The Six Pillars of America's Welfare-Warfare State
Ye shall do no unrighteousness in judgment: thou shalt not respect the person of the poor, nor honor the person of the mighty: but in righteousness shalt thou judge thy neighbour (Leviticus 19:15).Thy silver is become dross, thy wine mixed with water (Isaiah 1:22).
Honour thy father and thy mother: that thy days may be long upon the land which the Lord thy God giveth thee (Exodus 20:12).
The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth (Psalm 37:21).
The first two pillars were laid in 1913. Four additional pillars were laid between 1933 and 1971. These constitute the essence of the American welfare-warfare state. Without these six pillars, the United States of America would be governed by a limited central government that is consistent with the Bible and also 19th-century classical liberalism.
National governments pay for whatever they buy by means of three revenue-collection devices: taxation, borrowing from the general public, and borrowing from a central bank, which creates the money out of nothing. Without the ability to collect taxes, governments could not borrow money from the general public. This leaves the central bank.
This is why the key pillars of the welfare-warfare state are the ability to tax and the ability of the central bank to purchase the debt of the government.
THE WELFARE STATE
The heart, mind, and soul of the welfare state is a violation of this fundamental principle of biblical justice: equality before the law. The essence of the rule of law is found in Leviticus 19:15. "Ye shall do no unrighteousness in judgment: thou shalt not respect the person of the poor, nor honor the person of the mighty: but in righteousness shalt thou judge thy neighbour.
The legal theorist and Austrian School economist, F. A. Hayek spelled out the implications of the principle of equality before the law. Whenever this principle of equality before the law is enforced by civil government, there will inevitably be economic inequality.
From the fact that people are very different it follows that, if we treat them equally, the result must be inequality in their actual position, and that the only way to place them in an equal position would be to treat them differently. Equality before the law and material equality are therefore not only different but are in conflict with each other; and we can achieve either the one or the other, but not both at the same time. The equality before the law which freedom requires leads to material inequality. Our argument will be that, though where the state must use coercion for other reasons, it should treat all people alike, the desire of making people more alike in their condition cannot be accepted in a free society as a justification for further and discriminatory coercion. (The Constitution of Liberty [University of Chicago Press, (1960)], p. 87.)
The essence of the welfare state is this: the coercive power of civil government is used to redistribute wealth from one group to another group. The intellectual and political defenders of the welfare state call for greater economic equality, meaning equality of economic outcomes. They do not admit publicly that what they are necessarily calling for is a violation of the rule of law. They do not discuss the implications of the use of civil law to penalize economically successful people by transferring a portion of their wealth to less successful people. They do not openly call for the violation of the principle of equality before the law. They do not come before their followers and undecided voters with this announcement: "We stand steadfast against the principle of equality before the law." Yet this is exactly what they do stand for. This philosophy of law is encapsulated in this slogan: "different strokes for different folks."
The fundamental judicial principle of the Progressive movement in the United States has always been this: inequality before the law. The Progressive movement has gone through several iterations, but the essence of it began in the late 19th century. We can trace the history of this movement in terms of six judicial pillars: (1) the graduated income tax, (2) the Federal Reserve System, (3) the abolition of the right to own gold, (4) the Social Security system, (5) Medicare, and (6) the abolition of the gold exchange standard.
1. THE GRADUATED INCOME TAX
This took a constitutional amendment: amendment 16 (1913). The public overwhelmingly voted to ratify this amendment, but the ratification process was legally flawed. It violated the rules governing constitutional amendments. This was made clear in the two-volume book: The Law That Never Was (1985) by Bill Benson and Red Beckman. The book has always been rejected by mainstream scholars, but it has never been refuted.
From the beginning, there was a graduated tax structure. It was minimal in the first year.
The typical American earned under $600 a year in 1910. Thus, almost no families paid any federal income tax.
World War I changed all this. In 1918, every wage earner was required to pay 6%. The graduated rate kicked in at $4,000: 12%. It continued upward to a million dollars: 77%. The rates are here.
The top rate peaked under Pres. Eisenhower at 91%. Of course, the rich had loopholes. They paid on average around 42%. But the voters were content with believing that the rich paid far more -- just as they are today.
The graduated income tax is the politics of envy. It is the belief of the broad mass of voters that the rich should pay a higher percentage of their income than the poor pay. The result over the last 12 decades has been a system in which the middle class pays a higher percentage of their income to the federal government than the rich do.
God is not mocked.
2. THE FEDERAL RESERVE SYSTEM
The Federal Reserve Act was signed into law by Pres. Woodrow Wilson on December 23, 1913. This created the third central bank of the United States. As with the previous two, it was owned by rich private investors and private banks. It was granted the sovereignty over money in the United States, as were the first two.
The primary function of the FED is rarely mentioned: to provide protection from bankruptcy of the largest banks, located mostly in New York City.
The Gold Standard Act of 1900 defined the dollar in terms of gold: $20.67 per troy ounce 90% pure. This served as a limit on the expansion of money by the FED. Anyone could present dollars at a bank and buy gold at this fixed price.
The Federal Reserve was created officially in order to stop any future bank panics. But, under the guidance of the FED, there was a major recession in 1921. Then came the Great Depression: 1929-1940.
The purchasing power of the United States dollar has been reduced by the Federal Reserve-protected fractional reserve commercial banking system by approximately 98%. In order to purchase $1,000 of goods and services that someone could have purchased in January 1915, it would have taken $27,000 in July 2021.
"Thy silver is become dross" (Isaiah 1:22a).
3. FDR CRIMINALIZES GOLD OWNERSHIP
Pres. Roosevelt was sworn in as president at noon on March 4, 1933. At 1 AM on March 6, he issued an executive order that criminalized the ownership of gold by any American citizen or resident of the United States. He also closed all of the banks for two weeks. The Supreme Court later upheld this in a 5 to 4 decision.
This enabled the Federal Reserve and the banking system to expand the money supply in order to fund government projects. The money supply did not increase, however, because people continued to withdraw money from banks. Only when the FDIC and the FSLIC were established in 1934 did bank runs cease. From then on, the central bank could expand the money supply without reference to gold withdrawals by Americans. The bank only had to worry about withdrawals by foreign central banks. The gold reserve for the dollar was cut to 25%.
4. SOCIAL SECURITY
In 1935, Pres. Roosevelt signed the Social Security Act. This law promised Americans that they would receive pensions. They would pay a minimal amount of money every year to secure these future pensions. Initially, individuals paid up to $30, and their employers paid up to $30. The money was insufficient to pay off the promises of the pensions. The pensions would always be paid off by current taxation, not by investments in profit-seeking enterprises.
The estimated unfunded liabilities of the Social Security system in 2019 were in the range of $43 trillion, according to Prof. Laurence Kotlikoff of Boston University. This is growing steadily.
The federal government now provides the support that families provided prior to 1935. The money is collected from salaried workers. It is distributed by computers. There is no family connection between workers and beneficiaries.
"Honour thy father and thy mother: that thy days may be long upon the land which the Lord thy God giveth thee" (Exodus 20:12)
5. MEDICARE
Pres. Lyndon Johnson signed the Medicare bill into law in 1965. This was done in the form of amendments to the Social Security System. As with the Social Security law, no money was put aside in profit-seeking investments to fund the costs of universal health coverage for every American over the age of 64. Today, approximately 10,000 people become part of the Medicare program every day. In 2019, the government paid on average $13,879 per enrollee. This figure rises every year. In 2012, it was about $12,000 per year.
In 2019, Kotlikoff estimated the unfunded liability of Medicare at $179 trillion. But since then, benefits have risen. The deficit is larger.
Combined, the unfunded liabilities of Social Security and Medicare are $239 trillion.
There will be a great default.
"The wicked borroweth, and payeth not again" (Psalm 37:21a).
6. NIXON CLOSES THE "GOLD WINDOW"
On the evening of August 15, 1971, Richard Nixon issued an executive order that ended the right of foreign governments and foreign central banks to purchase gold from the United States government at $35 an ounce. This ended what was known by economists as the gold exchange standard: the U.S. government's gold liabilities, but without coins owned by private citizens. It ended the Bretton Woods agreement of 1944. It broke the promise of the U.S. government. "Gotcha!" He did to foreign governments what Franklin Roosevelt did to the American people.
This executive order removed any restraints on the Federal Reserve System to expand the monetary base by purchasing the debt of the United States government. There would be no further threat of the depletion of America's gold reserves as a result of foreign central banks and governments demanding payment in gold, as promised in 1934, for $35 an ounce.
This led to what became known as the stagflation of the 1970's. According to the inflation calculator of the Bureau of Labor Statistics, in order to purchase $1,000 worth of goods and services in August 1971, it would have taken $6,691.25 in July 2021.
CONCLUSION
These six pillars of the welfare-warfare state enabled the United States government to fight two world wars, the war in Korea, the Vietnam War, and all of the many wars since the resignation of Richard Nixon in August 1974.
These six pillars also enabled the federal government to continue to pay over half of its budget each year to Social Security and Medicare.
At some point, there will be a great default. The unfunded liabilities of Social Security and Medicare will overwhelm the ability of the federal government to honor its promises to voters. That will be a day of political reckoning.