Many years ago (1957 to be precise) this wizened senior citizen was a naive and callow youth employed in the oil fields of California. Being not only naive and callow, but imbued with the populist philosophy of his paternal grandmother he was recruited as a foil by his older and reticent colleagues into being their representative in the adversarial collective bargaining relationship with their/our employer, the Continental Oil Co. (today known as Conoco Phillips). The role necessitated his somewhat regular attendance at various meetings at the Oil, Chemical and Atomic Workers International Union hall in Long Beach.
At that time, a regular fixture in the environs of the union hall was a long time very senior member by the name of Harlan Savage. He was retired from one of the local refineries (Texaco I believe) but continued to be active for what appeared to be seizing the opportunity to address the members and anyone else he could corner on the subject dear to his heart, i.e. the unconstitutional actions of the U.S. Federal government; specifically the provision contained in Article I, section X of the Constitution which states among other prohibitions that no entity other than the Federal Government shall..."coin money"... He pointed out that the "private" Federal Reserve central bank was a de facto "coiner of money" by its issuance of fiat legal tender in the form of Federal Reserve Notes as well as the practice of the entire banking system of "fractional reserves"; that is retaining only a small portion of deposits and investing the balance in loans. Harlan swore that if this situation were allowed to continue it would constitute a serious threat to the prosperity, nay the survival of the republic.
A discussion of the ramifications of the 1913 act establishing the U.S. Federal Reserve Bank is beyond the capabilities of this humble scribbler as is the institution the same year of the income tax. Harlan Savage insisted that the 16th Amendment to the Constitution was improperly ratified and therefore null and void.
The subject of fractional reserves and fiat money is a frequent subject addressed by scholars of the Austrian School of economics such as F.A. Hayek, Ludwig Von Mises and the late Murray Rothbard who states as follows in the August 1987 issue of Free Market:
The mystery, the tricks, are necessary, because the fractional-reserve banking system over which the Fed presides is bankrupt. Not just the S&Ls [and now the investment banks] and the FDIC are bankrupt, but the entire banking system is insolvent. Why? Because the money that we are supposed to be able to call upon in our bank deposit accounts is simply not there. Only about 2% of that money is there.
The mystery and the confidence trick of the Fed rests on its function: which is that of a banking cartel organized and enforced by the federal government in the form of the Fed. The Fed continually enters the "open market" to buy government securities. With what does the Fed pay for those bonds? With nothing, simply with checking accounts created out of thin air. Every time the Fed creates $1 million of checkbook money to buy government bonds, this $1 million quickly finds its way into the "reserves" of the banks, which then pyramid $10 million more of bank deposits, newly created out of thin air. And if someone sensibly wants cash instead of these open book deposits, why that's okay, because the Fed just prints the cash which immediately become standard "dollars" (Federal Reserve notes) which pay for this system. But even these fiat paper tickets only back IOU's of our bank deposits.
This pretty well sums up the pass to which we have come this dark October in 2008. And we're assured by the officials of our government on whom the blame for this mess rests that we must be patient as they apply more of the same lunacy in order to repair the damage which they criminally blame on "laissez fair" economics which has not obtained in this nation since before 1819.
The utter absurdity of statements claiming that the present political-economic environment of the United States in some sense represents laissez-faire capitalism becomes as glaringly obvious as anything can be when one keeps in mind the extremely limited role of government under laissez-faire...
One need only view the plethora of federal, ("IRS, the FRB and FDIC, the FBI and CIA, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA. Under laissez-faire capitalism, all such agencies and commissions would be done away with, with the exception of the FBI"), state and local departments, agencies and bureaus with their volumes of ukases and regulations which intrude into every facet of our lives to understand that we live more or less under what could arguably be characterized as a moderately benign(?) fascism.
As for Harlan Savage, I lost contact with him shortly after being