Charts

The papers and their authors

Between October 1787 and May 1788, three men writing as “Publius” published 85 essays in New York newspapers urging the state to ratify the new Constitution. Alexander Hamilton wrote 51 of them, James Madison 29 and John Jay 5. Together they are the Federalist Papers, still the clearest account of what the Constitution’s framers meant: a national government with real power to tax, to defend the country and to regulate commerce among the states, but a government of enumerated powers, divided among three branches and sharing the field with the states.

The other side never had a single voice or a single series, which is one reason it is less remembered. The Anti-Federalist essays appeared under pen names in several states: “Brutus” in New York (sixteen essays, most likely Robert Yates); “Cato” in New York (often attributed to Governor George Clinton); “Centinel” in Pennsylvania (Samuel Bryan); and the “Federal Farmer” letters (long attributed to Richard Henry Lee, more recently to Melancton Smith). Patrick Henry carried the argument in person at Virginia’s ratifying convention, and George Mason refused to sign the Constitution in Philadelphia because it had no bill of rights.

What each side feared

• The Federalists feared weakness: a Congress under the Articles of Confederation that could not pay its debts, protect commerce or keep thirteen states from taxing one another. Their answer was energy in government, bounded by law.
• The Anti-Federalists feared consolidation: a distant government with an unlimited power to tax, a standing army, a “necessary and proper” clause that could swallow every limit, and, above all, no written guarantee of the people’s rights. Brutus warned that the taxing power “will introduce itself into every corner of the city and country.”

The Anti-Federalists lost the vote and won the argument’s most lasting prize: the Bill of Rights, ratified in 1791, was the price of their consent.

1789 to 1913: a small, strong government on hard money

The Constitution gave Congress the power “to coin money, regulate the value thereof,” and forbade the states to make anything but gold and silver coin a tender in payment of debts. The Coinage Act of 1792 defined the dollar as a fixed weight of silver and of gold. For most of the next 120 years the federal government was small by any modern measure, the dollar was a weight of metal, and prices, after the swings of each war, returned to where they had been. A dollar saved in 1800 bought about as much in 1900.

On that footing the United States grew from a farming republic of four million people into the largest economy on earth, built the railroads, electrified its cities and drew tens of millions of immigrants. The Federalists had asked for a government strong enough to keep order and keep its word, and not much more. On the evidence of a century, they were right.

1913: the year the fears came true

Two things happened in 1913. In February the Sixteenth Amendment gave Congress an income tax without limit. In December the Federal Reserve Act created a central bank with the power to expand the supply of money. Neither was the standing army the Anti-Federalists had warned about. Both were the taxing power Brutus described, reaching into every corner of the country, and the second was a power the founders never granted anyone: to make dollars without digging, minting or earning them.

The result shows in one number. By the Bureau of Labor Statistics’ own index, a dollar today buys about 3 % of what a dollar bought in 1913. Put another way, 97 % of the dollar’s purchasing power has been spent by the people who issue it. That is the quiet confiscation Keynes described in 1919, and it falls hardest on people who work, save and keep their savings in dollars.

1933 and 1971: gold forced out, then cut loose

Gold was money in America until the government made it illegal to hold. On April 5, 1933, Executive Order 6102 required citizens to turn in their gold coin, bullion and gold certificates at $20.67 an ounce; the Gold Reserve Act of January 1934 then re-priced gold at $35, a 41 % devaluation of every dollar at a stroke. Foreign governments could still exchange dollars for gold until August 15, 1971, when President Nixon closed that window. Since then the dollar has been backed by nothing but the promise of the people who print it. Americans were not allowed to own gold again until the last day of 1974.

Read the originals: the Federalist Papers at the Library of Congress and the Anti-Federalist papers at Teaching American History. Prices: the Bureau of Labor Statistics’ Consumer Price Index (1913 = 9.9; recent readings are above 330). The gold orders: Executive Order 6102 (1933), the Gold Reserve Act (1934), the end of dollar-gold convertibility (1971), and Public Law 93-373 (gold ownership restored, December 31, 1974).

This section is Brian Machamer’s opinion, offered for education. It is not investment, tax, or legal advice, and Machamer Consulting, LLC is not a Registered Investment Advisor.