Lies the government told you by Andrew Napolitano (big screen ebook reader .TXT) 📕

a central bank that would help finance the government. He was initially impeded from doing so by Thomas Jefferson, who argued that Congress did not have the authority to charter a bank, as it had only those powers granted to it under the Constitution. It was only in 1791, when George Washington offered his encouragement, that Hamilton’s financial behemoth, the Bank of the United States, was formed. Fortunately for the country, the bank only had a twenty-year charter that expired, and was not renewed, during Madison’s presidency.

This might have been the end of the Bank if not for the War of 1812 and the ensuing financial strain it placed on the federal government. President James Madison, previously a critic of the central bank, adopted the attitude of so many in his position, that in times of great stress, the Constitution be damned. In dire need of money, he signed legislation that authorized the creation of the Second Bank of the United States in 1816, interpreting the Necessary and Proper Clause of the Constitution to allow for any laws to be passed which would be helpful in executing the federal government’s delegated constitutional purposes.

The man credited as the Father of the Constitution, and its task of limiting the powers of the federal government, read into the document an idea that would in essence grant the federal government permission to do anything it chose—anything it found “helpful” rather than truly “necessary and proper.” Did he lie to us when, in no need of currency, he said that the federal bank was unconstitutional; or is it more likely that he was lying to the American people when, in dire need of money, he claimed that the creation of such a federal bank was within the powers of the federal government? How can “helpful” mean the same as “necessary and proper”?

While branches of the federal bank sprang up around the country, the states began to balk at what they viewed as federal overreaching. They knew that the Constitution did not permit such a creation and that they could not sanction this sham by the federal government. Maryland made the first attempt to protect its sovereignty when its legislature imposed a tax on any bank not chartered by it. The only bank that fell under the statute was the Bank of the United States. Yet when it came time to pay the legally imposed tax, James McCulloch, head of the branch, refused to pay.

The result was McCulloch v. Maryland, where the United States Supreme Court held that the Necessary and Proper Clause of the Constitution grants to the federal government unstated, never-delegated, implied powers. So even though the Court admitted that the Constitution was silent on the creation of a bank, Chief Justice Marshall noted that the Constitution “had to be adapted to the various crises of human affairs.”

In essence, Marshall read the Constitution to grant any and every power which was not expressly prohibited, as long as it was reasonably tied in to an express power. He stated that as long as the end was legitimate, then “all the means which are appropriate which are not prohibited . . . are constitutional.” Therefore, though the entire document centers on enumerating the powers of the federal government so as to limit them, Chief Justice Marshall held that this clause is different, that it grants to the government broad, elastic, and unrestrained implied powers. By reading these broad powers, Marshall lied to all of us and deceived us about the spirit of the Constitution, for if “necessary” means “helpful,” then the Constitution in essence allowed the federal government to do whatever it felt like, all under the guise of it being helpful to some other of its duties.

Of course, the Court also noted that the power is not limitless, and when it does go outside its boundaries, then the law would be nullified. But if the Necessary and Proper Clause can stretch the taxing and spending powers to encompass the charter of a federal bank, then what boundaries exist?

After McCulloch, the bank thrived until the presidency of Andrew Jackson. After an enormous struggle in the 1830s, he managed to bring it down and return to a system of free trade. Jackson was, coincidentally, the last president in American history to pay off the federal government’s debt.6

Orchestrating Panic

The country unfortunately was destined to build up a great debt in the post-Jacksonian era. The Civil War resulted in the National Banking Acts of 1863, 1864, and 1865. The Acts resulted in the creation of newly chartered federal banks. Then, by prohibiting the state banks from issuing notes, Congress forced state banks to keep their deposits at the federal banks, thereby granting a monopoly to the new federal banks. As well, the Acts created a new lower minimum reserve requirement, which opened the banking world to expanded lending possibilities due to decreased amounts of reserves required for each loan. Finally, the Acts created a hierarchal structure to these banks, ensuring in essence that the banks would not have to stand on their own and take responsibility for their own debts. The Banking Acts paved the way for a central bank, for unimaginable public debt, and for ruinous inflation.

Still, many bankers voiced complaints that the system was not centralized enough, that there was not a large financial body which could serve as a “lender of last resort” to bail them out when they expanded beyond their capabilities. They complained of monetary “inelasticity,” shorthand speak for their inability to expand credit without any barriers and without worry about the consequences. The bankers were complaining that they could not create inflationary booms through massive credit expansion. The reserve requirements, which required that the banks have only 15 percent reserves, were still too high for them.

Would you want your bank to be able to cover less than 15 percent of its obligations to its depositors? The bankers wanted to be truly insured against any chance of collapse, to ensure that there would