Think of Ellen Brown in front of a jury. The opposing counsel tells the jury that point four in her 52-point presentation was not true. In response, she says: (1) "I never said it"; (2) "Besides, it's true."
She did say it, and it isn't true.
The point in question is colonial taxation at the province level in pre-1755 Pennsylvania. This example is crucial for her book's main thesis. Her book argues that it is possible to avoid Federal income taxes, debt, and inflation by having the Federal government issue unbacked paper money: Greenbacks. She never explains why only the Federal government has this ability to create wealth out of paper and ink. Why not all levels of government? I shall cover this in detail later in this article.
She said in her book that colonial Pennsylvania achieved this goal: avoiding having to impose taxes. How? By issuing fiat money. Problem: it was a mere colony. There was no national government. If a colony has the right to avoid taxation by issuing fiat money, why not a state? A county? A city? She needs to offer an explanation. She never does.
In any case, her historical example does not hold up. That was what I argued in my article. Here is her response:
4. Colonial Pennsylvania avoided taxes by issuing paper money.I did not say that. You have mischaracterized my statement, and your link does not show that they paid any taxes.
So, she insists, she did not say this. Did not say what? She doesn't say. So, she insists, I have "mischaracterized" her statement. In what way did I "mischaracterize" her statement? She doesn't say.
Here is what I wrote:
Ellen Brown makes this amazing claim:From 1723 until the French and Indian War in the 1750s, the provincial government collected no taxes at all. The loan office was the province's chief source of revenue, supplemented by import duties on liquor. During this period, Pennsylvania wholesale prices remained stable. [Web of Debt, p. 39]
What do you make of her statement here? Did she say that the government collected no taxes? Yes. "From 1723 until the French and Indian War in the 1750s, the provincial government collected no taxes at all." Did she contradict this in the next sentence? Yes. "The loan office was the province's chief source of revenue, supplemented by import duties on liquor."
Here is what I wrote in my original article.
Second, there were import duties. Import duties are sales taxes on imported goods. She says these revenues were supplemental. She offers no evidence.
I listed several other mistakes in her analysis. This was my final point:
Seventh -- not a mistake, but deadly for her theory of sovereign money issued by the government -- these paper bills were not legally money. She relies on Alvin Rabushka's 2004 article, "Representation Without Taxation," to make her case. But Rabushka was clear: "From a legal standpoint, colonial paper money was not official paper money. The British government did not allow colonial governments to issue official paper money, mint coins, or even establish local note-issuing private banks."
THE CENTRAL THESIS OF HER BOOK
She used the example of pre-Revolutionary colonial Pennsylvania as an example to support her thesis that government-issued paper money is (1) a substitute for taxation and (2) noninflationary. Here is what she wrote:
The Pennsylvania faction favored a bank on the model established in provincial Pennsylvania, where a state loan office issued and lent money, collected the interest, and returned it to the provincial government to be used in place of taxes. [Web of Debt, p. 8]
As I showed in my original article, the expert whom she cited about colonial Pennsylvania's land loans, economic historian Alvin Rabushka, expressly denied that these loans were money. This leaves her out in the cold. She cited no other example in all of human history of a government that used fiat paper money in lieu of taxation. This was her only proof. This proof collapses as soon as it can be shown -- and it was -- that the land office loans were not money.
Here is what I wrote in my original article:
But this example does not support her case. It was not legally money, and eventually there was inflation from the issue of these loans. For Greenbackers, money that is not lawful money -- issued by a government -- is not money, as she argues constantly. This example disproves her thesis, for this was not lawful money.
She is quite clear in her book about colonial Pennsylvania before 1755. First, the loan office lent money. (It didn't; the bills were not money.) Second, interest was collected. (Red alert! Red alert! These were loans! Interest was paid! Interest is therefore both legitimate and normal!) Third, these interest payments substituted for taxes. (Then what does the word "supplemented" mean, as in "The loan office was the province's chief source of revenue, supplemented by import duties on liquor.")
Let me spell this out in greater detail. Here is her book's revolutionary thesis.
In the happy ending to our economic fairy tale, the drought of debt to a private banking monopoly is destroyed with the water of a freely-flowing public money supply. Among other salubrious results, we the people never have to pay income taxes again. [Web of Debt, p. 417]
This is "something for nothing." This is utopianism with a vengeance. How do pieces of paper with dead politicians' pictures on them create wealth for the government -- but for no other agency? Why is private counterfeiting not able to do this? Why is printing money by states, counties, and cities not equally productive? Why should we be forced pay state, county, and city taxes, when pieces of paper create wealth? What is it in economic theory that limits this miracle -- something for nothing -- the the national government?
She says that only the national government has the right to issue fiat Greenbacks, thereby creating wealth out of paper and ink. She says it, but she does not offer any economic theory to justify this restriction.
In the interest of preserving a single national currency, state and local governments would not be able to issue new Greenbacks to fund their programs (although they could issue other forms of credit, such as tax credits for fuel efficiency; see Chapter 36). However, the federal government could extend its largesse to state and local governments by offering them interest-free loans for worthy projects. [Web of Debt, p. 432.]
In her book, she argues that the Federal income tax can be eliminated by means of Greenbacks issued by the Federal government. Nevertheless, she insists that the Federal government can buy anything it wants merely by printing up pieces of paper. She does not say that the government can buy only some of the things that it wants, forcing it to impose taxes to purchase the rest of the things that it wants. She states specifically that the government can buy everything it wants with Greenbacks.
If the Federal Reserve were made what most people think it now is--an arm of the federal government--and if it had been vested with the exclusive authority to create the national money supply in all its forms, the government would have access to enough money to spend on anything it needed or wanted. [Web of Debt, p. 425]
On the same page, she hints at the broader implication. "Would that be enough to replace income taxes? How about other taxes?" But her chapter never actually answers the second question: "How about other taxes?" Nevertheless, the logic of her initial statement is clear: "The government would have access to enough money to spend on anything it needed or wanted." No more taxes!
Here is how she introduces her book's thesis.
The federal debt could be paid, income taxes could be eliminated, and social programs could be expanded; and this could all be done without imposing austerity measures on the people or sparking runaway inflation. Utopian as this may sound, it represents the thinking of some of America's brightest and best, historical and contemporary, including Abraham Lincoln, Thomas Jefferson and Benjamin Franklin. [Web of Debt, p. 3]
As I proved in this series, this view of paper money was rejected by Lincoln, Jefferson, and Franklin.
CONCLUSION
Her example of pre-1755 colonial Pennsylvania is the only example in her book of a government that issued paper money instead of collecting taxes. She says of no other government that it explicitly substituted fiat paper money for taxation. But the Pennsylvania example does not hold up, because:
1. The land loans were not paper money.
2. There were no income taxes in colonial America.
3. The colony collected other taxes.
This leaves her book's central thesis without a single historical example.
I am not saying that fiat paper money does not substitute for taxation. I am saying that it is just another form of taxation. Monetary inflation is a tax. She argues that fiat money issued by a national government is not price inflationary. But it is; even when prices in general (a price index) do not change much, they would have dropped, had the fiat money not been printed and spent by the government. Wholesale prices fell in the United States from 1879, when the full gold coin standard was re-introduced, to 1914, when the Federal Reserve went into operation.
Ellen Brown does not understand economics. She also does not understand what she reads. She did not understand Alvin Rabushka when he said that the land office loans were not money. She did not understand my original article.
When a self-proclaimed expert in economic theory and economic history cannot follow simple arguments in price theory and economic history, that person is not an expert.
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