First of all, thanks to Lew Rockwell and Jeff Tucker and the Mises Institute for giving me this great honor of giving a talk named after Ludwig von Mises,
one of the great heroes of the 20th century. I dedicate my latest book to von Mises as the most powerful and principled defender of free markets and a free society of the 20th century.
One of the things I'm going to talk about is the Revolution of 1913, which has been talked about and written about quite a bit before, but maybe not quite from the perspective that I'm going to talk about it from.
And this revolution, of course, involves the fact that in one year, we had the creation of the Fed, the income tax, and the 17th Amendment to the United States Constitution, which called for the direct election of senators who were formerly appointed by state legislatures.
And there was more in terms of interventionism, but that's three very big events in that one year, which really are revolutionary.
And an alternative title for my talk could have been The Death of Federalism in America
or The Final Nails in the Coffin of America's Founding Fathers.
Those could have been alternative titles because that's my theme.
So I'm going to give you my conclusion first in that one of the overlooked aspects, not
totally ignored but pretty much overlooked, aspects of this revolution was that it really
really did end once and for all the system of federalism as it was understood by the
American founding fathers.
I think it was almost killed off in 1865 and then the central state spent the next 48 years
consolidating its power so that there would never again be state level resistance to the
growth of the centralized state and this culminated in my view in 1913.
And one of my favorite little books on American politics is a book called America's Political
Dilemma by Gottfried Dietze, so D-I-E-T-Z-E. He taught political philosophy at Johns Hopkins
for many years. I don't know, maybe Bob Higgs even knows it. Bob Higgs was a Johns Hopkins
Federalism instituted to enable the federal government to check oppressions by the governments
of the States, and vice versa, appears to be a supreme principle of the Constitution."
And this was called dual sovereignty by Madison.
The idea, whether you think it made sense or not, was that the citizens of the states
would have certain abilities to check the tyrannical proclivities of the central state,
and at the same time, the central state would have certain abilities to check the tyrannical
Proclivities of the States, State Politicians, State and Local Governments.
And the thinking was that if you want to maximize liberty, this was the system that was set
up in America to do so.
And Dietze also goes on to say, quote, before the Civil War, the nature of American federalism
was still a subject of debate.
The outcome of the Civil War ended that debate.
The Nationalists Emerged as Victors, National Power Increased as the 20th Century Approached
Along with the Disappearance of States' Rights."
And then he goes on to say, quote, this constitutes a revolution that can well be termed a reverse
of the revolution of 1787, that is, the creation of the Constitution, where federalism, understood
as dual sovereignty, was certainly one of the principal tenets, if not the principal
and one final quote here regarding this period Woodrow Wilson before he became president was a political science professor at Princeton as many of you know and in his book on congressional government he wrote enthusiastically and in approval this he said the war between the states established this principle that the federal government is through its courts the final judge of its own powers in quote
and he thought that was a great thing that the Fox would be guarding the head house from here on out and of course this is one of the things that such people as Thomas Jefferson thought would be the end of liberty in America if you allowed ever the central government to be the final judge of the limits of its own powers, it didn't take a genius to forecast that the government would eventually get around to deciding that there are no limits to its powers, which it did. Now this system of federalism or
Sometimes called states' rights or divided sovereignty was never intended to be enforced by the Supreme Court alone.
That's the thinking that most Americans certainly have today because they're used to it.
We hear pronouncements by the Supreme Court, who Clyde Wilson calls the black-robed deities,
and they interpret for us. They tell us how much freedom they're going to allow us to have.
That was never the intention.
And one illustration of how this was never the intention is the history, I'm going to
give a brief history in the time I have of the 17th Amendment that passed in 1913 that
allowed for the direct election of senators by vote as opposed to being appointed by the
state legislatures.
And some of the words of the American founders on the 17th Amendment, Roger Sherman writing
The Senators, being dependent on state legislatures for re-election, will be vigilant in supporting
their rights against infringement by the Legislative or Executive of the United States.
Alexander Hamilton said, election of senators by legislatures was an absolute safeguard.
George Mason said, election of senators by legislatures gives the states some means of
of Defending Themselves Against Encroachments of the National Government.
Fisher Ames said, senators are ambassadors of the states.
Madison in Federalist Number 62 said this, the appointment of senators by state legislatures
gives to state governments such an agency in the formation of the federal government
as must secure the authority of the former, the authority of the former.
So to Madison, the states were sovereign, and that's a foreign idea to most Americans nowadays, but this is the American ideal.
Also, Madison said that the mere enumeration of powers, referring to Article 1, Section 8 of the U.S. Constitution,
which enumerates the powers of the federal government, would never be sufficient.
He called these mere parchment barriers to the growth of the centralized state so that some sort of structural arrangements would be necessary,
is necessary, not just the written constitution, and one structural barrier would be the appointment
of United States Senators by state legislatures, and also there was the insistence that the
legislature should instruct the senators on how to vote, not just appoint them to office
and send them off to New York or Washington, the capital, but to instruct them on how to
vote.
The very first instruction the senators were given was to meet in public, because as soon
As soon as they started the Senate, the senators decided, we don't need the public to know what we're talking about here, and so they kept it secret, but they were all reprimanded immediately by their state legislatures to meet in public, and they did.
And some examples of this, the 17th Amendment, you know, anti-17th Amendment reasoning, the Kentucky and Virginia Resolves that, you know, Thomas Jefferson is known, the author of the so-called Kentucky Resolve of 1798, which was a response to the Sedition Act, which pretty much made it illegal to criticize the federal government, and quite a few people end up in jail. Every one of them was a member of Jefferson's party,
and the Sedition Act was scheduled to go out of existence on the very day President John Adams left office.
So it was clearly a political tool by Adams and his cohorts to censor criticism from the opponents.
And James Madison co-authored the Virginia Resolve that essentially said that we, the citizens of the states,
are not in agreement with the idea that the federal government is the sole arbiter of constitutional issues,
that we reserve for ourselves the right to determine issues of constitutionality.
We don't think this Sedition Act is constitutional, and we recommend that we just simply don't obey it,
and we don't use our own courts and our own police to enforce the Sedition Act.
And this was the work of the states, the state legislatures, who instructed their senators to oppose them, not all the states, but the states that did oppose it, like Kentucky and Virginia, that's how they did it.
Andrew Jackson is usually given the lion's share of the credit for opposing the Bank of the United States.
If you come to Mises Institute conferences and a session on the history of banking, someone will mention how Andrew Jackson had this pitched political battle with Nicholas Biddle, the head of the Bank of the United States, which was Alexander Hamilton's brainchild.
And of course, Jackson eventually won this battle and the Bank of the United States was defunded.
and then after that after a number of years past we had something called the
independent treasury system with Jeff Hummel the economic historian argues is
probably the most stable monetary system we've ever had in America and Murray
Rothbard gave it pretty good marks too you know no system is perfect but you
know it's probably the best we've ever had that was consistent with the gold
The opposition to the Bank of the United States was very vigorous at the state level too.
Ohio, Kentucky, Tennessee, Connecticut, South Carolina, New York and New Hampshire issued resolutions quoting the Kentucky Resolve of 1798 and also urging their senators to oppose the Bank of the United States.
This all became very different after 1865. In 1835, Senator Pellaud Sprague of Maine resigned after ignoring his state legislature's instructions to vote against the Bank of the United States.
The United States Senate, which had a lot of supporters of the Bank of the United States, censored Andrew Jackson for his opposition to the bank.
And after that, several southern states instructed their senators to vote to reverse the censor.
And since they had been in Washington DC for a while, they learned to love the bank for various reasons and they refused.
And so seven southern senators were forced to resign because they refused to vote to repeal the censor of Andrew Jackson.
And so in terms of what actually happened to get rid of this early version of central banking,
banking, it was the citizens of the states through their state legislatures who instructed
their senators to oppose the bank of the United States.
It wasn't just the heroic Andrew Jackson riding up on his white horse with a big sword slopping
the head off of Nicholas Biddle.
That didn't actually happen.
I kind of like that image though of the head of the central bank, but that's sort of the
story that is sometimes told about this, but that's not the whole story.
Many of the founders believed they could never make it in the Supreme Court's self-interest
to protect the rights of the citizens of the states against encroachments and unconstitutional
laws and such by the central government.
Brutus, the anti-federalist, the man who wrote under the name of Brutus, said this, it would
never be in the self-interest of the court to strike down federal laws trenching on the
and the inviolable and residuary sovereignty of the states, because every extension of power of the general legislature, as well as of the judicial powers, will increase the powers of the courts.
And he also mentioned next that it would also likely increase the remuneration of the judges on the court, give them more powers and more responsibility, they can make a case for more pay.
And so it's inherently against their self-interest to minimize the powers of the central government.
And if only the modern libertarian advocates of empowering the Supreme Court to supposedly
defend our liberty would read Brutus, I think we'd all be better off.
And as far as I know, this argument was never refuted, it was just sort of ignored.
But by the time we get to 1913, after the turn of the century, and I'll talk why there
was a movement to get rid of this, well, again, it doesn't take a genius to understand if
you had this pitched battle between the advocates of centralized governmental power and the
advocates of liberty, which means limits on centralized governmental power, the advocates
of liberty wanted the center of power to be in the citizens of the states through their
The advocates of unrestrained centralized governmental power didn't like that, and so there was a political campaign for decades to adopt what became the 17th Amendment.
But there's sort of, I think, of a syllogism that is used to explain the argument for the 17th Amendment.
You know, syllogism has a primary premise, secondary premise, and then a conclusion that's drawn from the first two.
The primary premise is democracy leads to corruption and plunder, the secondary premise is everyone
knows this, conclusion therefore we need more democracy, that's basically the theory underlying
the adoption of the 17th Amendment because there was all this talk of there's corruption
at the state level, we have to do something about the corruption at the state level.
And so, yes, you had politicians or politicians, that you could have had a state-level politicians
who were taking bribes, or senators who were taking bribes from special interests within
the state of Alabama, for example.
The solution, therefore, is to allow that same senator to take bribes from all the states,
not just Alabama, but from the whole country.
So that's why today you have the senator from Alabama going to New York and California to
to Raise Campaign Funds, and you didn't have that before 1913, but it's a sort of a good
example of Misesian interventionism, Mises wrote many times and many places how government
intervention inevitably causes things to get worse rather than better and then the state
uses that fact to introduce even more intervention, and that's what happened in this case in 1866,
The year after the war to prevent southern independence was over.
The federal government passed a law that for the first time mandated how state legislatures
were to appoint senators.
The Constitution already requires senators, but the government never dictated to the states
how they were to go about exactly appointing senators.
And the way it was, was first a voice vote of each house was to be taken, and then if
And there was no clear winner of the Senate seat than a concurrent vote, a private vote,
a secret vote of concurrent of both houses of the legislature would vote if the voice
vote wasn't decisive.
And apparently what happened was the original vote, the voice vote, informed the opponents
of this or that person, who they had to bribe or threaten to avoid having that person being
appointed.
And so what ended up was deadlocks.
This created deadlocks.
And so you did have, like one statistic I dug up, from 1885 to 1912, there were 71 deadlocks
where this month after month after month would go by and certain states did not have a senator
representing them in Washington.
And the deadlocks were typically ended by bribery, that if there was a deadlock, the
winner would actually become the winner by bribery.
And so, therefore, the argument was made, well, there's bribery going on here to break
the deadlocks, caused by the federal law, by the way, therefore, what do we need to
do?
We need to pass another law that'll do what?
Well, allow them to collect bribes, as I said, from all over the country, not just their
in their own state, as they do, because the special interests who want legislation passed that might be good for Californians, but bad for the people of Alabama, they're more than willing to bribe the Senator from Alabama to help have their legislation passed.
There's a congressman, I'll quote here, Congressman James Blaine, on the significance of this amendment.
He said this, and he's referring to the Civil War again. He says, prior to the war, every power was withheld from the national government, which could, by any possibility, be exercised by the state governments.
And what he's referring to here is, before 1861, the only contact the average American citizen had with the central government was through the postal service, and taxes were minimal.
the Equivalent of About $45 a year and so we essentially had you know very tiny
central government and then Blaine congressman Blaine goes on to say after
the war it was believed that everything which may be done by either nation or
state may be done and more securely done by the nation meaning the central
government and so and so what he's saying is this was what part of the
impetus to eventually adopt the 17th amendment and it is belief that the
The central government is so superior to anything the citizens of the states could do that we need to get rid of this idea that the citizens of the states should have direct control over their own senators.
We should let the senators go to Washington and because that's the fount of all truth is Washington D.C.
And so we need to get the riff-raff out of here and don't let them be involved. That's sort of the idea.
And of course, progressivism and populism, which made a god of democracy, also added a lot of weight to the crusade for the 17th Amendment.
That's why I said this syllogism perfectly explains this. Democracy is corrupt, everyone knows it, therefore let's have more of it.
That's basically the argument. And as a law professor at George Mason, named Todd Zwicky, who's written a couple of really interesting articles.
The Ratchet Effect of Federal Intervention persisting after the dissipation of the crisis, which purportedly spawned it, was absent from American history until 1913.
and he argues that the ratchet effect of government where there's a crisis, a war or something like that,
government always ratchets up its powers and its taxes and then after the crisis it may give us back some of our freedom but not all of them
so that there's a permanent elevation in the size and scope of government.
And I wouldn't agree with him that there was no ratchet effect before the war because, for example, the internal revenue bureaucracy was created in the 1860s and it never has gone away.
There was a bit of a ratchet there. But probably not nearly as extreme as Bob Higgs documents in his book Crisis in Leviathan, which starts in the 1890s, the historical section.
But the first real big crisis that Bob writes about is World War I, which came shortly after 1913.
And so in addition to creating a system where each senator can now be bribed by everyone,
everywhere, I think Zwicky makes a good case that the opposition to the ratchet effect after
a crisis was eliminated with this.
So that's part one of the revolution of 1913.
Part two is the income tax that came in, the 16th Amendment, and to give a little historical
perspective, you know, the original Constitution of the United States, tariffs and excise taxes
and occasional public land sales were how the government was funded.
There was no income tax and there were no direct taxes.
All direct taxes were unconstitutional, and one of my all-time favorite political statements
is an expression, among other things, of the evils of an income tax. It's from Thomas Jefferson's
first inaugural address. Many of you have probably heard this before, but I'll read it because I like hearing it every once in a while.
Where Jefferson said, A wise and frugal government, which shall restrain men from injuring one another,
shall leave them otherwise free to regulate their own pursuits of industry and improvement,
and shall not take from the mouth of labor the bread it has earned.
That is the sum of good government, end quote.
And of course, the relevant part here is the government
shall not take from the mouth of labor
the bread it has earned, no income tax.
Jefferson, after the so-called Whiskey Rebellion,
Jefferson also decided that even including excise taxation
as a constitutional function was a bad idea.
He said this, the excise law is an infernal one.
The first error was to admit it by the Constitution,
to allow it into the Constitution.
And, of course, he went along with the elimination of all federal excise taxes as president.
The first income tax by the federal government came in during the Lincoln administration.
And one aspect of this is that, one manifestation of this, is that Walter Block has been entirely
too hard on Milton Friedman because he, I've heard Walter say at some place that Milton
Friedman is the father of income tax withholding.
Is Walter here?
Is he?
Any of you who have said that about Milton Friedman, shame on you, you're not telling the truth, withholding was initiated during the Lincoln administration.
It eventually disappeared, but then it was resurrected by Milton Friedman, so he should be given some credit, but not as much as he's been given for this.
Part of the reason for the American Revolution was the hated stamp tax that King George imposed on the colonists.
They required a purchase of a stamp for every legal document, marriage licenses, property titles.
This was brought back to the Lincoln administration, the stamp tax.
They instituted the first inheritance tax and the income tax.
The Internal Revenue bureaucracy was created for the first time with 185 districts to collect taxes.
taxes, and withholding was adopted, but it didn't, they withheld their almost nothing.
They were pretty incompetent at withholding income. It didn't really work that way. And
the income tax, it started out as a flat tax. Maybe that's why Jack Kent is such a big Lincoln
idolatry, like flat tax. But then it was changed to a progressive tax with rates of five and
ten percent. And the Constitution was simply ignored because at the time direct taxation
was unconstitutional, but they simply called the income tax an excise tax, it's like, you know, let's call it a banana or something, it's not a direct tax, and so that's how they got in and got along with it, and the ability to pay principle was invented by the Lincoln administration to justify the progressive income tax, so we can blame him on that, blame that on the Lincoln administration also, and of course I call the ability to pay principle the
and the Willie Sutton philosophy, the famous bank robber Willie Sutton supposedly when he was asked why did you rob all those banks he said that's where the money is, well that's the ability to pay principle, why do you tax higher income people more that's where the money is, so it's sort of the pinnacle of our philosophical theory behind income taxation is bank robbery, it's a philosophy of bank robbery, well this tax ended in 1872 but it established the precedent
was the precedent of an income tax and whetted the appetites of all the various interests
and saw how they could benefit from income taxation.
And so 68 bills were introduced in Congress to re-institute the income tax between 1874
and 1894 and the seeds of class warfare had been planted.
And that's why I mentioned this historical episode, that the income tax didn't just pop
up all of a sudden after the 20th century.
This was a long fight. Another example of the theory of Misesian interventionism was
how the farmers of America became big supporters of income taxation. And the reason is, when
the Republican Party gained power for the first time in the late 1850s, one of the first
things they did when they had the power to do it was to pass in the House of Representatives
The Moral Tariff Bill, which raised the average tariff rate from about 15 percent to about 32 percent, and then it went up to around 48 percent, and it stayed in that range, the 45 to 50 percent, until 1913.
And so we had very heavily protectionist tariff rates, and farmers are always disproportionately harmed by protectionist tariffs for several reasons.
One, at least historically, most of these tariffs were on manufactured goods, and so that means everything they buy is more expensive, and there were some agricultural products that were protected, but the bulk of what was protected was manufactured goods, so they had to buy more expensive stuff.
Two, they found out whether it was the southern farmers in the 1860s or 1850s, or the Midwestern farmers in the 1880s, they sold a lot of what they made, what they produced on international markets.
In fact, in 1860, between 60 and 75 percent of all the agricultural produce of the South was exported, and the similar numbers, you know, very big percentages of the Midwestern farmers.
And so they found that the cost of farm tools, farm machinery, woolen blankets, shoes, all became more expensive
and they couldn't pass on any of this higher cost of living by charging more for cotton, tobacco, rice and things that are growing
because they had fierce competition internationally.
Third, they realized that if protectionist tariffs dried up trade, which it did, their trading partners had fewer dollars
with which they could buy American farm goods and so that was sort of a triple whammy to the farmers
and so the farmers became a pressure group to reduce the tariff rate by implementing an income tax
and so not only southern farmers midwestern farmers all over and so that's how you know one
intervention protectionist tariffs added a tremendous amount of political support for another
Intervention, Income Taxation, eventually. There was an income tax that was included
as part of a revenue act in 1894. Grover Cleveland pocket vetoed it, but it became law for a
short while, and then the Supreme Court ruled that unconstitutional. When the income tax
was finally adopted in 1913, I'm not going to go over the whole story of all the intrigue
about it, it was a classic bait-and-switch, political bait-and-switch scheme where the
promise was made that the protectionist tariff in the 50% range would be dropped very significantly
in return for the income tax.
That's what the farmers wanted and anybody else who was export dependent wanted.
But this was 1913, but the 1922 Fordney-McCumber Tariff Act increased the average rate back
up to 33.22 percent and the Smoot-Hawley-Hoover tariff of 1930 raised it to an average of about 60 percent, almost 60 percent, it's usually called the Smoot-Hawley tariff but Hoover was for it, so the Smoot-Hawley-Hoover tariff, so it was bait and switch, we'll cut your tariff rate if you give us the income tax, okay said the foolish farmers, they cut it for a few years but it raised right back up and of course the income tax in
itself was another big bait-and-switch scheme. The original income tax, the first bracket, you had to make $20,000 to be in the 1% bracket, the top bracket was 7%, no one paid more than 7%, and you had to make $500,000 to be in the 7% tax bracket, and this was in 1914 when it came into being, so that's $500,000 would jingle in your pocket a little bit in 1913.
Even today it was. But then during the war, the war, you know, the war came, as Abraham Lincoln said, he had nothing to do with it, but World War I came, Woodrow Wilson had nothing to do with it, it just came, and so he had to raise taxes so that by 1918, the top, the first rate was 6%, from 1 to 6, and the income, you only had to make $4,000 instead of $20,000 to be in that bracket, and the top rate
The top rate was increased from 7 to 77 percent on income of a million, to make a million, but 77 percent, but even after the war by 1928, still the top rate was one and an eighth percent on $4,000 of income instead of $20,000, and the top rate was still 25 percent in 1928, and you had to make only $100,000 for the 28 percent, right, so that's a pretty good ratchet there,
And among the consequences, you know, I don't have to go on in this crowd and talk about much of the consequences of income taxation, but I thought I'd run across some of the ones that maybe you haven't really realized or thought about these for a while.
Of course, class hatred was institutionalized forever with the income tax, progressive income tax. Debtor prison was reinstituted. Debtor prison was ended officially by President John Adams, the second president of the United States.
But you know, if you don't pay your income tax, you go to prison.
If you owe a debt to the government, you're going to prison.
So a debtor prison would brought that.
But more importantly for my theme here,
I think the income tax represented as much as anything
the total destruction of federalism or state's rights
altogether because the states really
became mere appendages or franchisees
of the federal government, of the central government in the US.
And the government became totally consolidated
because it had its hands in everybody's pocket for the first time ever.
And the Constitution was no longer able to keep the central government off balance with
the income tax, as the founders hoped, because of the destruction of federalism and the income
tax.
And another aspect of this is that, you know, when Jefferson said the sum of good government
is to not take the bread away from the man who earns it, that was an expression of the
of the Lockean natural rights philosophy that part of your life, liberty and property is
the income you earn from your own toil and for the state to take that away from you they're
depriving you some of your property and so they saw, Jefferson I believe, saw this as
an inherent attack on the natural rights of Americans.
Well the income tax turns up completely around and it establishes the principle that rather
If we have been protecting natural rights, the government is going to destroy natural rights by taking income through income taxation.
It totally turned on its head, the natural rights philosophy of the founders, in my view.
It's also a denial of private property, a severe attack on private property.
Frank Chauterov said this as well as anybody ever has, I think, in his book, The Income Tax.
He said, what it means is that your earnings are not exclusively your own.
We, the government, have a claim on them, and our claim precedes yours.
We will allow you to keep some of it, because we recognize your need, but not your rights.
But whatever we grant you for yourself is for us to decide.
You're essentially a slave, and the government will decide for you how much of your income you get to keep.
It can change its mind on a whim if it wants.
And, of course, the civil society always shrinks whenever government grows, and the income tax was the major driving force behind that.
The capital structure of the country was permanently damaged since so much of the income that is taxed away would have been saved and invested.
And the income tax created the high time preference society that America has been and has suffered from for decades now.
And Murray Rothbard explained this in Man Economy and State of how the existence of income taxation causes an increase in the rate of time preference of the population.
And I'll read this short section from Man Economy and State.
An income tax will particularly penalize saving an investment as against consumption.
It might be thought that since the income tax confiscates a certain portion of a man's income
and leaves him free to allocate the rest between consumption and investment,
and since time preference schedules remain given,
the proportion of consumption to saving will remain unchanged.
But this ignores the fact that the taxpayer's real income and the real value of his monetary assets
have been lowered by paying the tax.
We have seen that given a man's time preference schedule, the lower the level of his real monetary assets, the higher his time preference rate will be, and therefore the higher proportion of his consumption to investment.
And so that's another thing that was set off by the advent of the income tax, the high time preference society that Hans Hoppe writes so eloquently about in his Democracy of the God that Failed.
The third leg of the revolution of 1913, and I'm not going to go on and on about the Fed.
This audience is pretty well-schooled on the Fed, I think.
I could tell when I presented the image of chopping off the head of the Fed with a sword,
and everybody laughed at the enjoyment of that.
In D.C. you wouldn't get any laughter at all.
But the story I would tell about the Fed, the creation of the Fed,
is that it was a political struggle that began with Alexander Hamilton
and his Bank of the United States and up through the Second Bank of the United States
and Andrew Jackson's destruction of it, and then its resurrection of a central bank
during the Lincoln administration with the National Currency Act and the Legal Tender Act
and then it was expanded tremendously finally in 1913.
So I see the creation of central banking in America as a part of this ongoing political struggle that occurred in invariably the advocates of some kind of a centralized bank,
whether it was the Bank of the United States, the National Currency Acts of 1863, or the Fed itself, were advocates of bigger government, more activist government, more centralized government.
Invariably, the opponents of a centralized bank were the advocates of liberty, limited government, decentralized government.
And Richard Timberlake, in his book, In His Monetary Policy to the United States,
has some interesting statements about the early battle over central banking between the Whigs, who were the precursors, part of the political apparatus,
Apparatus were the precursors of the Republicans. Abraham Lincoln was a Whig for 28 years and
a Republican for just a few years compared to that. And he said this about the Whigs.
To the Whigs, a national bank was their life, the vital principle without which they could
not live as a party, the power which was to give them power. To lose it was to lose the
fruits of the election with the prospect of losing the party itself. That meant everything,
and Centralized Power. And he also talks about Jackson, as does Robert Remini, the best biographer of Jackson and the Bank War.
It's called Andrew Jackson and the Bank War by Robert Remini. He said this, that Jackson believed that the doctrine of states' rights meant that a central bank was unconstitutional.
And this view was quite pervasive, especially in the South.
And then Timberlake, I'm switching over to Timberlake again, where he writes,
the states were properly jealous and fearful of encroachment by the federal government.
Since a central bank would necessarily be a federal bank,
and would maintain and operate state branches from a distant center,
proponents of states' rights found opposition to a national bank almost mandatory.
And so, from the early days, you had this mandatory political battle between the advocates of Hamiltonianism, centralized governmental power, and the advocates of Jeffersonianism.
And when Lincoln's banking legislation, which was the real precursor of the Fed, came online, the sponsor of the bill for the National Currency Act was Congressman Elbridge G. Spaulding, a New York banker, by the way.
What a coincidence. He happened to be a banker. He's the sponsor of the Nationalized Banking Act.
He was interviewed apparently by the New York Times, which said this on March 9th, 1863, about these acts.
It said,
The Legal Tender Act and the National Currency Bill crystallized a centralization of power,
such as Hamilton might have eulogized as magnificent.
One of the big opponents at the time of centralized banking was Kentucky Democrat Lazarus Powell,
who wasn't quite as enthusiastic about this.
He said this, he said, the result of this legislation is utterly to destroy the rights
of the states.
It is asserting a power which if carried out to its logical result would enable the
National Congress to destroy every institution of the states and cause all power to be consolidated
and concentrated here in Washington, and of course he was dead-on on that, wasn't he?
There's an author named Richardson who wrote a book called The Greatest Government on the
Earth about the Congress during the Lincoln administration, and since they passed the
National Currency Act and subsidies for the Transcontinental Railroad and protectionist
Tariffs, that qualifies them as the greatest government on the earth. And she said this about the Banking Act.
By 1863, the Republicans envisioned a dominant international role for a unified American nation.
And Senator John Sherman promised that the bank bill, with its implicit strengthening of the national government, would advance that goal.
The Republicans were building a new economic role for an increasingly powerful national government, permanently involving it in the country's monetary affairs.
And so they wanted imperialism, they wanted empire, and it takes a lot of money to have an empire.
And of course, the Fed expanded this in spades 48 years later with the Fed.
It was bad enough in the National Currency Acts and Legal Tender Acts, but the Fed was just a tremendous expansion of this.
One of the books I've read recently on the history of the income tax, one of the authors says,
thank goodness that we adopted the income tax and the Fed in 1913, otherwise America may not have been able to enter World War I.
What a disaster that would have been.
That's that idea that the war just came, that the individuals have nothing to do with getting us in the war.
They just come and go like traffic, the tides in the ocean, no human action involved here.
So in closing, on the significance of this, I think these three things were the final nails in the coffin of the whole system of federalism or states' rights
that was meant to constrain the central government.
To the extent that the Americans were meant to be the masters rather than the servants of their own government,
this is how they were meant to be the masters of their own government, through political communities organized at the state level.
Whether you like it or not, that was the system.
And one of the things about this is that that was the way in which limited constitutional government was supposed to operate here, in this country.
And of course, countries all over the world have adopted federalism, one author, Horace McDonald, who wrote a book on states' rights not too long ago, pointed out the irony that this was an American idea, and it does exist in countries all over the world, but not here anymore, even though it was invented here. We got rid of it.
And I want to close with a quotation from Ludwig von Mises here and another German language political philosopher.
I want to ask you to guess who the second one is.
But in Omnipotent Government, on page 268, Mises is talking about the growth of government in both America and Switzerland in the late 19th and early 20th centuries.
And here's what he says about the growth of government, in Omnipotent Government.
New powers accrued in these years not to member states, meaning individual states, provinces, but to the federal government.
Every step toward more government interference and toward more planning means at the same time an expansion of the jurisdiction of the central government.
Washington and Bern were once the seats of the federal government.
Today they are capitals in the true sense of the word, and the states and cantons are
virtually reduced to the status of provinces. It is a very significant fact that the adversaries
of the trend toward more government control describe their opposition as a fight against
Washington and against Bern, i.e. against centralization. It is conceived as a contest
of States' Rights vs. the Central Power."
So to Mises, the whole battle for liberty was a contest of states' rights vs. the centralized
government.
And there's a German political philosopher, some of you may be familiar with this philosopher,
I know we have at least one or two real experts in this, just to contrast the kind of thinking
that this was a contemporary of Mises.
He died quite a long time before Mises died, but he was a contemporary of Mises, a very
influential one, for quite some time, where he said this, commenting on American history,
this German philosopher said, the individual states of the American Union could not have
possessed any sovereignty of their own, for it was not these states that formed the Union.
On the contrary, it was the Union which formed a great part of the so-called states.
So he's saying that state sovereignty never really existed in America because the Union
created the states, the states didn't create the Union.
This is the German philosopher.
He's paraphrasing Abraham Lincoln's First Inaugural Address, and this is what Lincoln's
First Inaugural Address says, the Union is much older than the Constitution.
It was formed, in fact, by the Articles of Association in 1774, it was matured and continued
by the Declaration of Independence, it was further matured by the Articles of Confederation
And finally, in 1787, one of the declared objects for ordaining and establishing the Constitution was to form a more perfect union.
So this German philosopher was just quoting Abraham Lincoln in making the case for abolishing state sovereignty in Germany.
And of course, this is complete nonsense because you think about a union of two things cannot logically be older than either of the things.
It's like saying a marital union can be older than either spouse, either part of the union.
It doesn't make any sense. Besides the fact, it's not historical. It didn't happen that way.
The same German philosopher said this, that the ideal thing for Germany would, quote,
totally eliminate states' rights altogether, since for us the state as such is only a form,
but the essential is its content, the nation, the people, real nationalists, this fellow was.
It is clear that everything else must be subordinated to its sovereign interests.
In particular, we cannot grant to any individual state within the nation,
and the state representing it, state sovereignty and sovereignty and point of political power.
The mischief of individual federated states must cease.
Any guess who that was?
That was Adolf Hitler in Mein Kampf.
Just to make the point that the worst tyrants in world history were also on the side of
centralized power and enemies of states' rights.
And I think the final thing I would say is that this was America's attempt at limited
constitutional government, and the way I see it as, as soon as the central government became
powerful enough to destroy state sovereignty, it did.
When the southern states attempted to say, we no longer consent to being governed by
by the Central Government.
The Central Government responded by killing 300,000
of the one out of four adult males of military age,
bombing their cities, burning out their homes and farms,
and generally ruining the whole society.
We can talk more about that.
And then the final nails in that coffin
were pounded in 1913, in my view.
And so that's pretty strong evidence
that limited constitutional government just won't work.
and had as good a chance here as anywhere, but it was destroyed, it took a while, but
it was destroyed not that long really, 1789 until 1913 in the span of history, it's not
that long a time period.