Principles of a Sound Economy and the U.S. Constitution

The Founding Fathers wanted the young American republic after the Revolutionary War to survive and flourish.  They were all extremely well versed in political and economic theory from having read numerous writings from Cicero to Adam Smith as well as having experienced much in terms of practical experience as lawyers and leaders in political and economical spheres of influence.  While some of the Founding Fathers later deviated from the strict policies of limited government and frugal administration that they had originally engineered in the original U.S. Constitution, they all originally shared a common enough vision of the principles that would sail the vessel of their nation past stormy waters and onto safe harbors.  They knew that these principles were timeless and practical and incorporated as many of them as possible into the original U.S. Constitution without making the document too burdensome and less wieldy.

What follows is a quick summary of those principles of sound economic policy as outlined in the U.S. Constitution.  Much of the information contained herein has been obtained from W. Cleon Skousen’s seminal work on analysis of the Constution in light of modern times entitled  “The Making of America, The Substance and Meaning of the Constitution.

A-What principles in the original U.S. Constituion promoting a healthy economy have been since perverted?
    1-Government spending limited to:
       a-Common defense and general welfare (Article 1.8.1).  Originally this clause was meant to limit spending, but was perverted to promote spending.  As Skousen outlines, this unintended interpretation began as early as when Hamilton became Secretary of the Treasury and grew in strength with the successive precedents set by the Supreme Court in the following cases:
          i)Butler Case of 1936 (Expanded the powers of Congress to tax and appropriate such taxes beyond the limitations originally defined by relaxing what general welfare implied.)
          ii)Social Security Case (This case began unhealthy precedent of the federal government  violating the Tenth Amendment by preempting state tax jurisdictions.  In light of this case, it is very likely that state initiatives towards mandating health care insurance at the state level would be only temporary before the federal government preempts state jurisdiction once again.)
          iii)Oklahoma v. Civil Service Commission (Supreme Court encouraged the shady practice of the federal government using money as a tool of coercion by making grants-in-aid to states conditional upon their compliance with the federal will.)

    The original intention of Article 1.8.1 is explained in the following quote from Skousen:

Thomas Jefferson explained that this clause was not a grant of power to “spend” for the general welfare of the people, but was intented to “limit the power of taxation” to matters which provided for the welfare of “the Union” or the welfare of the whole nation.  In other words, federal taxes could not be levied for states, counties, cities, or special interest groups.

Madison supported Jefferson’s view that this clause restricted the taxing power to matters which provided support for the national government in carrying out its assigned responsibilities.

    b)Lawful appropriations (Article I.9.7) which states:

7. How public money is drawn.  No money shall be drawn from the treasury but in consequence of appropriations made by law; and a regular statement and account of the receipts and expenditures of all public money shall be published from time to time.

2)Government should adhere to only issuing money that has value independent of a government’s authority, e.g. adhering to the gold standard where paper monies were basically certificates of precious metals deposited in banks.  This eliminates the hidden indirect tax of inflation whereby governments generate revenue by printing more money without more precious metal to back it.  Article I Section 10, clause 1 of the Constitution forbids the states from issuing bills of credit or making anything but gold and silver coin a tender in payment of debts.  While some argue that the gold standard limits and ties the economy to the supply of precious metals, history has shown that responsible lending of credit by banks and other financial institutions can expand the money supply without government intervention.  When disaster has struck under the gold standard, it has been due to widespread bad or irresponsible lending practices.  The people of a nation are no less victims of abuse under a fiat money system to such bad lending practices as is evidenced by the current banking crisis revolving around the collapse of the real estate bubble and subprime mortgages.

3)Government shouldn’t interfere with the free market system except in prosecuting cases of fraud, extortion or other corrupt business practices.

    a)Unfortunately the government has promoted the Marxian-socialist fears of big business along with the misguided notions that the economy can be improved by central direction instead of the time-proven and morally correct hands off approach of letting the people and the markets run themselves except for criminal prosecution.  The fear of big business is misguided since bigness, while often bad in governments, is often beneficial in businesses, where economies of scale often allow cheaper production and therefore prices.  Excessive fear of monopolies (except ironically government monopolies which the government would never label as such) has often led to the hasty persecution of big businesses despite evidence of healthy competition in the markets those big businesses produce for.

    b)Allow infinite variety of products in the market.  Let the people’s vote with their dollars determine the demand and supply.  Don’t artificially regulate the supply and thereby limit the choice as has been done by socialist parties.  Skousen mentions in his book “The Making of America” how the British Labor Party tried to do this with cheese which “contributed to its defeat in the 1951 elections.  Today in America the Democratic party (which has become the party and haven for Marxists and Socialists) is encouraging such limitations of the market supply in various realms such as the automobile industry under the guise of environmental regulations.  When one considers how much cleaner automobiles are now than they were even ten years ago, and how ridiculous some of the proposed gas mileage and emissions requirements are, it becomes more obvious that such regulations are merely excuses to limit the consumer in the type of automobile they drive.  It would be funny and very close to the truth if some cartoonist were to depict Fred Flintstone “driving” one of his foot powered cars and having Barney Rubble ask him why he had to power his vehicle by foot.  Fred could then honestly reply: “Ever since Nancy Pelosi and the Democrat majority have pushed through all the regulations on cars, I can’t afford anything but foot power!  This Marxian socialists bent to limit the variety of the market supply is explained by Skousen:

In socialist countries the government continually intervenes to discourage or prohibit the “deployment of valuable resources” in unnecessary “duplication” of products already available on the market.

4)Taxes should be fair.  
    a)Direct taxation if necessary, should be directly proportional to representation (based on population).
    i)The tying together of taxation with representation balances out (cancels) their opposing tendencies (think yin-yang) towards abuse as explained by Madison:

“In one respect, the establishment of a common measure for representation and taxation will have a very salutary effect.  As the accuracy of the census to be obtained by the Congress will necessarily depend, in a considerable degree, on the disposition, if not the co-operation of the States, it is of great importance that the States should feel as little bias as possible to swell or to reduce the amount of their numbers.  Were their share of representation alone to be governed by this rule, they would have an interest in exaggerating their inhabitants.  Were the rule to decide their share of taxation alone, a contrary temptation would prevail.  By extending the rule to both objects, the States will have opposite interests which will control and balance each other and produce the requisite impartiality.

    ii)The 16th Amendment gravely affected the fairness of taxes and led to the dreaded income tax that should have been repealed after the war was over.  This tax oppresses so many today and promotes the socialist principle of stealing from the rich and forced wealth redistribution that discourages honest hard work and self-improvement.

5)Government should be directly accountable to the people for its spending.
    a)All bills for the raising of revenue shall originate in the House of Representatives. (Article I.7.1).
    b)There should be a public accounting of money spent (Article I.9.7)

6)Government salaries should be limited (Article I.6.1).


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