Historical Perspectives on the Federal Income Tax
The creation of “money” through credit, borrowed upon the assets of the “people” known as The United States.
Congressional Record-House, Volume 88, July 16,1942, page 6280.
Congressmen Voorhis of California and Crawford of Michigan:
“Mr. Voorhis, My question is whether the gentleman does not believe that the cost of that war ought to be covered by tax revenues plus the sale of bonds to individuals who pay for those bonds with already created money; not with new money?
Mr. Crawford, I would go along with you on that much more preferably to placing those war issues in the portfolios of the commercial banks, thus creating new and check-book money which is, in my opinion, highly destructive.
Congressional Record-House, Volume 88, July 17, 1942, page 6336-39.
Congressman Patman of Texas:
“… How will that $30,000,000,000 be provided? Under the existing system it will be provided by permitting private commercial banks to create that money upon their books by a bookkeeping transaction and paying nothing whatsoever for it. …
Most of those banks are in New York City. I have a list of them here. Do you think that those 20 banks had $11,000,000,000 to lend the Government? Why certainly then did not have that money. Their entire capital stock is only $732,000,000, yet they have actually lent this Government $11,000,000,000. Does that make sense to you? They have loaned the people’s credit and charged them interest for it. …
There are two ways to create it. One way is by the commercial banks. The other way is by the Government. I would like any Member to explain to me why the American people should be forced to pay $6,000,000,000 a year interest on created money on the Government’s own credit. If anybody has an answer to that I will yield to them now. …
The first is that the 12 Federal Reserve Banks are privately owned. Not one penny of stock is owned by the Government or the people. They are owned by the commercial banks of the country. These 12 banks have the money issuing privilege. The Congress of this country has farmed out to them the free privilege of issuing money upon the credit of the Government of the United States. …
Another fact that is undisputable is that when those 12 Federal Reserve Banks buy Government bonds, and they have purchased nearly $3,000,000,000 worth now, they do not pay one cent for those bonds except that they have to pay 30 cents per $1,000 for the cost of printing the money to buy those bonds. When they pay that 30 cents per $1,000 for that money they buy these bonds in the open market. They pay 30 cents per $1,000 for one form of Government debt which is in the form of paper currency and is non interest bearing and exchange it for another form of Government debt that is interest bearing….
Let us take $1,000,000,000 worth of them drawing two and one-half percent interest. That is $25,000,000 a year they receive in interest. For the small sum of 30 cents per $1,000, the cost of printing, they buy $1,000,000,000 worth of bonds and keep them from now on and collect $25,000,000 a year.”
Mr. Voorhis, …on the basis of the Federal Reserve report for May
8, over 99 percent of all the earning assets of the 12 Federal Reserve
Banks consist of Government securities which have been purchased in precisely
the way which the gentleman described. …
Mr. Patman, … When the commercial banks of this country buy Government bonds they do not pay anything for those bonds. They merely give the Government credit upon their books. They are not out one penny; not one red penny. …
That is right; but in this country the United States is sovereign. It has the only money-creating power. The counties must borrow money, the cities must borrow money, and the citizen or the corporation must borrow money, and they must pay interest because they do not have the money creating power. But the United States Government, that has the money-creating power, and the only money in use is created by the United States Government—why should the Government go out and pay private banks to create the Government’s own money? …
Mr. Ditter [page 6339]. Mr. Chairman, for almost a decade the administration has taken pride in its profligacy. It has boasted of its bounties and its benefactions. It has been entirely unmindful of the intensely practical problem of payment. It has advance the adoption of the philosophy that debts meant nothing since we owed them to ourselves. … The billions of prodigal dissipation are our portion today as the prospect of a reduced standard of living for our people looms before them. The joy ride is over. Rationing is here.”
The major influence on inflation was the increased taxes necessary
to pay for the welfare system and the war effort; which in turn, was paid
for by creating “money” from nothing.
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