by Michael Maharrey, Schiff Gold:
The Federal Reserve is the engine that drives one of the biggest, most powerful governments in the history of the world.
Without the Fed, it would be difficult, if not impossible, for the government to fund its foreign wars, its massive, unsustainable social programs, the ever-growing police state, and the tangled web of corporate welfare programs. It’s almost certain none of this would exist as we know it today – not even close. The federal government would truly be limited.
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Although the Federal Reserve is relatively new within the scope of American history, its roots go back to the early days of the republic and the First Bank of the United States, chartered by Congress on Feb. 25, 1791.
A national bank was the brainchild of Alexander Hamilton. His rationale wasn’t much different from those who later came up with the Federal Reserve. Hamilton thought a central bank was necessary to stabilize and improve the fledgling nation’s credit and to better manage the financial business of the United States government.
The notion of a national bank but wasn’t without its detractors. One of the most vocal opponents of the bank was Thomas Jefferson who argued that it was unconstitutional.
The debate was really about more than chartering a bank. At its core, it was an argument about the extent of federal power. Jefferson held to the promise of the ratification debates – that federal authority would remain carefully circumscribed by the enumerated delegated powers. Given that the Constitution doesn’t authorize Congress to charter corporations, much less a national bank, Jefferson argued that it was an unconstitutional act.
On the other hand, Hamilton pivoted from the position he took during the ratification debates and justified his project by invoking the doctrine of “implied powers.” His arguments foreshadowed how federal policies of every imaginable stripe would be justified moving forward. Arguably, Hamilton’s arguments for the First Bank of the United States set the foundation for much of the federal overreach we have today.
Jefferson and Hamilton both wrote documents making their cases for the establishment of the bank. Jefferson wrote his Opinion on the Constitutionality of a National Bank first.
He rested his argument on the Tenth Amendment, writing:
“I consider the foundation of the Constitution as laid on this ground: That ‘all powers not delegated to the United States, by the Constitution, nor prohibited by it to the States, are reserved to the States or to the people.’ [XIIth amendment.] To take a single step beyond the boundaries thus specially drawn around the powers of Congress, is to take possession of a boundless field of power, no longer susceptible of any definition.”
He then succinctly stated his conclusion.
“The incorporation of a bank, and the powers assumed by this bill, have not, in my opinion, been delegated to the United States, by the Constitution.”
Jefferson proceeded to outline the various clauses of the Constitution supporters of the bank used to constitutionally justify and explained why they failed to bear the burden of that power.
The primary justification was the Commerce Clause, but Jefferson argued that “to erect a bank, and to regulate commerce, are very different acts.” Erecting a bank actually creates an institution of commerce, and as Jefferson pointed out, “to make a thing which may be bought and sold, is not to prescribe regulations for buying and selling.”
He went on to argue that if erecting a bank is an exercise of the commerce power, it would be void because it would also impact commerce within individual states.
“For the power given to Congress by the Constitution does not extend to the internal regulation of the commerce of a State, (that is to say of the commerce between citizen and citizen,) which remain exclusively with its own legislature; but to its external commerce only, that is to say, its commerce with another State, or with foreign nations, or with the Indian tribes.”
Next Jefferson tackled the General Welfare Clause, pointing out that Congress cannot lay and collect taxes for any purpose it pleases, “but only to pay the debts or provide for the welfare of the Union.” Likewise, Congress can’t do anything it pleases to promote the “general welfare.” It can only further the general welfare by laying taxes and acting within its enumerated powers.
“In like manner, they are not to do anything they please to provide for the general welfare, but only to lay taxes for that purpose. To consider the latter phrase, not as describing the purpose of the first, but as giving a distinct and independent power to do any act they please, which might be for the good of the Union, would render all the preceding and subsequent enumerations of power completely useless. It would reduce the whole instrument to a single phrase, that of instituting a Congress with power to do whatever would be for the good of the United States; and, as they would be the sole judges of the good or evil, it would be also a power to do whatever evil they please. It is an established rule of construction where a phrase will bear either of two meanings, to give it that which will allow some meaning to the other parts of the instrument, and not that which would render all the others useless. Certainly no such universal power was meant to be given them. It was intended to lacce them up straitly within the enumerated powers, and those without which, as means, these powers could not be carried into effect.” [Emphasis original]
Jefferson drove his point home by pointing out a very inconvenient fact for Hamilton – the Philadelphia Convention debated and rejected delegating the power to charter corporations.
On one of the final days of the convention, James Madison proposed the federal government be delegated the authority “to grant charters of incorporation where the interest of the U.S. might require & the legislative provisions of individual State may be incompetent.”
Rufus King of Massachusetts objected specifically on the grounds that “It will be referred to the establishment of a Bank, which has been a subject of contention in those Cities (New York and Philadelphia). He also warned that “In other places it will be referred to mercantile monopolies.”
George Mason of Virginia proposed limiting the power to charting corporations for the construction of canals. “He was afraid of monopolies of every sort, which he did not think were by any means already implied by the Constitution as supposed by Mr. Wilson.”
Ultimately, the convention rejected the proposal completely. Historian Dave Benner wrote, “This casts overwhelming doubt on the notion that the Constitution allowed Congress to form such monopolies. No enumerated power to grant monopolies and corporate charters was ever included in the document, and during the ratification campaign, none of the Constitution’s advocates cited the presence of such a power.”
But Hamilton’s arguments didn’t rely on the existence of any delegated power. Instead, he appealed to the existence of unwritten “implied powers.”
In response to Jefferson’s appeal to the Tenth Amendment and that the federal government can only exercise delegated powers, Hamilton affirmed it, and then effectively nullified its limiting force. He wrote, “The main proposition here laid down, in its true signification is not to be questioned.” But he continued, insisting, “It is not denied that there are implied well as express powers, and that the former are as effectually delegated as the latter.”
But who decides the extent of these implied powers? Who determines their limits? In effect, Hamilton sets up an almost unlimited reservoir of power the general government can dip into in order to take whatever actions it deems appropriate. This was a 180-degree reversal from the position he took during the ratification debates when he insisted that the new general government would only exercise limited powers.