September 29, 2008

Since the Truman administration, Democrats have called for the nationalization of the health-care industry. The Democratic Party’s position, stressed more strongly at some times than at others, has been that the average Joe should not have to sacrifice much to pay his family’s medical bills.

For Republicans, this has been sacrilege. And a threat. As William Kristol famously explained of the Clinton Administration’s effort in this line, a new federal entitlement to medical care would create a vast new constituency for the Democratic Party. He counseled that it must be defeated at all costs, lest the Republicans remain in the congressional minority for another generation.

Sometimes, Republicans explained their hostility to socialized medicine economically: Government control would mean higher prices and lower quality. Sometimes, they explained it in terms of inefficiency”€”recall Arlen Specter’s flow chart of Hillary Care. And sometimes, the Republican opposition was couched in constitutional terms: “€œWe can”€™t do this,”€ they said, “€œbecause there’s nothing in the Constitution that says we can.”€

Democrats insist that this last argument is really just a mask for class interests. Republicans, they say, don”€™t really care about the Constitution, which even the rubes know hasn”€™t bound us since the 1930s (at least) anyway.

Comes now the team of George W. Bush, Ben Bernanke, and Henry Paulson to prove once and for all that at least in the case of New York and New England Republicans (as an adopted Texan, I insist that the Bushes are from Connecticut), the cynics are right. It is about class interest.

How do we know? Because George W. Bush and Company have pulled out all the stops for the Billionaire Bailout. They have no problem whatsoever nationalizing liability for hundreds of thousands of home mortgages gone sour and passing along the costs to … well, to the same taxpayers as would pay for socialized medicine.

Yes, you might say, but I don”€™t want the smiling, friendly service I receive at the local post office when I go to the doctor. Oh, really? But you don”€™t mind that service when you want a loan?

How did we come to have such a mess in the mortgage market in the first place? It results from two of the unconstitutional innovations of the 20th century:  the Federal Reserve System and government-spurred mortgages.

Search it thoroughly, and you”€™ll find nothing in the U.S. Constitution that authorizes the Federal Government to create an institution like the Federal Reserve, let alone to encourage home lending.  Yet, no one seems much to care.

In fact, the question is rather an uncomfortable one. Ron Paul recently asked Ben Bernanke where he got constitutional authority to create money out of thin air, and Bernanke said that Congress had delegated to the Fed Congress’s constitutional power to coin money.

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But of course, the Fed doesn”€™t coin money”€”it prints paper. And the Constitution doesn”€™t empower Congress to delegate its powers. (But that’s another battle that supporters of the Constitution lost long ago.)

Why would the Philadelphia Convention have created a government without power to print money? After all, isn”€™t the power to print money one of the chief elements of sovereignty?

In short, no. Paper was not regarded as money in 1787. There had been experience with paper currency in the Revolution, but this was seen as a stop-gap measure. The typical note said something like “€œGood for 10 pounds sterling within six months of the end of the war.”€ It was to be redeemable, in other words, for a metallic commodity.

All thirteen states and Congress printed the stuff”€”and printed it, and printed it…  Just as the American dollar’s value has declined by over four-fifths since the inception of the Federal Reserve System a century ago, so paper currency’s value declined rapidly in the 1770s and “€™80s. So severe was the inflation that if you wanted to say something was worthless, you might say it was “€œnot worth a Continental”€ (a congressional “€œdollar,”€ that is, meaning a congressional paper dollar).

James Madison listed hyper-inflationary printing of paper money as one factor precipitating “€œthe crisis of republican government.”€ So badly had Congress and the states performed economically, he said, that their record threatened to disgrace republicanism worldwide.

We need not buy into Madison’s version of Federalism to understand the constitutional consequences of the Revolutionaries”€™ revulsion with paper money. It seems to have been one reason that Madison, unable to prevent the Old Dominion from printing paper money, opted for federal constitutional reform: If he couldn”€™t defeat paper money men in his home state, he would go around them.

Yet, by the time the Philadelphia Convention met in 1787, Patrick Henry “€” Madison’s chief Virginia political adversary “€” had joined in a House of Delegates resolution against any future printing of paper money.  No one significant objected.

The U.S. Constitution, in Article I, Section 10, bans the states from printing paper money.  In Article I, Section 8, it empowers Congress to coin money, but that list of powers says nothing about a power to print paper money.  As James Wilson, Pennsylvania’s leading Framer and Federalist spokesman, explained, Congress would have only the powers that were listed; omission of a power to print paper money amounted to a ban on congressional paper.

In other words, the U.S. Constitution meant that neither the states nor the Federal Government would have power to print paper money.  But surely that was unreasonable.  People must have ignored this decision from the inception of the Federal Government.

No, they didn”€™t.  Martin Van Buren’s administration (1837-41) may be seen as paradigmatic.  Van Buren came to office just as a severe recession set in.  He was constantly castigated by his Whig opponents for not adopting spend-thrift, constitutionally dubious “€œsolutions”€ “€” protective tariffs, public works, and federal chartering of a new Bank of the United States “€” to the problem.

Rather than be seen “€œdoing something”€ (as George W. supposedly faulted his father for not doing in the face of 1991’s mild recession), Van Buren counseled that the market would work the matter out, and that the government should not add to the problem by favoring a few well-connected rich over the poor.

Van Buren was not alone in this position. Rather, it was Jeffersonian, then Jacksonian, dogma virtually from the beginning of the Jeffersonian Republican Party in 1792 until the New Deal of 1933.

For Van Buren, any other position threatened a resuscitation of Alexander Hamilton’s anti-constitutional Federalism of the 1790s. Freedom in America meant living under the Constitution, and so he would have none of Federalism. Opposition to Hamiltonian measures was the reason that Van Buren had joined John C. Calhoun and Thomas Ritchie in organizing the Democratic Party in the first place.

One manifestation of this view was the Jacksonian campaign against the Second Bank of the United States, which finally died at Jackson’s hand in 1836. Jackson counseled in his Bank Bill Veto Message of 1832 that the Bank should be resented by the common man.  Rather than showering its blessings on rich and poor alike, the Federal Government through the Bank was favoring the wealthy and well-connected.

Opulence in 1832 didn”€™t extend to billions, but you can see the resemblance of the Bush-Bernanke Bailout to Nicholas Biddle’s bank charter. The Bank was the statutory depository of federal tax revenue, which it then was entitled to loan out at interest.  Its notes formed what Hamilton had called a “€œcirculating medium.”€ Besides that, the government used the Bank as lender of choice in case of war; this had been the prime reason for its creation.

In other words, people had to put their money in a private bank, which then had the right to lend it at interest.  In essence, it was guaranteed to make money, unless its lending policies were simply incompetent.

Sound familiar?

No relevant section of the Constitution has changed since the death of the second federally-chartered bank in 1836. What has changed is American culture, as Tom Woods and I explore in Who Killed the Constitution?.

Where once Ron Paul would have stood at the head of a majority of Jeffersonian Republicans or Democrats in decrying the elite’s attempt to fleece the public through legislative gifts to bankers, he now stands alone. Virtually no one adheres to any serious constitutionalism “€” to a reading of the Constitution that sometimes prevents him from doing things that he really wants to do. No one seems to care to point to a constitutional provision authorizing bank legislation (read:  Federal Reserve legislation or $700B bailouts).

So, the next time an avowed socialist proposes nationalization of health care, if you hear anyone who voted for the Bush-Bernanke Billionaire Bailout say that it’s unconstitutional, be wary. His “€œconstitutionalism”€ is highly selective.

Besides which, the long-term positive economic effect of this latest outrage against the Constitution will be virtually non-existent, if not absolutely negative.  But that is grist for another mill.

Kevin R. C. Gutzman is co-author, with Thomas E. Woods, Jr., of Who Killed the Constitution? The Fate of American Liberty from World War I to George W. Bush.


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