Recently by Gary North: David Frum: Hatchet Man for Ben Bernanke

Before I explain the title of this report, I want to prove to you that Americans are losing their liberties, day by relentless day. I also want to prove to you why it is that, unless there is an economic breakdown so severe that Washington D.C. goes broke, we will not get back these surrendered liberties. My demonstration will take approximately three minutes. For skeptics, it may take five minutes.

The United States Government Printing Office publishes the Federal Register. Each issue is a 275-page book, three columns per page. There are about 250 issues published each year, totaling approximately 69,000 pages. These are pages of incoherent rules that apply to every area of our lives. They are written by government lawyers to be interpreted by lawyers and debated by lawyers. Unless the public, including Congress, demands a hearing on a rule within 15 days of publication, the rule becomes the law of the land.

Congress rarely protests. It is too busy with its infighting to pay attention to the Federal Register. The public rarely protests. It takes a team of lawyers to gain a hearing. Only if the rule generates a huge outcry from the media or the public is a rule repealed.

I have been involved in only one such protest, which was successful: the IRS’s 1979 rule to withdraw tax exemption from any private school founded after 1960 that did not have the same racial percentages of students and faculty as prevailed in the community in which it operated. It took 125,000 letters of protest in 30 days, plus Congressional hearings, to get that rule reversed. The public buried the IRS in written protests — the most it had ever received on a ruling. I generated this protest by pulling copyright on my Remnant Review report on that ruling. This led to the letters of protest generated by the second newsletter after mine went out. The snowballing effect took over.

To head off such protests by the public, the limit was cut to 15 days. We would have failed in 1979 under this limit. Almost no voter has ever heard of the Federal Register. Of those who have, only a tiny percentage have ever read a single page.

I am asking you to spend three minutes reading one column of one page. Read it carefully. See if you understand it. Pick your page here.

After you read that column, ask yourself this question: “At 69,000 pages per year, meaning 207,000 columns just like this one, what is happening to Americans’ freedom of choice?”

To ask this question is to answer it.

“POWER TO THE PEOPLE!”

Back in the late 1960’s, “Power to the people!” was a well-known phrase of Black power activists. I remember it as being up there with “never trust anyone over 30” and “make love, not war.”

The people have gained no increase in power. The under-30 crowd is now over 60. Viagra is selling well, but America is still at war.

We have come a long way, baby: in the Federal Register — maybe two million pages (it used to be shorter), or six million columns.

We think of the Presidency as the culmination of American political power. Yet the Presidency is a shell of what it was under Franklin Roosevelt.

Apart from some perceived national emergency, either terrorist or financial, nothing gets done in Washington. In the financial crisis of 2008, Bush was invisible. Paulson ran the whole media show: nationalizing the mortgage market on his own authority, bailing out the financial sector along with silent Ben Bernanke.

This is not new. Richard Nixon became the symbol of authority after Lyndon Johnson left the scene. He succeeded Johnson, who refused to stand for re-election. I cannot think of any two Presidents in American history who possessed greater knowledge of the details of the political process. I also cannot think of any two Presidents who were more chewed up and spit out by this process. Both men achieved enormous electoral victories: 1964 and 1972. Both left the office as beaten men, consumed by the system they had overseen. Johnson was heralded by the Left in 1964, as well he should have been. The Left drove him out of office in 1968. Nixon was seen by the Left as a bastion of the Right in 1968. The Right did not lament his departure in 1974.

Meanwhile, gridlock in Congress now prevails.

What’s going on here? If the people have lost power, and the Presidency has become a shell, and Congress is in gridlock, who grabbed all that power?

The bureaucrats.

In every nation, it is the same story. The politicians centralize power. The bureaucrats exercise this power. Politicians come and go. Political parties exchange the trappings of authority. The bureaucrats keep their jobs, extend their reach, and consolidate power.

In the 1980’s, the British sitcom Yes, Minister showed us how the system really works. It is on Netflix, and we can watch it on our computers. It is just as funny today and just as true as it was then.

In 1983, Harvard University’s legal historian Harold Berman summarized the story in a 45-page introduction to his book, Law and Revolution. We are losing our liberties in the West, he said, because of a quiet but relentless legal revolution that has been underway for a century: the transition to administrative law. The executive bureaucracies are writing the regulations and enforcing them through administrative law courts. You can read 90% of his introduction here.

Nothing reverses this process. Only one thing can: budget cuts. No other force can reverse the relentless extension of administrative law over the lives of citizens. No other reform ever takes hold, for the system is self-enforced. It takes a bureaucrat to hedge in a bureaucrat. The best we can hope for, apart from budget cuts, is bureaucratic gridlock. But bureaucratic gridlock restricts progress, economic growth, and the recovery of lost liberties. The status quo prevails until such time as one or the other bureaucracy prevails. Then the process resumes.

Liberty expands these days by being able to stay two jumps ahead of the bureaucracies. Digital technology surely helps. The bureaucrats are slow learners and slower movers. By the time they write new regulations, the technology has moved on. But, when the grasping hand of bureaucracy slows economic growth, the capital available to entrepreneurs gets more scarce. Innovations cannot get as much funding as before. It becomes more expensive to stay ahead of the regulators.

Ludwig von Mises wrote in 1922 that the goal of every bureaucrat is to structure that sector of the economy which he oversees in terms of a working model: the Post Office. No one has described it any better than this.

VETOING THE VETO POWER

The crucial power to restrict the growth of bureaucracy is the power of the veto. This power used to be imposed by juries. This became the great threat to the power of bureaucracies. This is why they began to substitute administrative law courts for civil courts. There are no juries in administrative law courts. There are only judges on the payroll of the bureaucracies. These administrative law judges interpret the law of their employers. They are funded by their bureaucracies. The defendants must hire their own lawyers to play the legal game of “look it up.” Then the administrative law judge decides which lawyer is correct.

This system is what Berman has described as the greatest single threat to freedom. He was correct.

Best of all from the point of the bureaucracy is the principle of the Napoleonic Code: the accused is guilty until proven innocent . . . at his expense. This is contrary to the common law tradition. Common law is being reversed today. The Internal Revenue Service operates in terms of the Napoleonic Code.

Then where is the veto power? Congress has 15 days to veto a rule in the Federal Register. That is not enough time.

The rule can be vetoed by an Executive Order signed by the President. Presidents rarely issue vetoes of executive enforcement procedures; they sign extensions of executive powers.

The agency with the greatest immunity to a veto is the Federal Reserve System. The Board of Governors is appointed by the President. Legally, it is under Congress. But until Ron Paul’s bill to audit the FED got the support of 317 House members, no previous attempt to veto any aspect of the FED had come out of Congress since the FED began operating in 1914. Paul’s bill sits in the House. The Senate has ignored it. Obama will surely veto it if it ever gets to him, which is unlikely.

The FED almost always goes along with the President in order to get along. The only major exceptions were these. First, the FED’s refusal in 1951 to keep buying Treasury debt at a below-market rate. That decision had taken ten years. Second, the decision by Volcker’s FED in late 1979 to let the Federal Funds rate shoot upward in 1980. The resulting recession cost Carter his re-election.

The FED must henceforth supply the fiat money to keep the economy going. It must either inflate directly or impose a charge on the commercial banks’ excess reserves in order to get banks lending again. The push is inflationary. It has been ever since 1914. This will not change.

For as long as the FED controls the money supply, it can keep the Federal government going. This was stated clearly by the president of the New York Federal Reserve Bank (and the inventor of income tax withholding in 1943), Beardsley Ruml, in 1945. To read his speech, click here.

The end of the FED’s power could come in one of two ways:

It inflates continually until hyperinflation destroys the dollar. It inflates but then draws back, allowing another Great Depression.

It will do its best to steer through these rapids, but the size of the Federal deficit will make this middle path difficult to navigate.

Ultimately, Congress can nationalize the FED to force it to inflate. The Board of Governors knows this. That would mean the end of the FED’s semi-autonomy and the end of the dollar.

ESCAPING THE PUBLIC’S VETO

The international trade system, 1815 to 1914, rested on an agreed-upon gold standard by major nations. They agreed to redeem their nations’ currencies in gold coins.

This kept power in the hands of the people. The person holding a receipt from a bank or a bank note could demand gold coins for these paper receipts. The veto power was in the hands of citizens.

After World War I began and the central banks stole the depositors’ gold in the commercial banks, this veto power was renewed only briefly in Europe: England, 1925 to 1931. It ended in the United States in 1933, by Roosevelt’s Executive Order. He confiscated the people’s gold at $20 an ounce. Then, in 1934, he hiked gold’s price to $35.

That act of national theft unshackled the bureaucrats. Before this, the bureaucracies had to be funded by governments. There were limits on this funding: tax revenues and the interest rates on borrowed funds. With the end of the various government-enforced gold standards, nation by nation, the governments reduced these restraints. Their central banks could always buy the governments’ debt by creating fiat money.

The great winners have been the bureaucrats. They have escaped vetoes by governments, because governments have escaped the public’s vetoes that were created by gold-redeemable currencies.

This is why all big-government politicians and their obedient, salaried intellectuals hate anything even remotely resembling the nineteenth-century gold standard. They resent the veto power of gold over the expansion of credit by the banking cartel. This is why they never challenge the central banks. They know who butters their bread: the central banks. They know what the butter is: borrowed fiat money used by governments to expand power.

The politicians and their many hired spokesmen — economics professors, newspaper columnists, think-tank intellectuals — dismiss the gold standard because they understand that this system placed a veto power in the hands of individual holders of IOU’s from banks. This restrained the banks. This also limited the ability of governments to borrow money in order to defer tax increases.

The IOU-holding citizen had the power to say: “You’re lying. I’m calling your bluff.” He could walk into a bank and demand gold coins. That legal authority was the greatest single tool of decentralized power in the world — yes, even greater than the right to keep and bear arms. People rarely take up arms against their governments. They could impose a veto on their governments by walking into a bank and demanding their gold.

A gold-redeemable currency was to the economy what the jury system is to courts: a way to veto the lawmakers and law-enforcers. The lawmakers and law-enforcers deeply resent such decentralized authority.

THE ULTIMATE BUREAUCRACY

When you read the sneering comments of the gold-hating, central bank-defending hired intellectuals, know what motivates them most of all: to eliminate the ultimate veto power in the hands of the common man and woman. This is the power to say: “I am cutting off your access to additional fiat money. I am therefore cutting your budget.”

The average person does not think in these terms. He thinks only: “I want gold, not an IOU to gold.” That is all it takes to cut the budgets of the bureaucrats.

When you hear an intellectual attack gold, think to yourself: “A well-paid performer.” Think: “The bureaucrats’ best friend.”

We are losing our liberties to the bureaucrats. There is only one sure defense: cut their budgets. Until central banks are eliminated, simply by revoking their charters and thereby eliminating all of their governmental authority, there is no way to veto the expansion of bureaucracy.

So, if we ever want to recover our lost liberties, we must get the Federal government to take three steps.

Revoke the Federal Reserve’s charter.Repeal all legal tender laws.Enforce contracts, including gold contracts.

Simple! Also nearly impossible . . . until the Federal Reserve visibly ruins the economy.

I trust the Federal Reserve to achieve this in full public view. Why? Because it is the ultimate bureaucracy, for it prints its own money. It sets its own budget. It has almost unchallenged power, yet its employees are not its owners. There are no owners — not owners who can pocket the profits. This is a universal recipe for disaster.

CONCLUSION

The case for gold as money is the case for cutting the bureaucrats’ budgets. It is therefore the case for the restoration of our liberties.

Gary 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.

Copyright © 2010 Gary North