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* 16 th & 17 th Amendments + FRB * 


“I love Sir Allen Greenspan!” says the Queen of England 



Why was this man knighted?! 

What did Greenspan do for England to obtain such an award? 
Who was behind the passing of the 1 6 th Amendment? 
Who was behind the passing of the 17 th Amendment? 

Who was behind the passing of the Federal Reserve Bank Act? 
What is the purpose of these alleged enactments? 


Volume 12, December 2002 


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DOWNLOADED FROM: 


Sovereignty Education and Defense Ministry 

(SEDM) Website 

http://sedm.org 







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Table of Contents 


Introduction 004 

An Excise Tax upon the Privilege of Doing Business 009 

as an Artificial Entity 

Congressional Record-Senate June 16, 1909 Oil 

Senate Document No. 154 (1924) 014 

The Constitution of the United States 015 

Who Worded the 16 th Amendment? 019 

Constitutional Income 021 

Aldrich’s Scheme 026 

Sixteenth Amendment 038 

Who was Philander Knox 039 

The Law that Never Was 044 

The 17 th Amendment Scam 052 

The 17 th Amendment 056 

The Worlds most Exclusive Club 060 

A Nation in Hock 062 

The Most Secret Science 072 

John L. Lewis VS. United States 087 

Title 12, Sec 341 094 


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Chart I Ownership of the FED 095 

SC Private Letter Ruling #90-1 096 

31 CFR 328.5 099 

31 USC Sec. 321(d) 100 

31 USC Sec. 321 101 

How your Local Bank Defrauds You 105 

FOIA Request for 6001 Notice 107 

The $100,000 bill Ill 


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Introduction 


What happened to our country in 1913 before any of us were even 
bom? How do those events of 1913 effect us today? These are the subjects 
of this month Dispatch. 

Before we can start to understand the 1913 events, we need to go back 
and review the “Administrative Equity, VIP Dispatch”. Review what we 
said about Equity and how Equity was the fuel needed to power the 1 6 th and 
17 th amendments and the Federal Reserve Act. 

The Law of Equity enabled the powers that be “International 
Banksters” to get their more then equitable share of the American dream 
without doing any real hard labor. They simply took control of the political 
process at the time through their agents like Paul Warburg, Jacob Schriff, 
and also a host of others by promising them a piece of the American dream 
also along with their families. 

The Supreme Court mled that the 1 6 th Amendment created no new 
taxing powers. If you read the propaganda newspaper articles at the time it 
was portrayed as a taxing amendment that would soak the rich and not 


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bother the little guy. As we now know few rich people pay any tax at all and 
most large corporations pay no tax also. 

The IRS admitted in the hearings of 1998 the majority of people they 
went after made $25,000.00 or less. We know many people in the system 
who have more taxes going out of their paychecks than they take home. We 
ask them what is going to happen to them five years from now or even ten 
years from now? Are you going to keep working until you owe the Feds 
money for working? It’s sure nice to know that there are a lot of people who 
love to pay their unfair share and will continue to do so until they have no 
“share” to give at all. 

We learned a long time ago that it was almost impossible for the 
average American to own anything in his or her name. They only give us 
the illusion of owning something. People will tell us “I own my car!” Nope, 

look at the title at the top it says “State of ”. “I own my house!” 

Nope, just look at your deed and if you don’t pay those property taxes, the 
house is gone. Then we have people who will say that their “Drivers 
License”, that they paid for, is theirs. Nope, look whose name is on it. “The 
State of ”. How about your kids? They are not yours either. Did 


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you and your spouse get a state marriage license? Were you married by a 
state official or a Title 26, 501(c) (3) corporate religious officer? Actually 
you were officially married as soon as you purchased that state marriage 
license or should we say as soon as you paid the tax on the privilege of you 
and your spouse getting “married” to the state. Also the state can come and 
take your children away through children’s services anytime they wish based 
upon any pretext. As we have seen at Ruby Ridge Idaho, Waco Texas, the 
Murrah building in Oklahoma City, the “Feds” can get even away with the 
outright act of killing children. 

iL 

Now you could say that the passage of the 1 6 Amendment did not 
cause all that. We never said it did. But, let’s turn up the temperature of the 
pot of boiling equity law and look at the 1 7 th Amendment. 

The Senators were in the Organic Constitution of 1787 to be chosen 
by the State Legislator not by the electors of the state. These senators were 
chosen by the state legislators to protect state rights. The people in the states 
voted for their representative to the House of Representatives in Washington 
D. C. to speak for them, and to protect their substantive rights. Notice the 
section that the 1 7 Amendment supposedly did away with in the 


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Constitution is still there. It was never removed, just bypassed. Look at 
what a mess this has gotten us into, as Federal Senators are no longer 
answerable to anyone. The mainstream media doesn’t cover their voting 
records. So, if you ask someone how their Senator voted on a certain bill 
they don’t have a clue. But, if you ask them how many swings it took Tiger 
Woods to win the Open or who won the Indy 500 in a particular year, they 
can tell you. “Specific indifference” or “who cares”. Equity takes over and 
our substantive rights are long gone. 

We see and hear all the hype by some people about the 1 6 th 
Amendment, but those same people say nothing about larger issues such as 
those concerning the 1 7 Amendment. 

Now, at last, we get to the stake that was driven through the heart of 
our Montery system that was set up in the organic constitution of 1787. 
Remember the little clause in that document that talks about Gold and 
Silver? Almost out of nowhere came the Federal Reserve Banking Act of 
1913. What was it designed to do? What did it accomplish? For whom? 
Why? Who actually wrote the Act itself? Who spoke out against the 
passage of the Act but actually pushed for its passage behind the scenes. 


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Who was sent from Germany with lots of money to make sure it actually got 
passed. Who stole our Gold in 1933 and had it deposited with the Federal 
Reserve Bank? Why has there never been an accounting of the Federal 
Reserve Bank? Why is your tax money deposited into the Federal Reserve 
Bank? Why are all customs duties deposited into the Federal Reserve Bank? 
Why under section 904 of the Social Security Act are all the moneys 
deposited into the Federal Reserve Bank? Who wrote that section into the 
Social Security Act of August 14 th , 1935? Why? Where did that section 
come from? Who said in 1935 that the Social Security Trust Fund was a 
joke on the American people and that there was to never be any money put 
into that trust fund? Why did the Queen recently knight Allen Greenspan? 
We hope you know it is very, very, politically incorrect to bring up these 
issues, much less to discuss them openly as though you have a Fundamental 
Right to free speech. 


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An Excise Tax upon the Privilege of Doing Business as 

an artificial entity 


A. Congressional Record - Senate June 16, 1909 sent to the Senate by 
President Taft. 

B. The Supreme Court struck down the prior income tax legislation so here 
comes William Taft wanting a graduated inheritance tax which he says 
would be easy to collect 

C. On page 12, at the arrow, we see the discussion about an excise tax as 
opposed to a corporation income tax. 

1 . Read the next paragraph. It says “all [Federal] Corporations” and goes on to say, 
“this is an excise tax upon the privilege of doing business as an artificial entity.” 

2. In some of the Social Security court cases the Court states that Social Security is 
an excise tax upon the privilege of working for a corporation. 

a. Working for the federal government has been held to be a privilege, not a 
right. 

D. We have been turned into a Nation of privileges having been induced 
into giving up our substantive rights. 

1 . We have known for years that we have traded our rights for privileges. We have 
seen groups come and go who pop up with some new hot program dealing with 
tax topics or legal issues, but they just don’t usually hang around very long 
because they fail to recognize certain long held legal principles. Many of these 
groups or people will, when the pressure comes down, take the money and run 
leaving the people they hoodwinked in a major bind if the local, state, or Feds 
don’t get them first. 

2. Most of those groups and individuals have come up with a ploy to induce people 
to buy into their program, whatever it is, and they usually don’t have experience 
with or care about what will happen to their program as they go against the tide 
of government. 

E. We want to educate people so they can make their own decisions. With 
this background of education, hopefully, people will not be so easily 
induced to hop on board of the newest patriot hoax but instead ask 
pertinent questions. 


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1 . We get calls weekly by those wanting us to join them in some old or new hoax 
from filing a national lawsuit against the IRS, to selling a couple of silver bullet 
letters, that will magically end someone’s IRS problems, for a few thousand 
bucks. 

2. Why would we join in league with someone who has never been through our IRS 
course Level I, II, and III courses, or who does not even subscribe to the 
“DISPATCH”. 

F. In all our years of study we find few people winning by fighting against 
the whole system. You’ll have a hard time getting water to run up hill. 

1 . So, you are in the system like everyone else who has been induced into through 
ignorance or complacency. We recognize that. If you have an IRS problem why 
not just take care of THAT problem and not create a whole host of other 
problems that you don’t need to bring on. 

2. Think twice before getting in over your head. Some of these arguments are 
“designed to fail”. Now, who would promote such arguments? Perhaps the 
System? 


10 



CONGRESSIONAL RECORD-SENATE JUNE 16, 1909 


PAGES 3344-3345 


The Secretary read as follows: 

To the Senate and House of Representatives: 

It is the constitutional duty of the President from time to time to 
recommend to the consideration of Congress such measures as he shall 
judge necessary and expedient. In my inaugural address, immediately 
preceding this present extraordinary session of Congress, I invited 
attention to the necessity for a revision of the tariff at this session, and 
stated the principles upon which I thought the revision should be 
effected. I referred to the then rapidly increasing deficit and pointed out 
the obligation on the part of the framers of the tariff bill to arrange the 
duty so as to secure an adequate income, and suggested that if it was 
not possible to do so by import duties, new kinds of taxation must be 
adopted, and among them I recommended a graduated inheritance tax as 
correct in principle and as certain and easy of collection. The House of 
Representatives has adopted the suggestion, and has provided in the bill 
it passed for the collection of such a tax. In the Senate the action of its 
Finance Committee and the course of the debate indicate that it may not 
agree to this provision, and it is now proposed to make up the deficit 
by the imposition of a general income tax, in form and substance of 
almost exactly the same character as. that which in the case of 
Pollock v. Farmers' Loan and Trust Company (157 U. S.. 429) was 
held by the Supreme Court to be a direct tax fUnconstitutonall, and 
therefore not within the power of the Federal Government to Impose 
unless apportioned among the several States according to 
population. This new proposal, which I did not discuss in my inaugural 
address or in my message at the opening of the present session, makes it 
appropriate for me to submit to the Congress certain additional 
recommendations. [Clarification added] 

Again, it is clear that by the enactment of the proposed law the Congress 
will not be bringing money into the Treasury to meet the present 
deficiency. The decision of the Supreme Court in the income-tax 
cases deprived the National Government of a power which, by reason 
of previous decisions of the court, it was generally supposed that 
Government had. It is undoubtedly a power the National Government 
ought to have. It might be indispensable to the Nation's life In great 
crises. Although I have not considered a constitutional amendment as 
necessary to the exercise of certain phases of this power, a mature 
consideration has satisfied me that an amendment is the only proper 


11 











course for its establishment to its full extent . I therefore recommend to 
the Congress that both Houses, by a two-thirds vote, shall propose 
an amendment to the Constitution conferring the power to lew an 
income tax upon the National Government without apportionment 
among the States in proportion to population, (emphasis added) 

This course is much to be preferred to the one proposed of 
reenacting a law once judicially declared to be unconstitutional . For 

the Congress to assume that the court will reverse itself, and to enact 
legislation on such an assumption, will not strengthen popular 
confidence in the stability of judicial construction of the Constitution. It 
is much wiser policy to accept the decision and remedy the defect by 
amendment in due and regular course. 

Again, it is clear that by the enactment of the proposed law the Congress 
will not be bringing money into the Treasury to meet the present 
deficiency, but by putting on the statute book a law already there and 
never repealed will simply be suggesting to the executive officers of the 
Government their possible duty to invoke litigation. If the court should 
maintain its former view, no tax would be collected at all. If it should 
ultimately reverse itself, still no taxes would have been collected until 
after protracted delay. 

It is said the difficulty and delay in securing the approval of three-fourths 
of the States will destroy all chance of adopting the amendment. Of 
course, no one can speak with certainty upon this point, but I have 
become convinced that a great majority of the people of this country are 
in favor of investing the National Government with power to levy an 
income tax, and that they will secure the adoption of the amendment in 
the States, if proposed to them. 

Second, the decision in the Pollock case left power in the National 
Government to levy an excise tax, which accomplishes the same purpose 
as a corporation income tax and is free from certain objections urged to 
the proposed income tax measure. 

I therefore recommend an amendment to the tariff bill Imposing 
upon all fFederall corporations and fFederall joint stock companies 
for profit , except national banks (otherwise taxed), savings banks, and 
building and loan associations, an excise tax measured by 2 per cent on 
the net income of such corporations. This is an excise tax upon the 
privilege of doing business as an artificial entity and of freedom from 
a general partnership liability enjoyed by those who own the stock. 
[Clarification added] 

I am informed that a 2 per cent tax of this character would bring into the 
Treasury of the United States not less than $25,000,000. 


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The decision of the Supreme Court in the case of Spreckels Sugar 
Refining Company against McClain (192 U. S., 397), seems clearly to 
establish the principle that such a tax as this is an excise tax upon 
privilege and not a direct tax on property, and is within the federal power 
without apportionment according to population. The tax on net income is 
preferable to one proportionate to a percentage of the gross receipts, 
because it is a tax upon success and not failure. It imposes a burden at 
the source of the income at a time when the corporation is well able to 
pay and when collection is easy. 

Another merit of this tax is the federal supervision which must be 
exercised in order to make the law effective over the annual accounts and 
business transactions of all corporations. While the faculty of assuming a 
corporate form has been of the utmost utility in the business world, it is 
also true that substantially all of the abuses and all of the evils which 
have aroused the public to the necessity of reform were made possible by 
the use of this veiy faculty. If now, by a perfectly legitimate and effective 
system of taxation, we are incidentally able to possess the Government 
and the stockholders and the public of the knowledge of the real 
business transactions and the gains and profits of every corporation in 
the country, we have made a long step toward that supervisory control of 
corporations which may' prevent a further abuse of power. 

I recommend, then, first, the adoption of a joint resolution by two-thirds 
of both Houses, proposing to the States an amendment to the 
Constitution granting to the Federal Government the right to levy and 
collect an income tax without apportionment among the States according 
to population; and, second, the enactment, as part of the pending 
revenue measure, either as a substitute for, or in addition to, the 
inheritance tax, of an excise tax upon all corporations, measured by 2 
per cent of their net income. 

Wm. H. Taft. 

THE WHITE HOUSE, June 16, 1909. 


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Senate Document No. 154 (1924) 


A. The CONSTITUTION as amended to December 1, 1924 by the 68 th 
Congress, First Session. 

1 . The following few sections have been extracted from the above book and is the 
oldest (1924) Senate approved and printed by the GPO that we have in our 
collection for this time frame. 

2. We chose these pages because they contain the 16 th and 17 th amendments with 
the annotated information from 1924. 

3. Make sure you read these pages carefully especially page 745 of this section at 
the arrow, “When applying the sixteenth amendment and income tax laws 
enacted under it, the courts must regard matters of substance and not mere form.” 

4. Now, all of that is gone and the substance and form have been turned into Legal 
Fictions under Administrative Equity. 

B. Do not miss the section on page 746 almost at the bottom about “Salary 
of Federal Judges.” 

1 . Salary of a Federal Judge was originally to be immune from an income tax. 

2. This induced the Federal Judges to go along with the 16 th Amendment and to 
hand down favorable rulings. 

3. After the Federal judges had been sucked in and thought they were on easy street, 
they had the rug jerked out from under them and they had to start paying. At 
least they did put up a fight, but to no avail. 

4. No more independent judiciary. 

C. There is also a section concerning the 17 Amendment so when we refer 
to the 16 th or 17 th Amendment in this “DISPATCH” you can turn back 
and read it again. 


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Sixty-Eighth Congress, First Session 


Senate Document No. 154 


I 



THE 

CONSTITUTION 

OF THE 

UNITED STATES OF AMERICA 

AS AMENDED TO DECEMBER 1, 1924 

(ANNOTATED) 


WITH CITATIONS TO THE CASES OF THE 
SUPREME COURT OF THE UNITED STATES 
CONSTRUING ITS SEVERAL PROVISIONS 
COLLATED UNDER EACH PROVISION 



WASHINGTON 

GOVERNMENT PRINTING OPFICB 
1924 


15 


AMENDMENTS 16-19.— RECENT. 

Amendment 16. — INCOME TAX. 1 

The Congress’sliall have power to lay and collect taxes 
on incomes, from whatever source derived, without appor- 
tionment among the several States, and without regard to 
any census or enumeration. 

In General 

It is clear on the face of this text that it does not purport to 
confer power to levy income taxes in a generic sense — an au- 
thority already possessed and never questioned — or to limit and 
distinguish between one kind of income taxes and another, but 
that the whole purpose of the amendment was to relieve all in- 
come taxes when imposed from apportionment from a consider- 
ation of the source whence the income was derived. In Bru- 
shaber v. Union Pac. R. Co. (240 U. S. 17) the court said : 

There is no escape from the conclusion that the amendment was drawn 
for the purpose of doing away for the future with the principle upon 
which the Pollock case was decided; that is, of determining whether a 
tax on income was direct not by a consideration of the burden placed on 
the taxed income upon which it directly operated, but by taking into 
view the burden which resulted on the property from which the Income 
was derived. 

See also — 

Pollock v. Farmers’, etc., Co., 157 U. S. 429; 15S TJ. S. 601. 

Stanton v. Baltic Min. Co., 240 U. S. 103. 

Tyee Realty Co. r. Anderson, 240 U. S. 115. 

Peck v. Lowe, 247 U. S. 165. 

Southern Pac. Co. v. Lowe, 247 U. S. 330. 

Questions of taxation must be determined by viewing what 
was actually done rather than the declared purpose of the par- 
ticipants. When applying the sixteenth amendment and income 
tax laws enacted under it. the courts must regard matters of 
substance and not of mere form. 

Weiss v. Steam. 265 U. S. 242. 

Burk- Waggoner Oil Assn. r. Hopkins, 296 Fed. 492. 

In Smietanka v. Bank (257 U. S. 602) it was held that the 
income tax act made no provision for taxing income held and 
accumulated by a trustee for unborn and unascertained bene- 
ficiaries. 

In De Ganav v. Lederer (250 U. S. 376) the court sustained 
a Federal tax upon the income from stock, bonds, and mort- 
gages owned by alien nonresidents, but in the hands of a resident 
agent. 


* This amendment takes income taxes oat of the apportionment provision of Art. I, sec. 
2, cl. 3. For ratification, see p. 31. 


745 


16 



i -iO 


jLMUHiAi 1 O -tUXC/iXA 1 . 


Amend. 16. — Income Tax. 

In Atlantic Coast Line v. Daughton (262 U. S. 413) it was 
held that taxation of income from property, as distinguished 
from income of owner is constitutional. 

In U. S. v. Boss and Peake, 285 Fed. 410, it was held that 
retrospective income tax law was not unconstitutional. 

Taxation of Dividends 

’ Congress was at liberty, under this amendment, to tax as in- 
come without apportionment everything that became income in 
the ordinar}- sense of the word after the adoption of the amend- 
ment. including dividends received in the ordinary course by 
a stockholder from a corporation, even though they were 
extraordinary in amount and might appear upon analysis to be a 
mere realization in possession of an inchoate and contingent 
interest that the stockholder had in surplus of corporate assets 
previously existing. 

Lynch v. Hornby, 247 U. S. 339. 

Stock Dividends 

The word “ income ” as used in this amendment does not in- 
clude a stock dividend. Such a dividened is capital and not 
income and can be taxed only if the tax is apportioned among 
the several States in accordance with Article 1, section 2, 
clause 3, and Article I, section 9, clause 4 of the Constitution. 

Eisner v. Macomber, 252 U. S. 189, following Towne v. Eisner, 
245 U. S. 418. 

U. S. v. Phellis, 257 U. S. 156. 

Rockefeller v. U. S., 257 U. S. 176. 

Miles v. Safe Deposit Co., 259 U. S. 247. 

Property Outside the United States 

Congress has power to tax the income received by a native 
citizen of the United States domiciled abroad from property 
situated abroad. 

Cook v. Tait, 265 U. S. 47. 

Proceeds of Life Insurance 

A construction of a war taxing act as imposing both an income 
and an estate tax on the proceeds of life insurance should be 
avoided unless required in express terms. 

U. S. v. Supplee-Biddle Co., 265 U. S. 189. 

Salary of Federal Judges 

This amendment does not extend the taxing power to new or 
excepted subjects, but merely removes all occasion otherwise 
existing for an apportionment among the States of taxes laid 
on incomes from whatever source derived. 

Evans v. Gore, 253 U. S. 245, reversing 262 Fed. 550, and holding 
that the salary of a Federal judge was immune from an income 
tax by virtue of Article III, section 1, prohibiting the diminishing 
of a judge’s salary during his term of office. 

Domestic and Foreign Corporations 

Income tax not unconstitutional because of inequality as 
between domestic and foreign corporations. 

National Paper Co. v. Edwards, 292 Fed. 633. 

17 



AMENDMENTS — KJLUJ^rs t. , * , 

Amend. 17. — Popular Election of Senators. 

Amendment 17— POPULAR ELECTION OF SENATORS. 1 

The Senate of the United States shall be composed of 
two Senators from each State, elected by the people there- 
of, for six years; and each Senator shall have one vote. 

The electors in each State shall have the qualifications 
requisite for electors of the most numerous branch of the 
State legislatures. 

When vacancies happen in the representation of any 
State in the Senate, the executive authority of such State 
shall issue writs of election to fill such vacancies: Pro- 
vided, That the legislature of any State may empower the 
executive thereof to make temporary appointments until 
the people fill the vacancies by election as the legislature 
may direct. 

This amendment shall not be so construed as to affect 
the election or term of any Senator chosen before it be- 
comes valid as part of the Constitution. 

In U. S. v. Aczel (219 Fed. 917) it was said that the right 
to vote for United States Senators is not derived merely from 
the constitution and laws of the State in which they are chosen 
but has its foundation in the Constitution of the United States. 

Amendment 18— PROHIBITION OF INTOXICATING LIQUORS.* 

Section 1. After one year from the ratification of this 
article the manufacture, sale, or transportation of intoxi- 
cating liquors within, the importation thereof into, or the / 
exportation thereof from the United States and all terri- 
tory subject to the jurisdiction thereof for beverage pur- 
poses is hereby prohibited. 

Section 2. The Congress and the several States shall 
have concurrent power to enforce this article by appro- 
priate legislation. 

Section 3. This article shall be inoperative unless it 
shall have been ratified as an amendment to the Consti- 
tution by the legislatures of the several States, as provided 
in the Constitution, within seven years from the date of 
the submission hereof to the States by the Congress. 

In General 

This amendment is operative throughout the entire territorial 
limits of the United States, binds all legislative bodies, courts, 
public officers, and individuals within those limits, and of its 
own force invalidates every legislative act. whether by Congress, 

1 This amendment modifies Art. I, sec. 3. For ratification, see p. 31. 

* See p. 32 for ratification. 


18 



Who Worded The 16th Amendment? 

by Otto Skinner 


Nelson W. Aldrich of Rhode Island was the Republican "whip" in the Senate, a business associate of 
J.P. Morgan, and the maternal grandfather of Nelson A. Rockefeller and David Rockefeller. He was a 
member of the Senate Committee on Finance in 1909. He was known as the Wall Street Senator; a 
spokesman for big business and banking. He was wealthy in his own right. One of his "toys" for 
demonstrating his wealth and power was his own private luxurious railroad car. 

A close associate of Senator Aldrich was Paul Warburg, a partner in Kuhn, Loeb & Company, and 
the architect of the Federal Reserve Act of 1913 which authorized private banking firms to essentially 
create money out of nothing and loan it our at interest. Paul Warburg eventually became a member of 
the Federal Reserve Board. While Paul Warburg was involved with the Federal Reserve Banks in the 
United States during WW1, his brother. Max Warburg, was the Director of the Reich Bank in 
Germany and the financial advisor to the Kaiser. To say the least. Senator Aldrich was well 
entrenched with the world banking powers. 

Senator Aldrich was a strong proponent of an "income" tax amendment to the Constitution. The 
congressional records show that finding the proper wording for such an amendment seemed to be a 
bit difficult. Several attempts were made. On June 17, 1909, Senator Norris Brown of Nebraska 
introduced Senate Joint Resolution 39 proposing that the Constitution of the United States be 
amended as follows: 

"The Congress shall have power to lay and collect direct taxes on incomes without 
apportionment among the several states according to population." S.J. Res. 39, as read in 
the Congressional Record Senate, page 3377, June 17, 1909, by Senator Norris Brown. 


The resolution was printed and referred to the Senate Committee on Finance. Those masterminding 
the plan knew that if the amendment authorized a direct tax, it would cause one part of the 
Constitution to come into irreconcilable conflict with Article 1 , Section 2, Clause 3 and Article 1 , 
Section 9, Clause 4. 

Senator Aldrich controlled the discussion regarding the proposed amendment during the hearings in 
the Committee on Finance. He told the committee that he would be gone for a few days and when he 
came back he would tell them how to write the proposed Sixteenth Amendment. A few days later, he 
returned with the new wording as promised. On June 28, 1909, he brought back this new wording to 
the Senate under a new joint resolution (S.J. Res. 40) which DID NOT contain the word "direct", but 
which reads exactly as the sixteenth amendment reads today: 

"The Congress shall have power to lay and collect taxes on incomes, from whatever 


19 



source derived, without apportionment among the several States, and without regard to 
any census or enumeration." S J. Res. 40, as read in the Congressional Record Senate, 
page 3900, June 28, 1909, by Senator Nelson Aldrich. 


The sixteenth amendment was presented to the American people as a "soak-the-rich" scheme. Yet, it 
was the richest of the rich who were in back of the scheme with the purported intention of supposedly 
soaking the rich. They were very careful to write an amendment in a manner that would pass 
constitutional muster in the United States Supreme Court, and yet lead the American people to 
erroneously believe it was an amendment granting Congress some sort of new taxing power. 

Senator Aldrich's connection with the so-called "income" tax and the Federal Reserve System is 
extremely important. Both were designed to fool the American people for the benefit of the private 
banking interests. Both were designed to bleed the hard working Americans of more and more of 
their production and manipulate them, and the nation, into deeper and deeper debt. The Federal 
Reserve System gave private banking interests the license to create money out of nothing (through 
fractional reserve banking) and charge interests on that which was created out of nothing. In the end, 
the bankers win. Senator Aldrich and his cohorts have done their job well. 


20 



Constitutional Income . Do You Have Any 


A. Our good friend Phil Hart spent hundreds of hours putting this book 
together and is extremely informative. 

1 . Some of you have already ordered this book, but please realize that we have a 
number of new people ordering the “VIP Dispatch” who have not. 

a. We want to show those new people and those who failed to order this book, 
number 200, on our list and why they might just want to order this book. 

B. In the next few pages, we have three sections from Phil Hart’s book for 
educational purposes that are quite interesting. 

C. Many of you, like us, have children in school. This book contains 
historical information that you can pass on to your children or 
grandchildren whatever the case may be. If we don’t teach them, who 
will? 

1 . As you read through these three sections we hope you appreciate all the time and 
effort that Phil put into bringing this information to us. 


Section One 


21 




Constitutional Income - Foreword Page 1 of 4 

* Constitutional Income: 


10 Kev Facts 
Table of Contents 


Foreword 


|The First Chapter] 

^boutPhilHa^ 

Nonce 

Petition to 1 
Supreme Ct 


I £1—Er M M\ 

The Liberty Bell 

"Proclaim Liberty Throughout the Land 
To All the Inhabitants Thereof' 

— Leviticus 25:10 — 

Foreword 

The issue of direct v. indirect taxes has been debated in 
Congress since not long after the constitutional ink had 
dried. From page 1898 of The Annals of Congress (the 
4th Congress, 1797) Representative Williams from New 
York was recorded as reminding Congress of the Roman 
example of direct v. indirect taxation. 

"History, Mr. W. said, informed them 
of the annihilation of nations by 
means of direct taxation. He referred 
gentlemen to the situation of the 
Roman Empire in its innocence, and 


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Constitutional Income - Foreword 


Page 2 of 4 


asked them whether they had any 
direct taxes? No. Indirect taxes and 
taxes upon the luxuries and spices 
from the Indies were their sources of 
revenue but, as soon as they changed 
their system to direct taxation, it 
operated to their ruin; their children 
were sold as slaves, and the Roman 
Empire fell from its splendor. Shall we 
then follow this system? He trusted 
not." 

By the late 1800s and up until the passage of the 16th 
Amendment in 1913 the people of this country demanded 
their legislators levy an income tax on accumulated 
wealth. This was because families such as the Camegies 
and the Morgans were virtually untaxed and controlling 
national politics with their vast and ever-increasing 
fortunes. By reading the Congressional Record, House 
and Senate documents, newspapers, magazines, law 
journal articles of the time and the writings of the people 
who were intimately involved in the development of the 
16th Amendment, we will find that the intent was to tax 
the annual profit from unincorporated businesses and the 
net annual income from personal property. Wages and 
salaries from labor were not considered income within the 
original meaning and intent of the 16th Amendment. 

Taxes on labor, as currently collected by the IRS as an 
"income" tax, cannot be described as anything other than 
a direct tax. 

Senator Norris Brown from Nebraska, the man who 
wrote the 16th Amendment, defined clearly what income 
was and what the income tax was intended to accomplish. 
Not once did Sen. Brown mention that Congress intended 
to pass an amendment that would grant the federal 
government a new power to directly tax the wages or 
salaries of working people. 

The historical record shows that the Republicans, acting 
as agents for those who had monopolized the American 
economy, set the wages-are-income concept into motion 
by creating a tax code after the 16th Amendment was 
passed that, benevolently, would "exempt" the first 
$4,000 of a person's "income." Since the average family's 
earned income was about $500 a year at the time, it 
wasn't until after World War II, when this nation's 
economy was really booming and national pride was 


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Constitutional Income - Foreword 


Page 3 of 4 


peaking, that Americans, as a nation of millions of 
working people, really began paying taxes on their wages. 
Back then Americans took for granted that they could 
trust the federal government, and the average person had 
long since forgotten the debates of the income tax issue 
and what was included in "income" and what was not. 
They certainly did not see how "paying their fair share" of 
taxes deducted from their labor was analogous to 
conditions that contributed to the fall of the Roman 
Empire. 

We have been conditioned since kindergarten to believe 
that wages and salaries generated from our labors are 
income for tax purposes when the opposite, as bome out 
in the written history leading up to the passage of the 1 6th 
Amendment, is actually the truth. 

The government knew what it was doing then and it 
knows what its doing today. The U.S. Constitution 
recognizes two kinds of taxes: direct and indirect. 
Congress does not have the constitutional right to lay 
direct taxes against the people unless the tax burden is 
equally apportioned by population among the several 
States. Congress does have the right to lay indirect taxes 
on privileges, events and activities. Taxes on cigarettes, 
alcohol and gasoline are examples of constitutional 
indirect taxes. 

There is no intelligent way to argue that a tax on a 
man's wages or salary is anything but a direct tax. We 
work, get paid for our work and then get taxed according 
to the amount of money we are paid. If you don't work, 
you don't eat and you die. Whereas you can choose not to 
consume cigarettes, alcohol or gasoline, you have no 
choice in whether to pay the taxes that are calculated and 
summarily deducted from your wages - unless you choose 
to go to prison 

Such a tax on wages is a tax on our right to exist. It is a 
feudal system. It is a direct tax - as direct as any tax can 
be. An unapportioned federal income tax on our wages is 
unconstitutional and the federal government knows it. 
Well, this only a half truth. If you live in Puerto Rico, 
Guam, or the U.S. Virgin Islands an unapportioned direct 
tax on your wages is constitutional; if you live in the 
several States of the Union it is not. 

Although the income tax statutes are constitutional, 
they don't mean what you think they mean. The fraud has 


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Constitutional Income - Foreword 


Page 4 of 4 


been accomplished by clever wordsmithing. The original 
intent of the 16th Amendment was to tax accumulated 
wealth and not the wages of working Americans. 

Through threats and coercion, and brown shirt tactics, 
the federal government has by deceptive means taken 
what, by now, must be in the trillions of dollars from the 
American people in what has to be the most profitable 
extortion scheme in world history. We are being Taxed 
without Our Consent. 

It is my hope as an American, as a man who has 
dedicated his life to the pursuit of truth and the return of 
justice and decency to our embattled Republic, and as a 
man who has tremendous respect for the author of 
Constitutional Income: Do You Have Any?, that the 
American people will stand up against their servant, the 
federal government, and demand to be treated in a 
manner consistent with the laws of this land. It is my 
hope that millions of Americans will realize that they are 
paying unconstitutional taxes when they allow their 
wages to be diminished by the income tax. 

I have spent my journalism career encouraging 
Americans, who have learned truths such as those 
contained in this book to stand up for those inalienable 
rights, those principles of natural law that gave birth to 
this most magnificent country: the right for all good 
people to have life, liberty and to pursue happiness. 

Don Harkins, The Idaho Observer 
Spirit Lake, Idaho, April 13, 2001 



E-Mail 

mai l@:constitutionalincome . com 

All material presented at this site is 
Copyright by Phil Hart, May 2000, 200 1 

Webmaster 
2001 1221 


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Section Two 


A. Aldrich’s Scheme: 

1 . Defective Amendment 

2. Ambiguous in its terms. 

3. Defeat it at the State level. 

4. Manipulate it. 

5. Placate the people. 

6. Corporate Tax Act of 1909. 

7. Any income tax on corporate profits could be passed to the consumer. 

8. Feudalistic system of taxation. 

9. The reject Amendment. 

10. Hastily drawn and mischievous effects. 

1 1 . Lack of scrutiny was scandalous. 

12. Most reckless bit of constitutional legislation known to our history. 

13. 16 th Amendment created no new class of taxes, and that income taxes were 
inherently indirect taxes. 

14. The 16 th Amendment did not give Congress any new power. 

15. The working people are stung again. 

16. “Eternal Vigilance is the price of liberty.” 


26 



78 


Constitutional Income: Do You Have Any? 


Why Was an Income Tax Necessary? 


79 


otherwise belong...” Taxes on net income are inherently indirect, 1 

taxes on gross income are inherently direct. The Stanton Case 
was about taxes on his net income. Adam Smith would agree. 

Apportionment among the states would require any income tax 
to be geared to what the average investor or businessman in Missis- 
sippi could afford, while the great incomes were actually located in [ 

New York. Under the apportionment rule, the tax collected from 
each state would be allocated according to the population of each 
state with each person being responsible for the same dollar amount 
of tax, on the average. If, in 1 909, ail that could be reasonably af- 
forded by an investor or businessman of Mississippi was an income 
tax of $50 per person annually, then this is the same amount an 
investor or businessman in New York would pay, on the average. 

Such a condition made the levying and collection of such a tax im- 
practical, especially since the tax sought to reach unearned income — 
gain and profit, not wages. There were not many people in Missis- 
sippi who had the former. 

Said another way, because the people of America understood 
the word “income” to mean unearned income, gain and profit, a tax 
on the income would inherently be an indirect tax subject only to the 
rule of uniformity. As an indirect tax, it would not have to be appor- 
tioned. But this was impossible because the Supreme Court had 
determined that there was a linkage between an income tax on net 
income and the source of the income. Unless this linkage could be 
severed, what was inherently an indirect income tax would have to 
be apportioned. The Pollock Decision needed to be overturned by 
way of constitutional amendment to accomplish this end. The 1 6th 
Amendment severed the linkage between net income and the source 
of the income upon which the Pollock Decision was based. At that 
time, only a minority of Americans had an “income” as most people 
worked for wages. 

In other words, in apportioning a tax on income, as Pollock 
would have required, the quotient of total income tax paid by 
each state divided by the number of people who lived in the 


state would be the same in every one of the several States. Thus as 
a direct tax, a tax on the income ofMr. Carnegie and Mr. Rockefeller 
would be geared more to what the average investor or businessman 
in Mississippi could afford than to the amount of income the wealth 
of these men produced every year. 

Gearing a national income tax to the lowest common de- 
nominator is impractical. There would have been three alterna- 
tives for Congress at this time. The first would be to do nothing, 
which is what the Republicans preferred, as they liked the high 
protective tariff system. The second would be to modify the direct 
taxation clauses of the Constitution to provide for a “direct” tax on 
incomes freed from apportionment. And the third would be to pro- 
vide for an income tax of an “indirect” nature subject only to the rule 
of uniformity. What was done was the latter as the American People 
sought only to overturn the offensive parts of Pollock through the 
constitutional amendment process. 

Aldrich's Scheme 

Senator Nelson Aldrich ofRhode Island, a Republican and the 
godson ofNelson A. Rockefeller, was considered the most power- 
ful member of Congress. His daughter Abby married John D. 
Rockefeller, Jr. He was chairman of the Senate Finance Committee 
and had relationships with many of the central bankers of Europe. 
Although Senator Brown of Nebraska was the one who proposed 
the 1 6th Amendment , Aldrich definitely had his hand in the con- 
struction of it. 

Stuck with the reality that the Republicans had to endorse an 
income tax amendment to the Constitution, Aldrich chose to ma- 
nipulate the process. Reluctantly, he allowed the income tax amend- 
ment to be approved by the Senate Finance Committee. Later he 
acquiesced to its approval by Congress, and sent the amendment to 
the several States for ratification. His real motive, however, was to 
defeat h. The strategy employed was to write a defective amend- 


80 


Constitutional Income; Do You H ave Any? 

ment, ambiguous in its terms, allow it to go out to the States for 
ratification and defeat it there. Should it be defeated by the state 
legislatures, the issue of an income tax amendment to the Constitu- 
tion would be dead for years. 

If by chance the amendment was somehow ratified, by writing 
it with ambiguous terms, he could later manipulate it to the advan- 
tage of the wealth class who were currently benefitting from the 
protective tariff. Aldrich was very forward thinking and the Demo- 
crats were fools not to have proposed their own language years 
earlier as part of their party’s presidential platform. 

"Mr. SULZER. Sir, let me eay, however, that I am not de- 
ceived by the unanimity in which this resolution is now 
being rushed through the Congress by the Republicans, 

Its eleventh-hour friends. I can see through their scheme. 

I know they never expect to see this resolution [the 16th 
Amendment] become a part of the Constitution. It Is of- 
fered now to placate the people. The ulterior purpose of 
many of these Republicans Is to prevent this resolution 
from ever being ratified by three-fourths of the legisla- 
tures of the States, necessary for Its final adoption, and 
thus nullify It most effectually...! have been here long 
enough to know, and I am wise enough to believe, that 
Its passage now Is only a sop to the people by the Re- 
publicans, and that their ulterior purpose Is to defeat It 
In the Republican state legislatures.” 44 Conn. Rec. 4418 
(1909). 

"Mr. BACON. I particularly protest, however, that It is not 
proper parliamentary procedure to endeavor to force us 
to first vote on this amendment [the Corporate Tax Act of 
1909] under a device which was given out to the public 
as intended for the purpose of preventing a vote on the 
Income tax, which was given out as a great parliamen- 
tary achievement on the part of the Senator from Massa- 
chusetts [Lodge] and the Senator of Rhode Island 
[Aldrich], that they had so shaped matters that we would 
be compelled to vote upon the corporation-tax amend- 


Why Was an Income Tax Necessary? 81 

ment [to the tariff bill] before we were allowed to vote 
first on the income-tax amendment [to the Constitution]. 

This amendment [the Corporate Tax Act of 1909] is 
avowed by the Senatorfrom Rhode Island to be intended 
to defeat the income tax. If so, we should have the op- 
portunity to vote first on the Income tax amendment [to 
the Constitution].” 44 Cong. Rec. 4063 (1909). 

What Aldrich had done was to interject the Corporate Excise 
Tax Act of 1 909, which was an amendment to the tariffbill, into the 
income tax debate. Through skillful parliamentary maneuvering 
Aldrich managed to have the corporate income tax bill heard by 
Congress before the constitutional income tax amendment. Aldrich 
was hoping that once the corporate income tax legislation was in 
place, the American people would be pacified and would not call 
for the taxation of individual wealth. Aldrich knew that any income 
tax on corporate profits could be passed to the consumer, and thus 
his rich friends would continue to escape taxation This was Aldrich’s 
plan “A” and he even admitted this on the floor ofthe Senate: 

"Mr. ALDRICH. I do not expect the income tax to be 
adopted...And if it were adopted, I do not expect to de- 
stroy the protective system now...l think perhaps it would 
be destructive in time. ..I shall vote for the corporation 
tax as a means to defeat the Income tax...l will be per- 
fectly frank with the Senate In that respect...! am willing 
that the deficit shall be taken care of by a corporation 
tax. That corporation tax, however, at the end of two 
years, if my estimate should be correct, should be re- 
duced to a nominal amount or repealed.. ..at the end of 
two years.” 44 Cona. Rec. 3929 (1909). 

It was through the Senate Finance Committee, chaired by Sena- 
tor Aldrich, a Republican, that the final version of the Income Tax 
Amendment came to the floor ofthe Senate. Sutherland on Statu- 
tory Construction (sec. 48. 14, 5th Edition) states that additional 
judicial authority may be given to the opinions of the chairman of a 
committee, “The committeeman in charge has the duty of defending 



82 


Constitutional Income: Do You Have Any? 


the bill, has familiarized himself with the situation sought to be rem- 
edied by the bill and his statements may be taken as the opinion of 
the committee about the meaning of the bill” But our case here is a 
strange one as we have the committeeman in charge of the bill Sena- 
tor Aldrich, doing all he can to kill the amendment. Why is there so 
much scandal around a piece of legislation of such significance? 

Now, Aldrich was one unethical politician. The American people 
were demanding an income tax as a way to more fairly distribute the 
burdens for the support of government and all Aldrich could do was 
to scheme about how to maintain the feudalists system of taxation 
that was presently in place. Aldrich was extremely successful in his 
evil as what we have today is still a feudalists system of taxation and 
not something that belongs in a constitutional republic of limited pow- 
ers. 

“Mr. BYRD. It is a well known fact that the tariff law will 
be the product of the brain of one Senator [Aldrich], and 
however Infamous the measure may be, It will receive 
the unqualified support of enough Republicans to pass 
both Houses. 

“It seems that the Republican Party has permanent con- 
trol of the Government, and that Senator Aldrich abso- 
lutely dominates this party. As long as it triumphs, he 
will be czar of the Nation." 44 Conn, Roc. 4415 (1909). 

“Mr. DANIEL. Mr. President, if this was a class of com- 
petitive examination in order to show who was the most 
tired man of this debate, I would expect to win the first 
place In the competition. The Senator from Rhode Is- 
land [Aldrich] Is a great actor, a great wizzard, and he is 
also a great ventriloquist. With an activity, eagerness, 
earnestness, and freshness which are unsurpassed In 
this body, he comes upon the stage and says we must 
adjourn right now; that he Is tired ouL That Is only one 
phase of his diverse genius. He is very different from the 
rest of us plain and prolix people. He does by magic 


I 


Why Was an Income Tax Necessary? 


83 


what we have to try to do by toll. He waves his wand and 
utters his incantations, and so-called ‘insurgents march 
with the vigor and measured tread of Roman soldiers 
i following Caesar to victory. More than that, Mr. Pre*l- 

dent we hear a murmur yonder; we hear a murmur here 
and a murmur there. Presently the Senator rises and 
i flings his voice around the Senate and the next moment 

everybody Is talking Just like him, and Senators think 
that right which before they had murmured was wrong. 

44 Cona. Rec, 4236 (1909). 

“Mr. BORAH. Take the....Senator from Rhode Island 
[Aldrich]. He has been perfectly frank. He has been open 
' and candid. No friend of the income-tax law now dare 

go home and say to his constituents: ‘The Senator from 
Rhode Island fooled me.’ He has been open and above 
board. He has told you that he brought this measure 
[the Corporate Tax Act of 1909] here to kill the Income 
tax, and he has told you furthermore that ttta > an i enemy 
of protection. He has said unhesitatingly that if it Is in 
his power he will throttle it for all time to c°me.Doyou 
underestimate his influence?” 44 ConaJSSfi, 3998 (1909). 

During the ratification process there was a great amount of de- 
bate over the 1 6th Amendment. The main point of concern was the 

Amendment’s ambiguous terms. It was the Democrats’ idea with 
the language drafted by specific Republicans who were strong y 
opposed to it. Aldrich wanted the Amendment to be highly criti- 
cized and defeated by the states. This is why it was so poorly writ- 
ten; it was Aldrich’s plan “B.” The debate was so intense that Sena- 
tor Borah (Idaho) proposed Senate ResolutionNo. 175 authorizing 

a study to be done by the Judiciary Committee to answer the ques- 
tions for which the amendment was being criticized. See the New 
fr-ir TWO arti c\* The Rejected Amendment, on the next page. 



84 


Constitutional Income: Do You Have Any? 


The Rejected Amendment 

"The income tax amendment failed on Tuesday to get 
the necessary votes in the Assembly [New York Legisla- 
ture], and that disposes of it for the present session. It 
may be brought before the Legislature at the next ses- 
sion, but it is not likely, in its present form, to be re- 
ceived with any more favor. 

“The chief objection to the amendment, we think, in the 
minds of the public, as well as Its opponents In the Leg- 
islature, is that It was hastily drawn, Involved a prin- 
ciple of mischievous effect on the interests of the states, 
and would give rise to Indefinite contention as to its 
real meaning. There was, however, another objection 
o relating not to the substance of the amendment, but to 

the manner In which it was brought into being. It was 
originally proposed to the Senate of the United States 
to save Mr. Aldrich and his associates from defeat on 
the revision of the tariff. To avoid this, the amendment, 
together with the corporation tax, was contrived, it was 
not a nice device • to use no stronger term - and in the 
exigency existing it was carried out in a bungling fash- 
ion. if we are to have the Constitution changed In this 
matter, it certainly would be better to have it done de- 
cently and in order.” The Rejected Amendment N.Y. 
Times, page 10, May 5, 1910. 

“H Is far from representing the considered opinion of Con- 
gress. No time was spent on it apart from that necessary 
for the formalities. There was no Inquiry, and no discus- 
sion worthy of the name. It is a political dodge, adopted 
from the most questionable of motives. It is part of the 
price paid for the enactment of a tariff law which was 
adopted under false pretenses.” Editorial, The Income 
Tax. N.Y. Times, page 10, April 19, 1911. 


Why Was an Income Tax Necessary? 


85 


In my investigation of this subject matter, I looked for Congres- 
sional reports and Congressional hearings on the 1 6th Amendment 
and found little or none. A congressional report would have dis- 
closed the purpose of the amendment and the reasons behind its 
wording. There was no report at all from the Senate Finance Com- 
mittee when it voted the 1 6th Amendment out of committee. When 
the House Wtys and Means Committee issued a report on the amend- 
ment it amounted to only a one paragraph report known as House 
Report No. 1 5 recommending approval of the 1 6th Amendment. 

think this lack of scrutiny was scandalous. 

One of the major issues of the War of Independence and of the 
Constitutional Conventionwas taxation. Had not the compromise 
been struck over apportionment and direct taxes, the country would 
have likely come apart after the Articles of Confederation proved to 
be a failure. Today over 80% of federal government revenue comes 
from income taxes. To have so much of our federal revenue depen- 
dent on such an ill-conceived amendment is outrageous. 

"Mr. McCALL. Mr. Speaker, 1 imagine that nothing which 
l may be able to say will defeat the prearranged 
programme and prevent the passage of the Joint resolu- 
tion [on the Income tax amendment], but for the House 
to perform Its part in such a solemn transaction as 
amending the Constitution of the United States without 
having the form of the amendment seriously considered 
by one of its committees strikes me as a proceeding in 
extraordinary levity...l say this amendment should be 
more carefully considered...The amendment has not 
carefully been considered by a committee of this House 
or by anyone else in the United States that I know of. 

44 Conn. Rec, 4391 (1909). 

I believe this also was by design. Certainly the fruit of this lack 
of committee review played to Aldrich’s favor and to those of the 
wealth class who sought to control everything. For Aldrich also had 



86 


Constitutional Income: Do You Have Any? 


a plan “C.” This was in the event that this poorly worded and poorly 
constructed amendment were to somehow be ratified. Ambiguous 
in its terms, it could be manipulated later. 

“Furthermore, the adoption of the sixteenth amendment, 
the 'crudest, most reckless bit ofconstitutional legisla- 
tion known to our history,* removing the constitutional 
limitations on the power of Congress to levy taxes on 
incomes, and ‘putting all property and all human effort 
at the mercy of the government’ by authorizing it 'to 
take whatever It will and in any way It will,* appears 
to...,ba an act fraught with grave danger to the liberties 
of the people and, therefore, a step backward in our 
progress..., John W. Burgess, 77ie Reconciliation of Gov- 
ernment with Liberty, 369, New York, Charles Scribner’s 
Sons, (1916)." 31 Political Science Quarterly 143, 144 
(1916). 

The People’s intention in supporting the 16th Amendment was 
honorable and justified . The purpose was to bring tax relief to wage- 
earners by shifting some of the tax burden onto net incomes from 
accumulated wealth Unfortunately, its ambiguous terms would have 
offended a man like Thomas Jefferson who believed that govern- 
ment should be “bound with the chains of the Constitution.” We are 
blessed in that the Supreme Court did not construe the 1 6th Amend- 
ment in such a way as its critics had feared and as Senator Aldrich 
must have hoped. Both in the Brushaber Case and in the Stanton 
Case the Supreme Court held that the 1 6th Amendment created no 
new class of taxes, and that income taxes (on unearned income, 
gain or profit from business activity) were inherently indirect taxes. 
Thus, the 1 6th Amendment did not give Congress any new power, 
nor did it create a new class of taxation, nor did it grant to Congress 
power to impose any type of direct tax without apportionment. 


i 

j 

Why Was an Income Tax Necessary? 87 

This last point will be addressed again in Chapter 6. No, the 
16th Amendment did not give Congress any new power, but the 
IRS and the Tax Court conveniently ignore this and both are out of 
harmony with the Supreme Court. In a perfect world this would not 
be the case. But the world is not perfect. 

In an editorial, The New York Times had this to say about the 
income tax amendment: 

“Senator Root’s argument only embarrasses the Repub- 
licans. Either they intended to do a bad thing, or else 
they designed to deceive the people into thinking they 
1 were voting to do that thing, but to avoid doing it by 

argument after enactment. It is bad for a party when 
people say after too many of their acts, 'stung again. 

The tariff should be added to the above list, and then It 
may be asked how much of this can the people stand 
because the Republican Party was once the party of great 
ideas and acts.” Editorial, Perfectly Plain and Bad Uws, 

N.Y. Times, page 8, March 2, 1910. 

Well, the average man and woman have been “stung again.” 
Just as the working man paid for the support of government 
under the protective tariff, while the wealth of the Nation went 
untaxed, so now the working man is paying for the support of 
government under our current income tax system. But not only 
does he support government, he also supports a myriad of “en- 
titlement programs.” It is a system so complicated that those in 
Congress who wrote the statutes and approved their regula- 
tions cannot even understand them. 

Why? Because the average American has forgotten the words 
of Wendell Phillips who said, “Eternal vigilance is the price of 
liberty.” 



Section Three 


A. Senator Brown proposed three income tax amendments, second column. 

1. Brown proposed first 16 th Amendment April 28, 1909 S.J.RNo. 25. 

2. Apportionment proposition. 

3. Not the intent of this amendment to tax individuals. 

4. Pollock case in 1 895 held that a tax on income was a direct tax. 

5. Graduating the income tax. 


32 



246 Constitutional Income: Do You Have Any? 

to continue to intervene by injunction in purely private la- 
bor disputes.” U.3. v. United Mine Workers of America. 

330 U.S. 258, 277-6(1947). 

Although the latter cite relates to a labor dispute, what we 
have here is a rule of construction ^hereby when the congres- 
sional debate is overwhelmingly uniform, that this debate will be 
used in determining the intent of a statute. Read the quotes in the 
appendix of this book and you won’t need to wait for the Su- 
preme Court to tell you what the intent of Congress was. 

There is an additional issue we must consider on the subject 
of the hierarchy of legal authority. The highest legal authority in 
our Nation is the Constitution, being considered “primary au- 
thority.” But where do we go when we need to determine the 
intent of the framers of that great document? We go to the Feder- 
alist Papers and to Elliot’s Debates (Madison’s notes) for evi- 
dence as to the intent of the framers. In a sense, when the issue is 
clouded, the Federalist Papers and Elliot’s Debates are elevated 
to a level nearly equal to the Constitution as they become the 
commentary on that document, for they document the arguments 
of the authors of the instrument itself. 

In the case of an amendment to the organic law, the Congres- 
sional Record then becomes the commentary to the organic law 
in so far as that amendment is concerned. We then don’t look to 
the judicial history for the meaning of the amendment as we nor- 
mally would do on most other issues where “case law” is au- 
thoritative. Instead we look to either the judicial history or politi- 
cal history only to determine what the problem was that created 
the need for the constitutional amendment, i.e., “the evils sought 
to be remedied.” 

“These extrinsic aide may show the circumstances under 
which the statute was passed, the mischief at which it was 
aimed and the object H was supposed to achieve. Although 
a court may make and pronounce findings about the pur- 


Income: The Meaning of the Word 247 


pose of a statute, or the mischief it was to remedy, without 
referring to its historical background, knowledge of cir- 
cumstances and events which comprise the relevant back- 
ground of a statute Is a natural basis for making such find- 
ings." Sutherland on Statutory Construction, sec. 48.03 
(5th Edition 1992). 

Senator Brown of Nebraska proposed the income tax amend- 
ment. He actually proposed three of them. The first two versions 
were rejected as these were out of harmony and in conflict with 
the direct taxation clauses of the original Constitution. When 
Senator Brown, on April 28, 1 909, proposed the first of his three 
income tax amendments known as Senate Joint Resolution 
(S.J.R.) No. 25, he had this to say about the Pollock Case, about 
Supreme Court Justice Harlan’s opinion on Pollock, and the pur- 
pose of his proposed amendment: 

“Mr. BROWN. Now listen to the justice- 

“‘When, therefore, this court adjudges, as it does now ad- 
judge, that Congress can not impose a duty or tax upon 
personal property, or upon Incomes arising either from 
rents of real estate or for personal property, Including In- 
vested personal property, bonds, stocks, and Investments 
of all kinds (emphasis mine), except by apportioning the 
sum to be so raised among the States according to popu- 
lation, It practically decides that, without an amendment 
of the Constitution— two-thirds of both Houses of Con- 
gress and three-fourths of the States concurring— such 
property and incomes can never be made to contribute to 
the support of the National Government. 

“‘This Is the trouble that confronts the Nation. Unless we 
have a Constitution about which the courts will not dis- 
agree, giving Congress the power to pass this legislation 
which we favor, Congress is without power to levy the 
taxes on this vast volume of property, even though Con- 
gress might desire to pass such a law. Mr. President, it 


248 


Constitutional Income: Do You Have Any? 


Income: The Meaning of the Word 


249 


ought to make the blood run to our facee when we atop to 
think that there Is not another enlightened nation on the 
face of the earth that does not have and exercises the 
power to levy taxes on this kind of property except our- 
selves...’ i 

u IMr. President, I come now for a moment to the proposi- 
tion raised by the Senator from Maryland. Upon that ques- 
tion I simply want to demonstrate to him, as well as to the 
Senate, that as construed now the power of Congress to 
levy taxes on Incomes by apportioning them according to 
population amounts practically to a denial of the power of 
Congress to levy such taxes. In the dissenting opinion of 
Mr. Justice Brown this was shown conclusively. Similar 
illustrations were made in the arguments to the court. 
There was shown mathematically the practical impossi- 
bility, tested by any measure of approximate justice, to 
apportion those taxes, and this illustration of the teamed 
justice has never been impeached by word or intimation 
by anybody disagreeing with him in his general conclu- 
sions. On page 688, (second Pollock) the Justice makes 
an application of the law according to population. He says: 

u ‘By the census of 1890, the population of the United States 
was 62,622,250. Suppose Congress desired to raise by an 
income tax the same number of dollars, or the equivalent 
of $1 from each Inhabitant Under the system of appor- 
tionment Massachusetts would pay $2,238,943. South 
Carolina would pay $1,151,149. Massachusetts has, how- 
ever, $2,803,645,447 of property, with which to pay it, or 
$1,252 per capita, while South Carolina has but 
$400,911,303 of property, or $348 to each Inhabitant. As- 
suming the same amount of property in each State repre- 
sents a corresponding amount of Income, each Inhabitant 
of South Carolina would pay in proportion to his means 
three and one-half times as much as each inhabitant of 
Massachusetts. By the same course of reasoning, Missis- 


sippi, with a valuation of $352 per capita, would pay four 
times as much as Rhode Island, with a valuation of $1,459 
per capita.’ 

“Mr. President, no man In this Chamber need have any 
doubt about how the apportionment proposition would 
work. All we need to do to be satisfied is to recall what 
would happen In our own States if the tax were to be dis- 
tributed between the counties according to population. It 
Is the theory of the friends of the Income-tax proposition 
that property should be taxed and not Individuals [empha- 
sis mine]. I do not believe the fathers ever contemplated 
that income taxes must be apportioned according to popu- 
lation, but the courts have said that they did. I am here 
today presenting an amendment to the Constitution which 
will compel the courts to announce the contrary doctrine.” 

44 Cong. Rec. 1570 (1909). 

Earlier that day Senator Brown said in reference to the Pol- 
lock Decision: 

“It Is sufficient for the purpose that I have in mind this 
morning to say on that subject that I am in full accord with 
the proposition of laying some of the burdens of taxation 
upon the incomes of the country, but I raise this morning 
for the purpose of challenging the attention of the Senate 
to the fact that the Constitution of our country stands to- 
day in need of an amendment upon this subject if we are 
to have an income-tax law at all about the validity of which 
there can be no question. 

“...Our courts [as in Pollock] have demonstrated a faculty 
to change their opinions on this question, for they have 
decided It at different times different ways, and while we 
might hope and believe that that decision would be per- 
manent, no man can justify a conclusion with any certainty 
that it would be permanent. 


250 


Constitutional Income: Do You Have Any? 


Income: The Meaning of the Word 


251 


“It is for that reason, Senators, that I present to you today 
the imperative and commanding necessity for an amend- 
ment to the Constitution which will give the court a Con- 
stitution that can not be Interpreted two ways. I undertake 
to say that the people of the United States have a light to 
have an opportunity to amend the Constitution and to make 
it so definite and so certain that no question can ever be 
raised again of the power of Congress to legislate on the 
subject” 44 Cong, Rec, 1568 (1909). 

We see from the very beginning, it was the purpose of Con- 
gress to offer to the People the opportunity to overturn the Pol- 
lock Decision so that, as this quote states, incomes from rents of 
real estate and personal property including bonds, stocks and in- 
vestments could be taxed. If Senator Brown wanted his income 
tax amendment to be “so definite and so certain that no question 
can ever be raised again,” he shouldn’t have let Senator Aldrich 
get his hand in the process. 

Brown also affirmed that it was not the intent of his amend- 
ment to tax individuals. Nor could any such amendment without 
alternative language tax the wage or salary of a man. As we know 
from Adam Smith’s Wealth of Nations, a tax on the wage or sal- 
ary of person is a capitation tax. Capitation taxes are outside the 
scope of the 16th Amendment. Nowhere in any of the congres- 
sional debates on the 16th Amendment did anyone ever chal- 
lenge the authority of Adam Smith, who was by far the most 
quoted of all authorities. 

Senator Brown also published a paper as to the purpose of 
the 1 6th Amendment. This paper can be found in the appendix of 
this book and at Senate Document No. 705, 61 Congress, 1910 
and is entitled. Shall the Income-Tax Amendment be Ratified . 
Sutherland on Statutory Construction tells us at section 48.12, 
5th Edition: “Commentaries of persons intimately involved with 
drafting of legislation are entitled to weight in interpretation of a 
statute.” Senator Brown wrote in this document: 


“It would not be necessary to eliminate this rule of appor- 
tionment except for the decision of the Supreme Court of 
the United States, In what is known as the Pollock case, 
decided In 1895, which held that a tax on Incomes was a 
direct tax. 

“The effect, therefore, of the proposed amendment, If rati- 
fied, will be to restore to the people and to the Govern- 
ment a power for many years exercised by them in na- 
tional emergencies to tax Income without apportionment. 

“The sole question, therefore, presented by the amend- 
ment, and the sole consideration involved In its ratifica- 
tion or rejection, is whether of not the United States, the 
foremost nation of the world, shall be clothed with this 
prerogative of national sovereignty - the power to tax In- 
comes according to their value and without regard to ap- 
portionment among the several States according to popu- 
lation.” 

Notice that in the previous paragraph Senator Brown said the 
amendment would allow Congress to “tax incomes.” If the pur- 
pose of the Amendment was to “tax people” don’t you think he 
would have said so? Brown goes on to list those things that would 
be taxed. 

“The growing objection to the tax on consumption [the 
protective tariff] is vitalized by the fact that such a tax dis- 
criminates against those least able to pay the tax and in 
favor of those whose ability to pay the tax Is unquestioned 
and whose protection from the Government Is so much 
greater because of their larger property requires and re- 
ceives a larger measure of protection. When the govern- 
ment seeks to lay a tax for its defense or support on the 
incomes of the country, it should reach all Incomes. If the 
income arises from an investment in lands, it should be 
taxed; if It arises from investments In manufacturing en- 
terprises, In railroads, In banks, In newspapers, In the mer- 
cantile business, or In steamship lines, It should be taxed. 



252 Constitutional Income: Do You Have Any? 

“Why should an Income arising from an Investment in State 
or municipal bonds not be taxed? Why should the holder 
of these securities enjoy his incoms free from any contri- 
bution to assist this Government, which protects him and 
his property no less than it protects other people owning 
another class of property? Why should he escape and 
other people be compelled to pay?" id. at 7. 

Senator Brown didn’t say a word about taxing wages or sala- 
ries. His entire argument dealt with taxing income from property, 
either real or personal. The totality of Senator Brown’s argument 
focused on the very items that were at issue in the Pollock Case. 
The entire purpose of the income tax amendment was to bring 
tax relief to those who earned wages and paid a greater propor- 
tion of their earning in taxes under the tariff system (tax on con- 
sumption) and therefore to place a greater tax burden on the ac- 
cumulated wealth and investments of the country. 

At this time in our history most of the people from the wage 
earning class kept what little savings they had in mutual savings 
banks and building associations. These were banks that were gen- 
erally owned by their depositors and that focused on providing 
mortgages to the lower classes. 

These banks were very popular and very profitable. Yet in 
the 1 894 income tax statute, in the Corporate Excise Tax of 1 909, 
and in the first income taxing statute from 1913 passed under the 
authority of the 1 6th Amendment these banks were exempt from 
each of these taxing statutes. In 1894, 1909 and 1913 there was 
great public outcry directed at Congress to exempt these banks 
as an income tax on the profits of these banks would indirectly 
be an income tax on the depositors who were “wage-earners.” 
(See the many quotes from the Congressional Record at the end 
of this chapter and in the appendix.) This public outcry and the 
resulting statutory exemptions granted over this 19 year period 


Income: The Meaning of the Word 253 


provides conclusive evidence that it was not the intent that in- 
come taxes were to be paid (not even indirectly) by those who 
only earned a wage or salary. 1 

The American people were well aware that any income tax 
amendment to the Constitution was a Democratic party proposi- 
tion, as the Republican party had fought the income tax tooth 
and nail. There was a presidential election the year before the 
income tax amendment was sent out to the states for ratification. 
Harry Truman said, “Platforms are contracts with the People.” 
We all should remember the “Contract with America” of the Re- 
publican party that resulted with the so-called “Republican Revo- 
lution of 1994.” Contracts are the basis of all human relations 
and even our relationship with our Creator. When contracts be- 
come meaningless, organized society ceases to exist. Now in the 
case of contracts, should our political leaders set the example for 
us, or do we expect them to be the worst offenders? 

In the presidential election of 1 908, the Republican party plat- 
form was silent on the income tax issue. The Democratic party 
platform had this to say: 

“We favor an income tax as part of our revenue system, 
and we urge the submission of a constitutional amend- 
ment specifically authorizing Congress to levy and collect 
a tax upon individual and corporate incomes, to the end 
that wealth may bear its proportionate share of the bur- 
dens of the Federal Government” 44 Conn. Rec. 3309 
(1909). (This text from the Democratic party platform of 
1908 was quoted in the Congressional Record at least a 
dozen times during the income tax debates.) 

It is not the intent of this book to create a class warfare and to 
beat up on the wealthy. Most of us aspire to be wealthy someday. 
On the other hand, some of the wealthy, both today and in 1 909, 
accuse those who support an income tax as being socialistic. There 
is balance in the middle, and this is what the majority of the Ameri- 
can people and those members in Congress who supported the 



254 


Constitutional Income: Do You Have Any? 


Income: The Meaning of the Word 


255 


income tax amendment were trying to achieve. The latter’s argu- 
ment and purpose was to have wealth pay for its share of the 
expense of supporting government in proportion to the benefit 
wealth received from government. That is not socialistic. What 
becomes socialistic is to graduate thp rate of the income tax. By 
graduating the income tax, wealth pays more for government than 
it receives in benefits. 

Our world has changed dramatically in our lifetimes. But back 
in 1909, their world was only just beginning to change. In 1909, 
the horse and buggy was everywhere and the automobile was a 
novelty. Back then the thoughts of Indian warriors, bank robbers 
who hid out in the wilderness and pirates on the seas were not 
only old stories in one’s memory, but were contemporary with 
the people of that time. The American People understood the 
primary function of government was to provide protection for 
life, liberty and property. Government served to protect the citi- 
zenry from these predators. What the citizen paid to government 
in taxes was actually more of an insurance premium for the pro- 
tection the citizen received from government. Today we pay “pro- 
tection money” to government to keep government away from us 
as government is now the predator. 

All property therefore benefitted from the protection of gov- 
ernment. Think of a fire district. Does a 100 unit apartment build- 
ing receive a larger or smaller benefit from the existence of a 
well equipped and well funded fire district than that of, say, a 
single family dwelling? Of course the apartment building receives 
a greater benefit and the owner of which should therefore pay a 
greater amount for the support of the fire district than the owner 
of the single family dwelling. The thinking of Congress was that 
those who possessed wealth in the millions should pay more for 
the greater benefit they received from government than those 


whose net worth was only a few hundred dollars. Remember at 
the time nearly all the revenue collected by the federal govern- 
ment was from taxes on consumption. 

"Mr. DIXON. ...In 1872 Senator Sherman said In the Sen- 
ate: 

'A few years of further experience will convince the whole 
body of our people that a system of national taxes which 
rests the whole burden of taxation on consumption and 
not one cent on property or Income Is intrinsically unjust. 
While the expense of the National Government Is largely 
caused by the protection afforded to property, it is but right 
to require property to contribute to the payment of those 
expenses. It will not do to say that each person consumes 
in proportion to his means. This is not true. Everyone must 
see that the consumption of the rich does not bear the 
same relation to the consumption of the poor as the in- 
come of the one compares with the wages of the other. As 
wealth accumulates this injustice In the fundamental ba- 
sis or our system will be felt and forced upon the attention 
of Congress. 

‘The income tax is a measure of justice. The people will 
pay In proportion to their financial ability to pay. It will tax 
wealth In proportion to Its abundance rather than poverty 
according to its necessities. Federal taxation is not levied 
upon the wealthy of the country. It Is Imposed by way of 
taxes, internal-revenue duties levied upon liquors and to- 
bacco used, and the import duties levied upon the cloth- 
ing used and articles necessary for their comfort The mil- 
lionaires pay only on what they eat, drink, wear, and on 
what they use, and this is true of the poorer citizens like- 
wise. 

The wealthy man makes no other contribution to the sup- 
port of the Government; nothing for the army which pro- 
tects his wealth; nothing for the judiciary which settles 
his property rights; nothing to the support of the admlnls- 



Sixteenth Amendment. An amendment of 1913 to the 
U.S. Constitution which permits Congress to tax in- 

^ comes “from whatever source derived,” thus nullify- « " 

ing the Supreme Court’s decisions in Pollock v. Farm- 
ers’ Loan and Trust Co., which had declared that an 
income tax was a direct tax, which would be constitu- 
tionally valid only if apportioned among the States 
according to population. 


Source. That from which any act, movement, informa- 
tion, or effect proceeds. A person or thing that 
originates, sets in motion, or is a primary agency in 
producing any course of action or result. An origi- 
nator; creator; origin. A place where something is 
found or whence it is taken or derived. Jackiing v. 
State Tax Comm., 40 N.M. 241, 58 P.2d 1167, 1171. 

The source of income. Place where, or circumstanc- 
es from which, it is produced. Union Electric Co. \ 
Coale, 347 Mo. 175, 146 S.W.2d 631, 635. 

Sources of the law. The origins from which particular 
positive laws derive their authority and coercive 
force. Such are constitutions, treaties, statutes, us- 
ages, and customs. 

In another sense, the authoritative or reliable 
works, records, documents, edicts, etc., to which we 
are to look for an understanding of what constitutes 
the law. Such, for example, with reference to the 
Roman law, are the compilations of Justinian and the 
treatise of Gaius; and such, with reference to the 
common law, are especially the ancient reports and 
the works of such writers as Bracton, Littleton, Coke, 
Fleta, Blackstone, and others. 


Derive. To receive from a specified source or origin. 
Crews v. Commissioner of Internal Revenue, C.C. 
A.10, 89 F.2d 412, 416. To proceed from property, 
sever from capital, however invested or employed, 
and to come in, receive or draw by taxpayer for his 
separate use, benefit, and disposal. Staples v. United 
States, D.C.Pa., 21 F.Supp. 737, 739. 

— ^ Derived. Received from specified source. 


NOW THAT YOU HAVE READ A SMALL SECTION FROM PHIL HARTS’ 
BOOK YOU CAN NOW SEE WHAT THEY HAVE DONE TO THE LEGAL 
DEFINATION FROM BLACKS LAW DICTIONARY, FOURTH EDITION. 

WHAT IS THE SPECIFIED SOURCE THAT IS TAXABLE? 


38 



WHO WAS PHILANDER KNOX? 

IS IT CREDIBLE THAT HE WOULD COMMIT FRAUD? 


Understanding a crime or a misdeed involves learning not only what was done and who did it, but 
also what the motivation was. With a clear motive, evidence of the "what" and "who" becomes much 
more credible. Allegations that Secretary of State Philander Knox was not merely in error, but 
committed fraud when he falsely declared the 16th amendment ratified in 1913, require us to look at 
who he was to understand why he would commit such an act. The following sketch was prepared by 
the We The People Foundation For Constitutional Education and is condensed from Bill Benson's 
research report on the ratification of the 16th Amendment, "The Law That Never Was, " Volume II 
(1985), pages 122-135. 


Philander Chase Knox was bom in 1853 in western Pennsylvania, son of a bank cashier. While 
attending college in Ohio, he became closely acquainted with William McKinley, then the local 
district attorney, who was prosecuting a local tavern owner for selling alcohol to the college students. 
Knox took McKinley's advice and became a lawyer. 

McKinley, having chaired the powerful House Ways and Means Committee in Congress, was elected 
governor of Ohio in 1891. Although he owed his election to support from both business and labor, he 
quelled the labor strike called by Eugene V. Debs against the Great Northern Railroad in 1 894 by 
summoning federal troops. 

McKinley won the 1896 presidential race with a great deal of support from Big Business, e.g., John 
D. Rockefeller's Standard Oil contributed $250,000 to the "front porch" campaign that defeated Bryan 
and his populist platform of returning to the constitutionally mandated monetary system and reform 
of McKinley's high tariffs that had allowed domestic manufacturers to raise their prices to a level that 
matched the artificially-induced higher prices of foreign goods, thus causing a severe depression. 
Knox helped in this financial and political effort that was directed by the wealthy Ohio industrialist 
Mark Hanna, who was appointed to a vacant U.S. Senate seat the following year by Ohio's governor. 
McKinley had already been saved from personal financial min by help from his old friend. Philander 
Knox, who had become wealthy as counsel to the very wealthy. 

Knox came to be regarded as one of the ablest lawyers in the country, his repute due in no small 
measure to his being counsel for Carnegie and Vanderbilt and their corporate enterprises. He was 
instrumental in Carnegie's big victory in a crucial patent case in which the most important invention 
for the manufacture of crude steel was at stake. In 1892, he defended Henry Frick, Carnegie's steel 
plant manager, who was being sued by the steel workers who had been beaten up by Pinkertons 
brought in by Frick during the infamous Homestead strike, a strike that was provoked by two of 
Carnegie's presidents, one of whom was also an attorney for J.P. Morgan. Knox also deflected 
prosecution and civil suit against Carnegie in 1 894 after it was shown to Congress that Carnegie had 
defrauded the Navy with inferior armor plate for U.S. warships. Morgan himself had defrauded the 
U.S. Army in arms sales during the Civil War. And Knox averted prosecution of Carnegie after the 
president of the Morgan-controlled Pennsylvania Railroad testified that Carnegie had regularly 
received illegal kickbacks from the railroad. Knox's other big client at the time, the Vanderbilt family, 
was connected to Carnegie primarily through the railroad industry. 

President McKinley offered Knox the post of U.S. Attorney General in 1899, but Knox had to 


39 



decline, because he was then and for two more years engaged in arranging the merger of the railroad, 
oil, coal, iron and steel interests of Carnegie, J.P. Morgan, Rockefeller, and other robber barons into 
the largest conglomerate in history - U.S. Steel. This immense corporation encompassed the interests 
of nearly all the robber barons in what Knox's new client, J.P. Morgan, referred to as a "community of 
interest." One important component of the conglomerate was Consolidated Iron Mines in the Mesabi 
Range of Minnesota, which Rockefeller had fraudulently swindled from the Merritt family, who later 
successfully sued John D. for fraud, but had to settle for a fraction of the award because they ran out 
of money during Rockefeller's appeals. 

After the U.S. Steel merger, Knox accepted McKinley's offer to make him Attorney General, an 
appointment that was personally promoted by Carnegie in a letter to McKinley and by Morgan in a 
personal visit to the White House. The appointment was strenuously and loudly opposed by anti-trust 
forces, since it would then be up to Knox to prosecute anti-trust law violations against the very robber 
barons who had been his clients for many years and who had made him a wealthy man. Sure enough, 
the public outcry to investigate the big new U.S. Steel monster that Knox had created met with 
Knox's response that he knew nothing and could do nothing, and nothing is what he did. 

After McKinley's assassination in 1901, Knox continued as Attorney General under Theodore 
Roosevelt. Even though Roosevelt labeled himself as a "trust-buster," Knox saw to it that very little 
harm came to his benefactors. U.S. Steel was unscathed, and most of the actions that were taken 
against the railroad companies were largely done with the urging of the railroad giants themselves, 
who were the strongest advocates of federal regulation of the industry, because that regulation, with 
their own agents working in the federal commissions, enabled them to gain greater control over the 
industry, be protected from competition, and maintain prices. The best-known anti-trust case was 
against Northern Securities, a railroad holding company formed by Morgan as a show of strength for 
the benefit of Hill, Harriman, Rockefeller, and their bankers, Kuhn, Loeb & Company. The 
dissolution of Northern by the Supreme Court in 1904 was deemed "inconsequential" by the financial 
press, since the two major railroads it encompassed had not been competing anyway, and the 
defendants ended up suffering no loss. Knox, of course, did not pursue any of the criminal sanctions 
that he should have undertaken against his former allies and clients, but the case gave the appearance 
that Roosevelt was doing something and was a public relations success for the president. But 
Roosevelt, while touting himself as an anti-trust champion, disparaged and labeled as "muckrakers" 
those journalists who actually investigated and exposed the corrupt activities of the robber barons. 

Harriman's great fortune had been acquired through a series of fraudulent maneuvers, key of which 
was legislation signed by Roosevelt, at that time governor of New York, allowing New York banks to 
invest in railroad bonds being sold by Harriman and his partners at inflated prices. Hill profited 
enormously from fraud, deceit, and outright theft involving vast amounts of public lands that were 
given to the railroads and then resold, or raped and then traded to the government for new lands. The 
Vanderbilt fortune had also gained greatly from fraudulent maneuvers involving railroad securities 
and Cornelius's evasion of taxes. When all this was investigated after Cornelius's death, Morgan 
came to the Vanderbilt's rescue (managing to take control of their New York Central Railroad in the 
process). 

Knox persuaded Roosevelt that the anti-trust laws should be accompanied by increased regulation of 
business. He advocated and drafted federal statutes that gave his rich and powerful friends even more 
power and control over interstate commerce - setting rates and eliminating competition in restraint of 
trade - all under federal authority and with agents of the conglomerates appointed to and sitting on the 
governmental boards and commissions. This plan derived from and implemented a strategy set by 


40 



Morgan and the other robber barons at a meeting in 1 889. Knox continued in this vein as a U.S. 
Senator from Pennsylvania, being appointed to a vacant seat by Pennsylvania's governor in 1904 at 
the behest of several powerful capitalists, including Carnegie's man, former client Frick (which 
showed they approved of Knox's handling of anti-trust matters as Attorney General). 

Knox, by now a multi-millionaire, was in the Senate when the Morgan-controlled financial Panic of 
1907 hit, which led to a congressional inquiry into the monetary and banking systems. Senator Nelson 
Aldrich (father of the wife of John D. Rockefeller, Jr. and namesake and god-father of Nelson A. 
Rockefeller) led the inquiry producing the 1912 report that recommended a national bank (controlled 
and owned by the robber barons) and ultimately resulted in the Federal Reserve Act of 1913, co- 
authored by Aldrich and Robert Owens. Owens later testified to Congress that the banking industry 
conspired to create financial panics like the one in 1 907 in order to rouse the people to demand 
reform - reform that would be directed by, and to the benefit of, the very financial experts who had 
caused the panic. 

Knox resigned from the Senate and became Secretary of State under President Taft from Ohio in 
1909. He was the most powerful figure in the Taft administration, and drew up the lists from which 
Taft appointed his other cabinet members, many of whom were intimately concerned with the giant 
corporations. He was Taft's primary confidante. 

Knox became active in organizing the international court at The Hague, and fought hard for the 
Rockefeller/Morgan-inspired concept of a League of Nations, although U.S. opposition to the Treaty 
of Versailles forced him to temper his public views on the League. He proclaimed the era of "Dollar 
Diplomacy," his legacy to U.S. foreign policy, under which the Secretary of State's office was used to 
promote and protect American commercial and industrial interests in foreign countries, especially in 
Latin America, but also in East Asia and even Europe. This period of U.S imperialism featured the 
annexation of Hawaii in the 1890s at the request of American businesses there despite the unanimous 
opposition by Hawaiians; the taking of Cuba and the Philippines from the Spanish as well as from the 
native rebels whom the U.S had ostensibly come to assist in gaining their liberty (this included the 
massive slaughter of a hundred thousand Filipinos by the U.S Army in a war in which the news media 
was censored, (even William Randolph Hearst, who had helped instigate the war with Spain, was 
aghast and disgusted.) Then came the Honduras financial crisis of 1909, in which Knox brokered a 
deal for J.P. Morgan & Company to make huge loans to that country, backed by the full faith and 
credit of the U.S., and for American bankers to take control of the Honduras taxing authority (to 
ensure adequate cash floXv to make the loan payments). Knox's diplomatic maneuvers resulted in the 
U.S. Navy being sent to support and give victory to rebel forces in Nicaragua, who then made 
arrangements, again devised by Knox, to give control of Nicaraguan taxing authority and tax 
collection to Americans. American bankers then immediately made big loans to Nicaragua, once 
again guaranteed by the U.S. government, providing a risk-free investment environment for Knox's 
banker friends. 

Knox tried to conduct the same kind of activity in the rest of Central America and much of South 
America as well, and used America's claim against the Chinese from the Boxer Rebellion to coerce 
China to deal with a syndicate of Harriman and his bankers Kuhn & Loeb, Morgan and his First 
National Bank, and the Rockefeller-controlled National City Bank, instead of with the British, 

French, and Germans, in a scheme to establish a round-the-world transportation system using 
American steamship and railroad lines. There was even action by Morgan's man in that syndicate, 
Henry Davidson, to supply arms to the Bolsheviks in hopes of gaining oil and commerce concessions 
in Russia if they were victorious. 


41 



At the international level, Knox has been criticized for oafish and heavy-handed diplomacy that 
caused ill will and damaged the reputation of the United States worldwide. His conduct was more that 
of a huckster than a diplomat. Domestically, Knox's influence extended to the Supreme Court, where 
he succeeded in having Taft appoint three justices who were extremely sympathetic to the big 
business trusts: Devanter, Lamar, and Pitney. The first two of these had formerly had clients among 
the big corporate trusts, including the railroads. 

The 16th Amendment itself was given its decisive shove through Congress in 1909 by Sen. Nelson 
Aldrich of Rhode Island (co-author of the Federal Reserve Act of 1913), who spoke for the 
"community of interest' of both Morgan and Rockefeller. This represented and led to an astonishing 
reversal of attitudes among the old-line big-business conservatives in the Senate, who had long 
staunchly opposed an income tax. Obviously, something was afoot to change their minds. It was that 
the robber barons had already figured out how to avoid the proposed income tax, especially through 
the establishment and use of foundations, the number of which grew from 18 in 1910 to 94 by 1920 
and 267 by 1930. The super-rich have avoided the income tax ever since, leaving it to be paid instead 
by the middle and lower classes. 

CONCLUSIONS 

Deceit and fraud were, for the robber barons, standard operating procedures - among the numerous 
underhanded methods they typically employed to achieve their objectives. Knox had protected them 
from fraud charges many times. His term as Attorney General was itself a big fraud in regard to 
enforcement of the anti-trust laws, especially against former clients to whom he owed so much of his 
own professional success. 

Besides preying on the government with their fraudulent activities, the robber barons employed a 
strategy of locking in and stabilizing their advantageous positions by using government authority and 
regulations to reduce competition, keep prices at very profitable levels, control labor problems, 
minimize risk, and generally make themselves quite comfortable. They also expanded their scope of 
operations, including financing and extension of credit, to other countries and used government to aid 
them in these adventures. Knox, of course, was a key man, perhaps the key man, in the 
Administration in all of this, both as Attorney General and then as Secretary of State. 

J.P. Morgan seems to have been the real genius and visionary behind much of this strategy. His 
background was more oriented to finance, and his financial acumen enabled him to make inroads 
against the other robber barons on their own turfs - a robber baron's robber baron. He was regarded as 
more cultured and cosmopolitan than most of the others, and perhaps that is why he was able to 
envision and plan on such an international scale. His financial perspective helped him to see the 
benefits of making monetary loans to governments and securing them with strong and reliable 
methods of tax collection. 

One might wonder why Knox seemed to be in such a hurry in 1913 to declare the 16th amendment 
ratified. We can see that it was because of the Federal Reserve Act of 1913. It was important to the 
banking interests that would be lending money to the U.S government that there be an assured flow of 
revenue, especially since the robber barons would be removing themselves from the income tax 
system. Just as an ordinary bank wants to know that a borrower who is given a mortgage has a cash 
flow adequate to meet the payments, so the banks comprising the Federal Reserve System wanted to 
be sure the federal government had a dependable method of tax collection in place to provide ample 


42 



money to pay its debts to them. The income tax and the Federal Reserve are inextricably tied 
together; it was not mere coincidence that they happened in the same year. The robber barons, their 
bankers, and Knox had developed this concept and practiced it in Latin America, and in 1913 they 
were ready to apply it to the United States. 

In less than a month after proclaiming the 16th amendment ratified, Knox returned to private practice 
in Pittsburgh, resigning as Secretary of State so that the new president, Woodrow Wilson, could 
appoint his own man to the post.* One gets the distinct impression that getting the amendment 
through the ratification process had indeed been his ultimate goal; he wasn't just a disinterested public 
official objectively administering the procedure. If he hadn't declared it ratified before leaving office, 
there was no way to know or control what his successor would do. 

The title of this piece asks whether it's credible that Knox would commit fraud in ratifying the 1 6th 
amendment. We leave it to readers to decide for themselves, but for us, it seems like a "no-brainer." 
He would and he did. 


*Taft's brand of republicanism had upset Roosevelt enough that the latter ran again for President in 
1912. His third party "Bull Moose" candidacy spoiled Taft's re-election, and Democrat Wilson won. 


Copyright Chris Hansen 

By: Chris Hansen 

Last revision: June i 3, 2002 05:24 AM 

Home About Contact 

This private system is NOT subject to monitoring 


43 







THIS BOOK IS IN PRINT AND THERE ARE A NUMBER 
OF PLACES ON THE INTERNET WHERE YOU CAN 
ORDER IT. 


The Law That Never Was 

— The fraud of the 16th Amendment and personal Income Tax — 

by 

BUI Benson and M. J. ‘Red’ Beckman 


Copyright © 1985 by 
Bill Benson & M J. ‘Red’ Beckman 
All Rights Reserved 

No material in this book may be copied, or 
used in any way without written permission. 


Published by 

Constitutional Research Assoc. 

Box 550 

South Holland, IL 60473 
• Printed in the United States of America 


44 



Opening Argument 

The narratives which follow were written to provide the basis for testimony in court. 
That’s why the writing style is somewhat dry and technical, and that is also why each 
narrative, whenever applicable, repeats a major principle involved in the charge of 
fraud brought in this book, the principle of concurrence, which requires any State 
Legislature that would presume to cast its vote in favor of the ratification of any 
amendment to our Constitution must do so only in complete agreement with, and to, 
the exact form of the amendment as presented to them in the certified copy of the 
Congressional Joint Resolution including every punctuation mark. This principle is 
mentioned in the foregoing memorandum of February 15th, 1913 written by the Solici- 
tor of the United States Department of State to Philander Knox, the Secretary of State. 

The office of the Solicitor of the Department of State was, and is, the office of the 
general counsel for that department of the federal administration. One of its primary 
functions is to provide legal advice for the benefit of the Secretary of State. Secretary 
Knox, himself a lawyer and former U. S. Senator, received such legal advice, in several 
memorandums, from his Solicitor concerning the status of the ratification of the 
proposed Sixteenth Amendment. 

The argument employed by the Solicitor to justify the discrepancies in the copies of 
the resolutions purportedly ratifying the proposed Sixteenth Amendment, which were 
transmitted by the States to Washington, is undergirded by the assertion that since the 
Fourteenth Amendment had “been repeatedly before the courts,” and that, since, on 
those occasions, the courts had enforced the provisions of that amendment, the courts 
had, therefore, acceded to the “errors” made in the ratification of that amendment. 
There is an obvious problem of logic in this line of reasoning. To have a statute or a 
Constitutional provision before a court is not the same thing as having the method, by 
which a statute or a constitutional provision came into being, before a court. Further- 
more, the Solicitor, nor any of his successors, ever brought any of this nonsense before a 
court The Solicitor thereby turned the acceptance of the “errors” committed in the 
purported ratification of the Fourteenth Amendment into "a precedent which [might] 
be properly followed in proclaiming the adoption” of the proposed Sixteenth Amend- 
ment Any change in amendments proposed to the States was to now be considered an 
“error” and all "errors” were acceptable. This is a hard one to swallow all by itself, but, 
in addition, nowhere, in this memorandum, does the Solicitor even suggest that the 
Secretary of State ought with all due diligence, to check and make sure that the duly 
noted discrepancies were by mistake, and not intent Instead, the Solicitor presumes that 
it was the intent of each and every Legislature, flawed ratification resolution or not, to 
have passed upon the exact wording and that changes in wording were "probably 


Opening Argument 


21 



inadvertent.” The Solicitor rationalized this cavalier attitude by stating that the various 
Legislatures did not intend to reject the amendment by these changes. This is an 
incredible statement in light of his unequivocal pronouncement immediately preced- 
ing that "a legislature is not authorized to alter in any way the amendment proposed by 
Congress, the function of the legislature consisting merely in the right to approve or 
disapprove the proposed amendment.” In other words, the Solicitor advised the Secre- 
tary of State that, while intentional alterations were not acceptable, alterations by way 
of "error” were. 

How did the Solicitor know that the changes made to the proposed amendment were 
"errors” as opposed to intentional changes? According to the Solicitor, it was a "neces- 
sary presumption” that the Legislatures did not do something that they weren’t allowed 
to do. Apparently, this presumptive attitude lead both the Solicitor and the Secretary to 
ignore the evidence of not only the intent to change the wording, but of gross miscon- 
duct and fraud. This was a natural outgrowth of the seemingly official policy which 
undertook to label all of the evident problems in the copies of State action received in 
Washington as “errors” and to accept them as such without any further investigation. 

In the case of the purported ratification in the State of Kentucky, Philander Knox did 
request those parts of the Kentucky journals which showed the events relating to the 
purported ratification. If Secretary Knox had an inkling that there might be something 
amiss in the State of Bluegrass, after he had received a copy of a paraphrased extract of 
the journals and of the journals themselves, Mr. Knox could have had no doubt The 
paraphrased extract showed a vote in the Senate of 27 in favor and 2 against The official 
journal showed a vote of 9 in favor and 22 against. Having been presented with an 
undeniably damaging situation in only the second State to ratify, Knox derided to 
ignore the entire matter. This was probably due to the opinion rendered in this matter 
by the Solicitor on March 21st, 1912. 

After the Solicitor had an opportunity to inspect the extracts (it is not evident whether 
Knox showed him the official journals), he delivered an opinion in which he made a 
great show of the authenticity and acceptability of the extracts. Based strictly upon the 
extracts, of course, the Senate of the State of Kentucky seemed to have voted in favor of 
the ratification resolution. The official journal showed otherwise. Neither Philander 
Knox nor his Solicitor further communicated with anyone from the State of Kentucky 
for the duration of the ratification process. 

An enormous hole in the Solicitor’s logic about presumptions of errors as opposed to 
deliberate changes in the wording, capitalization and punctuation of the proposed 
amendment cannot be covered up as easily as he might have liked. Thathole was created 
by all those certified copies of Senate Joint Resolution No. 40 which were sent out to the 
Governors of each State, sometimes more than once. Those certified copies and the 
acknowledgements of their receipt by the Governors had one function — namely, to 
ensure that Knox knew that each State had possession of the exact text of the proposed 
amendment and that each Governor knew that he had the exact text of the proposed 
amendment. Why? To eliminate any possibility that anyone could claim that the States 
didn’t have the exact text of the proposed amendment The Governor of a State was the 
logical, official receiver of these certified copies because — 

1. he was the chief executive of his State and, thus, finally, responsible for his State’s ' 
handling of such matters 

22 Opening Argument 


46 



2. his Secretary of State would be involved in the final certification process 

S. sending a certified copy to each of the legislators would have made for a very messy 
acknowledgment procedure 

The Governor of Kentucky contended that a Legislature would not have proper 
jurisdiction of the amendment if the Governor did not transmit the certified copy to his 
Legislature. This transmission was an important link in the chain of evidence that the 
exact text of the proposed amendment contained in the certified copy of the Congres- 
sional Joint Resolution was properly passed on to the next holder in due course of that 
highly important legislative material. For a Legislature, the subject matter of an 
amendment to the Constitution of the United States is somewhat akin to the subject 
matter in a special session of the Legislature — the only jurisdiction of subject matter 
over which the Legislature may exercise legislative control is the subject matter pres- 
ented to the Legislature by the Governor for that special session. 

Knox did send certified copies to each Governor. Knox did receive acknowledgments 
from almost every Governor. Upon receipt of an acknowledgment, Knox then knew 
absolutely that that State’s Governor possessed a certified copy of the resolution from 
Washington, D. C. Most Governors also acknowledged that they would transmit the 
certified copy to their Legislatures. Here the presumption could reasonably be held that 
those Governors would do their ministerial duty and transmit those certified copies to 
their Legislatures. Knox and his Solicitor could then not presume that discrepancies in 
the text of the legislative actions returned were errors. They were bound to presume that 
those discrepancies were in fact deliberate changes, because each and every one of the 
Legislatures had the exact text, which the Solicitor states could not be changed "in any 
way,” before them for consideration. Checking through any particular Legislature’s 
ratification action, letter for letter, comma for comma, did not take more than one-half 
hour in any case, yet the Solicitor is more than forgiving to the States for their 
"typographical” “errors” which were "incident to an attempt to make an accurate 
quotation.” If these changes by the various States were attempts to make accurate 
quotations, one has to wonder what they would do if they weren’t so diligently trying to 
be accurate? 

An enrolled bill is "a final copy of a bill or joint resolution which has passed both 
houses of a legislature and is ready for signature.” Black’s Law Dictionary, 5th Ed. It is 
presumed that the text in an enrolled bill is what the legislators intended to enact. 
Philander Knox and his Solicitor knew this rule of legislation very well. And with a 
running leap, they flew in the face of this presumption of legislative intent in an 
obvious, brazen and successful attempt to jam this amendment down the throats of the 
American people. 

Finally, on the topic of "errors,” the Solicitor completely ignored the subject of the 
preamble of Senate Joint Resolution No. 40. He did ignore the "errors” made on the 
preamble of the Seventeenth Amendment (memorandum of May 10th, 1912). As the 
preamble to the Constitution of the United States itself explains the intent of the framers 
so does the preamble to the resolution proposing an amendment to that Constitution. It 
is impossible to give assent to the wording without also having given assent to the 
intent. And as the various original thirteen States had to agree to the preamble, the 
statement of intent, as well as to the body of the Constitution, so do all States in any 
subsequent modification of that Constitution have to agree to the statement of intent of 


Opening Argument 


23 



any proposed amendment 

Another problem highlighted by the State of Kentucky which the Solicitor tried to 
address, in a memorandum dated April 20th, 1911, was that of the signature of the 
Governor, or rather, the lack of it. The official journals of Kentucky showed that the 
Governor vetoed the only version of the Kentucky Legislature’s ratification resolution 
which passed both houses. He had two reasons for the veto— one, the resolution which 
the Senate had passed was not the same as the one which the House had passed, and, 
two, the Legislature did not have jurisdiction of the matter until after the Governor had 
transmitted the certified copy of the Congressional Joint Resolution to that body. In the 
passage of the resolution which the Solicitor claims was valid, the official journal shows 
that the Senate rejected the resolution. This is why the Governor’s signature was not 
required in that situation. Had the resolution validly passed both houses, the Governor 
may very well have signed it, but, it did not pass both houses — an excellent reason for 
him not to have signed it. 

The Solicitor made the statement that the situation existing at the time of the framing 
of the Constitution "would seem to indicate that the framers did not contemplate that 
the Governors should participate with the Legislatures in the approval of Amendments 
to the Constitution. ” He then dtes with approval a statement of a previous Governor of 
Massachusetts to the effect that a Governor’s signature is unnecessary to the action of the 
Legislature in the ratification of an amendment to the Constitution of the United States, 
(at 3) He also cites Mason, The Veto Power, in trying to explain veto power — 

A resolution to amend the Constitution must already have received a two- 
thirds vote of each branch of the Legislature. Such a resolution is therefore 
beyond the reach of the veto and consequendy beyond the necessity for the 
Presidential approval, (at 7) 

In other words, because any Congressional resolution vetoed by the President 
requires a two- thirds vote to overcome that veto, the requirement of a two-thirds vote in 
the case of a Congressional resolution to amend the United States Constitution is 
considered evidence that a Presidential veto would be of no effect and, in that regard, 
and that regard only, relieves the President of any duty relative to such a resolution. But, 
the Solicitor denied that the same situation existed in the States — 

— the same reasoning does not apply in the case of the Governor of a State 
because the United States Constitution does not require that the resolution of the 
State Legislature approving the amendment to the Constitution must receive the 
required number of votes to pass a bill over the Governor’s veto, (at 7) 

The Solicitor, still arguing against the necessity for a State Governor’s approval of a 
ratification resolution, then goes on to say — 

. . . the Constitution of the United States does not require two-thirds vote of 
the Legislature to a resolution amending the Constitution. If there is any conflict 
between the State and the United States Constitutions the former must yield, (at 
9) 

There is no provision in any State Constitution relative to the vote on a State 
resolution in ratification of an amendment to the Constitution of the United States. 
Under the Solicitor’s reasoning, however, the provision in the United States Constitu- 
tion providing for a two- thirds vote in the Congress in passage of a resolution to amend 


24 


Opening Argument 



the United States Constitution would then also apply to the States, so that, in the 
passage of a State resolution on ratification, the Governor’s veto would, in like manner 
to the veto of the President, be made of none effect. The State Legislatures must, indeed, 
yield to the United States Constitution in this matter of a two-thirds vote. 

The Solicitor then goes on to say — 

. . . the argument might be advanced that the State Constitution requires the 
approval of the Governor of the laws of the State only and that neither the 
resolution passed by the Legislature approving the amendment to the Constitu- 
tion of the United States nor the amendment itself can be said to be a State law, 
and, therefore, the requirement of the Governor’s signature is not necessary. 

Unfortunately, for the Solicitor’s contention, in most of the States which claimed 
ratification of the Sixteenth Amendment, the resolutions or bills which were passed, 
supposedly signifying the act of ratification, made their official appearances in the 
published session laws journals of each of those States. They were intended to be State 
laws and the proof is in these official State publications. 

Additionally, the great majority of the legislative acts in supposed ratification of the 
proposed Sixteenth Amendment were joint resolutions of the State Legislatures. A few 
were concurrent resolutions, some were considered joint and concurrent resolutions 
and some were bills. The terms bills and joint resolutions are interchangeable. Even the 
Solicitor uses the terms interchangeably in his memorandum of April 20th, 1911 (at 8, 
12, 13; see also Horn Our Laws Are Made, at 7). Under virtually every State Constitution, 
legislation which is to become law must be presented to the Governor for approval. 
Concurrent resolutions, generally, are not accorded that treatment, but, if such resolu- 
tions are treated as bills then the proper procedures apply. Thus, in that the great 
majority of the State Legislatures chose to attempt to ratify the proposed Sixteenth 
Amendment via the vehicle of either the joint resolution or the bill and to pass those 
resolutions into law, those legislators evidenced an intention that their Governor have 
veto power over their acts. Again, the proof of this is in the publishing of these acts in the 
session laws of the State. They intended to pass a State law, they advanced legislation 
which must be passed like a State law and they published that legislation as a State law. 
The Governor’s signature did have significance. If he signed, he approved. If he did not 
sign, then the following three scenarios are possible — 

1. he vetoed the bill or joint resolution 

2. he did not sign the bill or joint resolution and let it pass through a lapse of time as 
provided in airState Constitutions 

3. he was not presented the bill or joint resolution in violation of the State 
Constitution 

The signature of the Governor, thus, has important implications. He is, after all, the 
chief executive of his State and is finally liable for all the legislative errors made in his 
State. As the buck stops at the President’s desk at the national level, so does the buck stop 
at the Governor’s desk at the State level. It is his Secretary of State who is charged with 
the responsibility of the sanctity of the original documents of legislation, and, who 
ordinarily should make a final check of the ratification resolution with the certified 
copy of the Congressional joint Resolution in hand. 

The Solicitor makes clear, however, that his argument against the necessity of a 
Governor’s signature on the ratification action is a facade. From his memorandum of 


Opening Argument 


25 



April 20th, he states relative to the failure of the Governor of the State of Washington to 
sign that State’s ratification action and to the possibility that the Legislature failed to 
present the resolution to the Governor — 

If it can be said that the resolution has never been presented to the Governor 
but the certified copy only, the resolution itself being on file in the office of the 
Secretary of State, it would still be useless to request at this date the Governor’s 
signature because the Legislature commenced its session January 9th, and as it 
could not remain in session more than 60 days must have adjourned not later 
than March 9th, (Washington Constitution 1889, Article II, Section 12: Anno- 
tated Statutes of Washington, Secdon 6921). Therefore more than ten days 
having expired since the adjournment of the Legislature the Governor’s signa- 
ture at this time could give the resoludon no added validity. 

The above discussion assumes of course that the Governor has not attempted 
to veto the resoludon, and it does not appear that he has. If he has then of course 
it would be useless to ask him for his signature. 

In conclusion it should be observed that the consdtudons of all the states* 
which give the Governor the veto power also provide a means by which an act of 
the Legislature shal l become a law if the Governor fails to exercise his veto 
power. By this provision the many resoludons of state legislatures approving 
amendments to the consdtudon which were not signed by the Governor would 
perhaps be considered valid the same as in the case explained above. 

In other words, the Solicitor admits to the possibility that a Governor’s signature was 
required but that, what the heck, the Washington Legislature was adjourned and it 
wouldn’t be of any use to try to obtain that signature anyway. If the Governor had 
attempted to veto the resolution, well, same story. The Solicitor concludes his com- 
ments on why no one should bother to check whether the Washington resolution was 
ever presented to the Governor for his signature with a reference to all the State 
Constitutions which provide for passage of legisladon if the Governor merely fails to 
veto. This universal provision, according to the Solicitor, makes it all right if the 
Legislature failed to present the resolution to the Governor. Note that the Solicitor must 
have had a copy of the Constitution of the State of Washington handy. He must have 
also been able to read that Article III, Secdon 12 of that Consdtudon required the 
Legislature to present the ratificadon resoludon to the Governor. Nevertheless, the 
Solicitor, in a bald-faced deceit, counseled a knowing disregard for the truth and a 
disdain for seeking any further when serious doubts as to the propriety of radficadon 
acuon at the State level surfaced. If the Washington Consdtudon required a presentaton 
of the legislapon to the Governor and it was not, it would go without saying that his 
signature would, after such a violadon, give “no added validity” to the resoludon. The 
resoludon would be a nullity. 

The signatures of the Governors highlight another problem having to do with 
signatures, or the lack of them. The Governor of the State of Wyoming sent a telegram to 
Philander Knox claiming that the Wyoming Legislature had raufied the “income tax 
amendment.” Whereupon, the Secretary of State immediately sent a telegram back to 
the Governor requiring that he furnish a cerdfied copy of the acuon. The copy of the 
resoludon furnished was a fraudulent document signed only by the Secretary of State of 
the State of Wyoming, (see narradve for the details) There is no archival original 
document showing the signatures on that resoludon and since the copy sent to 


26 


Opening Argument 



Washington, D. C. is false on its face, there is no reason to suppose that one ever existed. 
Had the copy sent to Washington been completely certified by the presiding officers of 
the Wyoming Legislature and by the Governor, there would have been no question. It 
certainly would have been no inconvenience to sign two sets of documents instead of 
one. We are, after all, talking about a momentous occasion, the modification of the 
Supreme Law of the land. A similar situation occurred in California. 

In this case, as in every case, the Solicitor chose the lower standard in this most solemn 
and meaningful of legislation that can be passed. All manner of unsigned documents 
were accepted. New Mexico is a notable exception in which the copy of the Legislature’s 
action sent to Washington, D. C. is completely certified on the face of the document. For 
the so-called certification of two States, the original is not referenced and, therefore, 
under the rule of best evidence, such a copy is not admissible as evidence. Furthermore, 
in contrast to the States of Wyoming and California, wherein each Knox insisted that a 
certified copy of the ratification action was required, Minnesota was allowed to slide by 
without submitting a certified copy of their Legislature’s action. 

The preceding tale of woe, detailed in the succeeding pages, highlights the necessity 
that the highest standards, not the lowest, be used in the ratification of a proposed 
amendment to the Supreme Law of the land. 


Opening Argument 


27 



The 1 7 th Amendment Scam 


A. Now you are probably like most people and have never read or paid any 
attention to the 1 7 th Amendment. 

1 . Well, why not? It is a wonderfully developed, intricate piece of word smithing, 
deceptively and artfully constructed, behind the scene, slap in the face to the 
American Citizens. 

2. We just bet that those who worked to develop and push the 1 7 th Amendment 
through to passage got a big laugh out of it as they were paid for their evil deed. 

B. As some of you know the United States senators in the Original 
Constitution were voted upon by the State Legislators to protect State 
rights in the congress. 

1 . If their Senators failed in their duties they could be recalled back to the state red 
the riot act or replaced by a majority vote of the State legislators. 

2. The States created the Federal Government. This setup of the Senators 
representing their States Rights and issues, was a very important element in 
controlling their creation. 

3. This control factor helped the States keep the Federal Government from “getting 
too big for its britches.” 

C. As some people say, “All good things eventually come to an end” and 
this is what happened with the passage of the 1 7 th Amendment. The 
state legislators had real authority over the Federal government. OR 
DID THEY? 

D. The Federal Reserve Act of Dec. 23, 1913 was intended to over ride the 
Constitution of the United States, through the 1 6 th and 1 7 th Amendments. 

E. Now the 16 th Amendment to the United States Constitution did nothing 
without its counterpart, the 1 7 th Amendment. WHY? 

1. The 17 th Amendment: The Senate of the United States shall be composed of two 
senators from each state, elected by the people thereof, for six years; and each 
senator shall have one vote. The electors in each state shall have the 
qualifications requisite for electors of the most numerous branch of the State 
legislatures. When vacancies happen in the representation of any State in the 


52 




senate, the executive authority of such State shall issue writs of election to fill 
such vacancies: Provided , That the legislature of any state may empower the 
executive thereof to make temporary appointments until the people fill the 
vacancies by election as the legislature may direct. This Amendment shall not be 
so construed as to affect the election or term of any Senator chosen before it 
becomes valid as part other Constitution. (See Exhibit A, 4 of 5 from the sixty- 
eight Congress, First Session, Senate Document No. 154, The Constitution of the 
United States of America, As Amended to December 1, 1924). 

2. Did you read anywhere in the 17 th Amendment that repealed Article 1, Section 3, 
Clause 1 , of the Constitution? 

F. Read article 1, section 3, Clause 1, of the Constitution (Exhibit B): The 
Senate of the United States shall be composed of two Senators from each 

state, chosen by the Legislature thereof, for six years; and each senator 
shall have one vote. 

th 

1 . The 1 7 Amendment stands as a nullity. 

2. The Citizens of the Several States did not create the Federal Constitution to 
protect their substantive rights. 

3. State Citizen could not claim any protection from the Federal Constitution unless 
they are a citizen within a Federal Territory. 

4. What the slick little schemers did was to use the 17 th Amendment to create a 
presumption that if you were a voter you would be presumed to have voted for a 
Federal Representative and therefore you are a constituent. 

5. Your Federal Representative has your power of Attorney to act in your behalf. 

6. Anything the Federal Representative agrees to or their predecessors set forth by 
an Act, you are responsible for. 

7. If the Federal Constitution was a National Constitution and applied to all citizens 
within the several states then why have State Constitutions? 

a. Why have State Legislatures? 

b. Why have a State Judiciary? 

c. Why have County Officials? 


53 



G. The Constitution was ordained and established by the people of the 
United States for themselves, for their own government, and not for the 
government of the individual states. 

1 . Each state established a Constitution for itself, and in that Constitution, provided 
such limitations and restrictions on the powers of its particular government, as its 
judgment dictated. 

2. The people of the United States framed such a government for the United States 
as they supposed best adapted to their situation and best calculated to promote 
their interests. 

3. The powers they conferred on this government were to be exercised by itself; and 
the limitations on power, if expressed in general terms are naturally, and we 
think, necessary, applicable to the government created by the instrument. 

4. They are limitations of power granted in the instrument itself; not of distinct 
governments, framed by different persons and for different purposes. 

H. As you can witness for yourself the 1 7 th Amendment never changed the 
Original Constitution of 1 78 7 . 

1 . What was the real deception behind the passage of the 1 7 th Amendment as well 
as the 16 th Amendment? 

2. Do you think repealing the 17 th Amendment and returning the selection of 
Senators back to the Legislators of the States would have a major effect in not 
only state government but also Federal government? 

3. As we have seen in this past election, for the senate race you could chose 
between Twiddle Dee or Twiddle Dumb. 

a. As long as those behind the scene who pull strings of power get to put up and 
support both candidates, do you think they really care who gets elected as long 
as the electie does their bidding? 

b. As long as the electives make sure the nice, big, fat, juicy government contract 
are let out to the right companies the financiers could care less as to which 
party Dee or Dumb represent. 

c. They also have enough power to destroy any third party. 

d. We will have the same one party system, “third party”. 


54 



e. The people are told that their vote counts when, in fact, all you can do is to 
vote for the “lesser of the two evils.” 

I. Put the selection of the Federal Senator back into the hands of the State 
legislators where it belongs so that state rights are once again protected 
and your vote actually counts for something. 



The seventeenth amendment reads as follows; 


Amendment XVII 


The Senate of the United States shall be composed of two Senators from 
each state , elected by the people thereof, for six years; and each Senator 
shall have one vote. The electors in each state shall have the qualifications 
requisite for electors of the most numerous branch of the state legislatures. 


A. Today, and for many years, much has been written about the damage this 
amendment has caused to our Republican form of government, when it took 
Suffrage from the State and gave it to the People. 

B. Among the concerns expressed by all about the damage caused by the 17th it is 
clear that the best understood harm is the fact that within the lawmaking body 
of Congress the form of government has been altered from a Republican form 
to a Democratic form. What is not so universally understood is that; 

1 . There was no standing for this amendment at the federal level as Article V, last 
clause, mandated the entire matter to the States and prohibited it to the Federal 
government: "that no state, without its consent, shall be deprived of its equal 
suffrage in the Senate." 

2. By this wording in Article V each State, individually, had sole discretion over this 
matter within its own borders and it was excluded to the Federal Government by the 
1 Oth Amendment. 

a. That many States were intimidated and coerced into ratifying this amendment, 
at a time when this country was experiencing convulsions arising out of the 
civil war reconstruction, by threat of contending with a Constitutional 
Convention. 

C. It was recognized by most that a Constitutional Convention would very likely 
severely alter that document to the detriment of all. 

1 . The Federal Government, under its Supremacy Clause had a duty to strike down any 
attempt to alter the Republican form pursuant to Article 4 Section 4 that says in 
pertinent part; "Section 4. The United States shall guarantee to every state in this 
union a republican form of government, and shall protect each of them against 
invasion; " and as such had a duty to protect to each State the Republican form and to 


56 



protect each State from the invasion of other States regarding their Sovereign status 
which the Fed failed to do. 

2. Pursuant to Article V last clause, (as quoted above) the words "NO STATE" and 
"WITHOUT ITS CONSENT" altered the amendment ratification guidelines of 
Article V to force a full, 1 00%, ratification (rather than the usual 3/4's) of any 
amendment concerning this matter of State Sovereignty. Only 36 ratified the 17th. 

Utah rejected outright. 

D. The 17th Amendment can not have been lawfully ratified. 

E. The real harm that has resulted from the acquiescence to the 1 7th, by the 
States, is it destroys the ability of the State to micro manage the affairs of the 
Federal Government on behalf of its people. Where once a State could impact 
Bills before congress, it saw to be inappropriate, by quickly mandating senators 
vote in a specific way or calling them home in an effort to prevent a quorum, 
after the 17th the State no longer had authority to manage Senators who now 
were answerable only to the people whom could not effectively manage the 
actions of Senators except once every 6 years. The total difference was 
MANAGE TODAY AND EVERY DAY as opposed to MANAGE ONCE 
EVERY 6 YEARS. 

F. This whole idea was sold to the American people as an action that was 
beneficial for them in the form of a direct say in the election. But what the 
people got in a direct vote was more than countered by their loss of 
manageability of the Fed by their State watchdog and the loss of teeth the 10th 
amendment suffered as a result with respect to the Sovereignty of the States. 

G. In light of the foregoing 4 imperfections, under the Supreme Law of the Land 
and under the law of contracts the 1 7th Amendment is ripe for repudiation. 

This amendment is void on its face and can have no effect in law. The 
subsequent acquiescence of the Federal Government and the State 
Governments to the 17th can not make what is VOID, rather than avoidable, 
lawful. 

H. The States need to take back their representation and restore the integrity of 
Congress. In so doing the State can block Bills that are unconstitutional by 
regaining control of their Senators. No longer would Senators have a 6-year 
"kingship". The states will once again regain control regarding their interests 
by protecting the constitutionality of all Bills that pass Congress. 


57 



I. The same tight nit group of European and American Bankers all combined 
their efforts into getting the: 

1 . F ederal Rules of Equity 1912 

2 . 1 6 th Amendment 

3. 17 th Amendment 

4. Federal Reserve Act 23 December 1913 

5. Passed and put into full force and effect before the American people had time to 
assemble opposition to their measures. 

6. Then when people started to speak out these same Bankers used their front man 
Woodrow Wilson who ran on the promise that he would not send American boys to fight 
on foreign soil “to push through their legislation.” 

7. When Wilson was going around the country making this claim they were already 
American men dying on foreign soil. 

J. Those same group of bankers then proceeded to do what they had done and 
gotten away with for years. 

1 . Start a war and fund both sides. 

2. They are experts at controlling those in power with their purse strings 

3. Using WWI “The war to end all wars” as a smoke screen and with all the media directed 
toward reporting on the war their evil deeds went unnoticed by most of the people. 

4. Ask, What are the armaments?” 

a. Who is providing the money? 

b. Where is the money going? 

c. What armaments have been bought with the money? 

d. Who supplied those armaments? 

e. How were those armaments shipped? 

f. Where were they shipped? 


58 



g. Why is this money being put into this area of the world? 

K. We helped put a Clermont County, Ohio Judge in jail by the name of Robert 
Linder who stole over a million dollars from disabled children’s trust funds. 

1 . During and after the trial a number of press people wanted to interview us and to each of 

them we asked? 

a. Are you a true news reporter who knows how to dig up a story? They basically said 
yes. 

b. Then where is your story about what happened to the over one million dollars that 
Robert Linder stole? Their answer was always “what do you mean?” 

c. We would reply “you mean to tell me that you are a qualified news reporter who can 
research a story and you haven’t even taken the time to find out what happened to one 
million dollars? 

d. They would ask us if we knew what happened to the money and we would tell them 
that it was their job to find out where the money went. 

e. When you can tell me exactly where the money went, then and only then will I give 
you an interview. 

f. Not one reporter dared to expose what happened to the money as if it was a taboo 
subject matter not allowed to be revealed. 

2. Always trace the money. That is what the IRS and FBI do. See number 197, 

“FINANCIAL INVESTIGATIONS “ A Financial Approach To Detecting And 

Resolving Crimes. 


59 



The Worlds Most Exclusive Club 


A. Three issues are in the forefront of American political debate: 

1 . Campaign finance reform; 

2. Reducing the size of the federal government; 

3. Devolving power to the states and to the people. 

B. The original framers of the Constitution were smart enough to have figured out 
a way to meet all three of these objectives. 

1 . The 17th Amendment to the Constitution, changed the way senators were elected, thus 
negating much of the brilliance which created a fair balance of powers between the 
federal and state branches of government developed by the original framers. 

C. Originally, the United States senators were elected — two per state — by their 
state legislatures; the 17th Amendment transferred their election to statewide at 
large elections. 

1 . This reduced the power of the states, and created another legislative body having many 
of the characteristics of the House of Representatives. 

D. Repealing the 1 7th Amendment to the Constitution would have immediate 
benefits: 

1 . It would eliminate the need for the huge Senate campaigns we have today. 

2. Would make the role of state legislators far more important that it is today. 

3. Reduce the power and size of the federal government. 

E. The long-term effects of this change have resulted in unintended consequences. 

1 . The shift of political power from state legislatures to the electorate resulted in an 
increase in power by the House, which has sole authority to initiate all federal revenue 
legislation. 


60 




F. With the ratification of the 17th Amendment, the Senate no longer represented 
the interests of the states, but rather those of their electorates. 

1 . Voters became less concerned about the qualifications of the members of their state 
legislatures. 

2. Electing federal senators who would respond directly to their views became a major 
objective of the voters and their special interest groups. 

3. We can identify a number of current and former senators who would have had little if 
any change of being even nominated let alone being elected by the state legislature. 

G. Each senator must raise a minimum of $20,000 per day during his or her six- 
year term of office to wage a competitive campaign for re-election for 
membership in what has been called "the world's most exclusive club.” 

H. With the restoration of this part of the Constitution to its original design, states 
would once again become a more equal partner with the federal government. 

1 . Governors would be transformed from begging Cabinet-level federal bureaucrats for 
money into effective executives. 

I. Each citizen is far closer to his or her state's elected representatives than to 
Washington, politically and geographically. 

J. Senators elected by state legislatures would be more responsive to their state's 
needs. 

1. Asa result, U.S. senators would be better insulated from the almost daily pressures of 
voters' shifting interests, and, freed from constant fund — raising chores, far better able to 
focus on the Nation's long — term objectives. 

2. The Senate's constitutional role of being the nation's watch dog over the piping hot 
legislative broth drafted by the House is allowed to cool will be restored. 

3. Would a state legislature re-elect a senator to term after term, especially with term limits 
for state legislators? 

K. Return the Senate to the states by repealing the 17th Amendment, liked they 
repealed the 1 8th (Prohibition). 

L. Start campaign finance reform by repealing the 1 7 th Amendment and restore 
state rights. 


61 



A Nation in Hock 


A. The following information comes from the book “The Most Secret 
Science” by Col. Archibald Roberts from Fort Collins, Colorado. 

1 . Col. Roberts wrote this book in 1 984. He also published a short newsletter for a 
number of years. 

a. In other words he has many years of experience in this area and one of the 
first people we found years ago who has reliable information in this area. 

2. We are going to take you through just a few pages out of his book concerning the 
Federal Reserve Bank Act of 1913. 

3. Instead of using A, B, C, etc. like we usually do we are going to use numbers, 
which will match the pages in the book starting on page 51 to page 64. 

B. The following numbers are coordinated with the enclosed section from 
the book “The most Secret Science” 

1 . Read Thomas Edison’s famous quote several times to get the full grist of what he 
is expounding about. “Both are promises to pay, but the one fattens the usurer 


62 




and the other helps the people.” WHO ARE YOU SUPPORTING THE 
USURER OR THE PEOPLE? 


2. This report was given on 7 March 1983 by Archibald Roberts concerning the 
repeal of the Federal Reserve Act of 1913 to the Idaho Senate Affairs Committee. 

3. Here is a statement that many people have never heard before, “the State is 
superior to its creature” and “all political power flows from the people.” The 
trouble is that most people have been too dumb down in this simple 
understanding of their substantive rights and the power they actually possess. 

4. Yes, Federal Reserve notes are created out of the air. So why do they need to 
have an income tax when they can print and waste all the reserve notes they want 
to? 

5. Read number 133 on our literature list about America being actually bankrupt. 

6. Read Article 1, section 8 of the constitution and what amendment did away with 
the Congress control of our money supply. If congress got its nose out of state 
right issues and start performing the way it was supposed to, then they would 
have the time to control the money supply and not the Federal Reserve Bank. 


63 



7. This means private manipulation of our economy. We still have yet to get any of 
these incorporation papers of any of these twelve member banks. If you have any 
of these incorporation papers let us know. 

8. “These funds are expended by the Federal Reserve System without an accounting 
to the Congress.” Now here is one of the keys we feel of trying to ring in is to 
give the General Accounting Office authority to do a accounting of the Federal 
Reserve Bank itself and the twelve member banks after all they are using the 
money, that is the credit of the government of Untied States. In 1993 Congress 
gave authority to the GAO to Audit the IRS and their records were so bad that the 
GAO had to give up. The GAO still cannot fully audit the IRS records. Read 
number 130 on our literature list concerning the 2001-2002 Audit of the IRS by 
the GAO. We would sure like to read the first Audit of the Federal Reserve 
Bank, now that could be very interesting. So why doesn’t Congress mandate the 
GAO audit the FRB? Could it be that they would be out on the street picking up 
pop cans or selling pencils on a street corner if they ever did anything to upset the 
FRB. 


9. The Fed uses your tax money to make and break government at will. We are not 
just talking about IRS taxes but also many other type of taxes are also deposited 
into the Fed including Social Security taxes with no GAO accounting of these 
taxes. 


64 



10. How can anybody or group run around the country claiming to be a sovereign 
citizen. They have good intentions but its like they are sitting on the shore of the 
Atlantic Ocean watching the waves, waiting for the sun to come up over the 
ocean. What is wrong with that picture? We meet people all the time who think 
they are a sovereign citizen because they filled a few papers in a courthouse. We 
just try and to walk softly around them so we don’t burst their bubble. But the 
new catch phrase has gone from sovereign citizen to “capturing their strawman” 
or “incorporating their name.” There are actually people who believe that the 
Strawman or incorporation their name is going to do something for them. From 
what we have seen neither one of these will keep you out of jail. 

1 1 . Those who run the media make sure these issues are never brought to the 
forefront. We subscribed to the Wall Street Journal for several years and we 
don’t remember any article that exposed or even mentioned the real rulers of 
Wall Street. With trillions going through the FRB’s fingers no one ask where is 
the money going and why is there no accounting of those collected funds? 

12. Garrison admits that Paul Warburg from Germany who went on to marry Jacob 
Schriff s daughter to which Jacob as the richest Jew in the United States at the 
time, was acting upon the orders of Alfred Rothchild of London. Jacob and Paul 
bragged about writing the Federal Reserve Act in Yiddish. 


65 



13. Here we want to get into reveling who exactly put up the funds to start the 
Federal Reserve Bank in America. In Europe it is called, “The Central Bank.” 
The way we remember these banks is that we put them in order like this: 

a. Goldman, Sachs Bank of New York. 

b. Isreal Moses Seif Banks of Italy 

c. Kuhn, Loeb Bank of New York 

d. Lazard Brothers Banks of Paris 

e. Lehman Brothers Bank of New York 

f. Rockfellers, Chase Manhatten Bank of New York 

g. Rothchild Bank of Londen and Berlin 

h. Warburg Bank of Hamburg and Amsterdam. 

Now a word of warning when you start revealing these names to others or asking 
specific questions about these banking families you may all of a sudden be called 
anti-Semitic by the media as their way of trying to shut you up. When you start 
laying out the fact of who is pulling the purse strings behind the scene the media 
never rebuts the facts just tries to smear you. 

14. Besides these eight banking families there are also 300 more people in on that 
financial rapping of the American People. If you have the Articles of 
Incorporation of the Federal Reserve Bank of 1913 please send us a copy. 

15. President Andrew Jackson stood up against the setting up of a Central Bank in 
America and was almost murdered over it. Abraham Lincoln was murdered by 


66 



John Wilks Both who it has been proved was a agent of the Central Bankers of 
Europe and actually escaped to Italy, shot Lincoln because he chose to print 
United States notes instead of borrowing those funds from European Central 
Bankers. America operated from 1787 until 1913 without having a formal 
Central Bank. Now we have an Internationally owed Central Bank, who not only 
controls our money supply but also pulls the strings in other areas. The 
American BAR (British Accreted Registry) Association with all the 54 state Bar 
Associations and all the Country Bar Association have but one duty and that is to 
protect their bread and butter. You guessed it the Federal Reserve Bank and all 
their member banks. 

16. Here is the court case “Lewis vs. United States” where the Ninth Circuit Stated 
that the Federal Reserve is a private banking monopoly. 

17. Monetary Control Act of 1980, which of course all of you have read gave the 
FED control of all U.S. depository institutions. The acting president Jimmy 
Carter a product of Rockfellers Chase Manhattan Bank and a bastard son of old 
man Joe Kennedy did what JFK referred to do. Yes, Jimmy turned over our 
entire economic system to the FED and appointed a board of directors who were 
all ex-Rockfeller employees from New York instead of from each of the twelve 
regions as was set forth in the FRB Act itself. With a board of directors made up 
of all New York Yes Men to David Rockfeller; The entire West, Midwest, and 
South had no say what-so-ever as to what the Eastern establishment banking 


67 



cortel did. Chase Bank made Billions in profit from Jimmy Carter’s decision, 
which were actually the decisions of David Rockfeller. When Billy Carter and 
his two sisters started to talk too much about Jimmy’s real past history, they were 
killed by using the same old cancer trick. Samatha wrote a little book exposing 
just a few items of Jimmy and her mothers past and she was killed and her book 
destroyed so it would never make New York’s top ten list for non-fiction. When 
Jimmy’s mother said the wrong things to the press, they packed her bags and sent 
her to India and stuck her in a sanctuary with Mother Teresa and we never heard 
from her again. Jimmy was nothing more then a Rockfeller Yes Boy with the 
head wizard of the Rockfellers standing behind him, Henry Kissinger. Henry has 
been telling every American President what to do from Dwight David 
Eisenhower to George W. Bush, Jr. All David Rockfeller could say is “Thank 
you Jimmy.” 

18. The Monetary Control Act gave the green light to greatly expand into all 
economic areas without having to give an accounting of enterprises. They are 
also able to create a boom or bust economy in any area of America they wish. 
Certain insiders get to partake in this local boom or after a bust they come in and 
buy up the local business and property to get ready for the boom. Let’s not forget 
all the tax abatements they get from the local government while the older local 
business get creamed with higher taxes. We have seen it in our county happen as 
you probably happen in yours also. 


68 



19. The biggest trick of the FED that even David Copperfield can’t perform is that 
the FED can “create money out of thin air.” If you try and create money out of 
thin air it is called counterfeiting. When the FED does it, it is called a Federal 
Reserve note. The Chase Manhattan Bank guidelines have accomplished the 
centralization of all economic entities under control of the FED. We know that 
you must really feel loved to know just how much control those bankers in 
Europe maintain over you. Don’t forget that every check you write is cleared by 
the FRB with both sides of your check being scanned so that many people in law 
enforcement and ERS employees have instant access to your checks 24 hours a 
day, 7 days a week. 

20. Now we get to the nitty gritty of it all concerning the Monetary Control Act 
allowed the FED to take over control of the debts of foreign countries secured by 
the ability of the American taxpayers to pay up. If you don’t pay they send 
swarms of agents of a foreign principle to come after you. They know that they 
have the BAR Association under their control, which includes the Judges. They 
know that they have the media under their control. They know that they have 
control over the Grand jury by putting ringers on it to make sure they get an 
indictment against anyone they wish. They know they have control over public 
opinion because most people are so fearful of these powerbrokers even though 
many hard working people bring home a little over 50 percent of their pay check. 
They know they have control over all major corporations. They know they have 
control over all International Labor Unions. They know they have control over 


69 



all lending institutions. Even with all this control millions of Americans are 
standing up against them and flipping them off with little more then the shear 
self-determination. Like those men who marched with General Washington on 
Christmas Eve to surprise the British Hessen Troops at Trenton, New Jersey, 
leaving their bloody footprints in the snow. Or like those men who stood with 
Andrew Jackson at the Battle of New Orleans. Yes, there are those American 
Men and Women with backbone who realize something is vastly wrong and in 
their erenst zeal fall victim to various traps that the Government sets out there. 

Or they get taken in by used car salesmen who can take “SOS” and make it sound 
like a seven course meal and get you to pay big bucks that in reality is only worth 
a few cents. We see the results of this hype everyday as people call us and come 
to see us deeply in trouble from doing something that sounded good at the time. 

If it sounds too good to be true, then be very careful. Many people want to know 
why we don’t do the power of Attorney form. The answer is that if someone 
doesn’t want to learn to take some control over their own life then we can’t help 
them or if they don’t want to help themselves how are we going to be able to help 
them. This is one reason we have put out there 12 issues of the “VIP Dispatch” is 
so that you can help yourself and then help others. 

21. Fact sheet on the Monetary Control Act, Public Laws 96-221. We see were the 
Federal Reserve now has blanket authority to purchase the debt of any sovereign 
debtor and that debt is secured by the American Taxpayer. Now do you just see 
why there cannot be an accounting of the FED? We should demand the same 


70 



should we say rights. But, most Americans fail to exercise those rights and have 
chosen to support the Rothchild Feudalistic system instead. It’s just like Judge 
Weber said in the Summons Dispatch, if everyone claimed the Fifth Amendment 
on the 1040, it’s over. It is the American people’s choice, they can support 
honest government or dishonest government and continue to support the FED. 


22. Lets take a look at how changing just one phrase does in all the private lending 
institutions. After all they have some of the best minds doing this to us that 
money can buy. 

23. This is just the list from 1981 through 1983. What is it today? Who is supplying 
the funds to the FED to stick their nose in another country’s business? 


71 



NEW BOOK 


A ‘solution’ to the 


Federal Reserve ‘problem’. 



The most secret knowledge, a science which outdates history, is the 
science of control over people, governments and civilizations. The 
foundation of this ultimate discipline is the control of wealth. 


Archibald E. Roberts, Lt. Col., AUS, ret. 


72 


FOUR 


"If the Nation can issue a dollar bond it can 
issue a dollar bill. The element that makes the 
bond good makes the bill good also. The 
difference between the bond and the bill is that 
the bond lets the money broker collect twice 
the amount of the bond and an additional 
20%. Whereas the currency, the honest sort 
provided by the Constitution, pays nobody but 
those who contribute in some useful way. It is 
absurd to say our Country can issue bonds and 
cannot issue currency. Both are promises to 
pay, but the one fattens the usurer and the 
other helps the People. ” 


THOMAS EDISON 


A NATION IN HOCK 

IDAHO TESTIMONY REVEALS FEDERAL RESERVE HAS LIEN 
AGAINST ALL U.S. PROPERTY 


Trillion dollar national debt, money borrowed by 
the Federal government from the Federal Reserve 
System, a private banking cartel, is a lien against 
all property in the United States, both public and 
private, constitutionalist tells panel investigating 
cause for bankrupt society. 

Solution is citizen participation in State demand 
for repeal of Federal Reserve Act, restoring to 
Congress power to ‘borrow money on credit of the 
United States,’ and returning control of economy 
to the people, speaker says. 


On 7 March 1983 Archibald Roberts, Director, 
Committee to Restore the Constitution, appeared 
before the Idaho Senate State Affairs Committee, 
Honorable Walter H. Yarbrough, Chairman, to 
testify in support of House Joint Memorial #3, 
calling for repeal of the Federal Reserve Act of 
•1913. 

Introduced by Representative Frank Findlay in 
response to demand by thousands of irate Idaho 


citizens, HJM #3 was adopted 46 to 22 by the 
House of Representatives on 4 February. 

Senate hearings of 7 March resulted in passage 
by voice vote on 14 March, propelling Idaho into 
ranks of states challenging the constitutionality of 
the Federal Reserve Act. 

State legislative action on the Federal Reserve 
demonstrates a national movement of enormous 
potential for reversing decline of the American 
civilization. 

Following is a transcription from a live tape 
recording of address by Col. Roberts, and 
questions on the issue by Senate Committee 
members. 


Mr. Chairman and members of the Senate State 
Affairs Committee, my name is Archibald 
Roberts. 1 am a resident of Fort Collins. Colorado, 
and the Director of the Committee to Restore the 
Constitution. The Committee is a non profit 
corporation. We are a political research and public 
information organization. The thrust of the 


73 



Committee to Restore the Constitution. Mr. 
Chairman and members, is to encourage support 
of the Articles of the Constitution within the 
borders of each State. The reason for that, of 
course, is that the State is the principal under the 
Constitution having created the Federal 
government by the first three articles of the 
Constitution. Since we are dealing with Principal 
and Agent, it is clearly the responsibility of the 
respective States, as Principals, to correct any 
excesses of their Federal agencies in Washington, 
D.C. And so, in the case of the Federal Reserve 
Act, which we will show later in this presentation 
to be unconstitutional, it will be our purpose to 
support the resolution now before this Committee, 
that is House Joint Resolution No. 3, calling for 
repeal of the Federal Reserve Act of 1913. 

During the next few minutes, Mr. Chairman, 1 
would like to present to the Committee the origins 
of the national economic crisis. This, of course is 
at the heart of any consideration for corrective 
action. We will also reveal what we consider to be 
the proper solution for these excesses by Federal 
agencies, namely repeal of the Federal Reserve 
Act of 1913. 

Because the State is superior to its creature, it is 
obviously the constitutional responsibility of 
elected state officials, representing their 
constituencies, to take whatever action is 
necessary to enforce the articles of the 
Constitution within the borders of the State of 
Idaho. Of course, all political power flows from 
the people. It is the responsibility of the individual 
citizen, therefore, to bring to the attention of 
elected officials violations of the Constitution, or 
abridgements thereof, which threaten any of the 
freedoms of persons or property guaranteed to the 
people by the Constitution. 

Now the issue of economic crisis. 

I believe that the magnitude of this problem. 
Mr. Chairman, was revealed by an Associated 
Press story out of Washington dated the 24th of 
June, 1982. The Treasury financial report of this 
date stated that the Federal debt was 
51,070,241,000,000. The Associated Press story 
stated that Congress' limitation on the national 
debt is the reason the Senate had raised the ceiling 
to accommodate an anticipated budget deficit in 
excess of 5100,000,000.000. 

Mr. Chairman, we know now that since that 
date the deficit has been raised substantially. 


These are very grave conditions with a national 
debt of over one trillion dollars and an estimated 
deficit of 170 billion. Mr. Marvin Stone, Mr. 
Chairman, the editor of U.S. News and World 
Report, declared on the 28th of June, 1982, that 
todays interest on the national debt is over 5100 
billion annually, based on the trillion dollar 
national debt. 5100 billion interest paid on the 
national debt. The significance here of course, is 
that the so-called trillion dollar debt is money 
borrowed by the Federal government from the 
Federal Reserve which is. as we will show, a 
private banking establishment. Therefore, the 
interest of 5 100 biilion paid on the national debt is 
actually paid to the private banking cartel called 
the Federal Reserve, and its Class A stockholders. 

I think that Americans, and particularly the 
people of Idaho should know to whom this trillion 
dollars is owed, and who collects the 5100 billion 
dollar interest payment which we have identified. 
And finally, are America’s taxpayers actually 
victims of a gigantic hoax. If the later is the case, 
then we of course are dealing with a criminal 
conspiracy. 

A clue to these questions is found in a United 
Press International release which stated, and I 
quote, “Panel to Decide U.S. Monetary Course.” 
Panel meaning the Federal Reserve Panel. This is 
a Rocky Mountain News article Mr. Chairman, 
and it revealed that the Federal Reserve Open 
Market Committee is the policy making body of 
the Federal Reserve System. Therefore, this 
Committee sets the course of the U.S. economy. It 
sets the interest rates on all money loaned by the 
banks and trickles down to the other lending 
agencies. It also, of course, determines the amount 
of Federal Reserve notes in circulation, which are 
not based on anything of value but are created out 
of thin air. It determines the stock market action, 
whether it will be up or down, and other factors 
which have a direct bearing on whether 
Americans and the citizens of Idaho will live in a 
bankrupt or a prosperous society. We are now- 
living in a bankrupt society directly due to the 
manipulation of credit and the volume of currency- 
put into circulation by the Federal Reserve 
System. 

I think it would be prudent to follow this lead 
which we have uncovered to deterinine how it 
affects individuals involved in the lawmaking 
process, and of course, their constituents living in 
the State of Idaho. 


74 



Mr. Chairman and members of this Committee, 
1 testified on the Federal Reserve System before 
the Wisconsin State Affairs Committee in 
Madison, Wisconsin on 30 March 1971. The title 
of my address was "The Secret Government of 
Monetary Power." This address was placed in the 
Congressional Record on the 19th of April, 1971, 
under the title "The Most Secret Science." 
Extracts of the Madison speech have a direct 
bearing on today's economic ills and explain how a 
secret government of monetary power did seize 
control of the Federal government in 1913. Since 
that time, Americans have existed at the whim of 
those who control the economy through the 
Federal Reserve System. 

Before we examine this particular part of the 
presentation Mr. Chairman, it would be well to 
agree on the authority, the Law, affecting the 
economic situation in the United States. Mr. 
Chairman, the Constitution is very specific about 
control of the economy and the fiscal process of 
the United States. Article 1, section 8, directs that 
the Congress is authorized to borrow money on 
the credit of the United States, and to coin money 
and regulate the value thereof. Federal Agents, 
Mr. Chairman, are prohibited from modifying the 
Constitution or to transfer these vast powers to a 
private banking cartel. There is no authority in the 
Constitution permitting such usurpation of power. 
Later in this presentation, Mr. Chairman, we’ll 
show how the State of Arizona, acting on this 
authority, that is the quoted authority of the 
Constitution, memorialized the President and 
Congress to rescind the Federal Reserve Act, as 
the resolution before this Committee proposes to 
do. 

The Federal Reserve, as we have pointed out 
previously, is not a government agency. It is a 
private banking cartel. This is the crux of the issue. 

I think it might be pertinent therefore, Mr. 
Chairman, to examine the authority which the 
Federal Reserve itself declares established its legal 
status. This authority is quoted in a statement 
submitted to Congressman Wright Patman, who 
was then Banking and Currency Board Chairman, 
by the Board of Governors of the Federal Reserve 
System. This statement was made the 14th of 
yfT\ April, 1952, and is as applicable today as it was 
\y then. 1 quote,<"The twelve Federal Reserve Banks 
of the Federal Reserve Board are corporations set 
up by Federal law to operate for public purposes 
and are placed under government supervision.” 
The Board further advised Mr. Patman, and again 


1 quote, "The Board of Governors was created by 
Congress and is a part of the government of the 
United States. Its members,” they said assuringly, 
"are appointed by the President with the advice 
and consent of the Senate and it,” that is the Fed, 
"has been held by the Attorney General to be a 
government establishment.” 

Mr. Patman retorted to these rather impressive 
claims and exploded the myth that the Federal 
Reserve acts with legality as a public servant. Mr. 
Patman stated, "There is no free market that can 
cope with a national debt of $272 billion dollars, 
(This was in 1952. We are now well over one 
trillion dollars in debt as a result of the 
manipulation of the Federal Reserve) with 85 
billion of it to be refunded within one year. The 
free market,” he said, “means private 
manipulation of private credit.” 

As we have pointed out, Mr. Chairman, private 
manipulation of public credit is the purpose and 
objective of the Federal Reserve. I invite your 
attention again, Mr. Chairman and members, to 
Article 1 section 8 of the Constitution which 
declares that only the Congress can “borrow 
money on the credit of the United States.” But in 
fact, as Mr. Patman pointed out, the objective of 
the private Federal System is to borrow money on 
the public credit of the United States in violation 
of prohibitions of the Constitution. 

Then Congressman Patman revealed the 
contradiction in this Federal Reserve claim of 
government agency status, and explained how the 
Fed generates illegitimate profits for its members. I 
quote, “The Open Market Committee of the 
Federal Reserve System is composed of seven 
members of the Board of Governors and five 
members who are presidents of Federal Reserve 
banks, and who are directed by private 
commercial banking interests. The Open Market 
Committee has the power to obtain, and does 
obtain, the printed money of the United States 
(Federal Reserve Notes) (free) from the Bureau of 
Engraving and Printing. The Fed exchanges these 
printed notes,” the Federal Reserves notes, "which 
are not, of course, interest bearing, for 
government obligations which are interest 
bearing." 

This is how interest is generated on the Federal 
debt, the one trillion dollar Federal debt; $100 
billion interest. And then Mr. Patman explained, 
“The interest bearing obligations are retained by 
the 12 Federal Reserve banks and the interest 



75 



collected annually on these government 
obligations goes to the funds of the 12 Federal 
Reserve banks." 

Then Mr. Patman exploded the myth that the 
Federal Reserve System is an instrumentality of 
the Federal government. “These funds." that is 
interest paid on the national debt to the Federal 
Reserve banks, “these funds are expended by the 
Federal Reserve System without an accounting to 
the Congress. In fact, there has never been an 
independent audit of any of the 12 Federal 
Reserve banks or by the Federal Reserve Board 
that has been made available to the Congress, 
where members of the Congress would have an 
opportunity to inspect it. The General Accounting 
Office,” Mr. Patman pointed out, “does not have 
jurisdiction over the Federal Reserve. For 40 
years,” (that was in 1952), “for 40 years the 
System while freely using the money, that is the 
credit of the government of the United States, has 
not made a proper accounting.” 

An even more damning indictment of the 
Federal Reserve System was made by the late 
Lewis T. McFadden, Chairman of the Banking 
and Currency Committee, United States Congress. 
Mr. McFadden stated, “Every effort has been 
made by the Fed to conceal its power, but the 
truth is the Fed has usurped the government and it 
controls everything here (in Congress) and it 
controls all of our foreign relations. It makes and 
breaks governments at will." 

(jd) Mr. Chairman, it is obvious that when the 
power to control money is transferred from the 
people to a private banking monopoly, as it is now 
proven the case in America, that the sovereignty 
of the people is surrendered too. Control of wealth 
confers upon those who control it final decision in 
the domestic and international affairs of nations. 
n/\ When an invisible government of monetary power 
^ usurps the coin of the realm, the people are 
disfranchised and real political authority is 
transferred into the hands of a financial 
aristocracy. Mr. Chairman, I believe that an 
invisible government of monetary power will 
continue to control the American destiny and the 
lives of the people until informed citizens 
dismantle the Federal Reserve System. 

As I suggested at the beginning of this 
presentation, Mr. Chairman and members, we do 
have good news. Returning America to fiscal 
sanity and political responsibility has already 
begun. We believe that the first State to introduce 


legislation challenging the constitutionality of the 
Federal Reserve Act is Arizona. The 21st of 
January. 1982 is perhaps the most significant date 
of this century. On this date members of the 
Arizona State Legislature, in both the House and 
Senate, memorialized the President and Congress 
to enact such legislation as is necessary to repeal 
the Federal Reserve Act. The Arizona resolution 
is identical to the proposal now before this 
Committee. 

I quote from a statement made by 
Representative D. Lee Jones, principal sponsor of 
the Arizona resolution. “We are determined to 
oust the Federal Reserve System out and away 
from our national pocketbook.” 

Asserting that only the Congress has the power 
to borrow money on the credit of the United 
States, and to coin money and regulate the value 
thereof, Arizona lawmakers, by a booming 
majority, affirmed that Congress is without 
authority to delegate these powers to private 
banking interests. 

Again I quote the Arizona resolution. “The 
United States,” they warned, “is facing in the 
current decade an economic debacle of massive 
proportions due in large measure to a continuing 
erosion of our national currency and the resulting 
high interest rates caused by policies of the Federal 
Reserve Board.” 

Mr. Chairman, quick to follow the Arizona 
lead, the following States also introduced 
companion resolutions: Washington State, Utah, 
Nebraska, Alabama, Indiana, North Carolina, 
South Carolina, Pennsylvania and Montana. All 
challenging the constitutionality of the Federal 
Reserve Act. Since that time we have had 
additional states join this most important 
movement. The latest of these being the state of 
Arkansas, where I testified before the Arkansas 
State Affairs Committee on the 15th of February 
and endorsed their resolution to rescind the 
Federal Reserve Act. 

Without quoting any of the points of the 
Arkansas action I merely point out that it is the 
same resolution as is before this Committee. 

Mr. Chairman, I believe that in this very brief 
presentation we have pointed out ttyree important 
factors for consideration by this panel. First, the 
trillion dollar national debt is not owed to 
ourselves as government handouts would have 
you believe. It is owed to a private banking 




76 



monopoly, the Federal Reserve System. 
Therefore, Mr. Chairman, the national debt is a 
lien against all property in the United States both 
public and private. Two, interest on the national 
debt, which is over S 1 00 billion for this year, S 1 1 5 
billion as a matter of fact, is paid to the Class A 
stockholders of the Federal Reserve System, a 
private banking monopoly. Three, the Federal 
Reserve Open Market Committee, that is the 
policy making body of the Federal Reserve 
System, determines interest rates, sets the volume 
of Federal Reserve notes in circulation, controls 
the stockmarket and rules on other public 
economic factors which determine whether 
Americans will live in a prosperous or a bankrupt 
society. We have also found, Mr. Chairman, that 
the Federal Reserve System, which is the source of 
our economic crisis, exists outside the Law; that is, 
in violation of prohibitions of the Constitution. 
Being in violation of the Constitution, Mr. 
Chairman, it must be put down. I believe, Mr. 
Chairman, that, the issue is clearly before us. 
Survival is not a spectator sport but requires the 
attention and consideration of all concerned 
Americans. This is the reason why 1 have been 
invited by your constituency to appear and 
present some of the facts behind the Federal 
Reserve System for your consideration. 

Mr. Chairman, I invite questions if it is your 
pleasure. 

Chairman Yarbrough: Thank you, Colonel. Is 
there a question? 

Q: Mr. Chairman and Colonel Roberts, I was 
reading your Bulletin Committee to Restore the 
Constitution on the second page it refers to a court 
case, John L. Lewis v. the United States of 
America. Where the U.S. Court of Appeals held 
that the Reserve banks are independent, privately 
owned and locally controlled corporations. That 
being the case and considering the considerable 
damage that is being cited as being done to the 
citizens of this great State, wouldn't it be possible 
within our laws to have our own Attorney 
General file suit against them for reparation of 
some of the damages done to the citizens? 

ROBERTS: Mr. Chairman, members, sir: Indeed 
this is one of the options available to members of 
this body, and we certainly would encourage such 
an investigation inasmuch as the Court has. in 
fact, found that the Federal Reserve is a private 
corporation, and therefore operates for the profit 
of its members, its member banks and the 
stockholders of these banks. 


Q: Mr. Chairman. Colonel Roberts, then if 1 
understand you correctly, you would view the 
urging of this legislative body to reintroduce 
perhaps a concurrent resolution that would ask 
the Attorney General of the State of Idaho to file 
suit in the appropriate court against the Federal 
Reserve System, or the Reserve banks, perhaps I 
should differentiate there, so that we might indeed 
recover damages for what we suffer. 

ROBERTS: Mr. Chairman, members, sir. This is, 
of course, a later option in our opinion. The reason 
we believe it a later option is, number one, that it is 
our responsibility, first, to clarify the Law. Well, 
the Law is the Constitution, therefore, we must, in 
our opinion, go to the Congress with petitions 
from the various states demanding repeal of the 
Federal Reserve Act to clarify the Law. Once this 
action is under consideration, it is very feasible to 
then bring such action. However, in the case of 
the State of Washington, Mr. Chairman, sir, the 
action was, as you suggested, taken by one of the 
senators (Senator Jack Metcalf) in the State of 
Washington. However, the Attorney General of 
the State of Washington recommended with- 
holding action on this case until such time as 
additional States entered into a supporting 
movement. So this is really a first step, in our 
opinion, to present, first, the clear cut statement of 
the State of Idaho that there is violation of the 
Constitution. Then when we have a sufficient 
number of States, and we already have 16 
involved, so when we have a sufficient number of 
States to support such action as bringing a legal 
case, then we are obviously in a much better 
position. Thank you very much. 

Q: Mr. Chairman, Just one more. Colonel 
Roberts, I have one case before the Supreme 
Court now I am in no hurry to start another one. 
You spoke about the size of the deficit, are you 
able to recall those, or do you have in print the 
various deficits for different years? 

ROBERTS: No, I don't have that list before me. 
but certainly we could find it. The deficits are 
obviously mounting in proportion to the increased 
money borrowed by the government from the 
Federal Reserve System. So it is a variable of an 
ever increasing size, Mr. Chairman. 

Chairman Yarbrough: Any other questions? 

Q: Mr. Chairman, Colonel Roberts, would you be 
providing stockholding members of the Federal 
Reserve System by name? 

ROBERTS: I think first. Mr. Chairman, it would 


77 



be helpful to identify the origins of the Federal 
Reserve System itself. Very briefly, without going 
into a lot of historical background, we can quote 
Coionel Ely Garrison who was a friend and 
financial advisor to President Theodore Roosevelt 
and President Woodrow Wilson, who was 
President at the time the Federal Reserve Act was 
passed. In his autobiographical book which is 
entitled, Roosevelt. Wilson and the Federal 
Reserve Act. Garrison wrote, and 1 quote, “Mr. 
Paul Warburg was the man who got the Federal 
Reserve Act together after the Aldrich plan 
aroused such nationwide resentment and 
opposition. The master mind of both plans," 
declared Garrison, “was Alfred Rothschild of 
London," end of quote. 

Now to identify the real owners of the Federal 
Reserve which is your question sir, . . . Mr. 
Chairman, I would like to quote from sources 
from Switzerland and Saudi Arabia who were 
queried on the real owners of the Federal Reserve. 
Mr. Chairman and sir, we do not mean the 
managers of the twelve Federal Reserve banks 
who merely run the banks for the owners, the real 
owners. Nor do we mean the members of the 
Federal Reserve Board who merely make 
decisions in line and in consonance with the 
directions they receive from the real owners of the 
Federal Reserve. We certainly don’t mean those 
who sit on the Open Market Committee of the 
Federal Reserve which we mentioned earlier in 
this presentation. We mean the real owners of the 
Federal Reserve. Mr. Chairman, this has been the 
best kept secret of this century. And it is the best 
kept secret because of a proviso on passage of the 
Federal Reserve Act. It was agreed that no 
information would be released on the Class A 
stockholders of the Federal Reserve. But, a Mr. 
R.E. McMaster, publisher of a newsletter. The 
Reaper, asked his - Swiss and Saudi Arabian 
contacts which banks hold controlling interest in 
the Federal Reserve System. This was the answer 
received, and I quote, “Owner number one, 
/3) Rothschild Banks of London and Berlin; Owner 
' s -' / number two, Lazard Brothers Banks of Paris; 
Owner number three, Israel Moses Seif Banks of 
Italy; Owner number four, Warburg Bank of 
Hamburg and Amsterdam; Owner number five, 
Lehman Brothers Bank of New York; Owner 
number six, Kuhn, Loeb Bank of New York; 
Owner number seven. Chase Manhattan Bank of 
New York." Mr. Chairman, it is the Chase 
Manhattan Bank which controls all of the other 


eleven Federal Reserve Banks. Finally, "Owner 
number eight, Goldman, Sachs Bank of New 
York." 

Mr. Chairman, sir. there are approximately 
three hundred people, all known to each other and 
sometimes related to one another, who hold stock 
or shares in the Federal Reserve System. They 
comprise an interlocking, international banking 
cartel of wealth beyond comprehension. 

Q: You mentioned Class A stockholders. Now 
who would they be? The same bank members? 

ROBERTS; These are the three hundred, sir, Mr. 
Chairman. These are the same three hundred that 
I mentioned at the end of this presentation who 
are Class A stockholders. We are in the process, of 
course, of seeking to identify these by name and 
address, but you can understand the difficulty of 
such investigative process. In fact, we are still in 
the process of locating the Articles of 
Incorporation of the Federal Reserve at the time it 
was passed in 1913. Again, we are obviously 
confronted by a massive wall of silence. So it is a 
difficult task. But nonetheless, we have made 
some breaches in their defense. 

Q; What are the names of those eight members. I 
didn't get a chance to write them down. 

ROBERTS: Mr. Chairman, sir, the listed names of 
the banks which own the Federal Reserve in the 
United States are in the copy of my presentation 
left with your secretary. 

Q: Mr. Chairman, sir, supposing we had enough 
states to ratify this proposition and we stalled and 
curtailed the Federal Reserve Board. Do we have 
a plan where we could continue business as usual? 

ROBERTS: Mr. Chairman, the question, of 
course is a very explicit one and that is that it 
really asks are we able to continue operating the 
economy without the Federal Reserve. I would 
point out, Mr. Chairman, sir, that the United 
States of America operated until 1913 without the 
service of the Federal Reserve through the 
existing agencies of government which still exist 
and function today. But the real control has been 
usurped from these agencies, authorized under the 
Constitution, and their power has been limited to 
merely approving what decisions are made by the 
owners of the Federal Reserve. So to answer your 
question, of course we'd continue the economy, 
but without paying the horrendous interest rates 
to the owners of the Federal Reserve. I would 


78 



point out further, Mr. Chairman, that it would be 
our objective to repudiate the one trillion dollar 
national debt because it is not owed to us, it is 
owed to the Federal Reserve System. Since the 
Federal Reserve System, Mr. Chairman, is a 
criminal conspiracy, the ill-gotten gains, this 
trillion dollar debt, a lien against all private 
property in the United States, obviously is a 
criminal act against the people of the United 
States. 

Chairman Yarbrough: Any further questions? If 
not Colonel. 1 believe there has always been a 
question involved in a lot of minds whether or not 
the Federal Reserve Board is a government agency 
or a private agency. Has there not been a recent 
court case to that effect. 

ROBERTS: Mr. Chairman and members, the 
March 1983 CRC Bulletin produces in its entirety 
the Court decision to which you refer. This is, 
Lewis v. the United States, Court Case number 
80-5905, United States Court of Appeals, Nine 
Circuit Court, San Francisco, 19th of April, 1982. 
The entire text is reprinted so that there would be 
no question as to the finding, the ruling of the 
Court. The Court specifically stated that the 
Federal Reserve is a private banking monopoly. 

Chairman Yarbrough: One further question along 
these same lines. Has this been appealed to the 
Supreme Court? 

ROBERTS: Mr. Chairman, members, we do not 
have any record of appeal. If there is to be an 
appeal, and possibly there will be, then we’ll bring 
that out later. I think the finding speaks for itself, 
and this is really the issue we want to bring out. 

With your indulgence, Mr. Chairman, I would 
like to add one more thing to the evidence before 
this body, and that_is the Monetary Control Act of 
1980 which is, of course, an authority passed by 
the Congress allegedly placing all economic 
organizations under control of the Federal 
Reserve System. First, Mr. Chairman, it brings all 
U.S. depository institutions under the authority of 
the Federal Reserve System which is, as we have 
pointed out. an international banking cartel. Two, 
it expands the definition of collateral for Federal 
Reserve credit and Federal Reserve notes in 
circulation. This means that any asset the Fed can 
purchase on the open market can be used as an 
asset against such borrowing. The cartel thus, as I 
have pointed out. has a lien against all property in 
the United States, because all of the banking 


institutions and lending institutions under the 
Federal Reserve today use their collateral as 
authority to create money out of thin air. This, 
then, is the means by which the internationalists 
have placed their control over all real estate of the 
United States, and, of course, all individuals who 
own private property of any kind. 

For example, the Feds can now purchase such 
collateral as FHA and VA backed mortgages or 
corporate debt obligations. Also, the Fed can now 
bail out Chrysler, as it did, and any other 
corporation, by buying all of the commercial paper 
of that corporation. Therefore, the Fed controls 
the American economy and American industry 
through this technique. Also, the Fed can bail out 
the Chase Manhattan Bank, City Bank, or any 
other bank with the acception of federally backed 
mortgages from such banks. That is, irresponsible 
bank loans, foreign and domestic, as we have seen, 
through the activity of the Federal Reserve and 
the International Monetary Fund. They are able 
to bail out bankrupt foreign governments, placing 
the burden of repayment for those bad loans upon 
the backs of the American taxpayer. 

Chairman Yarbrough: One further question. 1 
think history teaches us when most every 
government went on paper money, off of a gold 
standard or silver standard, got in trouble. And 
knowing politicians pretty well, if we eliminated 
the Federal Reserve and gave that authority to 
Congress of the United States, unless we did go on 
a gold standard or have something behind the 
money to back it up, do you suppose we, in a short 
time, we’d be in worse shape than we are in now? 

ROBERTS: Mr. Chairman, of course, we are 
speaking about violations of the Law, and 
therefore, a criminal conspiracy. So it is not an 
option of whether or not we will continue with the 
Federal Reserve. It is a matter of whether we are 
to enforce the Constitution. The Constitution is 
not a constitution of convenience, it is not what 
people may want to make it from day to day. It is 
very specific and, as we quoted in the early part of 
this presentation. Article 1, section 8 of the 
Constitution is very clear on the responsibility of 
Congress to control fiscal activity of the United 
States through the apparatus established by the 
Congress. Therefore, the action of returning 
control of the economy to the American people 
through the Congress, as is proper under the 
Constitution, is a requirement. Either that, or we 
abolish the Constitution. Now 1 think it is clear 



that once we are in a position to control our own 
destiny by controlling the economy through the 
existing agencies now available, voiding and 
rescinding the Federal Reserve Act. that we go 
back to the same system which gave us the most 
powerful and most prosperous nation in the world, 
the United States of America. America is a free 
economy and became a free economy because of 
the Revolutionary War, which was not a war 
merely against the tax on tea imports, but rather it 
was a war against Thread Needle Street, the 
British debit money system imposed upon the 
colonists in violation of their free will. That was 
the real reason for the Revolutionary War. 

Q: Could you give us a little broader base in 
particular on the Monetary Deregulation Act of 
1980? 

ROBERTS: Mr. Chairman, sir, the Monetary 
Control Act of 1980 is available in your reference 
library, 1 am sure. Its purpose was to bring 
together under the authority, alleged authority, of 
the Federal Reserve System, all lending agencies 
of the United States, as well as the banks which 
must operate in conformity with Chase 
Manhattan Bank guidelines. This Act, in fact, was 
responsible for a very powerful, silent revolution 
in the economy, and in the banking world of the 
United States. It did prepare and accomplished the 
consolidation or centralization of all economic 
factors in the United States under control of the 
Federal Reserve itself. The Federal Reserve, 
therefore, controls not only the twelve Federal 
Reserve Banks, but also all of the lending 
institutions in the United States. As we mentioned 
earlier, the mortgages held by these lending 
agencies are part and parcel of the credit controls 
upon which the Federal Reserve now exercises its 
alleged authority to create money out of thin air. 
It is a real lien against all private property in the 
United States, as well as Federal property, I might 
add. 

Chairman Yarbrough: Any other questions? If 
not, I have one more. You say we can't get the 
stockholders in the Federal Reserve. Now if it is a 
Federal institution, as we have been lead to believe 
over these years, under the Freedom of 
Information Act, which was passed at a later date, 
should not that make all information of 
stockholders and such available to any person in 
the United States who wanted it? 

ROBERTS: Mr. Chairman, that is precisely what 


we are doing. Several months ago 1 presented a 
request to several Congressmen in Washington 
quoting the Freedom of Information Act and 
asking, number one, for a copy of the Articles of 
Incorporation of the Federal Reserve System. The 
Articles of Incorporation obviously would have to 
list the owners at that point. It would not 
necessarily, however, have to list the foreign 
owners. So we are working in both directions. 
That is, we want to secure a copy of the Articles of 
Incorporation to identify the domestic owners, but 
at the same time we are seeking further expansion 
of the identification of the owners of these eight 
banks, and the three hundred stockholders who 
actually own the Federal Reserve System in the 
United States. So, yes, we are working 'in this 
direction. As a matter of fact, it would be my 
assumption, sir, that the State of Idaho, in its 
highest sovereign capacity, would have a higher 
authority to bring pressure upon your 
representatives in Congress than does the 
Committee to Restore the Constitution. This 
would be an excellent avenue of investigation. 

Chairman Yarbrough: Any further questions? 

Q: What about bank deposits insured by a Federal 
agency? 

ROBERTS: Mr. Chairman, sir. Since all banks are 
controlled or owned by the Federal Reserve 
System obviously it would be very risky to permit 
any independent agency of government to be 
without supervision of the Federal Reserve, 
because then the entire System would be at risk. 
So obviously all of these agencies, including the 
insurance procedure which you noted are part of 
the Fed control mechanism which we have 
outlined here today. 

Chairman Yarbrough: I have a question. I 
understand the big banks are taking money to 
Mexico. Brazil, and all the developing nations. Are 
they responsible in case of default, or is the United 
States government? 

ROBERTS: Mr. Chairman, under the provisions 
of the Monetary Control Act, as we pointed out. 
all of the foreign debts granted by the various 
banks are all based upon the ability of the 
American taxpayer to pay. All of these debts, 
under this alleged authority, are subject to 
monetization. That is, the tremendous Mexican 
debt, which you pointed out, can be monetized 
and declaring that it now is a responsibility of the 


80 



Federal government to collect. Therefore, the 
taxpayers become subject to paying not only the 
interest on these horrendous debts, but also the 
principal. This is one of the aspects of the Control 
Act of 1980 which is so ominous. The 
International Monetary Fund is exercising that 
alleged authority to place the burden of 
repayment, not on the resources of the host 


company. Mexico, in this case, but on the backs of 
the American taxpayers. 

Chairman Yarbrough: Thank you. Any further 
questions? If not. Colonel, we thank you very 
much. 

ROBERTS: Thank you. sir. it's an honor. 


STATE OF IDAHO 

MEMORIAL TO REPEAL 
FEDERAL RESERV E ACT 

LEGISLATURE OF THE STATE OF IDAHO 
FORTY-SEVENTH LEGISLATURE 
FIRST REGULAR SESSION-1983 

IN THE HOUSE OF REPRESENTATIVES 
HOUSE JOINT MEMORIAL NO. 3 
BY STATE AFFAIRS COMMITTEE 

A JOINT MEMORIAL 

To the President of the United States, the 
President of the United States Senate, the 
Speaker of the House of Representatives of the 
United States in Congress assembled, and to the 
Congressional Delegation representing the 
State of Idaho in the Congress of the United 
States. 

We, your Memorialists, the House of 
Representatives and the Senate of the State of 
Idaho assembled in the First Regular Session of 
the Forty-seventh Idaho Legislature, do hereby 
respectfully represent that: 

WHEREAS, the Constitution of the United 
States vests in the Congress of the United States 
the supreme power “to coin money, regulate the 
value thereof and of foreign coin, and fix the 
standard of weights and measures;” and 

WHEREAS, Congress passed the Federal 
Reserve Act in 1913 and thereby abdicated its 
duty to fix a constant lawful value for United 
States money; and 

WHEREAS, the national debt in 1913 was less 
than two billion dollars while the national debt in 
1983 exceeds one trillion dollars; and 

WHEREAS, the people of Idaho are suffering 
from the effects of high unemployment and the 
recession, which has been caused principally by 
high interest rates; and 


WHEREAS, the control of interest rates by the 
Board of Governors of the Federal Reserve Board 
has led the Nation down a course toward 
economic calamity: and 

WHEREAS, section 19, of the Federal Reserve 
Act specifically precludes the State of Idaho from 
effectively legislating or enacting any lawful 
ceiling for interest rates charged by the Federal 
Reserve, thereby immunizing banks and bankers 
from any threat of civil or criminal liability for 
interest rates charged; and 

WHEREAS, the United States Government 
owns no stock in the Federal Reserve System, and 
the Federal Reserve, as such, is not a government 
agency, and is, in fact, a monopoly entirely 
independent of U.S. Government control absent 
direct legislative action by the Congress. 

NOW, THEREFORE, BE IT RESOLVED by 
the members of the First Regular Session of the 
Forty-seventh Idaho Legislature, the House of 
Representatives and the Senate concurring 
therein, that the United States Congress enact 
legislation providing for the immediate repeal of 
the Federal Reserve Act and place back in the 
Congress the power to regulate the value of 
United States money. 

BE IT FURTHER RESOLVED that the Chief 
Clerk of the House of Representatives be, and she 
is hereby authorized and directed to forward 
copies of this Memorial to the President of the 
United States, the President of the United States 
Senate, the Speaker of the House of 
Representatives of Che United States in Congress 
assembled and the congressional delegation 
representing the State of Idaho in the Congress of 
the United States. 


81 



FACT SHEET ON THE MONETARY CONTROL ACT, PUBLIC LAW 96-221 

Prepared by Dr. Ron Paul, Member of Congress, 23 March 1983 


On March 31. 1980 President Carter signed the 
Depository Institutions Deregulation and 
Monetary Control Act, Public Law 96-221. The 
Law consists of nine titles, most of which are 
unobjectionable. But the first title is not, yet it is 
the first title that went largely une.xamined — and 
even unnoticed — when the House and the Senate 
debated the final version of the Act. That title 
provides that: 

1 . The Federal Resen e is given control over all 
depository institutions, not just its own members. 
Credit unions, savings and loans, savings banks, 
and nonmember commercial banks are chafing 
under the burdens imposed by the Monetary 
Control Act. The Federal Reserve's direct control 
over financial institutions expanded from 
coverage of about 3000 institutions to about 
14,000. 

2. Resene requirements are to be lowered over 
several years. This means that banks will be able to 
create more money out of thin air, aided and 
abetted by the Federal Reserve. Also, the Federal 
Reserve can now lower reserve requirements to 
zero. 

3. The Federal Resene can print unlimited 
quantities of Federal Resene notes and store them 
in their vaults. All collateral requirements for 
“vault cash" were abolished. Collateral is required 
only when such notes are actually issued by the 
Federal Reserve banks. 

4. The Federal Resene can issue more paper 
money because it can now use virtually any of its 
assets as collateral for circulating notes. Such 
assets include debts issued by sewer commissions, 
municipalities, and irrigation districts, for 
example. 

5. The Federal Resen e can monetize foreign 
debt by buying "obligations of. or fully guaranteed 
as to principal and interest by. a foreign 
government or agency thereof." 

6. The Federal Resen e can further inflate by 
using this foreign debt as collateral for issuing 
Federal Resen e notes. In fact the Fed has done 
this on at least 139 occasions, from April 1981 to 
January 1983, as you will see from the tables at 
the end of this paper. 


Because of the vast inflationary and bailout 
potential of section 105(b) (2) of Title 1 of Public 
Law 96-221, 1 have introduced a bill. H.R. 876, to 
repeal that section. 

Under that section, the Federal Reserve is given 
blanket authority to purchase the debt of any 
sovereign debtor. There is no language, either in 
the Act itself or in its scant legislative history, that 
restricts the number of governments from which 
the Federal Reserve can purchase debt. 

Further, there is no restrictive language in the 
Act itself or in its virtually non-existent legislative 
history that restricts the Federal Reserve in what 
it may use to purchase the debt of foreign 
governments. The Federal Reserve has always 
maintained that (1) it would never purchase the 
debt of Third World nations and (2) that it would 
purchase debt only with the currencies of 
countries which it already holds as a result of its 
foreign exchange operations. Such a position is 
irrelevant: The Federal Reserve may have the best 
of intentions, but intentions and legal authority 
are two quite different things. It is the granting of 
this power that must be rescinded, and if the 
Federal Reserve really does have good intentions, 
it ought to support H.R. 876, for the bill would 
simply make the law conform to the Fed's good 
intentions. 

The House Subcommittee on Domestic 
Monetary Policy is circulating a memorandum on 
the Monetary Control Act (MCA) that is seriously 
misleading. 

It says, for example, that ~. . . section 1 05(b) (2) 

. . . allows the Federal Reserve to purchase short 
term securities of a foreign government." The 
statement is true, but misleading. The MCA does 
allow the Fed to purchase short-term securities. 
and also medium and long-term securities. The. 
actual language of section 105(b) (2) permits the 
Federal Resene to buy and sell, at home or 
abroad, ''obligations of. or fully guaranteed as to 
principal and interest by. a foreign government or 
agency thereof " 

The MCA says nothing about short-term or 
long-term securities. The Fed is simply empowered 
to purchase all and any obligations of a foreign 


82 


government or agency without regard to their 
maturities. The Subcommittee's statement is 
incomplete on several counts: (1) All maturities, 
not merely short-term securities, are involved: 
(2) agencies of foreign governments, as well as the 
governments themselves, are involved: (3) 
obligations guaranteed by foreign governments or 
their agencies are involved. While the Fed has 
repeatedly rolled over the short-term securities it 
has purchased, the purchase of long-term 
securities would signal an actual attempt to use 
section 105(b) as a device to bailout both foreign 
governments and overextended Li.S. banks. 

Second, the Subcommittee memorandum says 
that section 105(b) (2) was “Inserted during the 
House-Senate Conference with unanimous 
consent upon the motion of Chairman Proxmire 
. . But the Senator's office has repeatedly denied 
that the provision was inserted on the Senator's 
motion. In fact, according to the Senator’s staff, it 
was the House Republican members of the 
Conference Committee who offered the motion on 
behalf of the Federal Reserve. The House 
Committee, I was astounded to learn, has no 
records of the Conference proceedings. 

Third, the memorandum states that “. . . the 
controversy over this section has been derived 
from great misunderstanding and mischievious 
(sic) intent” I do not believe that I have 
misunderstood the provision — it is really quite 
clear — and my only intent is to limit the broad 
power conferred on the Fed by this section of the 
law. 

Fourth, the memorandum reads: “Contrary to 
some beliefs, this provision was not put in by 
Federal Reserve Chairman Volcker since only 
Representative and Senators can be conferees." 
Whose beliefs are these? Chairman Volcker did 
request this provisioriln his testimony before the 
Senate Banking Committee in September 1979. 
and, as noted above, the Representatives who 
allegedly offered the motion at the Conference 
Committee were acting on behalf of the Federal 
Reserve. 

Fifth, and most important, the memorandum 
shifts the debate: “There is no intention to permit 
the United States Government, through the 
actions of its Federal Reserve System, to subsidize 
any country, any central bank, or buy the debt of 
any financially troubled nation.” 


The central issue is not one of intent or 
intentions, despite the memorandum's interest in 
these things. The matter is one of authority 
conferred by Congress in the Act itself, and that 
authority is unlimited. Nowhere does the Act say 
that subsidies to any country or bank are illegal. It 
does say that the Fed may purchase the debt of 
any country, or any agency of any country, with 
any acceptable medium of exchange. The entire 
“legislative history” of this provision is as follows: 

... the Federal Reserve Act already 
permits us to hold foreign bank deposits and 
bills of exchange: it would be helpful to us 
operationally if short-term foreign 
government securities could be added to our 
authorized holdings — an omission at the 
time of the original Federal Reserve Act 
when such securities were not widely 
available. (Paul Volcker, September 26, 
1979, Testimony before the Senate Banking 
Committee.) 

This paragraph is the first mention of allowing 
the Fed to use foreign government assets as 
collateral, and only 19 words of the paragraph 
refer to the Fed’s ability to purchase foreign 
government securities. There were no questions 
from the Senators on the issue, and the provision 
requested by Chairman Volcker was not added to 
the Senate bill. Neither did it appear in the House 
bill; it was added to the Conference Report, and 
the House had to adopt a special rule for 
consideration of the Conference Report, since the 
Report contained new material and the conferees 
exceeded their authority. 

The next mention of the provision allowing the 
Fed to purchase the securities of foreign 
governments and use them as collateral for 
Federal Reserve notes occurred on March 27, 
1980. In his explanation of the Conference 
Report. Senator Proxmire said: 

It (the Monetary Control Act) also 
authorizes the Federal Reserve to purchase 
and sell obligations issued by foreign 
governments. 

Under existing statutory authority, the 
Federal Reserve, in the course of its normal 
activities in the foreign exchange markets 
from time to time acquires balances in 
foreign currencies. Under present 
arrangements there is no convenient way in 


83 



which foreign currency balances held by the 
Fed can be invested to earn interest. 

The Monetary Control Act would amend 
section 14 of the Federal Reserve Act to 
provide a vehicle whereby such foreign 
currency holdings could be invested in 
obligations of foreign governments and 
thereby earn interest. This authority would 
be used only to purchase such obligations 
with foreign currencies balances acquired by 
the Federal Reserve in the normal course of 
business. 

(By this statement, the Congress was led to 
believe that this provision was needed so that the 
Fed could conveniently earn interest on its foreign 
exchange holdings. But the Fed could then, and 
now is, earning interest on these holdings by 
depositing them in interest-bearing bank accounts. 
The excuse given for this provision - to earn 
interest - is misleading. The Fed did and does earn 
interest on the foreign currencies it holds without 
buying foreign debt.) 

There is no mention of section 105(b) (2) in the 
Conference Report on H.R. 4986. 

Those three paragraphs are the entire 
“legislative history” of this provision. Nothing 
appears in any House document; no testimony 
was taken on the provision; and no mention of the 
provision was made during the House debate on 
the Conference Report. It is this scant “legislative 
history” that, we are told, overrides the explicit 
language of the Act itself. But intentions are not 
law, and the intentions of the legislature are useful 
only when the law is ambiguous. Unfortunately, 
there is nothing ambiguous about section 105(b) 
(2) of the Monetary Control Act. 

On June 25, F981 Chairman Volcker testified 
before the House Banking Committee: 

Rep. Paul: "1 am concerned about the 

Fed's legal ability to do it (use 
foreign debt as collateral)." 

Chrm. Volcker: “I think we can use it as 
collateral, that is correct as 
many other assets we can use 
as collateral." 

Rep. Paul: “A Brazilian bond or a Polish 

bond, you could use this as 
collateral?" 


Chrm. Volcker: “We only do this when we 
acquire a balance in the 
ordinary course of our foreign 
exchange operations. We 
don't have any foreign 
exchange operations with 
Brazil, so the issue does not 
arise in that case, and we 
would not use the authority to 
just go out and buy." 

Rep. Paul: “I understand, you would not 

use it. 1 am still back to the 
long-term legal concern 
whether you could or could 
not if you decided to." 

Chrm. Volcker: “1 guess in connection with 
the legal concern there's my 
recollection that there is 
nothing in that provision that 
would theoretically stop it 
except the legislative history 
which is quite clear. Whether 
there is any other authority in 
the Federal Reserve Act that 
would authorize us to simply 
buy securities of foreign 
countries at random or 
whatever, and I’m not quite 
sure under which general 
authority that approach could 
come, but that provision itself 
does not constrain us. ” 
(Emphasis added.) 

The law is clear, and the legislative history is 
legally irrelevant. The question is not what the 
present Governors of the Fed intend to do. but 
what they and future Governors are empowered 
to do. We might not always have such trustworthy 
men at the Fed as we have now. 

Finally, the memorandum states that “The 
legislation nowhere makes Fed membership 
mandatory." That is true, but incomplete. What 
the MCA does is make Fed membership 
superfluous, for it amends the original Federal 
Reserve Act by striking out the phrase “ 'member 
bank’ each place it appears therein and inserting in 
lieu there ‘depository institution.’ " 

In conclusion, the memorandum offers no 
evidence to contradict the statement that the 


84 



Monetary Control Act of 1980 empowered the 
Federal Reserve to purchase the obligations of 
foreign governments, or obligations fully 
guaranteed by foreign governments, and use those 


obligations as collateral for Federal Reserve notes. 
As a matter of fact, the Fed has done so on at least 
139 different occasions. Below is a list provided by 
the Federal Reserve: 



FOREIGN GOVERNMENT OBLIGATIONS PURCHASED BY FEDERAL RESERVE BANKS 
AND USED AS COLLATERAL TO ISSUE FEDERAL RESERVE NOTES (1981-1983) 
(Federal Reserve Bank Principal identified by asterisks! 


April 21, 1981 

S 11.6 million 

April 24, 1981 

S 38.4 million 

April 28. 1981 

S 17.1 million 

May 5. 1981 

S 18.0 million 

May 7, 1981 

S 36.6 million 

May 12. 1981 

S 64.3 million 

May 13, 1981 

S 96.7 million 

May 27, 1981 

S 9.3 million 

June 9, 1981 

S 44.8 million 

June 10, 1981 

SI 09.0 million 

June 23, 1981 

S 1 .0 million 

June 30, 1981 

S 27.0 million 

July 1, 1981 

S 18.1 million 

July 10, 1981 

S 48.8 million 

July 13, 1981 

S 49.0 million 

July 14, 1981 

S 76.4 million 

October* 5, 1981 

S 8.0 million 

October* 6, 1981 

SI 06.0 million 

October 7, 1981 

S 7.0 million 

October* 7, 1981 

SI 96.0 million 

November 17, 1981 

S 51.0 million 

November 18, 1981 

S 45.0 million 

November 24, 1981 

S 20.0 million 

November 27, 1981 

S 31.0 million 

November 30, 1981 

S 57.0 million 

December 1, 1981 

S 82.0 million 

December 2, 1981 

S 64.0 million 

December 3, 1981 

S 28.0 million 

December 4, 1 98 1 

S 36.0 million 

December 7, 1981 

S 31.0 million 

December 8, 1 98 1 

S 5.0 million 

December 9, 1981 

S 55.0 million 

December 15, 1981 

S 8.0 million 

December 16, 1981 

S 45.0 million 

December 18, 1981 

$ 15.0 million 

December 21, 1981 

SI 04.0 million 

December 22, 1981 

S 71.0 million 

December 23, 1981 

SI 06.0 million 

December 24, 1981 

SI 02.0 million 

December 28, 1981 

SI 21.0 million 

December 29, 1981 

S 73.0 million 

December 30, 1 98 1 

S 22.0 million 

January 6, 1982 

S 88.0 million 

January 13, 1982 

S 31.0 million 

January 19, 1982 

S 8.0 million 

March* 4, 1982 

SI 25.0 million 

March* 5, 1982 

S 86.0 million 

March 8, 1982 

S 9.0 million 

March* 8, 1982 

SI 88.0 million 

March 9, 1982 

S 77.0 million 

March* 9, 1982 

S216.0 million 

March 10, 1982 

S 90.0 million 

March* 10, 1982 

S235.0 million 

March* 31, 1982 

S 64.0 million 

April* 6, 1982 

S246.0 million 

April** 6, 1982 

S 76.0 million 

April 7, 1982 

S 93.0 million 

April* 7, 1982 

S239.0 million 

April** 7, 1982 

SI 83.0 million 

April** 12, 1982 

S 3 1.0 million 

April 13, 1982 

S 25.0 million 

April* 13, 1982 

S 42.0 million 

April 14. 1982 

S 27.0 million 

April* 14, 1982 

S 1.0 million 

April** 14, 1982 

S 5 1.0 million 

June 30. 1982 

S 39.0 million 

July 6. 1982 

S 43.0 million 

Julv 7. 1982 

S 81.0 million 

July* 7, 1982 

S 27.0 million 

July 8. 1982 

S 7.0 million 

September** 15. 1982 

S 17.0 million 

September** 29. 1982 

S 1 1 .0 million 

October** 6. 1982 

S 121.0 million 

October 8, 1982 

S 40.0 million 

October II, 1982 

S 40.0 million 

October 12, 1982 

S 52.0 million 

October 13, 1982 

S 69.0 million « 

October 14, 1982 

S 39.0 million 

October 20, 1982 

S 50.0 million 

October 21, 1982 

S 10.0 million 

October 28, 1982 

S 1 8.0 million 

October 29, 1982 

S 14.0 million 


'Richmond Federal Reserve Bank *' Kansas City Federal Reserve Bank •"Philadelphia Federal Reserve Bank 


85 



FOREIGN GOVERNMENT OBLIGATIONS PURCHASED BY FEDERAL RESERVE BANKS 
AND USED AS COLLATERAL TO ISSUE FEDERAL RESERVE NOTES (1981-1983) 
(Federal Reserve Bank Principal identified by asterisks) 


November** 1. 1982 
November 3, 1982 
November 5. 1982 
November 9. 1982 
November** 10, 1982 
November** 1 1, 1982 
November**, 15, 1982 
November** 16, 1982 
November** 18, 1982 
November** 23, 1982 
November** 25, 1982 
November** 29, 1982 
December** 2, 1982 
December** 6, 1982 
December** 8, 1982 
December** 9, 1982 
December** 13, 1982 
December** 15, 1982 
December** 17, 1982 
December** 22, 1982 
December** 23, 1982 
December** 27, 1982 
December*** 28, 1982 
December*** 29, 1982 
December*** 30, 1982 
January** 3, 1983 
January** 6, 1983 
January** 10, 1983 
January** 12, 1983 


S 30.0 million 
S 66.0 million 
S 91.0 million 
S 75.0 million 
S 60.0 million 
S 60.0 million 
S 47.0 million 
S 2.0 million 
S 5 1.0 million 
S 23.0 million 
S 107.0 million 
S 3.0 million 
S 82.0 million 
S 75.0 million 

5 19 1.0 million 
SI 08.0 million 
S 77.0 million 
S 10.0 million 
S 44.0 million 
SI 53.0 million 

5 1 33.0 million 
$ 87.0 million 
S 36.0 million 
S 57.0 million 
S 12.0 million 
S 74.0 million 
S 49.0 million 
S 57.0 million 
S 46.0 million 


November 2. 1982 
November 4, 1982 
November 8. 1982 
November 9. 1982 
November 10. 1982 
November 1 1. 1982 
November 15. 1982 
November** 16. 1982 
November** 19. 1982 
November** 24. 1982 
November** 26. 1982 
December** 1. 1982 
December** 3, 1982 
December** 7, 1982 
December** 8, 1982 
December** 10, 1982 
December** 14, 1982 
December** 16, 1982 
December** 21, 1982 
December*** 22, 1982 
December** 24, 1982 
December** 28, 1982 
December** 29, 1982 
December** 30, 1982 
December** 31, 1982 
January** 5, 1983 
January** 7, 1983 
January** II, 1983 


S 25.0 million 
S 38.0 million 
S 42.0 million 
S 15.0 million 
S 18.0 million 
S 1 8.0 million 
S 25.0 million 
S 5.0 million 
S 17.0 million 
S 107.0 million 
S 82.0 million 
S 89.0 million 
S 13.0 million 
S213.0 million 
S 30.0 million 
S 14.0 million 
S 45.0 million 
S 66.0 million 
S 85.0 million 
S 21.0 million 
$ 1 34.0 million 
$187.0 million 
$205.0 million 
$143.0 million 
$107.0 million 
S 4.0 million 
S 96.0 million 
S 6 1 .0 million 


•Richmond Federal Reserve Bank “Kansas City Federal Reserve Bank ••"Philadelphia Federal Reserve Bank 


86 



John L. Lewis Vs. United States 


A. This is a Ninth Circuit Court of Appeals Case (680 f2d 1239) 1982 
reveling that the Federal Reserve Banks are not Federal 
instrumentalities. 

1 . These banks are independent, privately owned and locally controlled 
corporations. 

2. Banks are listed neither as “wholly owned” government corporations nor as 
“mixed ownership” corporations. 

3. Federal Reserve Bank receives no appropriated funds from congress and the 
banks are empowered to sue and be sued in their own names. 

4. The Federal Reserve Banks are deemed to be federal instrumentalities for 
purposes of immunity from state taxation. 

5. Tests for determining whether an entity is Federal instrumentality for purposes of 
protection from state or local action or taxation is very broad whether entity 
performs important governmental function. 

B. We have people tell us and believe that the FED is a government agency 
and after we show them this case and other items, we simply ask what 
else do you believe to be true, which in fact is not true. 

1 . It’s like those people who believe that there is a law requiring everyone to have a 
Social Security Number. 

a. Show me the law and implementing regulation that makes having a social 
security number mandatory. 

C. Most Americans are so busy with their day-to-day activities they 
swallow hook line and sinker whatever the official government position 
is. 

D. How about auditing the Federal Reserve Bank? 

1 . At least have Congress turn the GAO loose on the Fed and lets find out where all 
the money the Fed takes in goes. 


87 



1239 


LEWIS v. UNITED STATES 

Cite as 680 FJd 1239 <1982) 


equipment has served to give Burroughs a 
“lock-in” advantage over all other competi- 
tors. Therefore, Sperry argues although 
the City will be seeking new bids for its 
computer facilities when the settlement 
agreement expires in November 1982, no 
other computer company will be able to 
successfully bid against Burroughs. 

This court is aware that the “incumbent” 
will always have a slight advantage over its 
competitors but in the present situation 
Burroughs’ advantage may be unfair. For 
example, at oral argument the City stated 
that there may not be sufficient time be- 
tween now and November 1982 for any 
company but Burroughs to install data pro- 
cessing equipment. Additionally, if the 
City does not require all bidders to provide 
a state of the art data base, Burroughs will 
not have the additional cost of conversion 
that its competitors will suffer. 

We remand this case to the district court 
for a review of the City's forthcoming bid 
specifications to determine whether there is 
an unfair advantage given to Burroughs, 
above the built-in advantage Burroughs has 
by reason of being the “incumbent.” 

Affirmed and remanded with additional 
instructions to the district court to review 
the City’s bid specifications. 



John L. LEWIS, Plaintiff/ Appellant, 
v. 

UNITED STATES of America, 
Defendant/Appellee. 

No. 80-5905. 

United States Court of Appeals, 
Ninth Circuit. 

Submitted March 2, 1982. 

Decided April 19, 1982. 

As Amended June 24, 1982. 

Plaintiff, who was injured by vehicle 
owned and operated by a federal reserve 


bank, brought action alleging jurisdiction 
under the Federal Tort Claims Act. The 
United States District Court for the Central 
District of California, David W. Williams, 
J,, dismissed holding that federal reserve 
bank was not a federal agency within 
meaning of Act and that the court there- 
fore lacked subject-matter jurisdiction. 
Appeal was taken. The Court of Appeals, 
Poole, Circuit Judge, held that federal re- 
serve banks are not federal instrumentali- 
ties for purposes of the Act, but are inde- 
pendent privately owned and locally con- 
trolled corporations. 

Affirmed. 

1. United States *=78(4) 

There are no sharp criteria for deter- 
mining whether an entity is a federal agen- 
cy within meaning of the Federal Tort 
Claims Act, but critical factor is existence 
of federal government control over “de- 
tailed physical performance” and “day to 
day operation” of an entity. 28 U.S.C.A. 
§§ 1346(b), 2671 et seq. 

2. United States *=78(4) 

Federal reserve banks are not federal 
instrumentalities for purposes of a Federal 
Tort Claims Act, but are independent, pri- 
vately owned and locally controlled corpora- 
tions in light of fact that direct supervision 
and control of each bank is exercised by 
board of directors, federal reserve banks, 
though heavily regulated, are locally con- 
trolled by their member banks, banks are 
listed neither as “wholly owned” govern- 
ment corporations nor as “mixed owner- 
ship” corporations; federal reserve banks 
receive no appropriated funds from Con- 
gress and the banks are empowered to sue 
and be sued in their own names. 28 U.S. 
C.A. §§ 1346(b), 2671 et seq.; Federal Reserve 
Act, §§ 4, 10(a, b), 13, 13a, 13b, 14, 14 (a- 
g), 16, 12 U.S.C.A. §§ 301, 341-360; 12 
U.S.C.A. § 361; Government Corporation 
Control Act, §§ 101, 201, 31 U.S.C.A. §§ 
846, 856. 

3. United States <*=78(4) 

Under the Federal Tort Claims Act, 
federal liability is narrowly based on tradi- 


88 



1240 


680 FEDERAL REPORTER, 2d SERIES 


tional agency principles and does not neces- 
sarily lie when a tortfeasor simply works 
for an entity, like the Reserve Bank, which 
performs important activities for the 
government. 28 U.S.C.A. §§ 1346(b), 2671 
et seq. 

4. Taxation «=6 

The Reserve Banks are deemed to be 
federal instrumentalities for purposes of 
immunity from state taxation. 

5. States «=»4.I5 
Taxation «=»6 

Tests for determining whether an enti- 
ty is federal instrumentality for purposes of 
protection from state or local action or tax- 
ation, is very broad: whether entity per- 
forms important governmental function. 


Lafayette L. Blair, Compton, Cal., for 
plaintiff/appellant. 

James R. Sullivan, Asst. U. S. Atty., Los 
Angeles, Cal., argued, for defendant/appel- 
lee; Andrea Sheridan Ordin, U. S. Atty., 
Los Angeles, Cal., on brief. 

Appeal from the United States District 
Court for the Central District of California. 

Before POOLE and BOOCHEVER, Cir- 
cuit Judges, and SOLOMON, District 
Judge.* 

POOLE, Circuit Judge: 

On July 27, 1979, appellant John Lewis 
was injured by a vehicle owned and operat- 
ed by the Los Angeles branch of the Feder- 
al Reserve Bank of San Francisco. Lewis 
brought this action in district court alleging 
jurisdiction under the Federal Tort Claims 
Act (the Act), 28 U.S.C. § 1346(b). The 
United States moved to dismiss for lack of 
subject matter jurisdiction. The district 
court dismissed, holding that the Federal 
Reserve Bank is not a federal agency within 
the meaning of the Act and that the court 
therefore lacked subject matter jurisdiction. 
We affirm. 

* The Honorable Gus J. Solomon, Senior District 

Judge for the District of Oregon, sitting by 


In enacting the Federal Tort Claims Act, 
Congress provided a limited waiver of the 
sovereign immunity of the United States 
for certain torts of federal employees. 
United States v. Orleans, 425 U.S. 807, 813, 
96 S.Ct. 1971, 1975, 48 L.Ed.2d 390 (1976). 
Specifically, the Act creates liability for 
injuries “caused by the negligent or wrong- 
ful act or omission” of an employee of any 
federal agency acting within the scope of 
his office or employment. 28 U.S.C. 
§§ 1346(b), 2671. “Federal agency” is 
defined as: 

the executive departments, the military 
departments, independent establishments 
of the United States, and corporations 
acting primarily as instrumentalities of 
the United States, but does not include 
any contractors with the United States. 
28 U.S.C. § 2671. The liability of the Unit- 
ed States for the negligence of a Federal 
Reserve Bank employee depends, therefore, 
on whether the Bank is a federal agency 
under § 2671. 

[1,2] There are no sharp criteria for 
determining whether an entity is a federal 
agency within the meaning of the Act, but 
the critical factor is the existence of federal 
government control over the “detailed phys- 
ical performance” and “day to day opera- 
tion” of that entity. United States v. Orle- 
ans, 425 U.S. 807, 814, 96 S.Ct. 1971, 1975, 
48 L.Ed.2d 390 (1976), Logue v. United 
States, 412 U.S. 521, 528, 93 S.Ct. 2215, 
2219, 37 L.Ed.2d 121 (1973). Other factors 
courts have considered include whether the 
entity is an independent corporation, Pearl 
v. United States, 230 F.2d 243 (10th Cir. 
1956), Free ling v. Federal Deposit Insur- 
ance Corporation, 221 F.Supp. 955 (W.D. 
Okla.1962), aff’d per curiam, 326 F.2d 971 
(10th Cir. 1963), whether the government is 
involved in the entity’s finances. Goddard 
v. District of Columbia Redevelopment 
Land Agency, 287 F.2d 343, 345 (D.C.Cir. 
1961), cert denied, 366 U.S. 910, 81 S.Ct. 
1085, 6 L.Ed.2d 235 (1961), Freeling v. Fed- 
eral Deposit Insurance Corporation, 221 

designation. 


89 



1241 


LEWIS v. UNITED STATES 

cite as 680 FM 1238 (1982) 


F.Supp. 955, and whether the mission of the 
entity furthers the policy of the United 
States, Goddard v. District of Columbia Re- 
development Land Agency, 287 F.2d at 345. 
Examining the organization and function of 
the Federal Reserve Banks, and applying 
the relevant factors, we conclude that the 
Reserve Banks are not federal instrumen- 
talities for purposes of the FTCA, but are 
independent, privately owned and locally 
controlled corporations. 

Each Federal Reserve Bank is a separate 
corporation owned by commercial banks in 
its region. The stockholding commercial 
banks elect two thirds of each Bank’s nine 
member board of directors. The remaining 
three directors are appointed by the Federal 
Reserve Board. The Federal Reserve 
Board regulates the Reserve Banks, but di- 
rect supervision and control of each Bank is 
exercised by its board of directors. 12 
U.S.C. § 301. The directors enact by-laws 
regulating the manner of conducting gener- 
al Bank business, 12 U.S.C. § 341, and ap- 
point officers to implement and supervise 
daily Bank activities. These activities in- 
clude collecting and clearing checks, making 
advances to private and commercial enti- 
ties, holding reserves for member banks, 
discounting the notes of member banks, and 
buying and selling securities on the open 
market. See 12 U.S.C. §§ 341-361. 

Each Bank is statutorily empowered to 
conduct these activities without day to day 
direction from the federal government 
Thus, for example, the interest rates on 
advances to member banks, individuals, 
partnerships, and corporations are set by 
each Reserve Bank and their decisions re- 
garding the purchase and sale of securities 
are likewise independently made. 

It is evident from the legislative history 
of the Federal Reserve Act that Congress 
did not intend to give the federal govern- 
ment direction over the daily operation of 
the Reserve Banks: 

It is proposed that the Government shall 
retain sufficient power over the reserve 
banks to enable it to exercise a direct 
authority when necessary to do so, but 
that it shall in no way attempt to carry 


on through its own mechanism the rou- 
tine operations and banking which re- 
quire detailed knowledge of local and in- 
dividual credit and which determine the 
funds of the community in any given 
instance. In other words, the reserve- 
bank plan retains to the Government 
power over the exercise of the broader 
banking functions, while it leaves to indi- 
viduals and privately owned institutions 
tiie actual direction of routine. 

H.R. Report No. 69, 63 Cong. 1st Sess. 18-19 
(1913). 

The fact that the Federal Reserve Board 
regulates the Reserve Banks does not make 
them federal agencies under the Act. In 
United States v. Orleans, 425 U.S. 807, 96 
S.Ct. 1971, 48 L.Ed.2d 390 (1976), the Su- 
preme Court held that a community action 
agency was not a federal agency or instru- ^ 
mentality for purposes of the Act, even 
though the agency was organized under 
federal regulations and heavily funded by 
the federal government. Because the agen- 
cy’s day to day operation was not super- 
vised by the federal government, but by 
local officials, the Court refused to extend 
federal tort liability for the negligence of 
the agency’s employees. Similarly, the 
Federal Reserve Banks, though heavily reg- 
ulated, are locally controlled by their mem- 
ber banks. Unlike typical federal agencies, 
each bank is empowered to hire and fire 
employees at will. Bank employees do not 
participate in the Civil Service Retirement 
System. They are covered by worker’s 
compensation insurance, purchased by the 
Bank, rather than the Federal Employees 
Compensation Act. Employees traveling on 
Bank business are not subject to federal 
travel regulations and do not receive 
government employee discounts on lodging 
and services. 

The Banks are listed neither as “wholly 
owned" government corporations under 31 
U.S.C. § 846 nor as “mixed ownership” cor- 
porations under 31 U.S.C. § 856, a factor 
considered in Pear! v. United States, 230 
F.2d 243 (10th Cir. 1956), which held that 
the Civil Air Patrol is not a federal agency 
under the Act. Closely resembling the sta- 


90 



1242 


680 FEDERAL REPORTER, 2d SERIES 


tus of the Federal Reserve Bank, the Civil 
Air Patrol is a non-profit, federally char- 
tered corporation organized to serve the 
public welfare. But because Congress’ con- 
trol over the Civil Air Patrol is limited and 
the corporation is not designated as a whol- 
ly owned or mixed ownership government 
corporation under 31 U.S.C. §§ 846 and 856, 
the court concluded that the corporation is 
a non-governmental, independent entity, 
not covered under the Act. 

Additionally, Reserve Banks, as privately 
owned entities, receive no appropriated 
funds from Congress. Cf. Goddard v. Dis- 
trict of Columbia Redevelopment Land 
Agency, 287 F.2d 343, 345 (D.C.Cir.1961), 
cert, denied, 366 U.S. 910, 81 S.Ct. 1085, 6 
L.Ed.2d 235 (1961) (court held land redevel- 
opment agency was federal agency for pur- 
poses of the Act in large part because agen- 
cy received direct appropriated funds from 
Congress.) 

Finally, the Banks are empowered to sue 
and be sued in their own name. 12 U.S.C. 
§ 341. They carry their own liability insur- 
ance and typically process and handle their 
own claims. In the past, the Banks have 
defended against tort claims directly, 
through private counsel, not government 
attorneys, e.g.. Banco De Espana v. Federal 
Reserve Bank of New York, 114 FJ2d 438 
(2d Cir. 1940); Huntington Towers v. 
Franklin National Bank, 559 F.2d 863 (2d 
Cir. 1977); Bo! low v. Federal Reserve Bank 
of San Francisco, 650 F.2d 1093 (9th Cir. 
1981), and they have never been required to 
settle tort claims under the administrative 
procedure of 28 U.S.C. § 2672. The waiver 
of sovereign immunity contained in the Act 
would therefore appear to be inapposite to 
the Banks who have not historically claimed 
or received general immunity from judicial 
process. 

[3] The Reserve Banks have properly 
been held to be federal instrumentalities for 
some purposes. In United States v. Hoti- 
ingshead, 672 F.2d 751 (9th Cir. 1982), this 
court held that a Federal Reserve Bank 
employee who was responsible for recom- 
mending expenditure of federal funds was 
a “public official” under the Federal Brib- 


ery Statute. That statute broadly defines 
public official to include any person acting 
“for or on behalf of the Government.” S. 
Rep. No. 2213, 87th Cong., 2nd Sess. (1962), 
reprinted in [1962] U.S. Code Cong. & Ad. 
News 3852, 3856. See 18 U.S.C. § 201(a). 
The test for determining status as a public 
official turns on whether there is “substan- 
tial federal involvement” in the defendant’s 
activities. United States v. Hollingshead, 
672 F.2d at 754. In contrast, under the 
FTC A, federal liability is narrowly based on 
traditional agency principles and does not 
necessarily lie when the tortfeasor simply 
works for an entity, like the Reserve Banks, 
which perform important activities for the 
government. 

[4,5] The Reserve Banks are deemed to 
be federal instrumentalities for purposes of 
immunity from state taxation. Federal Re- 
serve Bank of Boston v. Commissioner of 
Corporations & Taxation, 499 F.2d 60 (1st 
Cir. 1974), after remand, 520 F.2d 221 (1st 
Cir. 1975); Federal Reserve Bank of Minne- 
apolis v. Register of Deeds, 288 Mich. 120, 
284 N.W. 667 (1939). The test for deter- 
mining whether an entity is a federal in- 
strumentality for purposes of protection 
from state or local action or taxation, how- 
ever, is very broad: whether the entity 
performs an important governmental func- 
tion. Federal Land Bank v. Bismarck Lum- 
ber Co., 314 U.S. 95, 102, 62 S.Ct. 1, 5, 86 
L.Ed. 65 (1941); Rust v. Johnson, 597 F.2d 
174, 178 (9th Cir. 1979), cert, denied, 444 
U.S. 964, 100 S.Ct. 450, 62 L.Ed.2d 376 
(1979). The Reserve Banks, which further 
the nation’s fiscal policy, clearly perform an 
important governmental function. 

Performance of an important governmen- 
tal function, however, is but a single factor 
and not determinative in tort claims ac- 
tions. Federal Reserve Bank of St. Louis v. 
Metrocentre Improvement District, 657 
F.2d 183, 185 n.2 (8th Cir. 1981), Cf. Pearl v. 
United States, 230 F.2d 243 (10th Cir. 1956). 
State taxation has traditionally been 
viewed as a greater obstacle to an entity’s 
ability to perform federal functions than 
exposure to judicial process; therefore tax 
immunity is liberally applied. Federal 


91 



1243 


E. E. 0. C. v. LOCKHEED MISSILES & SPACE CO., INC. 

Cfte as <80 F.24 1243 (IM2> 


Land Bank v. Priddy, 294 U.S. 229, 235, 55 
S.Ct. 705, 708, 79 L.Ed. 1408 (1955). Feder- 
al tort liability, however, is based on tradi- 
tional agency principles and thus depends 
upon the principal’s ability to control the 
actions of his agent, and not simply upon 
whether the entity performs an important 
governmental function. See United States 
v. Orleans, 425 U.S. 807, 815, 96 S.Ct. 1971, 
1976, 48 L.Ed .2d 390 (1976), United States 
v. Logue. 412 U.S. 521, 527-28, 93 S.Ct 
2215, 2219, 37 L.Ed.2d 121 (1973). 

Brinks Inc. v. Board of Governors of the 
Federal Reserve System, 466 F.Supp. 116 
(D.D.C.1979), held that a Federal Reserve 
Bank is a federal instrumentality for pur- 
poses of the Servioe Contract Act, 41 U.S.C. 
§ 351. Citing Federal Reserve Bank of 
Boston and Federal Reserve Bank of Min- 
neapolis, the court applied the “important 
governmental function” test and concluded 
that the term “Federal Government” in the 
Servioe Contract Act must be “liberally con- 
strued to effectuate the Act’s humanitarian 
purposes of providing minimum wage and 
fringe benefit protection to individuals per- 
forming contracts with the federal govern- 
ment.” Id. 288 Mich, at 120, 284 N,W.2d 
667. 

Such a liberal construction of the term 
“federal agency” for purposes of the Act is 
unwarranted. Unlike in Brinks, plaintiffs 
are not without a forum in which to seek a 
remedy, for they may bring an appropriate 
state tort claim directly against the Bank; 
and if successful, their prospects of recov- 
ery are bright since the institutions are 
both highly solvent and amply insured. 

For these reasons we hold that the Re- 
serve Banks are not federal agencies for 
purposes of the Federal Tort Claims Act 
and we affirm the judgment of the district 
court. 

AFFIRMED. 



EQUAL EMPLOYMENT OPPORTUNI- 
TY COMMISSION, Plaintiff-Appel- 
lant, 

v. 

LOCKHEED MISSILES & SPACE COM- 
PANY, INC., Defendant-Appellee. 

No. 81-4542. 

United States Court of Appeals, 
Ninth Circuit. 

Argued and Submitted May 13, 1982. 
Decided July 6, 1982. 

Rehearing and Rehearing En Banc 
Denied Sept. 27, 1982. 

The Equal Employment Opportunity 
Commission charged employer with violat- 
ing Title VII as amended by the Pregnancy 
Discrimination Act. The United States Dis- 
trict Court for the Northern District of 
California, William W. Schwarzer, J., en- 
tered summary judgment in favor of em- 
ployer, and EEOC appealed. The Court of 
Appeals, Merrill, Circuit Judge, held that: 
(1) under basic principles of Title VII, ex- 
clusion of pregnancy-related medical ex- 
penses of spouses of male employees was 
not gender-based discrimination in violation 
of Title VII, and (2) the Pregnancy Discrim- 
ination Act of 1978 did not change those 
principles. 

Affirmed. 

Eugene A. Wright, Circuit Judge, filed 
a specially concurring opinion. 

I. Civil Rights <*=>9.14 

Pregnancy Discrimination Act’s amend- 
ment of Title VII, which as read in conjunc- 
tion with the Act now provides that it shall 
be an unlawful employment practice for an 
employer to discriminate against any indi- 
vidual with respect to compensation be- 
cause of such individual's “pregnancy, child- 
birth or related medical conditions” does 
not apply to male employees but, rather, is 
expressly limited tp women employees. 
Civil Rights Act of 1964, §§ 701(k), 703(a), 
(aXl, 2), 42 U.S.C.A. §§ 2000e(k), 2000e~ 
2(a), (aXl, 2). 



Federal Reserve Bank Exhibits 


A. Exhibit A, Title 12, Chapter 3, subchapter IX, Section 341 -General 
Enumeration of Powers of the FED. 

1 . This section lists their powers. 

B. Exhibit B, Chart I, Tracing the ties of the ownership of the Fed and their 
shares of stock. 

C. Exhibit C, 1 of 3, SC private Letter Ruling #90-1. 

D. Exhibit D, Title 31, CFR 328.5 Forms of Endorsement. 

E. Exhibit E, 3 1 USC Sec. 321 (d) (1) (2), General Authority of the 
Secretary. 

F. Exhibit F, 1 or 4, Complete text of 31 USC Sec. 321. 


93 




TITLE 12 > CHA PTER 3 > SUBCHAPTER IX > Sec. 341. 


Sec. 341. - General enumeration of powers 

Upon the filing of the organization certificate with the 
Comptroller of the Currency a Federal reserve bank shall 
become a body corporate and as such, and in the name 
designated in such organization certificate, shall have 
power - First. To adopt and use a corporate seal. 

Second. To have succession after February 25, 1927, 
until dissolved by Act of Congress or until forfeiture of 
franchise for violation of law. Third. To make contracts. 

Fourth. To sue and be sued, complain and defend, in 
any court of law or equity. 

Fifth. To appoint by its board of directors a president, 
vice presidents, and such officers and employees as are 
not otherwise provided for in this chapter, to define their 
duties, require bonds for them and fix the penalty 
thereof, and to dismiss at pleasure such officers or 
employees. The president shall be the chief executive 
officer of the bank and shall be appointed by the board of 
directors, with the approval of the Board of Governors of 
the Federal Reserve System, for a term of five years; and 
all other executive officers and all employees of the bank 
shall be directly responsible to him. The first vice 
president of the bank shall be appointed in the same 
manner and for the same term as the president, and 
shall, in the absence or disability of the president or 
during a vacancy in the office of president, serve as chief 
executive officer of the bank. Whenever a vacancy shall 
occur in the office of the president or the first vice 
president, it shall be filled in the manner provided for 
original appointments; and the person so appointed shall 
hold office until the expiration of the term of his 
predecessor. 

Sixth. To prescribe by its board of directors, bylaws 
not inconsistent with law, regulating the manner in which 
its general business may be conducted, and the privileges 
granted to it by law may be exercised and enjoyed. 

Seventh. To exercise by its board of directors, or duly 
authorized officers or agents, all powers specifically 

granted by the provisions of this chapter and such 
incidental powers as shall be necessary to carry on the 
business of banking within the limitations prescribed by 
this chapter. 

Eighth. Upon deposit with the Treasurer of the United 
States of any bonds of the United States in the manner 
provided by existing law relating to national banks, to 
receive from the Secretary of the Treasury circulating 
notes in blank, registered and countersigned as provided 
by law, equal in amount to the par value of the bonds so 
deposited, such notes to be issued under the same 
conditions and provisions of law as relate to the issue of 
circulating notes of national banks secured by bonds of 
the United States bearing the circulating privilege, except 
that the issue of such notes shall not be limited to the 
capital stock of such Federal reserve bank. 

But no Federal reserve bank shall transact any 
business except such as is incidental and necessarily 
preliminary to its organization until it has been authorized 
by the Comptroller of the Currency to commence business 
under the provisions of this chapter 


94 



CHART I 

N M ROTHSCHILD. LOrtOofl BANK Of ENGLAND 



CHART I reveals the linear connection between the Rothschilds and the Bank of England, and the London banking houses which 
ultimately control the Federal Reserve Banks through their stockholdings of bank stock and their subsidiary firms in New York. 
The two principal Rothschild representatives in New York, J. P. Morgan Col, and Kuhn, Loeb Co. were the firms which set up the 
Jekyll Island Conference at which the Federal Reserve Act was drafted, who directed the subsequent successful campaign to have 
the plan enacted into law by Congress, and who purchased the controlling amounts of stock in the Federal Reserve Bank of New 
York in 1914. These firms had their principal officers appointed to the Federal Reserve Board of Governors and the Federal 
Advisory Council in 1914. 

In 1914 a few families (blood and business related) owning controlling stock in existing banks (such as in New York City) 
caused those banks to purchase controlling shares in the Federal Reserve regional banks. 

From “Secrets of the Federal Reserve”, by Eustace Mullins. $10.00, softcover, 198 pgs. Bankers Research Institute, P.O. Box 
1 105, Staunton, VA 24401. 


ExhibitJ* 


95 














SC PRIVATE LETTER RULING #90-1 


TO: Federal Reserve Bank of Richmond 

Columbia Office 
Columbia, S.C. 29210 

SUBJECT: Federal Reserve 3ank 

(Sales and Use) 

REFERENCE: S.C. Code Ann. Section 12-35-510 (1976) 

S.C. Code Ann. Section 12-35-810 (1976) 

S.C. Code Ann. Section 12-35-550(1) (1976) 

S.C. Code Ann. Section 12-35-550(42) (1976) 

AUTHORITY: S.C. Code Section 12-3-170 (1976) 

SCOPE: A Private Letter Ruling is a temporary document 

issued to a taxpayer, upon request, and it 
applies only to the specific facts or 
circumstances related in the request. Private 
Letter Rulings have no precedential value and 
are not intended for general distribution. 

Question: 

Are sales to, or purchases by, the Columbia Office of the Federal Reserve 

Bank of Richmond exempt from sales and use tax, pursuant to Code Sections 

12-35-550(1) and 12-35-550 (42) ? 

Facts : 

The Federal Reserve Bank and its district banks were created under 12 

U.S.C.A. Section 226. The district banks in turn established satellite 

offices, one of which is located in Columbia. 

Section 531 of Title 12 of the United States Code reads: 

Federal reserve banks, including the capital stock and 
surplus therein and the income derived therefrom shall 
be exempt from Federal, State, and local taxation, 
except taxes upon real estate. 


Code Section 12-35-510 imposes "upon every person engaged or continuing 
within this State in the business of selling at retail any tangible 
personal property. .. [a sales tax in] an amount equal to [five] percent of 
the gross proceeds of sales of the business’. 

_Code Section 12-35-810 imposes the use tax "on the storage, use or other 
consumption in this State of tangible personal property purchased at 
retail for storage, use or other consumption in this State, at the rate of 
[five] percent of the sales price of such property". 

South Carolina Code Section 12-35-550, paragraphs (1) and (42), and 
12-35-820(2) specifically exempt from the sales and use tax: 

(1) The gross proceeds of the sale of tangible 

personal property or the gross receipts of any 
business which the State is prohibited from taxing 
under the Constitution or laws of the United States 
of America or under tne Constitution of this State. 



(42) The gross proceeds of the sale of tangible personal 
property to the federal government, including gross 
proceeds subject to the tax under Sections 
12-35-1140 and 12-35-1150. 


Discussion : 

The issue is whether federal reserve banks are instrumentalities of the 
federal government. 

In Federal Reserve Bank of St. Louis v. Metrocentre Improvement District 
#1, 657 F . 2d 183 (8th Cir. 1981), aff'd, 455 U.S. 995 (1981), the United 
States Court of Appeals, Eighth Circuit, stated that the test for 
determining whether an entity is a federal instrumentality is whether it 
performs an "important governmental function". The court held: 

In light of the important governmental functions per- 
formed by the federal reserve banks and the United 
States Supreme Court's willingness to hold that finan- 
cial institutions performing even fewer governmental 
functions are federal instrumentalities, we hold that 
the federal reserve banks are instrumentalities of the 
federal government. Our holding is consistent with 
other circuits that have faced this question. Federal 
Reserve Bank v. City of Memphis, 515 F.Supp. 63 (W.D. 

Term., 1979), aff'd 649 F.2d 462 (6yh Cir. 1981); 

Federal Reserve Bank v. Kalin, 77 F.2d 50, 51 (4th Cir. 

1935); Raichle v. Federal Reserve Bank, 34 F.2d 910, 916 
(2d Cir. 1929) . 

Furthermore , in Lewis v. United States, 680 F.2d 1239 (Ninth Circuit, 1982) 
the Ninth Circuit Court of Appeals held: 

The Reserve Banks are deemed to be federal instrumen- 
talities for purposes of immunity from state taxation. 

Federal Reserve Bank of Boston v. Commissioner of 
Corporations & Taxation, 499 F.2d 60 (1st Cir. 1974), 
after remand, 520 F.2d 221 (1st Cir. 1975); Federal 
Reserve Bank of Minneapolis v. Register of Deeds, 288 


- 2 - 

Mich. 120, 284 N.W. 667 (1939). The test for determin- 
ing whether an entity is a federal instrumentality for 
purposes of protection from state or local action or 
taxation, however, is very broad: whether the entity 
performs an important governmental function. Federal 
Land Bank v. Bismarck Lumber Co., 314 U.S. 95, 102, 62 
S.Ct. 1, 5, 86 L.Ed. 65 (1941); Rust v. Johnson, 597 
F.2d 174, 78 (9th Cir. 1979), cert, denied, 444 U.S. 

964, 100 S.Ct. 450, 62 L.Ed. 2d 376 (1979). The Reserve 
Banks, which further the nation's fiscal policy, clearly 
perform an important governmental function. 

Performance of an important governmental function, 
however, is but a single factor and not determinative in 


Exhibit c a of 3 


97 




tort claims actions. Federal Reserve Bank of St. Louis 
v. Metrocentre Improvement District, 657 F.2d 183, 185 
n.2(8th Cir. 1981), Cf. Pearl v. United States, 230 F.2d 
243 (10th Cir. 1956) . State taxation has traditionally 
been viewed as a greater obstacle to an entity's ability 
to perform federal functions than exposure to judicial 
process; therefore tax immunity is liberally applied. 

Federal Land Bank v. Priddy, 294 U.S. 229, 235, 55 S.Ct. 

705, 708, 79 L.Ed. 1408(1955) 

In summary, Federal Reserve Banks are federal instrumentalities for the 
purpose of immunity from state taxation. 

Conclusion : 

Sales to, or purchases by, the Columbia Office of the Federal Reserve Bank 
of Richmond are exempt from sales and use tax, pursuant to Code Section 
12-35-550(1) and (42) . 


SOUTH CAROLINA TAX COMMISSION 


S. Hunter Howard, Jr., Chairman 


A. Crawford Clarkson, Jr., Commissioner 


T. R. McConnell, Commissioner 


Columbia, South Carolina 
January 10, 1990 


-3- 


Exhibit c 


98 




[Code of Federal Regulations] 

[Title 31, Volume 2] 

[Revised as of July 1, 2002] 

From the U.S. Government Printing Office via GPO Access 

[CITE: 31CFR328 . 5] 

[Page 221-222] 


TITLE 31--MONEY AND FINANCE: TREASURY 
CHAPTER II— FISCAL SERVICE, DEPARTMENT OF THE TREASURY 
PART 32 8 --RESTRICTIVE ENDORSEMENTS OF U.S. BEARER SECURITIES—Table of Contents 
Sec. 328.5 Forms of endorsement. 

(a) When presented by banks-- (1) For payment or exchange. The 
endorsement placed on a bearer security presented for payment or 
exchange by a bank should be in the following form: 

For presentation to the Federal Reserve Bank of , 

Fiscal Agent of 

[ [Page 222] ] 

the United States, for redemption or in exchange for securities of a new 

issue, in accordance with written instructions submitted by 

(Insert name of presenting bank) 

(2) For redemption at par. The endorsement placed on a bearer 
security presented for redemption at par in payment of Federal estate 
taxes should be in the following form: 

For presentation to the Federal Reserve Bank of , Fiscal 

Agent of the United States, for redemption at par in payment of Federal 

estate taxes, in accordance with written instructions submitted by 

. (Insert name of presenting bank) 

(b) For conversion to book-entry securities. The endorsement placed 
on a bearer security presented for conversion to a book-entry security 
shall be in the following form: 

For presentation to the Federal Reserve Bank of , 

Fiscal Agent of the United States, for conversion to book-entry 
securities by . (Insert name of presenting bank) 

(c) When presented by Service Center Directors or District 
Directors, Internal Revenue Service. The endorsement placed on a bearer 
security by a Service Center Director or a District Director, Internal 
Revenue Service, should be in the following form: 

For presentation to the Federal Reserve Bank of Fiscal 

Agent of the United States, for redemption, the proceeds to be credited 
to the account of the Service Center Director, Internal Revenue Service, 

at , for credit on the Federal (Income, 

gifts, or other) taxes due from . (Name and address) 


— — i . 

Exhibi t D 

t - r— in,,, i i 


99 




31 U.S.C. Sec. 321. - General authority of the Secretary 

(d) 

(1) The Secretary of the Treasury may accept, hold, administer, and use gifts and bequests of 
property, both real and personal, for the purpose of aiding or facilitating the work of the 
Department of the Treasury. Gifts and bequests of money and the proceeds from sales of other 
property received as gifts or bequests shall be deposited in the Treasury in a separate fund and 
shall be disbursed on order of the Secretary of the Treasury. Property accepted under this 
paragraph, and the proceeds thereof, shall be used as nearly as possible in accordance with the 
terms of the gift or bequest. 

(2) For purposes of the Federal income, estate, and gift taxes, property accepted under 
paragraph (1) shall be considered as a gift or bequest to or for the use of the United States. 

TRANSLATION: 

The Secretary may accept personal property (money) as gifts voluntarily donated, for the purposes of the 
federal income tax, and it shall be considered as a gift for the use of the government. Since you have no 
obligation pursuant to Public Law 591, August 16, 1954, you are in essence donating your hard earned 
money as a gift voluntarily. If it was mandatory, it wouldn’t be called a gift, but more like an obligation. 
It cannot be an obligation, because it would be considered an unconstitutional collection of an excise tax 
upon you earnings. 

The Secretary may accept real property (house, car, boat, airplane etc) from the proceeds of sales as gifts 
(through liens) for the purposes of the federal income tax, and it shall be considered as a gift for the use of 
the government. 


Exhibit _£ 


100 




31 USC Sec. 321 


01 / 02/01 


-EXPCITE- 

TITLE 31 - MONEY AND FINANCE 

SUBTITLE I - GENERAL 

CHAPTER 3 - DEPARTMENT OF THE TREASURY 

SUBCHAPTER II - ADMINISTRATIVE 
-HEAD- 

Sec. 321. General authority of the Secretary 
-STATUTE- 

(a) The Secretary of the Treasury shall - 

(1) prepare plans for improving and managing receipts of the 
United States Government and managing the public debt; 

(2) carry out services related to finances that the Secretary 
is required to perform; 

(3) issue warrants for money drawn on the Treasury consistent 
with appropriations; 

(4) mint coins, engrave and print currency and security 
documents, and refine and assay bullion, and may strike medals; 

(5) prescribe regulations that the Secretary considers best 
calculated to promote the public convenience and security, and to 
protect the Government and individuals from fraud and loss, that 
apply to anyone who may - 

(A) receive for the Government, Treasury notes, United States 

notes, or other Government securities; or 

(B) be engaged or employed in preparing and issuing those 

notes or securities; 


(6) collect receipts; 



(7) with a view to prosecuting persons, take steps to discover 
fraud and attempted fraud involving receipts and decide on ways 
to prevent and detect fraud; and 

(8) maintain separate accounts of taxes received in each State, 
territory, and possession of the United States, and collection 
district, with each account listing - 

(A) each kind of tax; 

(B) the amount of each tax; and 

(C) the money paid as pay and allowances to officers and 
employees of the Department collecting taxes in that State, 
territory, possession, or district. 

(b) The Secretary may - 

(1) prescribe regulations to carry out the duties and powers of 
the Secretary; 

(2) delegate duties and powers of the Secretary to another 
officer or employee of the Department of the Treasury; 

(3) transfer within the Department the records, property, 
officers, employees, and unexpended balances of appropriations, 
allocations, and amounts of the Department that the Secretary 
considers necessary to carry out a delegation made under clause 
(2) of this subsection; 

(4) detail, in addition to details authorized under another 
law, not more than 6 officers and employees of the Department at 
any one time to enforce the laws related to the Department, 
except that of those 6 officers and employees not more than 4 
officers and employees - 

(A) paid from the appropriations for the collection of 
customs may be so detailed; 

(B) paid from the appropriations for internal revenue may be 
so detailed; and 

(C) paid from the appropriations for suppressing 
counterfeiting and other crimes may be so detailed; 


Exhibit F a 0 f £ 


102 




(5) authorize, at rates and under conditions prescribed by the 
Secretary, the private use of telephone lines controlled by the 
Department when the use does not interfere with Department 
business ; 

(6) buy arms and ammunition required by officers and employees 
of the Department in carrying out their duties and powers; and 

(7) notwithstanding any other provision of law, fulfill any 
requirement to issue a report on the financial condition of any 
fund on the books of the Treasury by including the required 
information in a consolidated report, except that information 
with respect to a specific fund shall be separately reported if 
the Secretary determines that the consolidation of such 
information would result in an unwarranted delay in the 
availability of such information. 

(c) Duties and powers of officers and employees of the Department 
are vested in the Secretary except duties and powers - 

(1) vested by subchapter II of chapter 5 of title 5 in 
administrative law judges employed by the Secretary; 

(2) of the Comptroller of the Currency; and 

(3) of the Director of the Office of Thrift Supervision; 

(d) (1) The Secretary of the Treasury may accept, hold, 
administer, and use gifts and bequests of property, both real and 
personal, for the purpose of aiding or facilitating the work of the 
Department of the Treasury. Gifts and bequests of money and the 
proceeds from sales of other property received as gifts or bequests 
shall be deposited in the Treasury in a separate fund and shall be 
disbursed on order of the Secretary of the Treasury. Property 
accepted under this paragraph, and the proceeds thereof, shall be 
used as nearly as possible in accordance with the terms of the gift 
or bequest. 

(2) For purposes of the Federal income, estate, and gift taxes, 
property accepted under paragraph (1) shall be considered as a gift 

Exhibit 


103 




or bequest to or for the use of the United States. 

(3) The Secretary of the Treasury may invest and reinvest the 
fund in public debt securities with maturities suitable for the 
needs of the fund and bearing interest at rates determined by the 
Secretary of the Treasury, taking into consideration the current 
average market yield on outstanding marketable obligations of the 
United States of comparable maturities. Income accruing from the 
securities, and from any other property accepted under paragraph 
(1), shall be deposited to the credit of the fund, and shall be 
disbursed on order of the Secretary of the Treasury for purposes as 
nearly as possible in accordance with the terms of the gifts or 
bequests . 

(4) The Secretary of the Treasury shall, not less frequently than 
annually, make a public disclosure of the amount (and sources) of 
the gifts and bequests received under this subsection, and the 
purposes for which amounts in the separate fund established under 
this subsection are expended. 

(e) Certain Reorganization Prohibited. - The Secretary of the 
Treasury may not merge or consolidate the Office of Thrift 
Supervision, or any of the functions or responsibilities of the 
Office or the Director of such office, with the Office of the 
Comptroller of the Currency or the Comptroller of the Currency. 
SOURCE- 

(Pub. L. 97-258, Sept. 13, 1982, 96 Stat. 880; Pub. L. 98-369, 
div. A, title IV, Sec. 445, July 18, 1984, 98 Stat. 816; Pub. L. 
101-73, title III, Sec. 307(b), (d) , Aug. 9, 1989, 103 Stat. 353; 

Pub. L. 104-66, title I, Sec. 1132(b), Dec. 21, 1995, 109 Stat. 

725 . ) 

MISC1- 


Historical and Revision Notes 


Revised Section Source (U.S. Code) Source (Statutes at 

Exhibit F W 


104 




How Your Local Bank Defrauds You 


When you deposit your paycheck or some cash into your local bank account, you probably assume 
that it will be there when you need it. That's why your account is called a 'demand deposit' account 
because after you deposit it, you can demand it back. Your demand usually takes the form of a check 
or a debit card transaction. 

Centuries ago, early bankers realized that not everyone asked for their deposits back at the same time. 
In fact, it was rare that demands for funds exceeded ten percent of the total on deposit. This amount 
of cash just sitting in the vault was a powerful temptation and bankers soon succumbed to it. They 
figured that they could take that ninety percent that never left the bank and loan it out and by charging 
interest on the loans could make a significant amount of money from other people's money. And, 
since most people do not even pretend to understand money and banking, this could be done without 
the depositor's knowledge. This fraud is known by the name fractional reserve banking. 

This fraud worked most of the time but, occasionally, depositor's would lose faith in the bank for one 
reason or another and more than ten percent of the deposits would be demanded at the same time. But 
the bank didn't have the cash because it had been lent out. As soon as it became common knowledge 
that the bank could no longer honor demands for depositor's money, almost everyone wanted their 
money back. This is called a 'run' on the bank and almost always resulted in the failure of the bank 
and the loss of most of the depositor's money. 

This situation resulted in demands by citizens for the government to do something. Now you would 
think that the government would just make it a crime to loan out depositor's money. But they didn't. 
They actually made the process legal. (Which makes me wonder if the government wasn’t behind 
some of the bank rims in the first place.) Today, according to the Federal Reserve rules, it is legal for 
member banks (and almost all banks in the United States are now members of the Federal Reserve 
System) to loan out up to 80 percent of depositor's money without the depositor's knowledge. The Fed 
says this is ok now because the banks belong to the Federal Deposit Insurance Corporation which will 
pay the depositors of a failed bank. This works as long as only a few banks fail but a similar 
organization, the Federal Savings and Loan Insurance Corporation (FSLIC), was unable to pay off on 
all the savings and loans that failed and left the bailout to the taxpayers of the United States. It 
appears to me that your deposits in a US bank are still at risk. 

Loaning out your money without your knowledge is bad enough but it gets worse. When the bank 
loans out your money, they don't usually give cash to the borrower. In almost all cases, they will issue 
a check. But let's examine where the money for the check comes from and what happens to it after it 
is issued. 

When the bank grants a loan, they first get you to sign a mortgage agreement on some asset that you 
own. Then they issue the check. The accounting department now njakes a bookeeping entry that 
debits your mortgage agreement as an asset and credits cash. The bank now has reduced it's available 
cash by the amount of your loan. But then you deposit the check into your account, either at that bank 
or at another bank in the system. Let's say it's the same bank. Now the accounting department makes 


105 




another entry that debits cash in the amount of your check and credits your demand deposit account 
with the same amount. Notice what has happened here. The bank's cash account has not changed but 
they now have additional funds on deposit which they can now loan 80 percent of. They have just 
increased the local money supply by the amount of your loan and at the same time created more 
money that they can loan out. 

The above process can continue through several transactions until the increase in the money supply is 
too small for a practical loan amount. It has been calculated that a dollar deposited in a modem US 
bank can be turned into ten dollars through this process. 

Also notice something else about this process. Here again the loan was used to create money but there 
is no process to create enough additional money to pay the interest on the loan. That means that even 
at the local and personal level we cannot all pay off our debts and eventually this will result in the 
bank owning most or all of the real assets in the local area. 

And making this situation even worse is the fact that the Federal Reserve Notes that we are forced (by 
the government) to use as currency isn't even constitutional. The Constitution For the united States 
says that only gold or silver coin can be made legal tender for payment of debts. So we cannot even 
discharge our debts. On a personal level, we can transfer our debt to someone else but the total 
amount of debt remains the same and, in fact, continues to increase. 


106 



6001 , Books and Records 
FOIA Request 

A. If the IRS has sent you a 2039 summons or they want to audit you, then 
you will want to send in this FOIA. 

1 . If you have been filing and self-assessing yourself then the only time you might 
want to use this is if they want to do an audit of your account. 

B. By 6001, we mean under IRC 6001 and 26 CFR 1.6001. 

C. Exhibit A, 1 of 2, shows the 26, 6001 section and on the second half of 
the page is the Parallel Authorities for 26 USC 6001. 

1. Exhibit 2 of 2, is 26 CFR 1.6001-1 records and if you drop down and read the last 
line it says, “of any Internal Revenue Law,” not income tax law. 


107 


TITLE 26 > Subtitle F > CHAPTER 61 > Subchapter A > 
PART I > Sec. 6001. 


Sec. 6001. - Notice or regulations requiring 
records, statements, and special returns 

Every person liable for any tax imposed by this title, 
or for the collection thereof, shall keep such records, 
render such statements, make such returns, and comply 
with such rules and regulations as the Secretary may 
from time to time prescribe. Whenever in the judgment of 
the Secretary it is necessary, he may require any person, 
by notice served upon such person or by regulations, to 
make such returns, render such statements, or keep such 
records, as the Secretary deems sufficient to show 
whether or not such person is liable for tax under this 
title. The only records which an employer shall be 
required to keep under this section in connection with 
charged tips shall be charge receipts, records necessary 
to comply with section 6053(c), and copies of statements 
furnished by employees under section 6053(a) 


Parallel authorities for 26 USC 6001 (from CFR) 

P VB: because this service is automated, and the information it uses relatively volatile, this listing may 
not be complete and is presented for reference only. You may -want to consult the House of 
Representatives parallel table of authorities for a complete listing.] 

• 26 CFR part 1 

• 26 CFR part 31 

• 26 CFR part 55 

• 26 CFR part 156 

• 27 CFR part 19 

• 27 CFR part 53 

• 27 CFR part 194 

• 27 CFR part 250 

• 27 CFR part 296 


Exhibit H/cfX 


108 





[Code of Federal Regulations] 

[Title 26, Volume 12] 

[Revised as of April 1, 2002] 

From the U.S. Government Printing Office via GPO Access 

[CITE: 26CFR1. 6001-1] 

[Page 657] 


TITLE 26 — INTERNAL REVENUE 

CHAPTER I — INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 

(CONTINUED) 

Procedure and Administration--Table of Contents 
Sec. 1.6001-1 Records. 

(a) In general. Except as provided in paragraph (b) of this section, 
any person subject to tax under subtitle A of the Code (including a 
qualified State individual income tax which is treated pursuant to 
section 6361 (a) as if it were imposed by chapter 1 of subtitle A) , or 
any person required to file a return of information with respect to 
income, shall keep such permanent books of account or records, including 
inventories, as are sufficient to establish the amount of gross income, 
deductions, credits, or other matters required to be shown by such 
person in any return of such tax or information. 

(b) Farmers and wage-earners. Individuals deriving gross income from 
the business of farming, and individuals whose gross income includes 
salaries, wages, or similar compensation for personal services rendered, 
are required with respect to such income to keep such records as will 
enable the district director to determine the correct amount of income 
subject to the tax. It is not necessary, however, that with respect to 
such income individuals keep the books of account or records required by 
paragraph (a) of this section. For rules with respect to the records to 
be kept in substantiation of traveling and other business expenses of 
employees, see Sec. 1.162-17. 

(c) Exempt organizations. In addition to such permanent books and 
records as are required by paragraph (a) of this section with respect to 
the tax imposed by section 511 on unrelated business income of certain 
exempt organizations, every organization exempt from tax under section 
501(a) shall keep such permanent books of account or records, including 
inventories, as are sufficient to show specifically the items of gross 
income, receipts and disbursements. Such organizations shall also keep 
such books and records as are required to substantiate the information 
required by section 6033. See section 6033 and Secs. 1.6033-1 through 
1.6033-3. 

(d) Notice by district director requiring returns statements, or the 
keeping of records. The district director may require any person, by 
notice served upon him, to make such returns, render such statements, or 
keep such specific records as will enable the district director to 
determine whether or not such person is liable for tax under subtitle A 
of the Code, including qualified State individual income taxes, which 
are treated pursuant to section 6361(a) as if they were imposed by 
chapter 1 of subtitle A. 

(e) Retention of records. The books or records required by this 
section shall be kept at all times available for inspection by 
authorized internal revenue officers or employees, and shall be retained 
so long as the contents thereof may become material in the 
administration of any internal revenue law. 


[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7122, 36 FR 
11025, June 8, 1971; T.D. 7577, 43 FR 59357, Dec. 20, 1978; T.D. 8308, 
55 FR 35593, Aug. 31, 1990] 




FREEDOM OF INFORMATION ACT REQUEST 


TO: 

Disclosure Officer 
Internal Revenue Service 
(your local IRS district address) 
(your local IRS district address) 

FROM: (your name or entity name) 
addrl 
addr2 


Account # (SS# or EIN#) 


Dear Disclosure Officer: 

1 . This is a request under the Freedom of Information Act, 5 USC 552, or 
regulations thereunder. This is my firm promise to pay fees and costs for locating 
and duplicating the records requested below, ultimately determined in accordance 
with 26 CFR 601.702 (f). 

2. If some of this request is exempt from release, please furnish me with those 
portions reasonable segregable. I am waiving personal inspection of the requested 
records. 

3 . This request pertains to the years: 

4. Please send me a copy of the “6001 Notice” which pertains to the Requester. 

5. Please certify all documents with the Form 2866, certificate of official record. If 
there are no specific documents pertaining to this request, certify your response 
with Form 3050, certificate of lack of records. 


Dated: 


Respectfully, 


name, Qualified Requester 




EXPLANATION OF UNITED STATES PAPER MONEY 

NOTICE: THE LAW STATES THAT ALL ILLUSTRATIONS OF CURRENCY MUST BE 
ACCOMPANIED BY HXJCATtONAL. HISTORIC. OR NUMISMATIC INFORMATION. 



IKE EtUfcRAL RESERVE BANKS AND CODE LETTERS 
Tfct GmiwN has mAortztd toe 12 Federal tonne dbtrtcts. ta each to which i 
a fader* toenw Ba*. to kM ml Each Met to donated by i m an 
toeearrespontoaq M to r Htot *phabCtotoaMcttonnbita.toectoa»towtochto 
G tola natocstod. and toe code letters ait: 


Mtev twt— « “ t-AttMU-f 

7- C*iic» 90 — c 

8- Si Loutt— H 


10- Kaasas C»y— J 

11- taUs-K 

12- San Francisco— l 



SILVER CERTIFICATE 

sm omtam an bn mmm « ini. tick notes m tamed egm 
SMOttan Mtdbb* Tramt, lor Mr redemption, later tames aeit Backed* 
SM and be oMgaton id redeem bn b Sdrer Mars las Decn nmm 

(ram M bee If be sobs Wna ISM. 

One Jane 24. IS» ltd Iraasarj ceased be (adnapoo o a Sam Certitasej. The 
are now ordmarf enabling mm. 

REFUNDING CERTIFICATES 

ffefcmdtog Certoctoes were Issued under toe Adel February 26. 1879. Ttweiwe 
were m tea Oer to be more a torro at G overnment Bond or Security, as trey bore in 
terefl at toe me it 4% per year. The S10.00 denomtoabons made the note 
atoabto to people ol moderate means. In 1907 the Merest was stopped. The 
rtdempboo Okie today, with Merest. Is Cl JO 

GOLD CERTIFICATES 

The Ira Gold CerfOcates issued tor pener* drcuUooo w ere the series at 18C 
These notos were Issued against Gold Coins held by the Treasurer lor f 
Son The last issues were the snaf notes 0 1 1928. 


in 1933 ai Goto Ccnrfcaics were o rdered to be returned to the Treasury lor reoemc 
boo in 1964 ftese rtstnebons were Hied and co icctors were pemeoed to hoi 


TREASURY OR COIN NOTES 

Tfasiny Matos were a uthorized to 1890. They were town as Com Notes, becaui 
— redeemable m erther Siver or Goto Co*. There were only twa issue; 


1890 and 1891. 


The $100,000 bill, with 
Woodrow Wilson’s portrait on 
the front, was printed only for 
use in transactions between the 
Federal Reserve System and the 
Treasury Department. 


111