GDP series where it is substantially lower.  So, by 2014-2015 we are due for another doubling of the TCMDO to achieve the same anemic GDP growth rates.  According to the TCMDO growth from 2008 to 2012 it has essentially flat-lined as credit market debt isn’t expanding anywhere near its historical rate.  This presents the Government and the Fed with a major dilemma.

On a side note, many people remember the late 1970s as a troubled economic time with high interest rates, high unemployment, and high inflation.  By 1980, the price of gold reached $200 an ounce.  In inflation adjusted dollars this would be $2400 today.  So, in 1980 gold was at an all-time high.  Private gold ownership became legal again in the 1970s and as inflation and other economic events were destroying the purchasing power of the currency people were buying gold.  But, something happened in 1980 to change that (no, not Reagan’s electoral victory).  Fiat currencies require confidence or else they implode.  By 1980, confidence in the dollar continued to erode and people were buying gold instead.  To stem the tide the Government created a new program called the 401K.  In my opinion, it was created precisely to restore confidence in the dollar and to ensure people would keep their savings denominated in the currency.  In return for contributing your excess savings into 401Ks (instead of gold or other non-dollar denominated assets) you didn’t have to pay taxes at that time.  It was sheer brilliance by the Government to restore confidence in the dollar.    But I digress.

Furthermore, from 1971 forward the trade imbalances began to widen.  If you look at the net balance of payments (net of imports and exports) the U.S. imports between $400 and $700 billion more then it exports.  This has widened ever since Nixon took us off the gold standard.  The primary reason is that gold acts as both a brake and spur when it comes to imports and exports.  Gold always flows in the opposite direction of goods.

Since, the U.S. was the de facto gold supplier under the Bretton Woods gold-exchange standard foreign banks that wanted gold had to exchange dollars for it.  Under that system if the import-export balance got out of kilter (more imports) then gold flowed out of the country.  In the U.S. gold peaked in the mid to late 1950s and then the supply began to shrink as the country imported more and more gold was exported.  By the late 1960s, it was apparent the U.S. wasn’t able to stop the outflow of gold and eventually would not be able to redeem dollars for gold.

If a country wanted to retain its gold it would change the balance of imports and exports or even reverse it so they exported more and imported gold in return.  Gold can act as a “brake” to stop the flow of gold out of the country and also act as a “spur” to start the flow of gold into the country.  Generally, as you increase your exports it is a result of productive growth of goods desired by others.  However, once the gold backing is removed there is nothing to stop or reverse the trade imbalance.  Thus, it follows that jobs get exported as well.  Because the imported manufactured goods were “cheap” it also resulted in a reduction of our domestic production capacity.  Therefore, jobs were lost to overseas manufacturers.  Most people fail to connect the current monetary regime (complete fiat currency without any gold backing) to the loss of productive jobs in the U.S.

It is no coincidence that government deficits ballooned starting in late 2008 through present day.  Deficit expansion allows government to borrow more money in an attempt to boost the economy because the credit market debt is failing to expand at its historical rate.  The Keynesian aggregate demand crowd at the Fed is attempting to stimulate the economy using low interest rates to fund government deficits and private sector credit market expansion.  The next set of bubbles are being inflated whether through sub-prime auto loans, government student loans, or the financial bubble being created in the traditional and shadow banking systems.  The Fed is hoping you will buy the latest gadget, finance a new car purchase, take on a student loan, or simply just use more credit to live beyond your means.

In the past five years the Government has bailed out banks through the Troubled Asset Relief Program (TARP), bailed out private companies like General Motors, passed a stimulus bill in 2009 which failed miserably and only stimulated the pockets of favored constituency groups, increased the annual federal deficit to over $1 trillion per year.

Meanwhile, the Federal Reserve has expanded its balance sheet to over $3 trillion, is purchasing $85 billion a month in mortgage backed securities, and expanded the monetary base (m0) from $800 billion in 2008 to $2.9 trillion today.  The Fed is providing Federal Reserve Notes to foreign central banks – especially Europe – to provide liquidity in their failed banking system.  The Fed also engages in repurchasing agreements with the primary dealers (i.e. Goldman Sachs, J.P. Morgan, etc.) where the primary dealer buys U.S. Securities from the Fed and then “repos” them back to the Fed for cash at a near zero interest rate.  The Fed holds the securities as collateral and the primary dealers use the cash for their own hedge fund and proprietary trading desks.

The government and the banking system are dependent upon one another.  The banking system needs the system to remain intact to continue to reap huge profits through the traditional banking system and fractional reserve banking while the government needs the Fed to set monetary policy in accordance with the Government’s best interest.  Their interests are inimical to the interest of Americans.  Naturally, politicians tell you otherwise, and claim to be against Wall Street and are looking out for all of us on Main Street.  Nothing could be further from the truth.

The traditional banking system is where net producers (savers) deposit their excess earnings and earn a “reasonable” rate of interest on those deposits.  Banks make loans using depositors’ funds to businesses and individuals.  Recall, the reserve requirement of 10% of deposits.  This allows the bank to lend out 90% of its deposits.  Not only once, but multiple times over under our system of fractional reserve banking.  One million dollars of deposits with a 10% reserve ratio can be re-lent up to $10 million.  If a bank has a $1 million dollar deposit it must reserve $100,000 and can loan $900,000.  The bank loans the $900,000 to someone else who then deposits that in the bank.  That $900,000 requires $90,000 to be held in reserve and now $810,000 can be loaned.  This process continues up to a maximum of the total deposits divided by the reserve ratio.

This is financial utopia to the bankers as they charge borrowers interest on the same money lent multiple times over creating a valid claim on money or the underlying asset for which the money was used (i.e. a mortgage is backed by the house itself).  Meanwhile, the bankers aren’t risking their own money they are risking the depositors’ money.

Too often people mistake fractional reserve banking for printing money out of thin air.  That is a misconception.  What this does is create valid claims on money.  The TCDMO of roughly $55 trillion are all valid claims on money.  This is in addition to the initial deposits made by the net producer (saver).  So, there is nearly $70 trillion of claims on $2.9 trillion of base money.

The process of contracting the fractional reserve system works the same way.  As contraction occurs debts come due (claims on money) and must be paid.  They are either paid and the system contracts or people default on their loans.  So, if you don’t pay your loan the bank seizes your asset (i.e. default on your mortgage and the bank now owns your home).  Bankers earn interest on loans or the underlying asset without risking a penny of their own money.

Why does this matter in relation to the question, can Cyprus happen here?

Two weeks before the Cyprus crisis European regulators gave a thumbs up to Cyprus banks.  Yet, in two short weeks the banking situation went from normal to a crisis.  Do you believe anyone in our Government would tell us if the banking system were to collapse?  Of course they would not.  Because, if they told you the system would collapse and your deposits were not secure it would cause mayhem and panic across the country.  Neither the Government nor the Fed can tell you the truth.

We know there are nearly $70 trillion of outstanding debt and only $2.9 trillion of base money.  All debts are valid claims on base money.  Let’s consider deposits at FDIC insured banks in the United States.  Today, there is roughly $8.9 trillion on deposit as FDIC insured banks.  The top 50 banks and bank holding companies account for roughly $5.5 trillion of that, with Bank of America as the largest with just over $1.2 trillion in deposits.

According to regulations all FDIC banks must keep a minimum reserve of 10% of deposits.  Therefore, there are $890 billion of reserves across all the FDIC banks with Bank of America having $120 billion of reserves.

Hypothetically, what if half the people wanted to withdraw their deposits from the Bank of America?  Half the deposits equate to $600 billion and Bank of America has only $120 billion in reserve.  Enter the Federal Deposit Insurance Corporation.  Most people believe their deposits are insured up to a specific limit under the FDIC.  As of 2011 the FDIC had $11 billion of deposit insurance on hand in the Combined Deposit Insurance Fund.  If Bank of America depositors asked for $600 billion of their deposits the FDIC couldn’t cover that.  In fact, if any major bank failed or there was a bank run, the FDIC couldn’t cover 1/100^th of the demand.

The entire purpose of the FDIC was to create confidence in the banking system.  The FDIC Act became law in 1934.  In the preceding five years there were thousands of bank failures across the United States.  In 1933, Franklin Roosevelt removed the U.S. from the domestic gold standard, made gold ownership illegal, and debased the currency by forty percent.  The challenge facing the Government was how to create confidence in the banking system so people would leave their deposits in the banks.  The Government gave us the FDIC.

As you read this are you pondering whether your deposits are truly insured?  If not, you should be.  Under the law, once the FDIC uses its reserves ($11 billion) to cover a bank failure they can request no more than $30 billion from the U.S. Treasury.  Anything beyond $30 billion would require an act of Congress.  The other detail most people don’t know about the FDIC Act is it is the Government’s discretion on when you would receive your deposit money back.  That could be a week, a year, ten years, or fifty years.  Below is the applicable section of the FDIC Act governing the repayment of deposits:

(1)    IN GENERAL.–In case of the liquidation of, or other closing or  winding up of the affairs of, any insured depository institution, payment of the insured deposits in such institution shall be made by the Corporation as soon as possible [emphasis added], subject to the provisions of subsection (g), either by cash or by making available to each depositor a transferred deposit in a new insured depository institution in the same community or in another insured depository institution in an amount equal to the insured deposit of such depositor

So, are you deposits truly insured?  Not really.  The FDIC can absorb minor bank failures, but big bank failures would be cataclysmic.  This is why the Government coined the term Too Big To Fail (TBTF) and bailed out the banking system in 2008.

The moral hazard is no longer on the bank or the debt and equity holders of a large bank.  The TARP bailout shifted the burden onto the backs of hardworking American taxpayers.  The risk was socialized amongst the taxpayers while the rewards are privatized within the banking sector.  Financial institutions recognize they have little to no moral hazard incentivizes them to take more risk.  Once government removes moral hazard these financial institutions are free to operate however they please.  Ultimately, this has become Too Big Too Jail as financial institutions receive minor penalties for regulatory infractions and lawlessness.

Of course, the politicians claim they are doing this for the middle class and to save Main Street.  But the politicians are dependent upon these institutions for campaign donations and to keep the banking system going to ensure the politician is re-elected and retains power.  This is true of both Democrats and Republicans.

If a large bank were to fail the options are 1) taxpayers bail it out.  2)  the debt and equity holders bail it out.  3)  the depositors bail it out.   Number three was tried in Cyprus.  While depositors were rightfully outraged by the idea, a complete bank failure means a total loss of deposits.  In the U.S., through bank reserves and the FDIC perhaps 15% of all total deposits would be insured.

To reiterate, do you believe anyone in our government would tell us if the financial system was collapsing?  If the Government explained there is no way to repay the national debt and the only choices are to repudiate the debt or inflate it away would the Government tell us?   If Government was debasing the currency would they tell us?

The answer is a resounding no!

If the Government repudiated the debt it would result in immediate austerity.  Once the debt is repudiated, nobody would buy our debt and Government couldn’t fund its $1.2 trillion per year deficit.  All Government spending would be limited to revenues raised through taxation.  Government is deficit spending to help prop up the economy and that would be withdrawn immediately.  I do not believe the Government will repudiate the debt.

The other option is inflation.  Many people cannot grasp the idea that the outstanding debt will not be paid off with future earnings and revenues.  That’s mathematically impossible as future earnings/revenues are needed to pay for future spending – at least as much as possible.  Clearly, borrowing more money doesn’t pay off past debts.

Wrap your head around this concept.  The debt will be paid off by past earnings.  People pay off debts with future earnings.  Because Government deficit spends it can’t pay off past debts with future earnings/revenues it must use past earnings/revenues.  Those past earnings that net producers have saved/invested will be used to pay off the debt.  The decision comes down to whether the Government wants to tax/confiscate your deposits and/or 401Ks or whether they inflate it away.  One way or the other, or a combination of the two, Government will confiscate your wealth/property.  In Cyprus they talked about taxing depositors.  That could happen here.  More likely, 401Ks will be used in some fashion to pay the debt.  There’s been talk of this for years.

In lieu of or in addition to going after 401Ks that leaves inflation as the only means to retire the outstanding national debt.  In other words print more money and devalue the currency.  Inflation is not an economic event, it is a political event.  It is politically expedient for those in power to inflate away the debt to save the system then to make the difficult choices facing our country.  In the process the currency will be destroyed and everyone with any savings (traditional or in 401Ks) will witness their money become worthless.   Inflation will destroy deposits, 401Ks, money markets, and anything else denominated in the dollar.

But, a third possibility arises.  One that the people themselves will demand and will most likely ensure the politicians are revered as saviors.  An event such as a major bank failure, the threat of taxing deposits or 401Ks, etc. can cause enough panic that a bank run starts.  People will be unable to withdraw their deposits.  Hardships will ensue.   Those people receiving Government payments for food stamps, housing, social security, disability, etc. will also suffer as Government payments will stop flowing.  The people will scream, if not beg the government to ensure they receive their deposits and their Government checks.  This is all the motivation needed to print tens of trillions of dollars of paper money.  Many more “cheaper” dollars used to pay off the debt (remember debt is nominal) and the destruction of the currency in the process.  Of course, the $100,000 you have in a 401K might by ten loaves of bread.

The decisions will be whether to save the system and sacrifice the currency (or vice versa) and to save the government and sacrifice the individual.  Government will choose to save the system and save themselves.

In his farewell address President Andrew Jackson said, “We are not left to conjecture how the moneyed power, thus organized and with such a weapon in its hands, would be likely to use it. The distress and alarm which pervaded and agitated the whole country when the Bank of the United States waged war upon the people in order to compel them to submit to its demands can not yet be forgotten. The ruthless and unsparing temper with which whole cities and communities were oppressed, individuals impoverished and ruined, and a scene of cheerful prosperity suddenly changed into one of gloom and despondency ought to be indelibly impressed on the memory of the people of the United States.

If such was its power in a time of peace, what would it not have been in a season of war, with an enemy at your doors? No nation but the freemen of the United States could have come out victorious from such a contest; yet, if you had not conquered, the Government would have passed from the hands of the many to the hands of the few, and this organized money power from its secret conclave would have dictated the choice of your highest officers and compelled you to make peace or war, as best suited their own wishes.”

The outcome is inevitable.  In fact, it’s a mathematical certainty.

In my opinion, the Government and the Federal Reserve have known for several decades that the current monetary regime that started in 1971 under Nixon was doomed to fail.  It was never a question of if it would fail, just a question of when it would fail.  I believe they are managing the collapse of the monetary regime to avoid the social unrest that will come along with a collapse.  At some point in the future a new monetary system will begin.  What triggers the beginning of that final step and how long the transition takes is unknown.  What is on the other side is unknown.

Hopefully this provides some perspective around recent events and those events starting nearly forty years ago.  I believe it explains many actions our Government and the Fed have taken over the years.  I believe the Government and the Fed know the dollar is in the winter of its demise and a new monetary regime is forthcoming.  I believe they know the current system is unsustainable, and by its very definition what is unsustainable must end.  The only question is when.

2013 Economic Perspective

Once again fiscal cliff issues are the topic du jour in Washington D.C.  Since President Obama took office in 2009, Congress has not passed a budget.  Instead, a series of continuing resolutions were passed to fund the federal government to avert a government shutdown.  What can we expect in 2013?

Before I answer the question let’s examine recent economic, fiscal, and monetary history.  To properly understand this data it is imperative that you cast aside the narrative espoused by government and the main stream media and look at the facts.

Indicator	FY ending Sep 30, 2008	Today (or FY ending Sep 30, 2012)
Outstanding Debt	10.9 trillion	16.5 trillion
2008 budget deficit	459 billion	1.327 trillion (FY ending 2012)
Federal Expenses	2.982 trillion	3.796 trillion (FY ending 2012)
Federal Revenues	2.523 trillion	2.469 trillion (FY ending 2012)
Entitlement Programs + Debt Interest	1.863 trillion	2.569 trillion (FY ending 2012)
Revenue/Expenses as % of GDP	17.7% / 21%	15.8% / 24.3% (FY ending 2012)
Debt to GDP ratio	76.6%	103%
Americans on Food Stamps	~27 million	~48 million
U.S. Household Debt	~13.4 trillion	~12.9 trillion
Labor Participation Rate	65.8%	63.6%
Fed Reserve Balance Sheet	~890 billion	~ 3.1 trillion
Fed Funds Interest Rate	1.81%	.15%
10 Year Treasury Yield	3.85%	1.65% (FY ending 2012)
Base Money Supply (M0)	~1.1 trillion	~2.85 trillion
Money Supply (M2)	~7.7 trillion	~10.45 trillion
Total Credit Market Debt Owed	~51.7 trillion	~56.3 trillion
Gold Price	~875 ounce	~1580 ounce
Gasoline Price	~1.85 gallon	~3.73 gallon

Fiscal and Monetary Policy

The $800 billion stimulus passed shortly after President Obama was sworn into office in 2009.  Many consider this a singular event.  However, the stimulus funding was rolled into the baseline expenditures. In effect, there have been five stimulus programs totaling $4 trillion dollars since 2009.

Undoubtedly, $4 trillion of additional spending and nearly $6 trillion of additional debt has achieved absolutely nothing unless the objective is dependency on the federal government.

Fiscal policies created multi-year trillion dollar deficits that result in poor Federal Reserve monetary policies.  The Federal Reserve has been through several quantitative easing periods where the Fed is buying the government’s debt, purchasing mortgage-backed securities, executing repo transactions with the primary dealers, and funding foreign central banks.  The base money supplied has nearly tripled since President Obama took office in 2009.

To minimize interest payments on the debt, the Federal Reserve is pursuing a zero-interest rate policy (ZIRP) which sets interest rates artificially low.  This policy punishes savers and retirees living on fixed income while supposedly stimulating consumerism by expanding credit market debt.  Eventually, the debt buyers will demand higher interest rates to continue buying U.S. Securities.  If interest rates return to historical averages of roughly 5%, then the interest payments on the outstanding debt will increase from $275 billion to nearly $1 trillion per year.

As the money supply expands and the currency is debased the government can pay off the debt with cheaper dollars.  However, the government’s interests are inimical to our interests.  Cheaper dollars means a loss of purchasing power.  In the real world it requires more dollars to purchase the same goods and services.  Moreover, those that are able to save are penalized due to low interest rates.  The real interest rate (interest rate – real inflation) is negative.  By putting excess earnings into a savings account, certificate of deposit, or money market account your principle is eroded due to the Fed’s ZIRP policy.

Tax Policy

As of 2013, tax rates have increased on the so-called wealthy and the payroll tax deduction has reverted back to its historical 6.2%.  In addition, new taxes under the Affordable Care Act take effect this year.  Taxing and spending are the two policy issues that receive the most attention by voters.  This is an area where politicians lie, deceive, cajole, evade, and manipulate on a routine basis.

The simple truth is most of the tax burden is paid by the top 10% of earners.  In fact, the top 3% of earners pay 52% of individual income taxes.  We have a heavily progressive tax system that would make Karl Marx proud.

The Internal Revenue Service published Publication 1304 – Individual Income Tax Returns 2008. The data is summarized below:

AGI Range	# Returns Filed	AGI Total (Thousands)	Total Tax Paid  (Thousands)	Per Filer AGI	Per Filer Tax Paid	Percent of AGI	Percent of Tax Burden
>= 1 million	321,294	1,076,046,308	249,019,686	3,349,102	775,052	13.02	24.1
200K –999.9K	4,054,365	1,385,961,656	287,598,531	341,844	70,936	16.77	27.9
100K – 199.9K	13,851,341	1,845,103,256	232,270,420	133,208	16,769	22.33	22.5
50K – 99.9K	30,925,946	2,193,691,414	184,553,934	70,934	5,968	26.55	17.9
1 – 49.9K	93,297,623	1,762,057,537	78,138,354	18,886	838	21.33	7.6
Total	142,450,569	8,262,860,171	1,031,580,925

*AGI – Adjusted Gross Income

• A mere 2/10ths of one percent of tax returns filed had an AGI > $1 million. Yet, 24.1% of the entire tax burden is paid by this group.
• Those filers with an AGI > $200,000 represent 3% of all tax returns filed.  Yet, 52% of the entire tax burden is paid by the top two groups.
• Compare the top bracket with the bottom bracket and you’ll find the per filer AGI ratio from the top to bottom bracket is 177 to 1.  A filer in the top bracket has an AGI 177 times that of the lowest bracket.  However, the per filer tax paid ratio between the two brackets is 936 to 1.  A filer in the top brackets pays 936 times that of the lowest bracket.
• 47% of all income tax returns filed had no tax liability.  That is 67 million income tax returns filed that paid nothing in federal individual income taxes.

Employment, Inflation, and Household Income

In further support of the narrative, the government publishes misleading and inaccurate data regarding employment, inflation, and wages.  Unemployment figures are manipulated by two factors; the magical disappearance of people from the work force, and adjustments performed by the Bureau of Labor and Statistics.

If we examine the participation rate for the twenty year period of 1989 through 2008 the average participation rate is 66.52%.  From 2009 through 2013 the average participation rate is 64.4%.  As of the latest BLS unemployment report the participation rate is 63.5%.  We would reach full employment once the participation rate drops to 58% though tens of millions more people would be unemployed.  The last time the participation rate was 63.5% was June 1979.

Year	Civilian Work Force	Not in Labor Force	Employed	Participation Rate	U3 Rate	U6 Rate	U3 RateUsing 20Year Avg
1989	186,393,000	62,523,000	117,342,000	66.5%	5.3%	–	5.3%
1994	196,814,000	65,758,000	123,060,000	66.6%	6.1%	10.9%	6.1%
1999	207,753,000	68,385,000	133,488,000	67.1%	4.2%	7.4%	4.25%
2004	223,357,000	75,956,000	139,252,000	66.0%	5.5%	9.6%	6.32%
2009	235,801,000	81,659,000	139,877,000	65.4%	9.3%	16.2%	11.38%
2013	244,828,000	89,304,000	155,524,000	63.5%	7.7%	15.2%	12.45%

Source – Department of Bureau and Labor Statistics, Non-Seasonally Adjusted employment status.  U3 is the publicly released unemployment rate which doesn’t count under-employed workers or workers discouraged from looking for employment.  In 1994, under the Clinton administration the official unemployment rate (u3) no longer included discouraged workers.

The second issue with the unemployment rate is the adjustments made by BLS.  BLS makes two adjustments; the birth/death rate adjustment and seasonal adjustments.  We’ll examine the July 2012 unemployment figures (as this was done during the election cycle for political purposes).  The July report headline number (preliminary) was 163,000 jobs added on expectations of 100,000 jobs.  In addition 155,000 people left the work force as well.  The June 2012 report was revised lower from 88,000 to 64,000 jobs added.   The July report includes the two adjustments I mentioned.  The seasonal adjustment applied by the BLS was +377,000 jobs.  The birth/death rate adjustment was +52,000.  Compared to July of the previous year the birth/death rate adjustment was a mere 5,000.  So, there was a 1000% increase in the birth/death rate adjustment year over year.  The total adjustments by the BLS totaled 429,000 jobs.  If you subtract 429,000 from the 163,000 jobs added it results in a decline of 266,000 jobs.  But this fact isn’t reported by the government, the main stream media, or most of the alternative news sources.

An alternative source for real unemployment and real inflation data is John Williams’ website www.shadowstats.com.  According to Williams the real unemployment rate is actually closer to 22%.  His most recent chart is included below:

The other item heavily manipulated by the government is the inflation rate.  We know this as the Consumer Price Index (CPI).  The headline CPI number published is referred to as the CPI-U (Urban Consumer).  The term “core” inflation is often used which excludes changes to both food and energy.  The term core inflation is an illusion because we all need food and energy.  Government bureaucrats invented the term to managed inflation perceptions.

Over the past 30 years the CPI calculation has changed dramatically.  The calculation used during the Carter and Reagan years is more robust and accurate than the calculations used since Clinton took office.  Traditionally, inflation measured the cost of maintaining a certain standard of living.  A fixed basket of goods with stable weighting was used to measure the price differences month over month, and year over year.

In the early 1990s, the CPI calculation was changed because inflation was rising.  One impact of rising inflation was the impact to Social Security payments.  By law, social security increases were tied to inflation rates (known as COLAs or cost of living adjustments).   If SS payments increased according to real inflation rates SS would become bankrupt sooner rather than later (not to mention under Clinton SS payments became taxable income).  In other words, this was a political maneuver to cut Social Security without having to actual say your cutting Social Security.

To address this, the CPI methodology was changed to a cost of satisfaction measurement rather than a cost of living measurement.  The Clinton administration revised the calculation to change the basket of goods and to change the weighting of the basket of goods as well.  The result was a lower CPI rate. Further revisions have occurred since then and the gap between the 1980 CPI calculation and the current CPI calculation has widened significantly.  The aggregate impact of the methodological change is 5.1%[i].  Below is the CPI chart since 1980 using official BLS numbers and using the 1980 calculation.  The most significant divergences between the “old” and the “new” methodology begin in the early 1990s.

I have two final points on inflation.  First, the effects of the Affordable Care Act on inflation are just beginning.  I anticipate the ACA will drive up health care costs and inflation.  Secondly, inflation will occur due to a loss of purchasing power due to currency debasement.

What does all this mean for household income?  Using 2011 constant dollars as the basis of comparison, real wages in 1961 averaged just over $49,000 per person.  By 2011, real wages averaged just over $47,000 per person.  In 2011 constant dollars there has been a $2,000 decline in real wages over a fifty year period.

According to Sentier Research, in January of 2009, the median annual household income was $54,962.  In June of 2012, the median annual household income was, again, $50,945.  The rising cost of food also hits middle-class families directly in the pocketbook.  According to the U.S. Department of Agriculture’s Center for Nutrition Policy and Promotion’s most recent data (June 2012), for the moderate-cost food plan for a family of four, the average cost per week is $236.60.

From 2009 to 2012 the median annual household income decreased by 7.3%.  The annual food cost is $12,303.  In the average family let’s assume both people work and each drives 20,000 miles per year.  Assuming an average of 20 miles per gallon for both vehicles and the current gas price average of $3.65 per gallon the average family spends $7,300 annually on gasoline.  Combined the family spends $19,603 on food and gas.  That represents 38.5% of the gross household income.

Let’s assume the family has no federal, state, or local tax liability, but they do have Social Security and Medicare taxes withheld from their paychecks.  At 7.65% the family pays $3,897 in taxes.  Added to the food and gas costs the family has spent $23,500 on these items.  That is 46% of the family’s gross income[ii].

The graph below (published on shadowstats.com) but from Sentier Research shows the decline in real household income since 2000.

What to expect in 2013

The two things we can count on from the federal government are; they will continue to assault your rights and your wallet.  Regardless of the Republican and Democrat composition in the House and the Senate an agreement cannot be reached on balancing the federal budget, cutting spending, reforming entitlements, or raising/cutting taxes.  The debt ceiling is raised routinely.  The sequestration process was supposed to reduce future spending by roughly $88 billion per year or 2.37% of federal expenses.  A simple cut in future spending cannot be agreed upon without the typical demagoguery, name calling, and threats.

Congressman Paul Ryan has prepared a 91 page budget that reduces future spending to a 3.4% rate per year, and includes entitlement reform and replacing Obamacare.  The plan balances the budget in ten years.  Ryan’s budget is D.O.A.  The Senate won’t consider it and the President will declare it dead on arrival.  While Obama is in office there is no chance Obamacare will be replaced.  The house recently passed a continuing resolution that included funding for Obamacare.  I suspect any budget passed by the House will not pass the Senate and signed into law by the President.

I will give Congressman Ryan credit for pointing out what should be obvious to anyone with an IQ north of 80.  We have a fundamental spending problem!  Charts in Ryan’s presentation show that federal debt as a percentage of GDP will reach 250% by 2040.  Spending on social security, medicare, health care, and net interest will be 30% of GDP by 2040 on revenues of roughly 18% of GDP.  Moreover, Ryan’s plan calls for a major simplification of the tax code including the elimination of the Alternative Minimum Tax (AMT), two tax brackets, and a lower corporate tax rate amongst other things.  While positive it is a small step in the long journey to reform government.

Given the recent history, I expect 2013 to look eerily similar to 2012.  The federal deficit for FY 2013 will exceed $1 trillion.  The outstanding debt at the end of FY 2013 will exceed $17 trillion.  The participation rate in the employment markets will remain around 63.6% or decline slightly.  The Fed will continue their ZIRP, expand their balance sheet to nearly $4 trillion, expand the money supply, and buy more debt and mortgage-backed securities.  I anticipate real wages will remain stagnate or continue on a downward trajectory.

Sadly, but predictably, the narrative that we are in an economic recovery will continue.  The stock market at all-time highs provides the illusion of a recovery.  While people may feel better because of nominal gains in the stock market, corporations are reaping benefits of cheaper dollars and the Fed’s push for more consumerism through credit market debt to pump up the economy and the stock market.  Consider, Zimbabwe had one of the best total stock market returns over the past ten years, yet with those gains you could barely purchase a dozen eggs.  Most stock market gains are in 401Ks that are untouchable except for retirees.   Stock market gains do not create real wealth and prosperity.  The increase in the production of goods and services creates wage growth and real wealth and prosperity.

In the not too distant future, expect to hear more talk and perhaps congressional action around private 401K accounts.  Eventually, Congress will act to require a certain percentage of 401Ks be invested in U.S. securities.  Today, there is nearly $19 trillion in 401Ks.  I believe it’s only a matter of time before Congress acts to tap into this source of “revenue”.  This notion isn’t all that unrealistic given that the EU, ECB, and other powers in Europe are attempting to tax bank deposits as a means of bailing out to-big-to-fail banks.  Just two weeks ago, there was absolutely no indication of a crisis in Cyprus.  But, given how the EU is handling this situation it is a clear case where they’ll do anything to save the system at the expense of the saver.

Do you think this could happen in the U.S.?  Before you answer, consider there are roughly $8 trillion of deposits in U.S. banks insured by the FDIC.  Now, does FDIC insurance mean your deposits are secure?  The Deposit Insurance Fund (DIF) balance as of Dec 31, 2011 was $11.8 billion.  It doesn’t take a genius to figure out there isn’t enough FDIC insurance to ensure all these deposits.  By law, the FDIC can borrow up to $30 billion from the U.S. Treasury to cover additional loses.  Anything beyond $30 billion requires an act of Congress.  Moreover, the FDIC Act explicitly states that it is up to the FDIC to decide when you are reimbursed for your deposits.  This could mean weeks, months, years, or decades.  After the EU announced plans to tax deposits bank runs started.  The government immediately shut down all the banks.  They call this a bank holiday.  If any run on banks occurs in the U.S. expect the same reaction.

Most of what will occur in 2013 will be political posturing and preparing for the 2014 elections.  I don’t expect any substantive changes to current policies this year.  In other words, expect more of the status quo from Washington.  I wish I could be more optimistic, but experience has demonstrated Washington is broke and broken.

The global economy and financial condition of certain countries is important to monitor.  Geo-political events are difficult to predict.  The economies of Japan, Italy, Spain, Greece, and France must be watched closely.  The situation in the European Union (EU) is unstable and the future of the Euro and the EU are still unsettled.  Of course, the Middle East remains a powder keg with the situation in Syria and Egypt, and the issues/concerns around a nuclear capable Iran.  A wild-card like North Korea with its recent rhetoric regarding nuclear strikes and the tension between China and Japan is also building.  Needless to say, much is happening on the world stage that could impact us at home.

In closing, we must recognize the U.S. is on an unsustainable path.  By its very definition what is unsustainable must end.   Without any real monetary and fiscal policy changes the only questions are when and how.  Given our experience with the people in Washington the past couple/few decades is it possible for any real change to occur in a timely manner to avoid financial calamity.

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[i] Shadow Stats CPI Calculations.  http://www.shadowstats.com/article/no-438-public-comment-on-inflation-measurement

[ii] American Thinker article by Peter Morrison.  http://www.americanthinker.com/2012/08/the_o-conomy_how_president_obamas_economy_is_crushing_the_middle_class.html

Society is a Blessing so Let us Try Liberty

Society in every State is a blessing, but government, even in its best state, is but a necessary evil; in its worst state, an intolerable one.  Thomas Paine penned these eternal words over two hundred years ago.

Man, by his very nature, is a social being.  His wants are greater than his capability to provide for himself without the aid of society.  Beyond the basic need for food, shelter, and clothing a man’s wants are diverse and those wants are present in every man.  Thus, man’s very nature impels him to society where all men interact to satisfy their own self-interests.

Indeed, man is a self-directed, autonomous being with certain desires, interests, needs, and wants.  Just as each man has a diversity of desires, interests, and wants each man also has a diversity of talents and abilities.  In his pursuit of happiness man freely chooses to interact with others to fulfill his interests.  Others in society reciprocate as they pursue their happiness.  Thus, the need to fulfill one’s self-interest acts like a gravitational force resulting in social interaction for the mutual benefit of all.

Consequently, given the diverse interests of man, his talents and abilities, there is a corresponding diversity in outcomes.  Some men are more intelligent than others.  Some men are more capable of producing certain goods or providing certain services.  Some men are more motivated and ambitious.  Some men are more innovative and ingenuous.  The wants and needs of others may also compel man to direct his interests to meet the wants and needs of others.

All these factors create a society where the reciprocity of man towards other men is based upon the self-direction and self-interest of every individual.  What society needs or wants is based upon this bottom-up approach.  This societal interaction amongst men occurs naturally and freely.  One man cannot compel or force another man to produce a good or provide a service, nor can one man compel or force another man to engage in the exchange of goods; whether directly through barter or indirectly using a common medium of exchange.

The free and natural exchange of goods and services forms free markets.  Man’s foremost duty and responsibility is preserving his own life.  Man uses his reason, talent, and ability to ensure his own survival, and by doing so he exercises his unalienable right to liberty.  In society, rightful liberty is the unobstructed action according to your will with limits drawn around the equal rights of others.

Society can function without the imposition of government.  Government is not necessary to ensure society functions, rather government is instituted to better secure our unalienable rights and to provide a minimal number of functions for the whole of society.  For instance, the ability to provide for a common defense or to ensure commerce occurs regularly without obstruction.

The imposition of government on society isn’t to ensure specific outcomes, to benefit one constituency over another, or to forcefully take property from its rightful owner and give it to another that has no rightful claim to it.  Since one individual cannot do this to another individual in society, it follows that the collective rights of society cannot be violated by the very government instituted to better secure those rights.  Therefore, the laws of government are, by extension, the laws of society which themselves are founded upon the laws of nature.  Commerce in free markets occurs naturally due to reciprocal interests and mutual benefits to all parties.

More laws and regulations distorts, interrupts, and even destroys free markets and the natural societal interactions amongst men.   Government laws and regulations are desired by those in society that wish to violate and transmute the foundational basis of free markets to gain advantageous or exclusive benefit over others.  For a variety of reasons, free market participants use government to gain competitive advantage by stifling competition, seeking subsidies, grants, or tax advantages, influencing pricing, or anything else that distorts, interrupts or destroys free markets.

Moreover, government laws and regulations are burdens upon society itself.  When government decides what goods or services you can procure, fines or penalizes you for non-compliance, or otherwise limits your liberty by restricting your actions government creates wrongful liberty.  Wrongful liberty is obstructed action against your will within limits drawn around the superior rights of others.  Government itself is responsible for creating the environment in which your actions are obstructed and others have superior rights over you.  Government centric preferences are creating the haves and the have nots.

Consequently, government has perverted the very basis on which it was founded; to better secure the unalienable rights of man.  The equal rights that all men possess can no longer be exercised because of government laws and regulations.  Thus, the exercise of personal and economic liberty and the pursuit of happiness is obstructed or denied.  The great irony is the belief that government laws and regulations creates more freedom and liberty when if fact it perverts the free markets and imposes the government’s will over individual liberty.

This situation is made possible through the threat of force against you — the individual.  That force is government force.  Volumes of laws and regulations litter society’s landscape.  Government uses force and state sponsored violence to ensure conformity and compliance upon the citizenry.  Paradoxically, a society with free markets functions properly without government interference.  Too often, the very laws enacted by government to prevent misbehavior and transgressions become the cause for disorder and discontent in society.  For a myriad of reasons one or more constituency receives favorable treatment while one or more constituencies are oppressed.

Government’s top-down, autocratic approach is the mirror opposite to a bottom-up society based on free markets.  Government uses the law to plunder property, to oppress the people, divide society along racial and class lines, etc.  Government mandates and directs nearly every aspect of our lives from cradle to grave.  This power is concentrated in the hands of a small cabal of legislators and bureaucrats that believe they known what is best for every individual.  Not only is this belief fallacious it endangers society itself.

Government has strayed off the path of its original intent; to further secure our unalienable rights.  Government is on a path contradictory to and in complete perversion of its stated purposed.  Government is not the protector of unalienable rights; instead government uses law and force to violate the very rights it was supposed to protect.  This is a complete perversion of the law and the reasons why people form political societies.

Frederic Bastiat describes this behavior as legal plunder.  Bastiat says:

Each of us has a natural right — from God — to defend his person, his liberty, and his property. These are the three basic requirements of life, and the preservation of any one of them is completely dependent upon the preservation of the other two. For what are our faculties but the extension of our individuality? And what is property but an extension of our faculties? If every person has the right to defend even by force — his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly. Thus the principle of collective right — its reason for existing, its lawfulness — is based on individual right. And the common force that protects this collective right cannot logically have any other purpose or any other mission than that for which it acts as a substitute. Thus, since an individual cannot lawfully use force against the person, liberty, or property of another individual, then the common force — for the same reason — cannot lawfully be used to destroy the person, liberty, or property of individuals or groups.

But, unfortunately, law by no means confines itself to its proper functions. And when it has exceeded its proper functions, it has not done so merely in some inconsequential and debatable matters. The law has gone further than this; it has acted in direct opposition to its own purpose. The law has been used to destroy its own objective: It has been applied to annihilating the justice that it was supposed to maintain; to limiting and destroying rights which its real purpose was to respect. The law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder. And it has converted lawful defense into a crime, in order to punish lawful defense.

Man can live and satisfy his wants only by ceaseless labor; by the ceaseless application of his faculties to natural resources. This process is the origin of property.

But it is also true that a man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder.

Now since man is naturally inclined to avoid pain — and since labor is pain in itself — it follows that men will resort to plunder whenever plunder is easier than work. History shows this quite clearly. And under these conditions, neither religion nor morality can stop it.

When, then, does plunder stop? It stops when it becomes more painful and more dangerous than labor.

It is evident, then, that the proper purpose of law is to use the power of its collective force to stop this fatal tendency to plunder instead of to work. All the measures of the law should protect property and punish plunder.

But, generally, the law is made by one man or one class of men. And since law cannot operate without the sanction and support of a dominating force, this force must be entrusted to those who make the laws.

This fact, combined with the fatal tendency that exists in the heart of man to satisfy his wants with the least possible effort, explains the almost universal perversion of the law. Thus it is easy to understand how law, instead of checking injustice, becomes the invincible weapon of injustice. It is easy to understand why the law is used by the legislator to destroy in varying degrees among the rest of the people, their personal independence by slavery, their liberty by oppression, and their property by plunder. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds.

At this moment in the history of our Union ask yourselves why was government instituted and for what purposes do we need government?  Where these the right purposes?  Does your answer reconcile with what government is today?  Is government a perversion of its original purpose?  Does government use the law to plunder property and inflict injustices?

As Bastait concludes, Let us Now Try Liberty.

God has given to men all that is necessary for them to accomplish their destinies. He has provided a social form as well as a human form. And these social organs of persons are so constituted that they will develop themselves harmoniously in the clean air of liberty. Away, then, with quacks and organizers! Away with their rings, chains, hooks, and pincers! Away with their artificial systems! Away with the whims of governmental administrators, their socialized projects, their centralization, their tariffs, their government schools, their state religions, their free credit, their bank monopolies, their regulations, their restrictions, their equalization by taxation, and their pious moralizations!

And now that the legislators and do-gooders have so futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all systems, and try liberty; for liberty is an acknowledgment of faith in God and His works.