History of How the U.S. Became Ruled by Elites


By Victor Sperandeo with the Curmudgeon  


It seems that every financial broadcast these days is about the Fed and what it will do next? Little is said about the economy, other than what the Fed will do to it by raising or lowering interest rates; or rounds of QT/QE which reduce/increase its balance sheet and affect financial market liquidity. Companies are rarely discussed on a fundamental basis, but rather in relation to the amount of liquidity the Fed will add or extract from the financial system. 

While the Fed is responsible for U.S. monetary policy, it is not actually a part of the federal government! Rarely is there any talk about how government fiscal policy or the laws Congress passes will affect the economy and/or markets. Yet they are critically important for a healthy and vibrant nation.

In this post, I endeavor to give readers the ESSENCE of history, from a legal perspective, on how the U.S. -- a country built on laws of liberty and justice --has descended into a monopoly run by a select few elites.                

Rule by “Experts”:

What Plato called the “Philosopher King” [1.] method of ruling a society by “experts” is what the U.S. has become.  In other words, a rule by experts who are smarter and know more than the people; who make decisions and laws on society that are in lieu of who and what the people elected our representatives for.  

Note 1.  According to Plato, a Philosopher King is a ruler who possesses a love of wisdom, as well as intelligence, reliability, and a willingness to live a simple life. Such are the rulers of his utopian city Kallipolis.


The rule by experts/elites is the opposite ideology of the U.S. founding fathers, which is based on natural law, individual freedom, with free markets, while anchored on the premise of property rights and enterprise, i.e., capitalism.

Today, the U.S. is not even close to the laws and ideals the country was founded upon. The difference is so great it’s like calling the moon the sun!

This deterioration in liberty and freedom does not only relate to the Fed and money supply/bank reserves, but more importantly to every aspect of life using government agencies (EPA, FTC, SEC, CDC, etc.) as “the experts” to regulate, rule and dictate to the people.  They do so under the guise of “protecting us,” whereas that was supposed to be the job of our House and Senate representatives (in making laws via statutes consistent within the Constitution).   Here’s a table highlighting characteristics of Elites:


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Source: Elites in the Making and Breaking of Foreign Policy


History of Fiat Money and Progressive Income Tax:

How we got here starts in 1862.  The U.S. Congress faced a financial crisis in 1862, as spiraling costs of war rapidly depleted the Union’s reserves of gold and silver coin, the only legal tender of the United States. After intense debate, Congress authorized the issuance of paper U.S. Notes (popularly called “Greenbacks”), declaring them lawful money for all payments except interest on public debt and import duties.

On February 25, 1862, the U.S. Congress passed the “Legal Tender Act,” authorizing the use of fiat paper notes to pay the federal government’s bills for the Civil War. That ended the long-standing Constitutional laws of only using gold or silver in transactions.  It allowed the government to finance the enormously costly Civil War long after its gold and silver reserves were depleted.

One of the primary reasons the U.S. only allowed gold and silver as money was to avoid wars, knowing that a country would be forced to print fiat paper money to finance wars, or tax the people, rather than be forced through negotiations for a reasoned peaceful resolution of conflicts.

In addition, the Civil War instituted a direct income tax that was the first tax paid on individual incomes by residents of the United States. It was a "progressive tax” in that it initially levied a tax of 3% on annual incomes over $600 but less than $10,000 and a tax of 5% on any income over $10,000. In 1864 the rates increased, and the ceiling dropped so that incomes between $600 and $5,000 were taxed at 5%, with a 10% rate on the excess over $5,000.

Passed as an emergency measure to finance the Union’s cause in the Civil War, the first income tax generated approximately $55 million in government revenues during the war.

The Civil War led President Abraham Lincoln to put forth two of the greatest threats to liberty --printing fiat money and direct progressive taxes on individuals.  Both were unconstitutional and fundamentally destructive to liberty in the name of ending slavery.

That led to a Supreme Court case called “Legal Tender Cases.”

In Hepburn v. Griswold (February 7, 1870), a case that involved the constitutionality of the Legal Tender Act of 1862, the Court ruled by a four-to-three majority that Congress lacked the power to make the government notes (Greenbacks) legal tender.  Thereby, the court struck down the Legal Tender Act.

After Ulysses S Grant became President, he “packed” the Supreme Court with two justices that agreed the government can print money.  Note that Article 1 Section 8 and 10 of the Constitution says you can’t print money!  

Two Legal Tender Cases — Knox v. Lee and Parker v. Davis—decided by the U.S. Supreme Court on May 1, 1871, regarding the power of Congress to authorize government notes not backed by specie (coin) as money that creditors had to accept in payment of debts.” The essence of the two decisions were stated in terms of government emergencies. Thereby, the government could print money for a special, good reason.

Juilliard v. Greenman, was a Supreme Court of the United States case in which issuance of Greenbacks as legal tender in peacetime was challenged. The Legal Tender Acts of 1862 and 1863 were upheld. In an 8–1 decision resting largely on prior court cases, particularly the jointly-decided cases Knox v. Lee and Parker v. Davis, the power "of making the notes of the United States a legal tender in payment of private debts" was interpreted as "included in the power to borrow money and to PROVIDE a national currency." This was to be done without interest payments on the printing of fiat money. In other words, the federal government could now print money for ANY REASON!                                                                                                  

IMHO, the dissenting opinion from Justice Stephen Johnson Field was far more correct if one abides by the Constitution. From Field’s written opinion, his predictions of what would happen from this money printing decision were prescient and right on the mark.

In 1895, the Supreme Court struck down the ability to create a progressive income tax, which was part of President Lincoln’s plan to fund the Civil War or using a direct tax.  It was declared unconstitutional.

On May 21, 1895, the U.S. Supreme Court ruled that a direct tax on personal income was unconstitutional as a result of the case of Pollock v. Farmers‘ Loan and Trust Company. The lawsuit had been precipitated by the 1894 Income Tax Act. This ruling denied Congress the power to tax “disproportionately.” 

The 16th Amendment: Federal Income Tax (1913) does not clearly permit the government to tax wages and other income, except income from a foreign corporation.  However, in most cases that is NOT the way the law is interpreted.  It states:

“The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

The problem is that “incomes” are not defined.  For example, INCOME on municipal bonds is not taxed by the federal government.  Neither are child support payments, alimony payments (for divorce decrees finalized after 2018), inheritances, gifts and bequests, and most health care benefits.

Tax protesters have not fared well trying to challenge the current view of the income tax by stating the law is not written in the US tax code. 

For those who want more info on this see “Theft By Deception: Deciphering The Federal Income Tax - A Film by Larken Rose

Mr. Rose is a tax protester who went to jail for 15 months, as Internal Revenue Code Section 861 [2.] was not allowed to be shown.

Note 2.  Internal Revenue Code section 861, entitled "Income from sources within the United States," is a provision of the Internal Revenue Code which delineates that some kinds of income shall be treated as income from sources within the United States, namely income of nonresident alien individuals, and certain foreign corporations, but it is not an exhaustive list of taxable income—the definitions in the section apply only to that section.


Victor’s Conclusions:

In this brief synopsis of “how we got here” you can easily deduce the main culprit and primary miscreant of U.S. deterioration are the Judges of the Supreme Court.  The original opinions of the judges were changed and replaced by the opinions of the elites, if it didn’t fit the desires of the powers that be.              

America’s biggest growth industry is corruption, which we’ve explained in many previous Sperandeo/Curmudgeon blog posts.  Here’s an example: Political Corruption and a New World Monetary Order. No one gets punished for taking bribes, so it is therefore very lucrative and not at all risky.

“We have the best government money can buy,” Mark Twain said and that now rings true more than ever before!

The bottom line is the principles of liberty and laws adhering to the Constitution have been changed by Supreme Court Judges and corruption of our elected officials. The U.S. is now at a foreboding stage of its history. The future looks very bleak.

Cartoon of the Week:

End Quote:

A great patriot, President Andrew Jackson, ended the Second Federal Reserve Bank (The Bank of the U.S.). 

“I weep for the liberty of my country when I see at this early day of its successful experiment that corruption has been imputed to many members of the House of Representatives, and the rights of the people have been bartered for promises of office.” Andrew Jackson


Be well, stay healthy, warm, and dry. Please email the Curmudgeon (ajwdct@gmail.com) if you have any comments, questions, or concerns.  Till next time…...

The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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