Hi all,

I just wanted to let you all know that I will be gone for the next three weeks on a school trip in Peru. I am not expecting to have internet while I’m there, so don’t expect any new content from the Freedom Chatter Blog until early May. In the meantime, do visit the Freedom Chatter Forums and join in the discussion there.

Feel free to e-mail me with any questions or concerns you may have; I will get back to you as soon as I can: davidk@davidkretzmann.com

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Have a great April, and I look forward to talking to all of you in May!

I often refer to the Federal Reserve as a secretive and dangerous agency, but many people don’t understand what I’m specifically talking about. Publicly, the Fed participates in hearings in Congress, and it generally seems accountable to the President and Congress. Few understand there is information that Congress and the American people are prohibited to know. Let’s start from the beginning.

Different agencies and groups have been given the task to audit and investigate the Fed since it was created in 1913. The Treasury Department took on the job for the Fed’s first eight years of existence. In 1921, the General Accounting Office (GAO, now the Government Accountability Office) was established with the Budget and Accounting Act of 1921. The GAO is an “independent, nonpartisan agency that works for Congress.” It’s duties consist of performing audits, evaluations, and investigations. In general, it is called the “watchdog” of Congress.

Congress gave the GAO the auditing responsibility over the Federal Reserve until 1933, when Congress decided to give other agencies and firms the responsibility. For more than forty years after 1933, the GAO’s duties did not involve auditing the Federal Reserve. This changed on July 21, 1978, when President Jimmy Carter signed The Federal Banking Agency Audit Act into law. The Act had several major flaws. It returned auditing power over the Fed back to the GAO, except for four different areas that the GAO was prohibited to audit:

(1) transactions conducted on behalf of or with foreign central banks, foreign governments, and nonprivate international financing organizations;

(2) deliberations, decisions, and actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;

(3) transactions made under the direction of the Federal Open Market Committee including transactions of the Federal Reserve System Open Market Account; and

(4) those portions of oral, written, telegraphic, or telephonic discussions and communications among or between Members of the Board of Governors, and officers and employees of the Federal Reserve System which deal with topics listed in this Act.

Yes, it is actually prohibited to audit these areas of the Federal Reserve, and they are not any small items. Perhaps most alarming is the fact that the GAO can’t investigate the Fed’s foreign dealings. Letting their foreign operations go unnoticed is a rather disturbing prohibition, and brings up questions of sovereignty, loyalty, and what’s in the best interests of the country. We are talking about an organization that has monopoly control over money and credit; if anything, they should be one of the most heavily investigated areas of government.

The argument against allowing Congress and the American people to investigate these four items is that it allows the Fed to operate more efficiently and productively without excessive public or private scrutiny. No kidding. I don’t think anyone would argue that being protected against any investigation into four key areas of your operation would hurt efficiency.

This statement from John F. Kennedy serves as a good reminder of what we should expect and tirelessly demand from government:

“We are not afraid to entrust the American people with unpleasant facts, foreign ideas, alien philosophies, and competitive values. For a nation that is afraid to let its people judge the truth and falsehood in an open market is a nation that is afraid of its people.”

Money is one of the primary areas where Congress has neglected and ignored its Constitutional responsibility. We have given unimaginable power to a central bank, and prohibited important aspects of that central bank from being audited. This is dangerous in any circumstance, but that danger increases quickly when you add in the fact that we have a fiat monetary system, essentially an inflationary time bomb of monetary destruction waiting to go off.

The most basic question to ask is if this monetary system resembles that of a free society, economy, and people. Huge power over monetary policy is in the hands of the seven unelected members who make up the Board of Governors, which oversees the Fed.

The Fed is not here to create stability for the American people, it is here to ensure stability for government. It is time to reverse the trend and belief that the American people can’t control monetary decisions. Money is power, and that power should not be in the hands of a select few central bankers serving the interests of themselves and the government. That power belongs solely to the individual citizens of a nation, otherwise in the long run it will be abused, expanded, and used as an engine of tyranny.

The Fed deserves no special treatment. Let them be audited, investigated, and open to to public and private scrutiny. Congress and the American people have given them incredible power; a power that, especially if protected and kept secretive behind closed doors, will be destined to bring the country into a time of massive inflation, worthless currency, and great economic and social unrest.

Auditing the Fed is the first necessary step to stripping the outrageous power of an unconstitutional central bank and currency. Can you imagine what the founding men of our nation would say about secrecy in places of such importance and power? Secrecy in government leads to suppression of truth and the birth of tyranny. It is imperative that we once again realize the dangers of mixing secrecy and power.

“History records that the money changers have used every form of abuse, intrigue, deceit and violent means possible, to maintain their control over governments, by controlling money and its issuance.” — James Madison

“Let me issue and control a nation’s money, and I care not who writes its laws.” — Amschel Rothschild

“Those who seek absolute power, even though they seek it to do what they regard as good, are simply demanding the right to enforce their own version of heaven on earth. And let me remind you, they are the very ones who always create the most hellish tyrannies. Absolute power does corrupt, and those who seek it must be suspect and must be opposed.” — Barry Goldwater

It now appears that General Motors might accept bankruptcy as a solution, after all. New CEO Fritz Henderson says, “If it’s required, that’s what we’ll do.” Oh, great. After giving GM and Chrysler $17.4 billion in taxpayer dollars with a likely promise of more, this is an unexpected and somewhat pleasing turn of events.

GM has not done a thing to deserve special treatment. Mr. Henderson admits and suggests that the company needs to restructure, but would prefer it to be done without the usual bankruptcy protection. If the Big Three made bad decisions, paid unions an unsustainable amount, and can’t compete with foreign automakers, then bankruptcy should be encouraged. Smarter, smaller, and more sustainable businesses would emerge in the long run, and have a much better chance at competing with Toyota and Honda.

With the auto bailouts and interventions, the government is greatly strengthening its regulatory power over the consumers. In 1980, roughly 75% of all automobiles bought in the U.S. were built by Detroit. Last year, Detroit’s share fell to 48%. Consumers saw how lackluster Detroit’s vehicles were and decided to purchase better models made primarily by Toyota and Honda. Why does the government not like these decisions?

An often forgotten fact is that Toyota uses more American parts in its vehicles than GM, Ford, or Chrysler. Many of the Big Three use approximately 65% or less American components in their vehicles, while Toyota has models that are made up of 90% American parts. Detroit is no longer the “American auto industry” that many politicians use as an excuse for bailouts. Not only do Toyota and Honda make better cars, they manage to make them with more American components than Detroit could dream of.

What end result is the government hoping for? Are they saying that consumers are wrong in their decisions, and should be buying vehicles from Detroit? Are they saying that despite Detroit’s products being more inefficient, unreliable, and expensive than American-made vehicles from Toyota and Honda, that they still deserve unearned taxpayer dollars?

It should be remembered that new vehicles are not necessity items. People have several automakers to choose from for buying a new vehicle, but there is also the used market that presents a less expensive option. Were Detroit forced to restructure under bankruptcy like any other business, it would not be a disaster. People might buy more American vehicles from Toyota and Honda, they might save more money by purchasing a used vehicle, and they might realize that there are much better options, in terms of pricing and reliability, than Detroit has been able to provide.

Politicians go on and on about saving American jobs, but if they force unproductive, unreliable, mismanaged companies to stay in existence, is that really going to provide long-term stability for workers? Bailouts in the 1980s evidently didn’t solve the problems then and they certainly won’t today.

Most disturbing is the lack of legal grounds of the federal government’s intrusion. Where in the Constitution does it give the government authority to allocate “emergency” funds to the private sector? Where in the Constitution does government have any authority to allocate any amount of funds to the private sector, individuals, or groups? Where in the Constitution does it give authority to the government to fire and replace a CEO of a private business?

The regulation made by consumers through supply and demand will far outlast a government intervention, program, or agency. Consumers clearly showed that they didn’t believe their dollars were best spent buying a vehicle made in Detroit. But because the government can’t resist coming to the rescue, their forcefully extracted taxpayer dollars are being used to give special treatment to corporations who manage to have greater lobbying power than smaller businesses.

It’s as simple as that. Consumers showed that Detroit, AIG, Bear Stearns, Freddie Mac, Fannie Mae, hundreds of banks, and much of the financial establishment were not doing business with the individual in mind. Yet the government will not allow the businesses that were overcome with greed and stupidity in high places to come crashing down as the market consistently urges. Instead, politicians somehow see logic in condemning all the various corporations while funneling billions and trillions of dollars to those same corporations.

Supply and demand, put in the hands of free individuals, is what a strong economy and society is built upon. Government cannot change the course of an economy for good by taxing some and giving to others, attempting to spend, borrow, and print the economy out of a recession, or by assuming that it knows the solutions to the problems of individuals and the economy. This statement from George Washington ought to serve as an example of the best government can be in these matters:

“Our commercial policy should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce, but forcing nothing.”

Impartial Hand. Natural course of things. Forcing nothing. Does this resemble our government’s role in the economy today? Amazingly, some people think it does.

Washington, and many of the Founding Fathers, envisioned a government that largely stayed out of the affairs of the people and economy, and maintained a neutral balance. This neutrality and resistance to intervention is what strengthens the choices of the free men and women of this country; government intervention destroys that balance and ignores the long-term consequences of short-term actions.

The business of bailouts, intervention into private affairs of the economy, and special treatment for a select few do not come close to representing the impartial hand that Washington spoke about.

A truly impartial government, focused on providing equal justice for all individuals, gives greater ability for the laws of supply and demand to chisel at the risks, mistakes, successes, and opportunities created by a free people, economy, and society.

Antitrust laws have gone increasingly unquestioned since they were created in 1890 by the Sherman Antitrust Act. It is said that “monopoly power” leads to restrictive trade, higher prices, and decreased competition. While this statement certainly has truth, very few people understand it and the issue most definitely is not solved through the antitrust laws or created by the free market.

Oppressive monopolies will never be created by consumers and free individuals. If a “monopoly” were to appear in a free society because people liked the product, low price, and high quality, why should that be considered illegal? If a business grows in size because people voluntarily buy its product, there is nothing in the least oppressive about it. Today, though, the government is on the hunt for companies who are too big and represent a danger to consumers.

In 1914, through the Federal Trade Commission Act, the Federal Trade Commission (FTC) was established. Its mission in a nutshell is to engage in “consumer protection” by patrolling for and breaking up anti-competitive monopolies. Sounds nice, doesn’t it? Unfortunately, the logic still doesn’t make sense.

In a free market economy people are given the freedom to use their money in the ways they see best. In nearly every case, this involves finding the best product for the lowest price. When companies like Wrigley’s, YouTube, Google, and countless others have a strong and growing market share, it is because people find their services and products the best value.

What the FTC assumes is that there are cases when a business will gain huge control over a market and use that to crush competition. The question you have to ask is, How did that business become that large in the first place? In a free market it would occur voluntarily from consumers, and its success would remain dependent on the people who got them there to begin with. If its customers were to back out and the company failed to change its practices, the business would not last. In a true, voluntary free market system it is the regulatory power of the individual, not a government agency, that controls the fate of a business.

“Consumer protection” is not something the government can empower through an agency. The one role the government has in protecting the consumer is protecting the consumer’s right to make his own decisions without the hand of government influencing the decision through force. When the government starts making the regulatory decisions, the power of individual decisions (which a free market is built upon) becomes greatly diminished, skewed, and loses much of its influence.

A recent example of the FTC’s intrusion is its dealings with Whole Foods’ $565 million buyout of Wild Oats over the course of 2007 and 2008. The FTC charged that because of the buyout, Whole Foods would suddenly be able to dramatically increase prices, destroy competition, and essentially control the organic food retail market. There are several faults with the FTC’s theories.

For one thing, Whole Foods and Wild Oats, while some of the larger national organic food chains, do not have near that much influence over the organic food industry. The theory assumes that Whole Foods and Wild Oats purchase all the organic produce in the country, therefore controlling the supply. This in itself is ludicrous. Whole Foods’ revenue over the past year has totaled approximately $8 billion, while the sales of the organic food industry reached approximately $25 billion last year.

Secondly, Whole Foods brought on a good deal of debt to achieve the buyout. Raising prices beyond what consumers are willing to pay would lead to the company’s bankruptcy rather quickly. There is nothing forcing people to shop at Whole Foods, yet the FTC again makes this assumption.

Third, and most obviously, there are many stores where organic food is widely available as the industry quickly increases in size. The FTC made its attacks based on the strange idea that Whole Foods and Wild Oats controlled the organic food industry. There is no reasoning or statistic basis for these arguments, yet because it was the bidding of the FTC, the legal battles waged on for about one year.

What’s especially ironic here is that while this battle was being waged in the name of “consumer protection”, billions of dollars were being handed out to Fannie Mae and Freddie Mac, two government-created corporations who you could say do have near monopolistic power over areas of mortgages. Don’t forget Bear Stearns, AIG, the auto businesses, and all the banks who were given billions of taxpayer dollars. Where was the FTC fighting for “consumer protection”?

When the government says that a company is “too big to fail,” doesn’t that mean it has a monopoly status? Since when does the government decide which companies can and can’t fail, all while funding the FTC to investigate, accuse, and battle individual businesses?

Anti-competitive businesses, which is the FTC’s stated purpose to prevent, are not created and do not succeed with a free market system. But they most certainly are created with a  government-influenced economy where the government grants special favors to businesses, punishes others, and decides what companies succeed and fail. A free market, in which people can make their own decisions, will not and does not create harmful monopolies. Harmful monopolies can only be created with help from the government in one form or another.

With the escalation of unnecessary and abusive antitrust laws, government-supported and government-created corporations, and government bailouts, one thing is becoming much more clear. A business is no longer created for the benefit and liking of the customer, it is built for the approval and bidding of the government.

It is no longer the customers who control the fate of a business, but the government. It is no longer the individuals who have the supreme regulatory power, but the government. It is no longer the shareholders’ responsibility to control a business, but the government’s. It is no longer the people who rule the government, but the government who rules the people.

Truth, though, is never-ending and in the long run is the one thing that is sure to be victorious. Governments, tyrants, and central planners use everything in their power to destroy the laws of truth, freedom, and responsibility. But history has shown that it is those very laws of truth, freedom, and responsibility that lead to the inevitable destruction of deceitful principles, manipulation, and fraud, no matter if it is brought about by individual people or entire governments.

Therefore, it is these laws of truth, freedom, and responsibility, that will bring us back to our senses:

It is the customers who control the marketplace, not the government. It is the shareholders who make business decisions, not the government. A business is created to serve the people, not the government. Businesses answer to customers, not the government.

It is the people who know the best for themselves. Not the government.

This is part of the ongoing Recommended Video archive.

It was in the 1750s when taxation without representation began gaining political steam in the American colonies. The colonists were frustrated by the fact that King George and a powerful British Parliament were able and willing to lay taxes on people who did not have any direct representation of the government. What’s important is that it was not a certain tax that got people riled up, it was the principle that a powerful few can dictate laws to people who have no say in the matter.  The Boston Tea Party was not simply about rebellion to the small tax on tea, it was a statement and effort against taxation without representation.

I bring this up because this is my first year paying taxes. I work a part time job for a self-employed online bookseller. Every time I am paid, an automatic amount is siphoned out for the federal income tax, Medicare, and Social Security. Recently I got to thinking about it. Do I have any say in this matter? How have I at all been represented for these taxes I’m required to pay?

Being a teen, it is hard enough getting a “legal” job. Thanks to state and federal law it is next to impossible to legally work before you are sixteen, due to minimum wage controls and child labor laws. The government will prevent two consenting parties from entering into a labor agreement, simply because one of the people is under sixteen or won’t be paid $9 an hour.

I am not saying I support the idea of seven year olds working in coalmines. Forceful or fraudulent contracts certainly must be punished, and the right to unionize is essential for all workers. But the laws, restrictions, and minimums that are put in place for the “working class” end up decreasing efficiency and take away or heavily limit job opportunities. I can say this from personal experience. The intentions of labor laws aren’t bad, but have grown far too complicated, unnecessary, and end up doing more long-term harm than good.

These are the thoughts going through my mind as I file my personal information with the IRS, an agency originally started to benefit the lower classes by taxing the wealthy. I cannot vote, I have not had any opportunity to represent myself with public policies, yet the government takes roughly 12% out of my paycheck. It does not matter that legally I cannot even drink, smoke, or vote; any money I make, the government will forcefully take a portion. As long as there is money to be had, the heavy hand of state comes crashing in.

The programs that I am forced to contribute to are laughable in their own right. The principles behind Social Security assume when government takes privately earned wealth, gives it to some bureaucrats, who then redistribute it fifty years later, that it will do more good than if people made their own choices about where they spend, save, or invest their money. I’ve already invested approximately $8,000 of the money I have earned over the course of my life (a good amount for someone my age), yet the government somehow has it in its head that it can make smarter decisions than me or anyone else. I do not need the government to take money from me in order to make my retirement easier. It is not their responsibility or business to make a decision that should purely be mine, plain and simple.

The chief purpose of government is no longer to protect natural rights; the tax system alone is enough to prove that. We are assumed guilty until proven innocent, our privacy is embarrassingly invaded, and no longer do we have the right to the fruits of our labor. In my case, I don’t even have the chance to vote for the person who wants to take away my money.

Don’t forget what Benjamin Franklin said regarding taxes:

“It would be thought a hard Government that should tax its People one tenth Part of their Time, to be employed in its Service.”

Over the past century lawmakers of the U.S. have become more concerned with tinkering around the edges than with actually analyzing the principles. We have given in to the flawed idea that government can force us to pay into various agencies and require citizens to have a number to keep them within those programs (Social Security numbers). It is becoming increasingly clear that government is gradually taking over the primary right to private property.

The early people of the Thirteen Colonies would not have made it very far if their only aim of the Boston Tea Party was to abolish the tax on tea. The greatest accomplishments in history are fulfilled by revolutionizing principles and the way people think. The colonists were sick of taxation without representation, and they went the full mile to eliminate that idea.

The way I see it, whether the income tax is at 1% or 95% is meaningless in the long run. The principle of government intrusion and power over property is there regardless of the rate at which it is enforced. Ever since the early 20th century, the U.S. has been built upon illusionist, tyrannical, invasive principles of taxation and power.

A nation will not succeed or fail because it’s tax rate is high or low, it is the principles upon which it is built that will lead to its everlasting success or painful demise. Ever since the U.S. veered off the path of personal liberty, Constitutionally limited government, and empowered responsibility, it has been riding on principles lacking in reason, morality, and natural legality. No country, government, or society has ever succeeded on principles neglecting freedom and individual liberty. It will not be a tax, enemy, or person who runs a country into the ground, it will come at heart simply because of a flawed principle.

It is time for the U.S. to return to the principles of a free nation. Cutting a tax, enacting a law, or creating a new regulation is not going to change the destiny, or lack thereof, of the U.S.

Solid principles alone control the will and fate of any country and people. Freedom does not come from government. No matter how many times it is ignored, stomped on, and abused, it does not matter. Freedom alone is the only principle that naturally destroys government power, elitism, and abuse, while masterfully strengthening individual creativity, responsibility, and sustainability.