U.S. Constitution: Tool of Centralization and Debt, 1788-Today
by Gary North: Insider
Trading: A Bum Rap
On a conservative
site last week, the editor wrote this:
Constitution has been largely ignored over the last 80 years,
the document is very real, and its purpose is clear: to limit
greatly the powers of the federal government.
this, he went on to a conclusion:
proves unwilling to force indiscriminate cost reductions on government
then it should apply constitutional principles to the budget whereby
government functions not enumerated in the Constitution are abolished,
privatized, or passed to the states.
When we begin
with a myth, we have a tendency to expect miracles. Let me explain.
was established in order to strengthen the powers of the Federal
government. It strengthened them vastly beyond what the British
had attempted to impose on the colonies in the early 1770s.
American Revolution, the British level of taxation was in the range
of 1%. There were sales taxes on imported goods, but most people,
then as now, bought domestically produced goods. There were taxes
on paper after 1765. This affected mainly lawyers and newspaper
publishers. By alienating these two influential groups, the Parliament
stirred up a hornets' nest. When professional talkers and writers
get squeezed by the government, the public gets an earful. "The
end of liberty is nigh!" On the contrary, the end of a debt-free
colonial governments was drawing nigh.
must be financed. They are always financed with debt and fiat money.
Creditors buy the IOUs with good money, then weaker money, and then
at the end of the revolt worthless money. Then they have a
supreme political goal: to get the new government to pay off the
worthless IOUs at face value in gold or silver. In the 1780s, it
was deliberately designed to centralize power vastly beyond what
the legitimate constitution the Articles of Confederation
allowed. The Federal government in 1787 was weak. In 1788, it was
The newly created
Federal government immediately did two things. It accepted responsibility
to pay off state debts. This was Alexander Hamilton's proposal.
He proposed it specifically to centralize the government by granting
enormous profits to the investment class that had bought state debts
for practically nothing.
article on this consolidation of Federal debt is accurate in its
discussion of Hamilton's
economic plan had multiple goals. First, the debts and honor of
the nation would be secured. Hamilton felt that the Federal government
would not be able to borrow money from anyone in the future if
these debts were not paid. By selling bonds to pay the debt, bondholders
would have a direct financial interest to help the new United
States government survive and thrive. Creditors who purchased
the bonds could use them as collateral for loans, stimulating
the economy even more.
would also create a bureaucracy of agents across the country who
would be tied to the Federal government instead of the individual
states. Assuming the debts of the states would likewise couple
financial elites in those states to the national government and
less so to state governments, thereby reducing the risk of secession.
Hamilton's scheme was called "debt assumption plan,"
and it was a radical idea in 1790.
Report supported ideas of war debt assumption, redemption of Confederate
securities at face value, and funding of new national securities
as a permanent national debt. Hamilton reasoned that creating
a large financial structure, which wealthy citizens would support
and belong to, would enhance the revenue and fiscal system of
the national government and bring prosperity to the Federal government.
He also reckoned that failure to establish the creditworthiness
of the Federal government would weaken the United States, and
called a permanent, reasonably-sized public debt "the powerful
cement of our Union."
statements at the time were quite frank about all this.
and Jefferson opposed the plan, Hamilton bought them off by promising
to support the swamp today known as Washington D.C. as the nation's
Capitol. This was done at a private dinner with only the three in
attendance. Jefferson later wrote about it.
the rest of the article
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
Best of Gary North