Chapter: 11

Political Democracy in America

“With all [our] blessings, what more is necessary to make us a happy and a prosperous people? Still one thing more, fellow-citizens—a wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicities . . . Sometimes it is said that man cannot be trusted with the government of himself. Can he, then, be trusted with the government of others? Or have we found angels in the forms of kings to govern him? Let history answer this question.”

—President Thomas Jefferson, First Inaugural Address (1801)

“This American government—what is it but a tradition, though a recent one, endeavoring to transmit itself unimpaired to posterity, but each instant losing some of its integrity . . . This government never of itself furthered any enterprise, but by the alacrity with which it got out of its way. It does not keep the country free. It does not settle the west. It does not educate. The character inherent in the American people has done all that has been accomplished; and it would have done somewhat more, if the government had not sometimes got in its way.”

—Henry David Thoreau (1849)


According to Alexis de Tocqueville: “A democracy . . . can only exist until the voters discover that they can vote themselves largesse from the public treasury.” 1 Unfortunately, the history of the United States of America suggests that Tocqueville may have been correct.

This chapter traces the evolution of political democracy in the United States of America from the early 21st century all the way back to its source in the revelation of Thomas Paine’s inspirational ideas on human freedom in his essay entitled Common Sense (1776) – ideas that are restated in the Declaration of Independence issued by the American Continental Congress on July 4, 1776.

Thomas Paine’s rejection of the idea of monarchy was the American Revolution. That revolution was a turning around, a paradigm shift, in ideas on government. The revolution was not the already ongoing political rebellion and armed combat with British troops.

Galambos reserves the word “government” for non-coercive property protection service, including most importantly the protection of property in ideas. For what mankind has heretofore called “government” Galambos uses the term “state,” a coercive, political entity which rules on a compulsory basis and which is financed by taxation–a word used to cloak with legality that which is actually politically mandated theft. Under the U.S. Constitution the United States of America evolved into a social structure based upon and financed by theft.

Not content to impose increasingly heavy taxes, the U.S. federal state misuses its constitutional power to borrow and to regulate money to load upon the American people and their posterity a most incredible debt which would have shocked those founders of the republic who created the Constitution over two centuries ago.

The authors of the Constitution envisioned the American state as one with extremely limited powers. However, the history of operation of the United States of America acting under its constitutional powers shows that a state endowed with ostensibly limited powers has expanded those powers so much that it intrudes upon almost every human activity, from birth to death, from education to economic life, from individual power to enter into contracts to committing the lives of its young men and the republic’s fortune to wars around the world where no vital interests of the American people are at stake.

The inhabitants of America at the time of independence from Britain looked to their own efforts, and cooperation with their fellows, to provide for their material needs. Two centuries of operation under the U.S. Constitution have bred an American public that includes many, perhaps a near majority, who look to the state to provide for a substantial portion, if not all of their material needs.

The founders of the United States of America had avoidance of incessant wars as one of their goals in separating from Britain. However, this goal has not been achieved; the U.S. has been involved in eleven major wars since gaining independence—an average of one in each generation of Americans—as well as numerous small wars. The wars of the U.S. are the subject of another chapter, immediately following this chapter.



  • We do not need a king
  • The real meaning and significance of the Declaration of Independence
  • Distinction between “state” and “government”
  • Anarchy is not the alternative to the state
  • Government is a basic human need
  • The Constitution of the United States of America
  • “Limited government” and the general welfare
  • Postal Service
  • Slavery in America
  • Expansion of the United States
  • The U.S. Constitution as the supreme law of the land
  • Money
  • Commerce
  • The World’s Largest Insurance Company
  • Taxes
  • Debt
  • The State Monopoly of Coercion
  • War

We do not need a king

Beginning around 1750 resentment began to build in America against Britain’s rule over the colonies. The British state exploited its American colonies by imposing taxes, trade restrictions and military occupation without consultation with or consent from Americans. Although Americans generally considered themselves British citizens, they had no voice in the English parliament. Americans’ grievances were expressed in the phrase “no taxation without representation,” rather than any ambition for independence.

Conflict between Britain and the American colonies developed and grew intense after 1763, as Americans took actions such as boycotting British imports and protesting a tax on tea by dumping a load of tea into Boston harbor in the famous Boston Tea Party of 1773. American resentment turned into armed rebellion and warfare in and around Boston in April 1775.

By early 1775 the idea of independence was starting to be discussed by a few of the American political elite. However, as shown by appeals to Britain’s King George III from the Continental Congress in 1774 and 1775, most American political leaders were not then ready, or were hesitant to declare independence, i.e., to secede from Britain.

The impetus for the Declaration of Independence came from an Englishman, Thomas Paine (1737-1809), who arrived in America in November 1774, bearing a favorable letter of reference from Benjamin Franklin, who was impressed with Paine when they met in England. On January 9, 1776 Paine published anonymously his 46-page essay, Common Sense. It was an immediate sensation. Between 150,000 and 250,000 copies of Common Sense were sold in 1776. Since there were then only about three million inhabitants of the colonies, this was the equivalent of a sale of twenty million copies to the 300 million inhabitants of early 21st century America.

For an American to advocate independence was treason under British law, punishable by death. Accordingly, at the time of signing the Declaration of Independence, Benjamin Franklin said “We must all hang together, or assuredly we shall all hang separately.” While none of the signers were hung by the British, most suffered for their defiance of Britain. “About one-third of the group served as militia officers [in the Continental army], most seeing wartime action. Four of these men were taken captive. The homes of nearly one-third of the signers were destroyed or damaged, and the families of a few were scattered when the British pillaged or confiscated their estates. Nearly all of the signers emerged poorer for their years of public service and neglect of personal affairs.” 2

Common Sense added an intellectual revolution to the political rebellion then going on—the idea that America did not need a king. Thomas Paine’s intellectual “revolution” was an idea, not a bloody and violent change in rulers. Rather, the revolution was a turning around of attitudes in the sense of the derivation of the word “revolution” from the Latin word “revolutio,” which means “a turn around.”

Paine argued that America should reject rule by monarchy and develop a new form of government based on the principle of individual self rule. In denunciation of the absurdity and injustice of hereditary monarchy, Paine stated:

“[The first kings were] nothing better than the principal ruffian of some restless gang . . . [Exalting] one man so greatly above the rest cannot be justified . . . 

“To the evil of monarchy we have added that of hereditary succession; and as the first is degradation and lessening of ourselves, so the second, claimed as a matter of right, is an insult and an imposition on posterity. For all men being originally equals, no one by birth could have a right to set up his own family in perpetual preference to all others . . .

“One of the strongest natural proofs of the folly of hereditary right in kings is, that nature disapproves it, otherwise she would not so frequently turn it into ridicule by giving mankind an Ass for a Lion. . .

“In England a king hath little more to do than to make war and give away places; which in plain terms, is to impoverish the nation and set it together by the ears. A pretty business indeed for a man to be allowed eight hundred thousand sterling a year for, and worshipped into the bargain! Of more worth is one honest man to society and in the sight of God, than all the crowned ruffians that ever lived.”

Thomas Paine

Thomas Paine

Before publication of Common Sense most Americans opposed separation from Britain, notwithstanding the armed conflict with Britain that began in April 1775. After the publication of Common Sense pro-independence sentiment grew rapidly in America.

The impact of Common Sense on thinking in America was so profound that John Adams, America’s second President (1797 -1801) said “History is to ascribe the American Revolution to Thomas Paine,” and “Without the pen of the author of ‘Common Sense,’ the sword of Washington would have been raised in vain.” 3 Just six months after publication of Common Sense, on July 4, 1776,the Continental Congress adopted and published the Declaration of Independence.

The ideas expressed in the Declaration of Independence are the ideas of Common Sense. According to one biography of Paine, “there are so many common elements between [Common Sense] and the Declaration [of Independence] that some historians have claimed that Paine himself secretly wrote it [the Declaration], or that Jefferson copied him so thoroughly that it amounted to the same thing.” 4 Galambos taught that Paine was the author of the Declaration of Independence, basing this position in large part on facts and analysis set forth in the book Thomas Paine: Author of the Declaration of Independence (1947) by Joseph Lewis.

In Galambos’ view the American Revolution is not the War for Independence, but rather the idea that America does not need a king. Thus, Galambos points out that the success of America and its revolution led to the termination of monarchy in all the nations of the world. While a few monarchs remain, as in England, Belgium, Japan and Sweden, they are figureheads, not rulers, because they have no political power.

In considerable part because of Common Sense, after America won its independence from Britain America’s political leaders were opposed to the idea that America turn to a monarch of its own. For example, when in May 1782, a young American military officer, Lewis Nicola, expressed a growing sentiment—that in the interests of social stability George Washington should become King George I of America—Washington rejected the idea most emphatically, admonishing Nicola that he must “banish these thoughts from your Mind,” denouncing the proposal as “big with the greatest mischiefs that can befall my Country.” Even Washington’s foe, Britain’s King George III, was impressed by Washington’s principled position. When the news reached the king, he was heard to say that if Washington resisted the mantle of monarch, he would be “the greatest man in the world.” 5

The real meaning and significance of the Declaration of Independence

“The real significance of the Declaration of Independence is not the independence of the Colonies from Great Britain, but the independence of the individuals from the state. . . There’s no concept of state in the Declaration of Independence; there’s only a concept of government. Unfortunately, Thomas Paine meant it [government] in a political sense . . . [but] his choice of words was significantly clear that he was talking about principles and not methods. . . And the way he referred to the term “government” fits the definition [of government in these lectures.]” 6

Distinction between “state” and “government”

The state is any political organization that is coercive, that raises its revenue by coercion, and that operates on a compulsory rather than on a voluntary basis. This definition is true of the federal state (the United States of America), the fifty individual states of the U.S. and the subdivisions of the states such as counties and cities.

French King Louis XIV (1638-1715) epitomized the nature of the state when he said, “I am the state.” 7 He ruled as an absolute monarch, believing that his power as king was derived from God and that he was responsible to God alone. Through his unchecked power Louis XIV caused frequent wars, bankrupted the French state and caused starvation and persecution of ordinary people.

In contrast to the state, a “government” in Galambos’ lexicon is any organization, individual, or mechanism that operates to protect property and to which its customers may subscribe voluntarily. A government is not a monopoly. It sells its products or service. It does not force the sale. Examples of government already in existence include, but are not limited to, a manufacturer of door locks (which may have prevented more crime than all the police that ever lived), a private security company, a private detective service, and an insurance company.

A property protection service company operates to make a profit from providing property protection service to customers who may subscribe voluntarily to the service and terminate the service when they please.

In contrast, a property protection racket is an extortion scheme whereby a criminal group or individual coerces a victim to pay money for protection services against violence or property damage. If the victim does not pay protection money he will suffer violence and property destruction—at the hands of the racketeers. 8 The victim may not terminate such “protection” services because the racketeers will attack the victim and his property.

Galambos and Snelson compared the operation of the state to a protection racket because the “services” of the state are compulsory and so is payment for the “services.” However, they also warned that it was irrational not to comply with tax laws of the state because of the consequences. In that regard, consider an attempt by an American to terminate the services of the U.S. federal state by notifying the Internal Revenue Service that he or she no longer intends to pay tax and wants no further state services, then acting on that intent. In one such case, federal Department of Justice attorneys said, in the announcement of a criminal conviction for refusal to pay income tax, “People who intentionally fail to file returns or pay taxes as required by law can expect to face criminal prosecution, conviction and imprisonment, and they will still be required to pay the taxes they tried to avoid, plus interest and penalties. The conviction of individuals who intentionally . . . evade taxes is a vital element in maintaining public confidence in our tax system. . . It’s simply not fair to honest taxpayers if we don’t hold those who refuse to pay their fair share accountable.” 9

Although Galambos uses the word “government” in a positive way, to many people the very word “government” may have a negative image since all manner of evil has been committed by states claiming the title of government. However, as Galambos points out, his “. . . usage fits the actual meaning of the word as derived from [the] Latin verb ‘gubernare’ which means to steer. And that’s exactly what a property protection mechanism is for. It is to steer property in such a way that it is not lost to the control of the owner.” 10

The insurance mechanism could develop into the highest form of government, offering not only reimbursement for loss, but all the services necessary for the complete and comprehensive prevention of loss by protection of property including most importantly, intellectual property, the source of all property other than individual man’s life. Under the political state the insurance mechanism has not been developed to its full capacity for property protection because of restrictions, requirements and regulations imposed by the state.

Note: Insurance will be discussed in detail in subsequent chapters, where it will be posited that the mechanism of insurance can be expanded from reimbursement for loss to prevention of and protection from loss, and further to a vehicle for securing restitution from persons who cause loss; and that such an expanded use of insurance can be extended to provide large-scale defense of the kind now provided defectively by state and local police, and even property protection via what is now called “national defense.”

Albert Jay Nock

Albert Jay Nock

Galambos credits Albert Jay Nock (1870-1945) for sensitizing him to the distinction between state and government. That distinction was made as follows by Nock:

“It may now be easily seen how great the difference is between the institution of government, as understood by [Thomas] Paine and the Declaration of Independence, and the institution of the State . . . [G]overnment secures [the rights of life, liberty, and the pursuit of happiness] to the individual . . . The State . . . [is based] on the idea that the individual has no rights except those that the State may provisionally grant him. [The State] has . . . invariably held itself above justice and common morality whenever it could advantage itself by so doing.” 11

The full extent of Nock’s rejection of the concept of the state appears in the following selected quotations from his book Our Enemy, The State. 12

“[W]hen [Adolf] Hitler says that ‘the State dominates the nation because it alone represents it,’ he is only putting into loose popular language the formula of Hegel, that ‘the State is the general substance, whereof individuals are but accidents.’

“When [Benito] Mussolini 13 says ‘Everything for the State; nothing outside the State, nothing against the State,’ he is merely vulgarizing the doctrine of Fichte, that ‘the State is the superior power, ultimate and beyond appeal, absolutely independent.’” 14

“[The State] has invariably, as [James] Madison said, turned every contingency into a resource for . . . enhancing State power.

“As Dr. Sigmund Freud has observed, it cannot even be said that the State has ever shown any disposition to suppress crime, but only to safeguard its own monopoly of crime.” 15

Anarchy is not the alternative to the state

It is generally believed that without a political state there would be anarchy, lawlessness, and extreme social disorder. Galambos disagreed, stating that it is a false alternative to say that anarchy in the common understanding of the word would be the alternative to the state.

Galambos taught that the absence of the state did not relegate mankind to anarchy; that the word anarchy comes from a Greek word meaning without leadership; that when people subscribe to property protection services on a free and voluntary basis they are choosing the ideological leadership of others in their own pursuit of happiness. 16

A Russian philosopher, Prince Peter Kropotkin (1842-1921), voiced a similar thought in the following comment:

“Either the State for ever, crushing individual and local life, taking over in all fields of human activity, bringing with it its wars and its domestic struggles for power, its palace revolutions which only replace one tyrant by another, and inevitably at the end of this development there is … death! Or the destruction of States, and new life starting again in thousands of centers on the principle of the lively initiative of the individual and groups and that of free agreement. The choice lies with you!” 17 Although the ideas of Kropotkin have been classified as “anarcho-communist,” he was repelled by the behavior of the Russian communists who seized power in 1918, of whom Kropotkin said they were demonstrating “how the revolution was not to be made — that is, by authoritarian rather than libertarian methods.” 18

Galambos knew there could not be a sudden transition from a world of coercion to one of freedom. Galambos did not want the state to self-destruct with consequent disorder and random criminality replacing the organized coercion of the state. Rather, his view was that the transition to freedom would evolve; that freedom is a product to be built and offered by innovators and entrepreneurs.

To illustrate this, Galambos gave the analogy of people living in a dilapidated apartment building who want to improve their housing conditions. They ought not to tear down the building they have, as inadequate as it may be. Rather, they should construct a well-conceived, new and sturdy structure to replace the old and failing structure, while remaining in the old structure to have the shelter it afforded during construction of the new apartment building.

Government is a basic human need

Nothing in the lectures of Andrew Galambos is intended to do anything but validate and reinforce the idea that mankind needs government, as distinguished from rulers or states. All people want their lives and property protected–not only from coercion but also from losses due to accidents and natural causes. And most importantly for human progress, society will benefit immeasurably when intellectual property, called primary property by Galambos, is also protected by government.

The principle of government is stated as follows in the American Declaration of Independence: “[A]ll men are . . . endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed. Whenever any Form of Government becomes destructive of these ends it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

This principle was reiterated by John Adams, second President of the United States, as follows: “Government is instituted for the common good; for the protection, safety, prosperity, and happiness of the people; . . . therefore, the people alone have an incontestable, unalienable, and indefeasible right to institute government; and to reform, alter, or totally change the same, when their protection, safety, prosperity, and happiness require it.”

The V-50 lectures present the idea that the state is not government but is rather a mechanism of coercive control of most people by a few who seize power over others and who rule by force and fraud. The essence of this idea was epitomized succinctly by Lysander Spooner as follows:

“No government, so called, can reasonably be trusted for a moment, or reasonably be supposed to have honest purposes in view, any longer than it depends wholly upon voluntary support.” 19

The Constitution of the United States of America

The former American colonies survived without a king. There was not complete freedom in America, but for the first one hundred and twenty years after the War for Independence America came closer to freedom than any country ever has. America did not achieve full freedom because of the Constitution that was adopted a dozen years after the Declaration of Independence. The Constitution created a new political structure, under which politicians learned eventually how to seize more and more power, at the expense of the freedom of individuals.

In 1777 the Continental Congress adopted Articles of Confederation (eventually ratified by all thirteen colonies). The Articles of Confederation created a loose association of the thirteen colonies. There was immediate dissatisfaction with the Articles of Confederation. The power of Congress under the Articles of Confederation was not sufficient to compel the states to provide troops or revenues to carry on the War for Independence or to enable Congress to deal effectively with other countries. The War for Independence was financed by contributions from the states and individuals, sale of bonds, and issuance of paper (fiat) money by the Continental Congress.

The issuance of this fiat money caused hyperinflation because the paper money proved to be worthless due to the inability of the Congress to acquire revenues and assets to back the value of its paper money, known as the “continental” hence the pejorative saying of that time that something is “not worth a continental.” At that time, Congress lacked the authority to levy taxes, and to do so would have risked alienating an American public that had gone to war with the British over the issue of unjust taxation. Eventually, the bonds issued during the war were paid off by the new federal state. 20

In 1786 several states issued a call for all states to meet in 1787 to discuss ways to improve the Articles of Confederation. Instead, the states’ representatives to the 1787 meeting discarded the Articles of Confederation entirely, and wrote a new constitution creating a state that was a mixture of centralized power and a confederation of the several states. The new Constitution was ratified by the states starting in 1788, and the new federal state became operational in 1789.

From the outset the Constitution 21 was marred by conceptual and semantic issues. Its Preamble states that it is adopted by “We the People of the United States.” However, American philosopher Lysander Spooner argued that the U.S. Constitution was not binding legally or morally on anyone who had not personally agreed to its terms, which means everybody except those who drafted and signed the document, and the individual legislators in the states that ratified the Constitution. Spooner pointed out that at the time the Constitution came into being the people who voted to select representatives to draft the Constitution and to vote on adoption of the Constitution excluded women, about one half to three quarters of the white males because they lacked the amount of property required to vote, black slaves, children and future generations of Americans, all of whom were to be bound by the rules of the Constitution. 22

While it was generally believed that an individual state or states could withdraw from the Unites States, the Constitution is silent on this important point, which was the essential issue in both the War for Independence and the Civil War.

A number of important key words and phrases in the Constitution are not defined, including but not limited to, “due process of law,” “general welfare,” “justice,” “just compensation” for taking of private property, “probable cause” for searches and seizures and “unreasonable searches and seizures.”

The U.S. constitution is diametrically opposed to the Declaration of Independence because it creates a political structure under which the legislature (the U.S. Congress) has enormous political power. In Galambos’ view, under Article 1, section 8 of the U.S. constitution, “The legislative branch of the state is granted the most imperial powers ever offered in the history of the world.” 23 In support of this statement Galambos analyzes the powers of the U.S. Congress under Article 1, section 8 of the Constitution.

Galambos cites the power to legislate for the general welfare, to declare war, to regulate commerce among the states, to incur debt, to borrow money on the credit of the United States, to coin money and regulate its value, to establish a post office, and “to make all laws necessary and proper for carrying into Execution the foregoing Powers.” Of this “necessary and proper” clause Galambos says, “In other words, if they forgot anything, it’s okay to do that too! No king ever had so unlimited a power.” 24

The Bill of Rights is an integral part of the Constitution because ratification of the Constitution would have been in doubt but for agreement during the ratification process to enact the Bill of Rights as ten amendments to the Constitution as soon as the Constitution was ratified. The Bill of Rights establishes rules to protect individuals from specified actions of the federal state.

While it may seem to some that Galambos overstates the political power of the American federal state under the U.S. Constitution, American history seems to support his argument. Nevertheless, Americans enjoyed unprecedented freedom for over one hundred years following the establishment of the American federal state under its Constitution. By the time of World War I (1914-1918), America was the world’s most prosperous and powerful nation.

Galambos commented as follows on the rapid growth of American prosperity during the first one hundred years after adoption of the Constitution:

“How come it worked [to allow unprecedented freedom] for a while? The answer is simple: the one who had this power was the Congress, not the president.And that was deliberate! Those people were . . . afraid of . . . one-man rule. . . They set up a system of checks and balances, separation of power, and this tremendous power they delegated to the Congress, which [was] . . . two giant committees. . . This explains America’s capability to progress; Congress was two committees and both committees had to agree before it was law. And then they had to get the president to say it was okay too. [And early on] the Supreme Court [claimed the right] to invalidate an Act of Congress by calling it unconstitutional. . . 25

“In the beginning nobody knew who could do what. The Congress was totally ineffective at doing anything. The president had very few powers delegated to him. 26 The Supreme Court had very few powers delegated to it. The local states all thought they were sovereign countries, and they were just accepting this federal union as a makeshift arrangement for convenience.

“[N]othing was known about how to operate the country. And what a blessing this was to the American people! . . . If somebody wanted to go into . . . any kind of business, they could just do that with very little interference. . . [T]he taxation was . . . so light that it did not interfere with any form of entrepreneurial and profit-oriented interests. So the county just blossomed! It just grew and grew because nobody could stop it.” 27

For the reasons above stated by Andrew Galambos the 19th century was America’s most rapid period of economic growth. According to historian Michael B. Oren:

“As the [twentieth] century dawned, the United States surpassed Europe in energy consumption and in total manufactured output and was gaining on Britain in foreign trade. Its population of 64 million, 28 second only to Russia’s, mined more coal, iron, gold, and silver, cut more timber, than any other country in the world and produced more steel than Britain and Germany combined.” 29

“Limited government” and the general welfare

The founders of America tried to establish “government” that worked to protect freedom. Therefore, the authors of the Constitution sought to establish a charter for a state with limited powers. However, it is one thing to establish a state with ostensibly limited powers, and quite another to keep state power limited. Eventually, the powers of the various branches of the state grew as politicians learned how to operate within the constitutional system.

The Preamble to the Constitution states that among other purposes, the Constitution is established to “promote the general welfare” and Article I, section 8 confers upon Congress the power “to provide for the general welfare.” The extent of the authorization of Congress to promote and provide for the general welfare was questioned almost immediately by James Madison, a principal author of the Constitution and the fourth president of the U.S. In 1792, during the second Congress of the U.S., a law was proposed to regulate and subsidize the Cod Fish industry. Madison argued, as follows, against that law and for his interpretation of the Constitution that would preclude such exercise of power by the central state:

“If Congress can apply money indefinitely to the general welfare, and are the sole and supreme judges of the general welfare, they may take the care of religion into their own hands; they may establish teachers in every State, county, and parish, and pay them out of the public Treasury; they may take into their own hands the education of children establishing in like manner schools throughout the Union; they may undertake the regulation of all roads, other than post roads. In short, everything, from the highest object of State legislation, down to the most minute object of police, would be thrown under the power of Congress; for every object I have mentioned would admit the application of money, and might be called if Congress pleased provisions for the general welfare.” 30

As discussed below in this chapter, the Congress also relies on the commerce clause to justify legislation affecting individuals and companies.

Postal Service

The Constitution grants Congress the power “to establish Post Offices and post Roads.” In 1792 Congress enacted the Private Express Statutes, giving the federal postal service a monopoly on mail delivery service.

By 1844 U.S. postal rates had become exorbitantly high. It cost almost as much to send a letter from New York City to Albany as to ship a heavy barrel of flour. Lysander Spooner (1808-1897), abolitionist, philosopher, entrepreneur and lawyer, analyzed the Constitution and found that it did not create a federal monopoly on mail service and did not prohibit private mail service. In 1844 Spooner formed the American Letter Mail Company to offer low cost mail service between Boston, New York City, Philadelphia and Baltimore. Spooner’s rates were two-thirds below the federal postal rates.

The Postmaster General sued Spooner, unsuccessfully, to enforce a claimed federal right of monopoly on mail service. When Spooner won the lawsuits the Postmaster General resorted to various anti-competitive tactics in attempts to shut down Spooner’s company. Those efforts failed. As private mail carriers won greater numbers of customers Congress responded in 1845 by reducing federal postal rates from 18 ¾ cents per letter to five cents per letter, and further reduced the rates to three cents a letter in 1851. 31 Having accomplished his objective of getting lower postal rates, Spooner quit the business. The three cent U.S. postal rate for first-class letters was in effect for over a century, until 1958.

Under current federal law, private mail delivery services are allowed to operate if they comply with various restrictive federal rules including minimum rates they may charge. Despite these legal advantages to the U.S. Postal Service (USPS), its business is shrinking while the business of private mail services is expanding.

The perennial justification for the USPS monopoly was that it would deliver to remote locations at the same cost as anywhere else. However, residents of remote locations often go into a small town to get their mail at the post office, and furthermore two leading private delivery services, United Parcel Service (UPS) and Federal Express have long delivered to the most remote locations.

The USPS loses large sums of money each year ($9 billion in 2010) and is cutting back its facilities. The rapid growth of communication via electronic means such as facsimile (fax) transmission, email and online bill paying has reduced greatly the volume of first class U.S. mail. Online shopping catalogs and package-delivery competition from the large private carriers, UPS and Federal Express, have further contributed to the erosion of the business of the Postal Service.

The Lysander Spooner episode, the evolution of proprietary services like UPS and Federal Express, and the development of electronic communication show that a state monopoly has never been necessary for efficient mail service, but to the contrary has been an impediment to inexpensive and efficient mail service.

Slavery in America

While the Declaration of Independence is about freedom, the U.S. Constitution recognized and preserved slavery—the opposite of freedom—as an entrenched institution. Without the Constitutional protection of slavery the Constitution would never have been ratified by the states, as not only the southern states but some in the north, for example New York, had influential people with a vested interest in continuing slavery. The Constitutional provision for slavery was a fundamental flaw in the political structure of the U.S., a flaw that was part of a fissure that eventually ruptured and tore the country apart. 32

Article 1, Section 2, the “Three-fifths rule,” states: “Representatives and direct Taxes shall be apportioned among the several States . . . which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.” [Emphasis supplied] “All other persons” meant slaves from Africa. This was a compromise between northern states that wanted to exclude slaves and southern states that wanted to count them for purposes of apportionment of representation in the House of Representatives. This rule caused a struggle for voting power in the House of Representatives which became a major issue as new states were added to the U.S.

Article 4, Section 2 of the Constitution required the return of runaway slaves to their “owners;” Article 1, section 9 protected the slave trade for twenty years stating, in effect, that only starting January 1, 1808 could Congress prohibit importation of new slaves. All of these provisions were compromises, without which southern states would most certainly have refused to ratify the new Constitution.

The legality of slavery in the U.S. was founded on the odious notion that the slaves were the property of the slaveholder, an idea antithetical to the spirit of the Declaration of Independence. The federal Fugitive Slave Act of 1793 implemented the legality of slavery by overruling any state laws giving sanctuary to escaped slaves, making it a federal crime to assist an escaped slave, and allowing slave-catchers into every U.S. state and territory.

Slaves were owned by four of the first five U.S. Presidents (Washington, Jefferson, Madison and Monroe, all from Virginia) and ten of the first twelve Presidents, eight of them while serving as President. 33

There was also opposition to slavery in America. On March 8, 1775 abolition of slavery was advocated in an anonymous article entitled “African Slavery in America” published in Pennsylvania and generally attributed to Thomas Paine. 34 Opposition to slavery was strongest in the northeast, where during and after the War for Independence six states (Rhode Island, Vermont, Pennsylvania, New Hampshire, Massachusetts and Connecticut) enacted laws for emancipation of slaves. In five of these states emancipation was gradual with freedom granted only to children born after enactment. Consequently, slavery ended completely in the six states at different times between 1774 and 1860. This gradualism was a political compromise between abolitionists and the not insignificant number of slaveholders in the northeast. 35

Ambivalence about slavery was also evidenced in federal legislation. In 1794 Congress enacted the Slave Trade Act of 1794 prohibiting the making, loading, outfitting, equipping, or dispatching of any ship to be used in the slave trade. In 1798 Congress enacted a law imposing a penalty of three hundred dollars per slave (a considerable amount at the time) on persons convicted of illegal importation of slaves. In 1807 Congress prohibited the importation of new slaves into the U.S. effective January 1, 1808, and defined such importation as piracy. The U.S. Navy began patrols to enforce this law.

In 1820 Congress enacted compromise legislation that disallowed slavery above a westward extension of what eventually became the northern border of the state of Arkansas. Acts of Congress in 1850 and 1854 dealt with the issue of how far to limit slavery in territories that had not yet been admitted to the union as states. This was a burning issue, in part due to the Constitutional provision counting slaves as 3/5 of one person for purposes of census and apportionment of representatives in the House of Representatives. Northern states feared to lose their majority in Congress if slavery was allowed in territories that could eventually be admitted to the union as states. Northern sentiment also opposed slavery in the new western territories out of concern that slave labor would reduce work opportunities for white settlers. Southern states feared becoming an increasingly small minority in Congress if new free states were admitted to the union.

Henry David Thoreau

Henry David Thoreau

Henry David Thoreau (1817-1862) voiced the passion of American abolitionists when he said: “I cannot for an instant recognize that political organization as my government which is the slave’s government.” 36 As abolitionist fervor grew stronger and people in free states sought to aid escaped slaves, an even more severe Fugitive Slave Act of 1850 was enacted.

In his essay Slavery in Massachusetts (1854) Thoreau denounced enforcement of the Fugitive Slave Act by the state of Massachusetts, observing that “. . . several citizens of Massachusetts are now in prison for attempting to rescue a slave from her own clutches.” In 1857 the U.S. Supreme Court upheld the constitutionality of the Fugitive Slave Act in the infamous Dred Scott decision. 37 At the time there were about 347,000 slaveholders in America and about four million African-American slaves, out of a population of 31 million.

In the pre-Civil War era there were two issues of larger concern to most Americans than slavery: (1) whether a state or states could nullify federal laws such as tariffs that bore most heavily on the south which imported many of its necessities; and (2) whether a state could withdraw (secede) from the union. The deep disputes about slavery contributed to the Civil War by providing part of the motivation for seven southern states to secede from the union in order to protect their claimed rights of sovereignty from infringement. After federal troops invaded some of those seven states, another four southern states joined in secession from the union.

The constitutional authorization of slavery was ended by The Thirteenth Amendment to the U.S. Constitution adopted in 1865. However, it was another hundred years before federal laws were enacted to prohibit state laws (mostly but not exclusively) in the south that greatly restricted the civil rights of black Americans. As late as 1896 the U.S. Supreme Court upheld the constitutionality of state laws requiring racial segregation in public facilities under the doctrine of “separate but equal.” 38

Expansion of the United States

From its inception as thirteen relatively sovereign, but thinly populated states along the east coast of what had become the United States of America, the country expanded rapidly over the rest of the North American continent between Canada on the north and Mexico on the south. In the course of this expansion America tried unsuccessfully to take over Canada during the War of 1812, and during the Mexican-American War of 1846-1848 took from Mexico most of what became the southwestern portion of the U.S.

Almost from the inception of the U.S. some Americans were eager for the U.S. to expand across the entire continent of North America. In 1811, future President John Quincy Adams said, in a letter to his father, former President John Adams that:

“The whole continent of North America appears to be destined by Divine Providence to be peopled by one nation, speaking one language, professing one general system of religious and political principles, and accustomed to one general tenor of social usages and customs. For the common happiness of them all, for their peace and prosperity, I believe it is indispensable that they should be associated in one federal Union.”

In 1845 a journalist, John J. O’Sullivan, coined the phrase “manifest destiny,” writing that it must be “our manifest destiny to overspread the continent allotted by Providence for the free development of our yearly multiplying millions.” 39

From a population of three million at the time of the War for Independence the number of inhabitants grew to 92 million by 1910 and then nearly doubled again, to 179 million by the time of admission of the last two states, Alaska and Hawaii, in 1959. This great expansion was due in significant part to the relative freedom and opportunity in America compared to Europe and other places from which immigrants came to America.

In the course of the nineteenth century the U.S. subjugated some 600,000 Native Americans whose ancestors had preceded Europeans to North America by at least 12,000 years. 40 The U.S., by force of arms in most cases, dispossessed Native Americans of their ancestral lands, made and broke treaties with the various Native American tribes or nations and confined them to reservations. On the so-called “Indian Reservations,” the people became passive and dependent on the U.S. for subsistence.

The Louisiana Purchase of 1803 contained territory that has become all of the states of Arkansas, Missouri, Iowa, Louisiana, Oklahoma, Kansas, Nebraska and parts of Colorado, Minnesota, Montana, New Mexico, North Dakota, South Dakota, Texas and Wyoming. The land that was acquired in the Louisiana Purchase for $15 million now makes up about 23% of the territory of the United States.

The U.S. also acquired other large territories in North America by war, or by paying other countries to abandon their claims to those territories, i.e., payment of $5 million to Spain in 1822 for that country’s cession of Florida to the U.S.; $18 million to Mexico as part of the treaty ending the Mexican-American War of 1846-1848 in which Mexico surrendered all or part of what are now the states of Texas, Arizona, New Mexico, California, Nevada, Utah and Colorado; the Gadsden Purchase from Mexico in 1853 of what is now southwest New Mexico and southern Arizona for $10 million; and the purchase of Russia’s claim to Alaska in 1867 for a cost of $7.2 million.

The total area of land acquired by the U.S. through peaceful payment rather than war 41 is around 45% of the total area of the present fifty states. The total cost of these purchases was $37 million, or about four cents ($.04) per acre, equivalent to no more than $1.00 per acre (around $1.25 billion) in the purchasing power of the dollar in the early 21st century. In comparison, the total cost of all U.S. wars that added territory to the nation by military conquest, was about $22 billion in purchasing power as of the early 21st century, an amount nearly eighteen times greater in constant dollars than the amount the U.S. paid to acquire territory by peaceful purchase.

The U.S. wars of military conquest include the War of 1812 with its unsuccessful attempt to take Canada, the Mexican-American War, the Spanish-American war and the Philippine-American war, discussed in some detail below under the heading “Wars of the United States.”


The Constitution grants Congress the power “To coin Money [and] regulate the Value thereof . . .” The power granted is to coin money, not to issue paper money. Another provision of the Constitution prohibits the individual states from issuing money in any form other than gold and silver coins. 42

By means of a legally enforced monopoly on issuance of money, a state, such as the U.S., can use paper money as a substitute for taxation. Inflation is a tax that tends to fall most heavily on those who are least able to afford it, such as people living on wages and salaries or on a fixed income. Historically, monetary inflation has been used to pay for wars that involved costs beyond the ability of a state to raise revenue by taxation and borrowing.

In the U.S. there have been war-time inflations of varying severity, ranging from hyperinflation during the War for Independence to lesser but still high rates of inflation during the Civil War, 43 World War I, and immediately after the lifting of price controls following World War II.

During the War for Independence, the Continental Congress, in order to pay for war costs, relied in large part on printing paper money called Continental currency, or Continentals. The paper money had nothing to back its value, because Congress had no power to levy taxes. This money printing caused a hyperinflation, 44 in which the prices of goods and services in terms of the paper money rose rapidly. By the end of the war in 1781 the paper currency had become entirely worthless, hence the phrase “not worth a Continental” that was idiomatic in America for a long time after the War for Independence.

Perhaps that negative experience with paper money is the reason that the Constitution does not grant Congress the power to create paper money, and specifically provides that “no state shall make any Thing but gold and silver Coin a Tender in Payment of Debts.” 45

From 1900 until 1933, with the exception of a short time during World War I, the U.S. was on a gold standard which set the value of the dollar at $20.67 per ounce of gold. Over the 33 years on the gold standard the U.S. dollar actually increased in purchasing power at the average rate of nearly one-half of 1% per year. 46

With advent of the Federal Reserve System in in 1913, the Federal Reserve in 1914 began issuing paper money known as Federal Reserve Notes denominated as U.S. dollars payable not in gold but in U. S. Treasury obligations. Since 1933 the U.S. dollar has lost nearly 95% of its purchasing power in terms of the Consumer Price Index 47 and over 98% of its purchasing power in relation to gold. This persistent loss of purchasing power is due most certainly to the monopoly of money issuance by the federal state which, beginning with the Great Depression of the 1930s, has been spending more, often much more, than it collects in taxes.


The U.S. Constitution grants Congress the power “. . . to regulate commerce . . . among the several States.”

An initial attempt in 1792 to regulate commerce was a proposed federal subsidy for the cod fish industry of New England. James Madison, a principal author of the Constitution and fourth President of the U.S. argued against that law on the grounds that it was not the intent of the framers of the Constitution to allow such exercise of power by Congress and that allowing Congress that authority would set a precedent that would empower Congress to meddle and interfere in every aspect of society. 48

The history of expansion of federal power by Congress has borne out Madison’s prediction of 1792 that Congress could do anything it pleased to do if the constitutional justification was the “general welfare.” Starting in the last decade of the nineteenth century, one hundred years after Madison’s objection to subsidies for the cod fish industry, Congress has undertaken to regulate, provide, subsidize or insure a long list of activities involving almost every aspect of life in America, including, but not limited to:

  • Agriculture
  • Aid for victims of natural disasters
  • Banking
  • Business competition
  • Education, including College expense grants and loans
  • Financing of home purchases and regulation of housing-related activities
  • Provision of food, clothing and shelter for those classified by the state as needy
  • Communications
  • Conditions of employment and unemployment benefits
  • The financial services industry (securities brokerage, insurance, mutual funds, etc.)
  • Health care
  • Labor-management relations
  • Private pensions;
  • Retirement income
  • Transportation

In the mid-1930s, the U.S. Supreme Court ruled that some depression era federal laws exceeded the authority of Congress under the Commerce clause. However, since 1937 the Court has upheld Congressional authority to regulate virtually any activity under the powers granted by the Commerce clause.

In 1887 Congress established the Interstate Commerce Commission (ICC), to regulate railroads in order to require reasonable rates for freight. The ICC was the first of many so-called independent agencies of the federal state. The number of such independent agencies proliferated so much that they have been called the fourth branch of the federal state. As of the early 21st century there were seventy or more “independent” agencies of the federal state. 49

Experience showed that competition among railroads and the evolution of trucking by motor vehicles and air freight was all that was needed to assure reasonable rates for transportation of goods. Congress eliminated rate regulation by the ICC in the 1970s as part of overall changes that also caused deregulated the trucking and air transport industries. In 1995 Congress abolished the ICC.

The world’s largest insurance company

Insurance is a system of sharing risks whose probability can be estimated and whose costs can be protected against by paying an insurance company for the purpose of supplying a fund to reimburse those insured if there is a loss. The U.S. federal state is operating as the world’s largest insurance company. However, any private insurance company operated like the U.S. would be bankrupt.

The U.S. is not generally considered to be bankrupt because it has powers not possessed by any private insurance company: the power to tax, to create additional dollars at will, to issue obligations payable in U.S. dollars of which it is the monopoly source of supply, to devalue its dollar obligations by inflation, and the power to repudiate and renege on its obligations, including Social Security and Medicare. 50

The following is a partial list of some major U.S. federal state insurance operations.

  1. Retirement Income
  2. Health Care
  3. Private Pensions
  4. Natural Disasters
  5. Bank Deposits
  6. Banks themselves and the entire banking system
  7. Brokerage account deposits
  8. Residential mortgages
  9. Farm price support
  10. Small business loan guarantees
  11. College expense loans
  12. Unemployment Income benefits
  13. National Defense

Some of the foregoing programs are funded by direct taxes on business, on individuals, or on both, but the federal government implicitly guarantees payment of the promised benefits from its general revenues, as we have seen with federal rescue of the U.S. financial system during and after the financial crisis that erupted in 2008. While it may seem that national defense is not insurance, its purpose and method of funding bring it within the broad definition of insurance set forth above—that is sharing the costs of defense against the risk of loss from external attack.

Actuarial science informs us that in America’s federal retirement and health care programs Congress has made promises that cannot be kept over the long term. Thus, a former chief actuary of the U.S. Social Security Administration, A. Haeworth Robertson, has written three books warning that Social Security and Medicare are not sustainable because they are actuarially unsound and in fact are large-scale Ponzi schemes. 51

In 2004 the International Monetary Fund (IMF) issued a report to the U.S. warning of the underlying insolvency of our Social Security and Medicare Systems. This report noted that the unfunded future liabilities of Social Security and Medicare then could be as high as $47 trillion (equivalent to about $400,000 per U.S. household). That amount, together with other U.S. debt approximately equaled total U.S. household net worth. 52 The IMF warned that to fund Social Security and Medicare adequately “would require an immediate and permanent 60 percent hike in the federal income tax yield, or a 50 percent cut in Social Security and Medicare benefits . . . with the burden on future generations increasing if further corrective measures are delayed.53 [Emphasis added] These unfunded liabilities had increased by $6 trillion, to $53 trillion, by the end of the 2010 U.S. fiscal year while total federal debt, including unfunded future liability for retirement and health care benefits, had increased to $66 trillion, an amount that exceeded total U.S. household net worth.

To place these federal assets and liabilities in perspective, the U.S. is comparable to a family that has debts that exceed its total assets, debts that are growing constantly, debts that must be fully paid over the working careers of the family members.

The case of Ida Mae Fuller of Vermont illustrates how from the very start the Social Security System was unfunded and operated like a Ponzi scheme. Ms. Fuller was the first American to receive a monthly Social Security benefit check, in 1940, having paid just three years of Social Security payroll taxes. By the time of her death at age 100, Ida Mae Fuller had collected $22,888.92 from Social Security monthly benefits, compared to her contributions of $24.75 to the system.

The name Ponzi scheme derives from a famous fraud perpetrated by one Charles Ponzi in Boston in 1920. Charles Ponzi promised clients a 50% profit within 45 days, or 100% profit within 90 days, through a tactic that was superficially plausible to the naive or gullible people Ponzi victimized, but impossible to maintain for long. Ponzi attracted a lot of money through paying early customers using the money taken in from later customers. Ponzi schemes are destined to collapse when the supply of money from new customers is inadequate to continue payments to earlier customers.

In the November 13, 1967 issue of Newsweek famed economist and MIT Professor Paul Samuelson defended Social Security by pointing out that it was linked to population growth, saying that “A growing nation is the greatest Ponzi scheme ever devised. And that is a fact, not a paradox.” Since 1967 U.S. population growth has slowed, the population of the U.S. has aged, and the negative characteristics of a Ponzi scheme are, therefore, undermining both Social Security and Medicare.

At inception of Social Security there were 16 people paying into the system for every one receiving benefits. The ratio of taxpayers to retirees has been shrinking for many years. As of the beginning of the second decade of the 21st century there were three paying in for every one taking out. And the ratio is projected to reduce to two to one in the not too distant future. For the generations born after the baby boom years (1946-1964), it is a certainty that they will pay more into the system in taxes than they will get out in benefits.

Medicare presents an even graver problem than social security for two reasons. First, as of the early 21st century, annual outlays for the Medicare program had become almost as large as for Social Security, but the payroll tax for Medicare is far less than the payroll tax for Social Security, so Medicare is already operating at a large and growing deficit. Second, future benefits for health care are not predictable as advances in medical science and technology are constantly improving the ability to ameliorate illness and extend life, but the continually rising costs of such improvements cannot be determined in advance, while the costs of social security can be determined.

To spend as it has been spending, the U.S. has raised taxes to high levels yet its debts grow and grow and have reached a dangerous level.


The question of taxes is central to liberty because in taxation the state may take by force the property of individuals. The U.S. federal income law imposes financial penalties, or imprisonment, or both, for failure to report income and pay the tax required.

The view of socialists and communists is that of French socialist Pierre-Joseph Proudhon (1809-1865) that “property is theft,” which in the mind of the statist justifies taking property away from its owner.

Frédéric Bastiat, a liberal French contemporary of Proudhon summarized the view of the French socialists as follows:

“When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.” 54

In 1867 the American political philosopher Lysander Spooner wrote the following about taxation:

“Either ‘taxation without consent is robbery,’ or it is not. If it is not, then any number of men, who choose, may at any time associate; call themselves a government; assume absolute authority over all weaker than themselves; plunder them at will; and kill them if they resist.” 55

The view of Galambos is that of Bastiat and Spooner, that taxation is theft. That concept was once a part of American culture, as espoused by a Justice of the U.S. Supreme Court who said in 1874: “To lay with one hand the power of government on the property of the citizen, and with the other to bestow it on favored individuals . . . is none the less robbery because it is …. called taxation.” 56

Galambos describes taxation as “. . . acquisition of revenue [by the state] to finance . . . [its operation by levying] . . . fees against the population, according to various methods they unilaterally prescribe, and can alter at will . . . [States] raise their revenue by coercion; they offer their services on a compulsory rather than on a voluntary basis [which is] not compatible with the principle of freedom [defined in the V-50 lectures].” 57

The foregoing view is not only that of Galambos and two liberal philosophers of the nineteenth century. It is also a view espoused as recently as the year 2010 by the editor-in-chief of U.S. News & World Report, Mortimer Zuckerman, who has been prominent in political life as a supporter of the Democratic Party in the United States. Zuckerman says:

“State and local governments are not subject to the kind of profit-and-loss restraints that dominate the private sector. They obtain their revenues by the coercion of the public through taxes; essentially they cannot go out of business. The public will always foot the bill.] [Emphasis added] 58 The principle inherent in Mr. Zuckerman’s statement applies as well to the U.S. federal state.

In American society, as it has evolved, the typical reaction about objections to taxation is “how else could government finance its operations but with taxation?” A partial response to that question appears in an early essay in this text entitled “Replacements for the Political State.” A more detailed response appears below in the portion of this book addressed to solutions to the problem of establishing non-coercive government.

The Constitution authorizes Congress “. . . to lay and collect Taxes, Duties, Imposts and Excises . . . [except that] No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein directed to be taken.” For well over one hundred years these provisions were understood to prohibit a tax on incomes. 59 Tariffs (taxes on imports) were the main source of Federal revenue from 1790 to 1914.

An income tax was enacted in 1861 at the beginning of the Civil War but repealed in 1864. In 1894 Congress enacted an income tax law, but in 1895 it was ruled unconstitutional by the U.S. Supreme Court. 60

In 1909 Congress adopted the 16th Amendment which changed the Constitution to authorize a federal income tax. By 1913 this amendment had been ratified by the states and Congress had enacted a new income tax law. Initiation of the income tax was a fundamental change from taxation on consumption, such as the tariff, to taxation based on ability to pay.

Whether or not the most ardent proponents of the progressive rate income tax knew it, they were advocating the progressive rate income tax for the same reason—redistribution of wealth—advanced in the Communist Manifesto of 1848 as a means to pave the way to total socialism. The Communist Manifesto advocated, explicitly, “a heavy progressive or graduated income tax” as one of ten tactics by which “. . . to wrest, by degree, all capital from the bourgeoisie [and] to centralize all instruments of production in the hands of the state . . .” 61

In Congressional debate on the first proposed income tax law, Rep. William H. Murray of Oklahoma said “the purpose of this tax is nothing more than to levy a tribute on excess wealth . . .” Senator Henry Cabot Lodge of Massachusetts denounced the income tax, saying that it was “. . . confiscation of property [which would] punish a man simply because he has succeeded and accumulated property by thrift and intelligence and character or inherited it honestly . . . [It would be] a pillage of a class.” Support for the income tax came from Congressional members of the Democratic Party and from the “Progressive” wing of the Republican Party. 62

Annual federal income tax rates from 1913 through 1915 ranged from 1% on the inflation-adjusted equivalent of $75,000 to $453,000 to 7% on the inflation-adjusted equivalent of $11,300,000 or more. Because of a $3,000 exemption, plus an additional $1,000 exemption for married couples, the tax applied to fewer than four percent of the population, at a time when the $3,000 to $4,000 in exemptions shielded from the income tax an amount approximately equivalent to $75,000 to $100,000 of pre-tax income in the early 21st century.

With U.S. entry into World War I (WW I), income tax rates soared to 77% at the highest level, the bottom level rate increased to 6% and the threshold for tax liability was reduced significantly at every rate level, so that more people had to pay the tax. The top income tax rate was lowered to 25% in the late 1920s, but then it rose to 79% in the Great Depression of the 1930s, and still further to 94% during World War II. The lowest rate in 1944 was 23% and it applied to an inflation-adjusted income of $25,000. The threshold for liability was lowered significantly at every rate, and tax withholding by employers was instituted. These changes required most Americans to pay income tax.

After WW II, until 1982 the income tax rates never went below a range of 14% low and 70% high. After 1982 the low and high rates were reduced significantly, falling eventually to 15% and 28%. Concurrently, as a tradeoff, to keep tax collections relatively undiminished, many tax deductions were eliminated or curtailed. In 2003 the range of rates was changed to 10% at the low end and 35% at the high end. 63

All but seven of the fifty states impose a progressive rate income tax. As of the early 21st century, in high-tax states, such as California and New York, the combination of state income tax, federal income tax and federal payroll tax 64 can bring the top marginal tax rate to 44% or more. 65

By the early 21st century the federal income tax law (the Internal Revenue Code) had grown from a few pages in 1913 to tens of thousands of pages and some 9 million words. A vastly larger number of words and pages are taken up by regulations and rulings of the Treasury Department and court decisions implementing and interpreting the tax law.

Compliance with tax laws has become costly, amounting to about $350 billion per year, equivalent to 2.3% of Gross Domestic Product. 66 Thus, compliance with the tax laws consumes a considerable amount of the productive capacity and brain power of America. It’s no wonder that the great scientist Albert Einstein is reputed to have said “The Hardest Thing in the World to Understand is Income Taxes.” 67

In 1910, before the income tax, the U.S. federal state operated on tax revenues of $7.35 per capita per year, equivalent to about $183 per capita per year in terms of the inflation-adjusted value of the U.S. dollar as of the early 21st century. 68 A century later, in 2010, U.S. federal tax receipts were about $7,000 per capita, or nearly 50x as high as in 1910, on an inflation-adjusted basis. Yet these high tax receipts fell $1.3 trillion short of covering federal spending for 2010 which amounted to $11,200 per capita and around $30,000 per household. That $1.3 trillion (1,300 billions of dollars) was the federal deficit for just the year 2010, which was added to the debts of the U.S.

Total U.S. federal tax receipts in 2009 were $2.105 trillion, less than the $2.112 trillion Americans received from the U.S. that year in the form of transfer payments for Social Security, unemployment compensation, welfare, and other entitlement programs. 69


The Constitution, in Article I, section 8, empowers Congress “to borrow Money on the credit of the United States.” Galambos commented that the federal state never repays its borrowings. That was not always true, but has certainly been true starting in 1930 as since then the U.S. has continually refinanced debt that has come due by issuing still greater debt.

During the War for Independence the Continental Congress financed military expenditures partly with loans from foreign countries. Paying off these and other debts incurred during the years 1775-1781 proved one of the major difficulties after victory in the War for Independence. 70

“The War of 1812 was financed mainly through the use of borrowed funds. Total public debt increased from $45.2 million on January 1, 1812, to $119.2 million as of September 30, 1815.” 71

In January 1835, during the presidency of Andrew Jackson, the U.S. paid off the entire national debt, the only time in U.S. history that has been accomplished. 72

At the start of the Civil War U.S. public debt was $65 million but rose to $2.7 billion by the end of the war, an increase of 4,100%. By 1910 the federal state had paid its debt down to $1.1 billion. However, during World War I the debt grew to $22 billion and by 1920 total U.S. public debt was $24.2 billion. The debt was paid down to $16 billion by 1930. 73

During the Great Depression the federal state could not pay for all its new expenses out of taxation, so it borrowed and borrowed. National debt increased from $16 billion in 1930 to $43 billion in 1940, an increase of 170%, and that was just the beginning. Due in large part to World War II federal debt had increased by 1950 to $256 billion, a nearly 500% increase in a single decade.

Explicit federal debt in 2011 was nearly $15 trillion, but that is just the cone of a simmering volcanic mountain of debt. According to what appears to be a conservative estimate, the federal state also has unfunded liabilities of more than $53 trillion for old-age pensions, health care for the elderly and others as well as other welfare programs which brought its total debt, as of 2011, to $68 trillion, over 200x the federal debt of 1930 calculated on a “real”, inflation-adjusted basis.

That $68 trillion of federal debt and liabilities amounts to nearly $600,000 per U.S. household, more than the American people can ever afford to pay.

A book published in 2012 puts the total debt of the United States of America, including the unfunded social welfare liabilities, at $211 trillion which is more than three times the estimated amount of $68 trillion mentioned in the preceding paragraph. The source of the $211 trillion figure is The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy (2012) by Laurence J. Kotlikoff and Scott Burns.

Mr. Kotlikoff is a Professor of Economics at Boston University and a recognized expert on this subject. In The Clash of Generations the authors state how they calculated the $211 trillion. Their calculation is based on an “alternative” fiscal scenario by the Congressional Budget Office, which the authors think is more realistic than another scenario based on assumptions mandated by Congress, which produces a still dire total debt in the neighborhood of $68 trillion. 74 According to The Clash of Generations as of 2011 0 trillion of the total U.S. liabilities “have been carefully kept off the government’s books in a system of duplicitous accounting . . . That’s why most people know little or nothing about the size of our problem.” 75

According to Professor Kotlikoff, in 2013 the Congressional Budget Office suppressed publication of its “Alternative Fiscal Scenario,” on which Professor Kotlikoff based his estimate the total of federal explicit debt plus unfunded entitlement liabilities was $211 trillion in his book The Clash of Generations (2012). 76

U.S. federal deficits are understated by failure to include the cost of amortizing unfunded entitlement benefits. The “unfunded” liability of these programs is the amount by which estimated future benefits exceed estimated future tax revenues to pay the benefits.

Amortizing unfunded pension liabilities is like paying off a mortgage. Principal and interest must be paid every year. The interest rate used for amortization of pension liabilities is typically approximately the same rate as the interest paid on investment grade bonds.

Applying that principle to federal unfunded entitlement liabilities of $53 trillion 77 would require another $3.0 trillion in annual payments if amortization were at a 3% interest rate (very low for such purposes). For example, in the 2011 federal fiscal year recognizing this amortization liability as a component of the federal deficit would triple the federal deficit for the year, raising it from $1.5 trillion to $4.5 trillion.

The accompanying graph on federal debt shows only the amount of debt that is represented by Treasury obligations to Americans and also to foreign lenders, as a share of Gross Domestic Product (GDP). 78

A History of Debt

The data on the graph shows that explicit debt to the public (including foreign lenders to the U.S.) is expected to rise to over 70% of GDP by September 2012, the end of the fiscal year of the U.S. federal state. 79 That is the highest debt to GDP ratio since World Ware II. However, the graph vastly understates the real total federal debt because it does not include some $53 trillion in unfunded liabilities for social welfare programs, federal employee and military pensions, etc.

If those unfunded future obligations are $53 trillion in addition to acknowledged public debt that has climbed past $16 trillion in the early years of the 21st century, then instead of debt being 70% of Gross Domestic Product as shown in the graph at this time, the total debt is over 500% of Gross Domestic Product, a totally unprecedented ratio of debt to Gross Domestic Product. If the total liabilities of the U.S. are $211 trillion as claimed in the book Clash of Generations 80 then the liabilities are over 1,600% of Gross Domestic Product. Whether U.S. total liabilities are $68 trillion or three times that amount they are totally beyond the ability of the American people to pay, with the difference being in the magnitude of the financial catastrophe that has been created under political democracy in America.

If U.S. debt continues to grow at its current rate then by 2040, including entitlements, the debt/GDP ratio will rise to perhaps 1,500% or more. Just the annual interest on that amount of debt, together with annual entitlement program benefit payments, would exceed GDP. In other words, all the production of the U.S. would have to go to pay interest on the national debt and entitlement benefits, an obvious impossibility as there would be nothing left for anything else, nothing for food, clothing and shelter or any of the expenses of life of taxpayers not receiving state-paid benefits.

There is a persistent delusion that the perennial federal deficits could be eliminated if only taxes were raised on those with high incomes. History falsifies that idea. There were extremely high tax rates on high incomes from the Great Depression until the late 1980s, yet the federal state ran up enormously larger debt throughout those years.

An idea proposed in 2011 and made part of the 2012 election campaign is to impose a 30% income tax on all income of individuals with $1 million or more of taxable income in a year. However, doing so would not make a significant change in the rate of growth of U.S. debt. According to a recent analysis of data from the Treasury Department and the U.S. Congress Joint Economic Committee individuals with incomes of $1 million or more already pay an average of 24% of their incomes in federal income tax. The revenue that could be derived from the 30% high income tax proposal over an entire decade would pay for only what the U.S. spends in 4-1/2 days. 81

Many Americans, and their politically elected representatives, appear to have lost touch with a principle stated by two Presidents concerning debts contracted by the federal state.

▪   Thomas Jefferson said “. . . [W]ould it not be wise and just for [a] nation to declare in [its] constitution . . . that neither the legislature, nor the nation itself can validly contract more debt, than they may pay within their own age . . .” 82

▪   In his farewell address of January 17, 1961, President Dwight Eisenhower said: “[W]e—you and I, and our government—must avoid the impulse to live only for today, plundering for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without asking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.” 83

The State monopoly of coercion

Although this chapter could include a comparison of the state’s monopoly of coercion and state regulation of non-coercive commercial monopolies, that subject is so central to Galambos’ teaching that it has been accorded a separate chapter of its own, entitled “Monopolies—Coercive and Non-Coercive,” which is intended to follow the next chapter on Wars of the United States of America.


The U.S. Constitution authorizes Congress to declare War, to raise and support Armies, and to provide and maintain a Navy. 84 The President is designated by the Constitution as Commander in Chief of the Army and Navy of the United States. 85 Acting as Commander in Chief, Presidents have committed armed forces of the U.S. to war without obtaining a formal declaration of war. Sometimes a formal declaration of war was issued by Congress long after commencement of hostilities—as in the case of the Mexican-American War—and sometimes wars were started under orders of the President, fought, and finished without Congress having issued a formal Declaration of War, for example the Philippine-American War of 1898-1913.

The discussion of political democracy in America continues in the next chapter with analysis of how it came to be that a nation inaugurated with peaceful intent came to be so often at war.  Wars of The United States of America -»


Many self-described political conservatives assert that the problems they see in the United States are due to deviation from the Constitution. This idea is thoroughly falsified by the American experience. The nation’s problems are due not to a failure to adhere to the rules of the U.S. Constitution, but rather to political utilization of the Constitution as an instrument authorizing coercion in which the few in political power control the many who produce the benefits of society. Perhaps Frédéric Bastiat summarized the inevitable outcome of a political constitution when he observed: “When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.”

The only permanent check on political coercion will be development of a society wherein true capitalism prevails. In that use of the word “capitalism” Galambos means a social structure wherein every individual has full (100%) control of his or her property in his life, thoughts, ideas, and actions as well as material possessions.

The present work, while based totally on Galambos’ comparison of the Declaration of Independence and the Constitution, provides a great deal of additional detail and brings the discussion down to the early 21stcentury, when the alarming trend of federal debt that Galambos so convincingly described, has increased greatly beyond that of 1967-1968 when Galambos presented the V-50 lectures upon which the present work is based.

Galambos addressed only briefly the subject of African slavery in America. In examining the causes of the American Civil War, and the role of President Abraham Lincoln in launching that war, the author of the present work realized what he should have learned in law school, that slavery was built into the U.S. Constitution, and but for that Constitutional endorsement of slavery, the Constitution would have failed of ratification; representatives of the southern states would have repudiated the proposed Constitution. The so-called founding fathers of America included slaveholders who became four of the first five U.S. Presidents: Washington, Jefferson, Madison and Monroe.


  1. Quoted at Alexis de Tocqueville (1805-1850), a native of France, wrote a famous book, Democracy in America (published in two volumes, 1835, 1840), providing his impressions of a lengthy visit to America in the 1830s.
  2. Quoted from Signers of the Declaration, National Park Service
  3. First quotation from Nelson, Craig, Thomas Paine: Enlightenment, Revolution and the Birth of Modern Nations (2006), p. 93; second quotation from “Thomas Paine,” Wikipedia, at
  4. Nelson, Craig, Thomas Paine: The Enlightenment, Revolution, and the Birth of Modern Nations (2006), page 98.
  5. Ellis, Joseph J., His Excellency: George Washington (2004), page 139.
  6. Quoted from Galambos’ V-50 lecture number six, Sic Itur Ad Astra, p. 190. Paine’s views on organization of government in a political democracy are set forth in his book The Rights of Man (1791) written in opposition and response to another famous book, Reflections on the Revolution in France by Edmund Burke (1729-1797)
  7. In French, “l’,état, c’est moi.”
  8. Around 80% of the businesses in the city of Palermo, Sicily pay protection money to the Sicilian Mafia. Similar extortion rackets exist in parts of America, and elsewhere in the world. See Wikipedia, Protection Racket,
  9. See “Notorious Tax Protestor sentenced to 15 months in prison,” U.S. Dept. of Justice, Nov. 22, 2005, See also Wikipedia, Tax Protestor (United States)
  10. V-50 Lecture # 5, Sic Itur Ad Astra, p. 155.
  11. Quoted from Nock’s book Our Enemy, The State (2001 expanded edition), Chapter Two, Part II, pages 52-53 (reprinting the first edition of 1935).
  12. Pages 35 and 52-53 of the edition cited in the note immediately above.
  13. Fascist dictator of Italy from 1922 to 1943
  14. Johann Gottlieb Fichte (1762-1814) was a German professor of “philosophy” whose ideas anticipate and are a source of the racist and militaristic ideas of Adolf Hitler’s Nazi Germany
  15. Sigmund Freud (1856-1939), Viennese founder of the discipline of psychoanalysis was intimately familiar with the German culture that spawned the ideology of supremacy of the state
  16. V-50 Lectures number 4 and 5, Sic Itur Ad Astra, pages 134 and 142.
  17. See
  18. “The Anarchism of Peter Kropotkin,” by Jeff Riggenbach, Ludwig von Mises Institute, Mises Daily, March 4, 2011,
  19. The source of the quotation is Spooner’s essay, No Treason: No. VI, Part III (1867), reproduced in The Lysander Spooner Reader (1992 ed. by Fox & Wilkes, San Francisco, California). Spooner was, among other things, a lawyer and a political philosopher. For biographical information on Spooner, see Wikipedia, Lysander Spooner,
  20. U.S. Department of State, Office of the Historian,
  21. Including its first ten amendments (the Bill of Rights)
  22. Spooner, Lysander, No Treason, No. II (1867)
  23. V-50 lecture #7, 1968, and Sic Itur Ad Astra, page 256.
  24. V-50 lecture #7, 1968, and Sic Itur Ad Astra, page 257.
  25. The Constitution is silent on the power of the Supreme Court to invalidate a law, but the Court early on asserted that right in the famous case of Marbury vs. Madison (1803), and its claim of right of judicial review of acts of Congress became accepted as the law.
  26. The Constitution names the President as Commander in Chief of the Armed Forces, empowers him only to make treaties with the advice and consent of the Senate, to veto acts of Congress (which Congress may override by a two-thirds vote of each house of Congress), appoint ambassadors and judges of the Supreme Court with the advice and consent of the Senate, and fill vacancies in the Senate when it is in recess.
  27. V-50 Lecture #7, 1968, Sic Itur Ad Astra, p. 258.
  28. 76 million according to the U.S. census of 1900
  29. Quoted from Oren, Michael B., Power, Faith, and Fantasy: America in the Middle East 1776 to the Present (2009), page 308.
  30. Quoted from Cod Fishery Debates, U.S. House of Representatives, History of Congress, February 1792 at
  31. 18 ¾ cents at that time was approximately equivalent to .50 as of the early 21st century.
  32. The claimed right of secession by the Southern states was motivated by more than the slavery issue, and President Lincoln’s purpose in prosecuting the Civil War was to prevent secession, not to end slavery, a proposition elaborated  in the next chapter, entitled “Wars of the United States of America.”
  33. See “Which U.S. Presidents Owned Slaves” at
  35. See Slavery in the North,
  36. Quoted from Thoreau’s famous essay entitled Civil Disobedience (1849)
  37. See article entitled Dred Scott vs. Sanford, under sub-section entitled “Reaction” at
  38. In the case of Plessy vs. Ferguson, decided by a seven to one vote, a precedent that the Court did not reject until 1954, in the famous case of Brown vs. Board of Education.
  39. Quotations of Adams and O’Reilly from “Manifest Destiny,”
  40. Before Europeans arrived in North America it is estimated that several million Native Americans lived in what is now the U.S. By 1800 their number had been greatly reduced by contact and conflict with Europeans, especially lack of immunity to diseases brought to the new world by Europeans.
  41. Excluding million paid to Mexico under the peace treaty following the Mexican-American War
  42. Article I, section 10.
  43. Inflation was high in the north during the Civil War, but in the south inflation was so extreme that by the end of the war the paper money of the confederacy had become worthless.
  44. U.S. Department of State, Office of the Historian, U.S. Debt and Foreign Loans, 1775-1795
  45. Article 1, section 10 of the Constitution
  46. See “Measuring Worth,”
  47. See the inflation calculator published on the Internet by the U.S. Bureau of Labor Statistics,
  48. See an extract from Madison’s argument above in this chapter under the heading “‘Limited government’ and the general welfare”
  49. See “Independent Agencies and Government Corporations” at List of United States Federal Agencies
  50. In two cases, Flemming v. Nestor and Helvering v. Davis, the U.S. Supreme Court ruled that workers’ and employers’ Social Security “contributions” are taxes, and that Social Security benefits are a government spending program that Congress may change, reduce, or even eliminate at any time. The same rationale would allow Congress to change, reduce or eliminate Medicare.
  51. Mr. Robertson was the chief actuary for the Social Security Administration from 1975 to 1978. His three books are The Coming Revolution in Social Security (1981); Social Security: What Every Taxpayer Should Know (1992); and The Big Lie: What Every Baby Boomer Should Know About Social Security and Medicare (1997)
  52. Household net worth is the total of household assets minus liabilities.
  53. “U.S. Fiscal Policies and Priorities for Long-Run Sustainability,” Martin Mühleisen and Christopher Towe, Editors, International Monetary Fund (2004),
  54. Claude Frédéric Bastiat (1801-1850) was a French classical liberal theorist, political economist, and member of the French national assembly, the country’s legislative body. Bastiat was notable for developing the important economic concept of opportunity cost. Bastiat wrote an influential essay entitled Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen (1850). This essay has become known as the Parable of the Broken Window. It is the basis of Economics in One Lesson (1st ed. 1946, rev. ed. 1978) by Henry Hazlitt (1894-1993), which has sold nearly one million copies and is available in at least ten languages.
  55. Quotation from Spooner, Lysander, No Treason No. II, section VII (1867)
  56. Quotation from opinion of Justice Samuel F. Miller in the case of Loan Association v. Topeka(1874)
  57. V-50 lecture number 5, Sic Itur Ad Astra, pages 137-138
  58. Quoted from “Public Sector Profligacy,” by Mortimer B. Zuckerman, editorial, U.S. News & World Report, September 10, 2010
  59. The language of the Constitution quoted above is susceptible of the interpretation that for an income tax to be constitutional it would have to be a flat tax imposed on every citizen in equal proportion.
  60. In a 5-4 decision in the case of Pollock v. Farmer’s Loan & Trust Co.
  61. Manifesto of the Communist Party, 1848, by Karl Marx and Friedrich Engels
  62. Legislative history and quotations from “The Origins of Republican Tax Policy,” PDF at • PDF file
  63. Source for tax rates from 1913 to date: PDF at
  64. The federal payroll tax is for Social Security and Medicare.
  65. The top “marginal” tax rate is the percentage of tax on additional income over the level at which the highest income rates apply.
  66. Source: “Flat Tax Won’t Restore Our Global Competitiveness,” by William F. Shughart II, Sacramento Bee, June 30, 2011. Dr. Shughart is a Professor of Economics at the University of Mississippi whose commentaries are nationally syndicated by the McClatchy Company, the third largest newspaper company in the U.S. which publishes thirty newspapers.
  67. For authenticity of the attribution of this statement to Einstein see Quote Investigator,
  68. For purposes of this analysis inflation is taken to be the amount of change in the federal Consumer Price Index over time. From 1913 to 2012 the U.S. dollar lost nearly 96% of its purchasing power in terms of the Consumer Price Index. See CPI Inflation Calculator, and “Measuring Worth,”
  69. Source:The National Inflation Association 2010 Inflation Report, June 2010,
  70. U.S. Department of State, Office of the Historian,
  71. Quotation from Bureau of Public Debt, U.S. Department of Treasury, “Our History,”
  72. Bureau of Public Debt, U.S. Department of Treasury, “Our History,”
  73. Amounts of federal debt stated herein are from the U.S. Treasury Department, either from Bureau of Public Debt, U.S. Department of Treasury, “Our History,” or as reported in the annual editions of The World Almanac and Book of Facts.
  74. Kotlikoff and Burns explanation their calculation at note 15 on page 238 of The Clash of Generations.
  75. Quotation from The Clash of Generations, page 3
  76. In a Forbes article of October 2013 Kotlikoff says the CBO is now covering up its Alternative Fiscal Scenario estimate. See Kotlikoff, Laurence, “Oh, and By the Way, Our Government Is Totally Broke!” Forbes, October 7, 2013,
  77. Some trillion less than the amount estimated by the Trustees of Social Security and Medicare according to the preceding note
  78. Gross Domestic Product is generally defined as the total of consumer, investment, and government spending, plus the value of exports, minus the value of imports.
  79. NOTE: The ratio of federal public debt to GDP was 93% in 2010, according to statistics from the U.S. Departments of Treasury and Commerce reported in the 2012 World Almanac and Book of Facts. With high federal deficits in 2011 and 2012 accompanying an American economy that is sluggish at best, it is hard to see how the Congressional Budget Office statistics shown by the graph are not a huge understatement of the Debt/GDP ratio.
  80. cited immediately above
  81. See “The ‘Buffett Rule’ Should Be Known As The ‘Buffett Ruse,’” by Rep. Chuck Fleischmann, Op-Ed, Investor’s Business Daily, May 12, 2012. In the Blog portion of this website there is analysis showing the futility of trying to control the growth of federal debt by heavier taxes on high income individuals. See “Taxing the Super-Rich” at
  82. Letter from Thomas Jefferson to James Madison, September 6, 1789 quoted from Thomas Jefferson letters, Electronic Text Center, University of Virginia Library
  84. Article I, section 8
  85. Article 2, Section 2

3 Responses to Political Democracy in America

  1. Please publish this chapter as a hard copy book, so that scholars may quote it rather than the imaginary Tannehills.

  2. I hope you publish this in hard copy so that scholars may quote it.

    • fgmarks says:

      A new book puts the total debt including the unfunded liabilities at $221 trillion, or more than three times the estimated amount of $68 trillion now published on the website. The source of the $221 trillion figure is a new book, The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy (2012) by Laurence J. Kotlikoff and Scott Burns. Mr. Kotlikoff is a Professor of Economics at Boston University and a recognized expert on this subject. In The Clash of Generations the authors state how they calculated the $221 trillion. The calculation is based on an “alternative” calculation by the Congressional Budget Office, which the authors think is more realistic than the principal scenario which is based on assumptions mandated by Congress. If effect, Kotlikoff and Burns are saying mandated scenario is GIGO (garbage in, garbage out in the jargon of the computer software industry).

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