Tag Archives: Nelson Aldrich

How Did It Happen?

Does anyone ever wonder how we got the income tax?  This tax has become so universal, on international, federal, state and even local levels, that it is taken for granted, but few people seem to question its legitimacy, history, or even its purpose.

An internet search suggests a form of “wealth tax” or income tax existed in the Roman Republic, ancient Egypt, and China, but the form we know, usually imposed to finance wars, began in England in 1188, by Henry II, for the “Saladin tithe” to fund the Third Crusade.

In his landmark book, Wealth of Nations, in 1776, Adam Smith, a Scott, suggested even the King of Britain could not get away with an income tax.  Tax on interest or money is difficult to calculate without extraordinary “inquisition” into every man’s private circumstances and “would be a source of such continual and endless vexation as no people could support.”  However, a mere nine years after Smith died in 1790, British Prime Minister William Pitt the Younger formally implemented the income tax, designed to pay for the French Revolutionary War, to purchase weapons and equipment.  It was a progressive income tax and in place between 1799 and 1816, but for a short reprieve following the Peace of Amiens in 1803.  It was reintroduced in Great Britain in 1842 by Prime Minister Sir Robert Peel, who was seeking revenues for the government’s increasing budget deficits.

“A heavy progressive or graduated income tax” is the second major tenet of the The Communist Manifesto, as delineated by Karl Marx and Friedrich Engels in 1848.  The fifth tenet advocates “Centralization of credit in the hands of the State by means of a national bank with State capital and an exclusive monopoly.”

In the United States, President Abraham Lincoln instituted the first US income tax in 1861 to pay debts from his war.  It was repealed by Congress in 1872.

The Socialist Labor Party pushed for an income tax in 1887.  The Populist Party demanded it in its 1892 platform, and the Democrats, led by William Jennings Bryan, advocated for the progressive income tax law passed in 1894.   Called the William-Gorman Tariff Act (Revenue Act), it reduced tariffs and imposed a two percent income tax but only on the top ten percent of earners.  In 1895, in Pollock v. Farmers Loan and Trust Co., the Supreme Court declared the tax unconstitutional, based on the constitutional requirements that taxation be apportioned by a state’s population.

Republican Rhode Island Senator Nelson W. Aldrich, who served between 1881 and 1911, was probably the single most influential individual in creating the financial structure we know today.  As chairman of the Senate Finance Committee–which oversaw bank regulation and monetary policy–he was possibly the most powerful man in the nation from 1898 to 1911. The financial Panic of 1907, (which some believe was engineered by banker and Aldrich friend/business associate, J. Pierpont Morgan) led to the Aldrich-Vreeland Act in 1908, which was designed to make the monetary supply more elastic.  It also established the National Monetary Commission with Aldrich becoming chairman.  As chairman, he led a team of “experts” to European capitals to study their banking practices, and returned as a proponent of a national banking system.  He worked in secret with powerful bankers to develop the “Aldrich Plan,” which eventually formed the basis of the Federal Reserve Act of 1913.  The secret dealings that began in 1910 and led to the creation of the Federal Reserve system is well documented in The Creature from Jekyll Island:  A Second Look at the Federal Reserve, by G. Edward Griffin.

Aldrich, who apparently had a habit of publicly opposing things he wanted, then voted in Congress for the corporate income tax in 1909, claiming this was to insure the personal income tax would not be passed.  Ten years before, he had called the income tax “communistic.”  However, later he and President William J. Taft then agreed that a constitutional amendment would be more effective in overriding the Supreme Court’s objections the 1894 law.  Aldrich claimed he believed the 16th amendment would never be approved.

The relationship between the Federal Reserve System and the new income stream generated by the income tax is not well documented, but it resembles that of the Whiskey Tax and the nation’s first central bank in 1791.  At that time, Treasury Secretary Alexander Hamilton introduced legislation for the whiskey tax on December 13, 1790 and for the central bank the next day, on December 14, 1790.

A common thread in the two bank/taxing schemes was that they gave the federal government the authority, if not the right, to investigate every taxpayer’s personal property and bank accounts searching for infractions, and to seize property it decides has been obtained illegally.  This has set the precedent for the federal invasion into private lives that has become so prevalent today.

In the “Gilded Age,” Nelson Aldrich was well known for his close and unsavory ties to business, by which he had become personally wealthy.  He believed his power base would successfully defeat the income tax amendment.  Indeed, while they were opposed, their solidarity had broken down, so individuals like Andrew Carnegie and John D. Rockefeller (whose son John Jr., married Aldrich’s daughter Abby) formed tax-exempt foundations to shelter their wealth before the tax went into effect.

At that time the income tax was promoted as a “class tax,” with only the upper income earners affected, so the idea of wealth re-distribution appealed to lower income earners.  Only later did President Franklin D. Roosevelt expand the “class tax” to a “mass tax,” according to former IRS historian Shelley L. Davis in her book, Unbridled Power: Inside the Secret Culture of the IRS.

Proponents of the income tax used other arguments, too.  It was proposed as a more reliable method than tariffs for raising federal revenues, and gave President Woodrow Wilson justification for reducing tariffs.  Also at that time the idea of Prohibition was in the air, and advocates of Prohibition recognized the government would lose income from excise taxes on alcohol.

The 16th Amendment reads, “The Congress shall have the 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 was passed by Congress on July 2, 1909 and sent to the states for ratification.

It was supposedly ratified by the requisite number of states by February 13, 1913.  However, there is some question about whether it was ever properly ratified.  In 1985, William J. Benson published The Law that Never Was about the income tax.  Here, Benson claimed that in 1984 he had visited national archives and all 48 state capitals looking for records of ratification.  Not only had he found variations in wording and punctuation from the congressionally approved amendment, but he claimed some states which were certified as ratifying never did or voted against the amendment.  He said only two to four states had ratified as written.

Constitutional amendments require ratification by three-fourths of states.  In 1913, there were 48 states, so 36 would have had to ratify.  Benson found that seven states had not ratified at all.  1913 Secretary of State Philander Knox had claimed Kentucky and Tennessee ratified, but Benson said they did not.  Eight states were reported as having ratified, but Benson found no evidence of it.  Six more states did approve, but the governors or other officials required to sign did not sign.  Twenty-five states violated provisions of their own constitutions in ratification, and 29 violated state procedures.  Twenty-two states changed the wording to ratify, one state changed spelling, and 26 states changed punctuation.   Oklahoma changed the wording to say the opposite of what the amendment said.  Tennessee law required a delay until the next session but ignored it.

The American Law Division of Congress’ Congressional Research Service responded in May, 1985 to Benson’s claims.  “While it didn’t rebut Benson’s factual claims,” it said the amendment had been ratified “because Knox said it had been ratified,” says one internet source.

In 1990 Benson went to prison for tax evasion.  He served 15 months before a federal appeals panel overturned the conviction, saying a government witness had given improper testimony in the 1987 trial.  This occurred less than one month before Benson was scheduled for parole.

Benson’s book caused quite a stir, and he was selling packages based on his book to help individuals fight the Internal Revenue Service.  However, those who have used his arguments have not fared well in court.  Also, Benson himself was the loser in court rulings in 2007 and 2009 that determined his “Reliance Defense Package,” which he sold for $3500 to tax protesters, was fraudulent.

Courts have denied requests for evidentiary hearings and have refused to hear the arguments against the 16th amendment itself, claiming “Secretary Knox’ decision is now beyond review.”

In an interview in 2013, Benson remained an income-tax evader and bragged he has never gone back to prison, despite his continued outspoken crusade against the 16th amendment.

 

 

 

The Creature from Jekyll Island: Notes and Thoughts

bksgriffincreature1994

The Creature from Jekyll Island:  A Second Look at the Federal Reserve
by G. Edward Griffin, first published 1994.
Notes and Thoughts on the first three chapters.

           The Creature from Jekyll Island is astounding in its implications.  It reveals that the money lending game is essentially between banks, with debt fueling the pump.  Powered by individual as well as government debt taken on in  taxpayers’ names, it makes me wonder whether unborn taxpayers can be obligated by federal debt.  Also, if the Fed were abolished, might all this artificial debt cancel itself out?

The book starts with a cameo of a secret meeting on Jekyll Island, Georgia, in 1910 that led to the Federal Reserve Act in 1913.  Nelson Aldrich, Senator from Rhode Island and father-in-law to John D. Rockefeller, Jr., hosted the private rail trip for six other movers and shakers in the banking and finance industries.  These men were to arrive at the train station separately, go by first names only, and say they were going duck hunting.  The regular staff at JP Morgan’s Jekyll Island Club was given a vacation.  Carefully selected others served the men while they were there.

The men were: 1.  Aldrich, who was also Republican “whip” in the Senate, chair of the National Monetary Commission, and a business associate of J. P. Morgan; 2.  Abraham Piatt Andrew, Assistant Secretary of the US Treasury;  3.  Frank A. Vanderlip, president of the National City Bank of New York, the most powerful bank at the time, and representing William Rockefeller and the international investment banking house of Kuhn, Loeb, and Company;  4.  Henry P. Davison, senior partner at JP Morgan Company;  5.  Charles D. Norton, president of JP Morgan’s First National Bank of New York;  6.  Benjamin Strong, head of JP Morgan’s Trust Company;  7.  Paul M. Warburg, partner in Kuhn Loeb and Company, a member of the Rothschild banking dynasty in England and France, and brother of Max Warburg, head of the Warburg banking consortium in Germany and the Netherlands.

When Griffin says the Fed creates money out of nothing, he is not entirely accurate.  Rather, the Fed creates debt out of nothing to lend to Congress and calls it money, because it is backed by congressional promises of future taxpayer earnings (through the income tax, established earlier the same year, 1913).  The incredible credit is then passed off as currency, and no one is the wiser.

Until now.  The lie continues that US taxpayers are obligated by congressional guarantees, but we are not morally obligated to pay that debt.  Unfortunately, since their strategy has included putting everyone on the payroll—in one form or another—everyone is implicated in the scam and terrified of its inevitable unraveling.

Obviously the easiest solution is for individuals to get out of debt.  When debts are paid off, the money vanishes into the red hole it came from, the money supply shrinks, and deflation gives everyone except banks, debtors, and governments—the biggest debtors of all–more buying power.

Griffin gives a good summary at the end of each chapter, thereby simplifying this 600 page tome.

Chapter 1:  “The Journey to Jekyll Island” tells how the skeleton of the Federal Reserve System was worked out at Jekyll Island in 1910 by RI Senator Nelson Aldrich and six other men representing the most powerful banking interests in the Western world.  These included US banks under JP Morgan and John D. Rockefeller; English and French banks under Kuhn, Loeb and Company, representing Rothschild interests in Europe; and Germany and Netherlands banks by the powerful Warburg family.

Author Griffin refers to it as a banking cartel, in which powerful competitors align to prevent other competition and use the government’s police power to enforce their monopoly.  Griffin hints without actually saying that descendants of these five banking dynasties still control the Fed.  These are Morgan, Rockefeller, Rothschild, Warburg, and Kuhn-Loeb.

He says the Jekyll Island meeting had five objectives:  1. Stop the growing competition from the nation’s other banks;  2.  Obtain a franchise to create money through debt;  3.  Get control of all the banks’ reserves so the more reckless ones would not be exposed to currency drains and bank runs;  4.  Get taxpayers to cover the cartel’s losses;  5.  Convince Congress the purpose was to protect the public.

Chapter 2:  “The Name of the Game is Bailout.”  The crucial point is that all the money created through the banking system since the Federal Reserve Act is backed only by debt, primarily by Congress’ obligating taxpayers’ future earnings.  A defaulted loan, thereby, costs the bank little in tangible value.  Therefore, the goal is to continue receiving interest on the loan by lending more (future) money to cover it.  This is especially true with large loans.  With extremely large loans the cartel gets the federal government to guarantee the loan, should the borrower default.  If this tactic fails and the bank is forced into insolvency, the FDIC is used to pay off depositors.  Small banks pay disproportionately for this “insurance” and are least likely to be bailed out, should disaster hit.

Because money is created out of nothing for the purpose of lending, huge sums are dispersed through the economy, devaluing the existing currency and causing inflation.

Griffin does not say that the income tax, passed earlier in the same year, 1913, was the funding source by which the federal government would pay perpetual interest to the Fed on the national debt.  This method mirrored the 1790-1791 creation of the whiskey tax and the nation’s first central bank, a double whammy on taxpayers, devised by Alexander Hamilton and George Washington.  (This from Alexander Hamilton, by Ron Chernow, 2004)

Chapter 3:  “Protectors of the Public.”  This chapter gives multiple examples of previous federal bailouts, beginning with Penn Central in 1970, Lockheed in 1970, the Commonwealth Bank of Detroit in 1974, New York City in 1975, Chrysler in 1978, the First Pennsylvania Bank of Philadelphia in 1979, and Chicago’s Continental Illinois in 1982.  Continental was the first electronic bank run.  It was the nation’s seventh largest bank at the time, with $42 billion in assets, with multiple loans out to high-risk business ventures and foreign governments.  Here the Federal Reserve becomes the “lender of last resort,” meaning it creates money out of nothing to cover, in this case, $4.5 billion in bad loans, and passing costs on to taxpayers in the form of inflation.

And this book has 26 chapters.  Stay tuned . . .