It Is Dangerous to Be Right When the Government Is Wrong

by Andrew P. Napolitano

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  Conclusion

  It should be pretty self-evident that neither Alan Greenspan nor Ben Bernanke, or any Fed chairman, can be trusted to achieve full employment and currency stabilization. Throughout the life of the Federal Reserve, we have seen American production diminished, debt rise, inflation wreck people’s savings, the boom-and-bust cycle wreck the economy, a widening gap between the rich and the poor, and the value of the dollar drop by 93 percent.

  Fed supporters have all sorts of explanations and reasons for these occurrences; but it is no coincidence that from 1870 to 1913, while on a strict gold standard and without a central bank, the American economy grew larger and more rapidly than any other economy in the history of the world, and from 1913 to the present, we have seen our economy fight through years of booms and busts, our living standards decline, and our cost of living increase. This should make it pretty clear that Alan Greenspan’s NYU education, as well as Ben Bernanke’s Harvard and MIT education, is not worth its weight in gold. When economic growth, prosperity, wealth, safety, and happiness are the goals, nothing can replace the gold standard.

  If the U.S. federal government were on a strict gold standard, with a 100 percent reserve ratio, there would be absolutely no way to fund these assaults on the Natural Law, such as wars, welfare programs, and regulatory schemes. We would be forced into having a sensible foreign policy of peace, free trade, and a strong national defense that focused only on legitimate threats. The size of the government would be forced to shrink, allowing us all to keep more of our natural freedoms. People would be left to make the decisions that affect only their life, liberty, and property. We would have sound reasons why we shouldn’t go to war, instead of making excuses to go to war, and our men and women in the military would not be needlessly risking their lives. Government would also have to stop making excuses to bail out “too big to fail” corporations, and stop the excuses for why we need this social program or that social program. The government would be forced to stop its assaults on our savings, our economy, our safety, and most importantly, our natural rights and liberties.

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  This is why the government must stop abusing everyone’s natural right to sound money.

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  Chapter 13

  Theft by Any Other Name:

  The Right to Spend Your Own Money

  Suppose someone with a gun approaches you as you are getting out of your car. “Your car or your life,” he demands. Of course, you give him the keys and walk away. Is this theft? Or is there something that makes it different from theft, that is, a justified violation of your inherent property rights? All of us would say that it is theft, and the person who did this should be punished by the full force of the criminal law.

  Would you, however, change your answer if, instead of one, a gang of five men forcefully take your car? Now assume that ten approach you, all armed, but this time they put it to a vote, including you in the vote as well. You, however, are quickly outvoted ten to one, and only then do they take your car. Is this still theft?

  What if, after taking your car, they give you a bicycle instead, and they give the car to a person who is particularly poor and needs it to get to work? What if they erected a street lamp in the parking lot, and claimed that they were justified in taking your car because you had enjoyed the benefit of the street lamp by parking there? What if there are one hundred men? Ten thousand? One or two million? What has to change before this forceful taking of your property is no longer theft?

  Because taxation is compulsory, and therefore a forceful taking of your property, we may assume that it is a malum in se—an evil in itself. The question then becomes whether there is some valid justification for it. As we shall see, no such justification exists, and therefore taxation violates natural property rights. That taxes are all justified by some subjective public necessity is an outright lie, which we quite literally can no longer afford to believe. As we have just seen, the two other means government uses to finance itself—the issuance of public debt and printing of money—are simply theft by another name and are even more dangerous than taxation. Does the government exist to protect our freedoms, or do we exist to serve the government?

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  The real tragedy of public finance is that it acts as the great enabler for all of government’s most tyrannical actions. How could wars be fought without money? How could we give aid to corrupt regimes without a source of revenue? As Frank Chodorov, a well-respected critic of taxes, warns, “We cannot restore traditional American freedom unless we limit the government’s power to tax. No tinkering with this, that, or the other law will stop the trend toward socialism.” If we are really, truly committed to the cause of liberty, then we must cut off tyranny at its source: Public finance.

  The Evil of Taxation

  The basic evil of taxation is that it degrades the individual by flouting his natural rights. Taxation in essence establishes a legal right on the part of the government to your property and the product of your labor, a right which precedes and trumps your own. The government’s claim of right, however, extends to all of your property, not just what it actually takes; otherwise, it would not be able to raise taxes whenever it chooses. Consider in this regard the text of the Sixteenth Amendment, passed in 1913: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” It is clear from the text itself that there are no constitutional restrictions on what Congress may take (unlike the original Constitution). Thus, whatever portion of your own property it declines to take is simply whatever it, in all of its infinite professed wisdom and charity, decides you may keep. Our retained income has become not a right, but a privilege granted by government. This scheme is one of the fundamental legal precepts of socialism: The government decides what it will take from you and what you may keep from it.

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  This is also the strictest application of Positivism: If the government can say when our natural rights protect us from aggression and when they do not, then there can be no such thing as natural rights. This tenuous, subjective nature of our rights is itself reflected in the distinction between taxation and theft. Theft does not mean a taking of your property, but whatever the government determines to be an unlawful taking of your property. Thus, the contemporary understanding of theft extends from lawmakers, and not the Natural Law or any ethical principle. Although natural rights and taxation could theoretically be reconciled if free choice was somehow involved, as we shall see, it is in the nature of Big Government that this will always be an unattainable ideal.

  Because natural, inalienable rights are transgressed, the people become subhuman by losing free will. One of the most important property rights is the right to choose how your property is used. If the state is able to take property and allocate it to a different use than the individual would have chosen, then the will of the individual is servile to the will of the state. Even if the entire value of the labor you produced is returned to you in the form of governmental services, you have still lost the freedom to choose what should be done with that value. Although the economic consequences of enabling centrally planned investment and spending decisions are disastrous (not to mention the disincentive to labor caused by the reallocation of income), the real tragedy is the cost to human liberty.

  Given this inextricable link between property and freedom, it should not be surprising that one of the major civil rights statutes during the Reconstruction era gave African Americans a right “to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens.” In other words, emancipated African Americans could never truly be free unless they had the same rights as whites to be free from interference with their property. Anything less would be a variant of slavery. Why should we now forget these lessons and expose all of our property, and our temporal welfare, to the governmen
t’s voracious appetites?

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  So why do we acquiesce to the government taking our property? The answer to that question is wherein the true evil of taxation lies. It slowly convinces the people over time that its subversion of their natural rights is good for them. When our car is stolen by one person, we feel a sense of moral outrage because we know that what happened to us was wrong. However, when we are taught that it is acceptable if the theft of our car is committed by a democratic majority, it institutionalizes a mode of thought that the individual is a servant of the state, clamoring for some small share of its limited resources. In short, as the government sees us, we exist to support it, not ourselves. How better to define slavery?

  The Democratic Majority and the Oxymoron of a Progressive Tax

  The fact that the public need for taxation was decided upon by a democratic majority, instead of a dictator, should make no difference. After all, recall our “how many men” hypothetical. How many men are needed until it is no longer theft? Similarly, how much of a majority should be required, until the will of the individual can be trumped and the trump considered moral? Fifty-one percent? Seventy-five percent? Everyone but you? The fact of the matter is that, as far as a transgression of natural rights is concerned, the difference between a dictator and a democratic majority is not only meaningless, but hopelessly subjective. The only cogent distinction is that in a democracy, more of your neighbors desire to take your property than in a dictatorship.

  Consider also that when taxation is called for by a majority, it becomes precisely the instrument of tyranny over a minority. That is the identical tyranny that the Founders had witnessed firsthand and sought to prevent by creating a federal system of government. Consider the following. All of us would certainly favor a system whereby we could “purchase” services—say education, for example—for less than they are actually worth; this is simply the human as a rational actor. The problem is that one group will necessarily be paying for this “windfall” that the other group enjoys; all costs must be eventually borne by someone. In a normal market, this unfair result is prevented by a number of laws which prohibit the taking of value by any means other than voluntary transfer. Stated in other words, these laws ensure that the value we get from consuming a good is commensurate to the cost we actually bore in acquiring it.

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  In a democracy, however, the majority can hijack the coercive power of the state in the form of taxation effectively to sell itself services at a discount, with the discount being footed by the minority. To illustrate this point further, consider a democracy solely made up of a majority of baseball fans and a minority of curling fans. If the baseball fans grew tired of paying for tickets to go see their favorite team, they could demand that the government provide this service, and pay for it by imposing a tax on everyone. Because the total cost of maintaining a baseball team is spread across both groups, baseball fans are now enjoying a windfall; they pay less in taxes than the value they get from going to see a game. This difference is, of course, being made up for by curling fans. In other words, by imposing a tax, baseball fans have effectively sold themselves a service at a discount and stolen from curling fans. As Frédéric Bastiat once said, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”

  It should be clear that the principal problem is not that the government is attempting to provide services, but how it chooses to finance the provision of those services. With coercive taxation necessarily comes this theft. By contrast, if the government possessed no coercive power and services were instead financed by user fees, the government would simply be the same as any other private enterprise in the economy, and no theft would occur.

  This reveals taxation for what it really is; simply another form of majority rule cleverly disguised as government initiative, by which one group can live off of another. That this system of taxation simply functions as another instrument of factionalism and wealth transfer, should be clear.

  A similar tendency can be seen in long-term changes in American tax rates. Income tax burdens on both median-income families and the highest earning 1 percent (who possess the greatest amount of political power relative to their numbers) have declined since 1960, whereas tax rates on relatively high-earning individuals have risen. How could this be anything less than one tax bracket (i.e., socioeconomic class) waging war on the other vis-à-vis the political system? Whatever happened to the principle that government is not supposed to recognize castes? Is it any more sensible to have a rule that you can recognize castes, so long as the better-off castes are treated more harshly? The Declaration of Independence (codified as federal law, no less) says that “all Men are created equal,” not “all Men are created equal in civil, but not economic, matters.” This was no mistake. It is no more fair or equitable that a majority could live off of a wealthy minority, than a minority of feudal lords could live off of the labors of a majority of vassals. And today, 47 percent of American households do not pay any income tax.

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  Breach of the Social Contract

  The justification for taxation is typically that, as part of the social contract, we agree to pay money in exchange for governmental services. If, however, some sort of contract exists between the government and the individual to pay taxes, then it is fitting to analyze it in light of other contract principles, particularly the common law requirement that contracts entail a bargained-for exchange, be made by willing parties, and must have good faith at their essence. Certainly, the government shouldn’t be exempt from these rules, which centuries of legal history have taught us are necessary for an agreement to be fair and just. If the government were exempt, then that would itself be an open admission that the social contract is neither fair nor just, certainly a conclusion which critics of libertarianism would be loath to admit. Any contract, as to which a contracting party lacks good faith and voluntary choices, is no contract at all.

  In essence, the social contract argument says that we agree to pay taxes in exchange for government services, such as defense, roads, and insurance against times of hardship (in the form of welfare); a sort of quid pro quo between the government and the individual. In support of the fairness of this exchange, critics say that if one were to reject it by refusing to consume any government services, life would be unpalatable indeed. One could not use roads, enjoy the protection of the police; not even use money to pay for goods and services. And surely we also benefit indirectly from other forms of spending, such as grants to universities to research and develop socially beneficial technologies. Let us pick apart this argument piece by piece.

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  One of the central features of contract law is that there needs to be a bargained-for exchange, or in other words, that we are getting something in return for what we give. What is the purpose behind this requirement? It is simply not fair to compel someone to give something up when he is getting nothing in return. It is a hopeless myth that we receive governmental services proportionate to what we pay in taxes. Consider parents who choose to send their child to private school, or the majority of Americans who are not parents of school-age children. They still must pay taxes to support the public school system, even though they receive nothing in return. There is clearly no exchange there.

  But, a critic would retort, they are receiving the benefit of living in a more educated society. If this is how we define the benefit, then the parents who do choose to send their children to public school are getting a windfall, paid for in part by the parents who send their child to private schools and by taxpayers who do not have school-age children. Moreover, the law does not recognize such tenuously defined exchanges. If you decided to give your friend a watch as a gift and changed your mind and kept it at the last moment, it is unfair to force you to give up the watch on the grounds that “you are getting the benefit of living in a society that can tell time better.” It is clear that that argument is simply trying to circumvent the requir
ement of a bargained-for exchange and convince someone that the transfer is something it is not.

  More fundamentally, the taxation-as-a-social-contract argument fails on the grounds that it is not voluntary. You must pay taxes whether you like it or not, or suffer the consequences of the criminal law. Critics, however, say that it is unethical to receive benefits and then not pay for them, which is certainly true. Thus when you use roads, you voluntarily agree to pay taxes. However, this justification for taxation must fail. First of all, there is no way to avoid all of the benefits which the government provides, such as the safety ensured by the existence of a military. Thus, you cannot be said to accept those benefits willfully. Second, the government has a legal monopoly over the provision of many of its services, and thus it is unfair to require people to go without those services if they disapprove of the “exchange.” This would be similar to someone draining all the water on your land, and then trying to sell you water at an inflated price. This exchange could not be said to be voluntary; the alternative is to die of thirst.

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  Finally, contract law imposes a requirement that parties execute their contractual obligations with good faith. Thus if I enter into a contract with you to purchase cars, and there is a clause which allows me to void the contract if the cars are not fit for use, I cannot get out of my duty to purchase from you if I find one small mark on the inside of one car’s bumper. If there is any agreement between the individual and the government to pay taxes in exchange for governmental services, then the Constitution imposes a requirement that the government only make those expenditures which are “necessary and proper” to achieve its enumerated powers. When the government flouts this requirement, as it does when it spends $4.8 million in tax dollars to study bears’ DNA, it has breached the social contract. Additionally, many of the “public necessities” at which spending is directed were caused by the government itself, such as war and recessions. This also violates the doctrine of good faith, and amounts to a breach of the social contract.