April 1, 2021 Reading Time: 6 minutes

Imagine the jackboots kick in your door at midnight and haul you off to a reeducation camp because of that tweet. (Which one? Does it matter?) You think about resisting but then you realize that your assailants are not government employees but rather the hired henchmen of MegaX corporation, so you relent. The right of MegaX to forcibly reeducate you was probably in your user agreement, so it’s all good. Right?

Wrong! Especially if you understand what the members of the Founding generation had in mind when they used the term “phalanx.” The reference was as familiar to them as “flash mob” is to us, though a phalanx, a tight formation of ancient Greek infantry with overlapping shields, was much more disciplined than any flash mob. While individual infantry men were relatively easily dispatched, when arranged in a phalanx they became formidable, even to cavalry, and phalanxes won many battles, including at Marathon.

America’s Founders used the term phalanx metaphorically to signify any powerful combination of forces allied to achieve some (usually nefarious) goal. Powerful individuals, especially ones concentrated in moneyed corporations, could defeat a divided government but of course a tyrannical government could form a phalanx against the people.

In the Constitutional Convention, for example, some delegates feared that the three largest states, then Massachusetts, Pennsylvania, and Virginia would “carry every thing before them.” If power were partitioned solely by population, as in one early draft of the Constitution, Virginia with “her sixteen votes will be a solid column indeed, a formidable phalanx.”

In early 1791, House Rep. Josiah Parker of Virginia predicted that an excise tax on whiskey would “let loose a swarm of harpies, who, under the denomination of revenue officers will range through the country, prying into every man’s house and affairs, and like a Macedonian phalanx bear down on all of them.”

In late 1803, President Thomas Jefferson feared that the Bank of the United States, a by then completely privately owned joint stock corporation with branches spread across the country, posed an existential threat to the federal government. “Suppose a series of untoward events should occur sufficient to bring into doubt the competency of a republican government to meet a crisis of great danger, or to unhinge the confidence of the people in the public functionaries,” he wrote to Treasury Secretary Albert Gallatin. “An institution like this, penetrating by its branches every part of the union, acting by command and in phalanx may, in a critical moment, upset the government.”

The Bank of the United States never did “upset the government” and financial historians like Richard Sylla believe that the nation would have done better in the War of 1812 had its charter been renewed in 1811. But arguably America is under threat from tax-collecting harpies and big states. Instead of “upsetting” the government, big banks and other large corporations have joined with it in a fascist phalanx depriving Americans of liberty.

For too long, Americans have divided into tribes Left and Right. The former fulminates against big business and the latter against big government. Busy jostling against each other, they have missed the big problem, that it’s the combination of big government and big business that has proven formidable to liberty, the right of every human being to do what they want within the confines of constitutional and just laws, lawfully promulgated.

I invoke fascism knowing full well the dangers of reductio ad Hitlerum. So let me be explicit: Biden (Trump) is not Hitler, the non-crisis crisis at our Southern border is not another Holocaust, and so forth. All Nazis are fascist but not all fascists are Nazis. One need not claim racial and cultural superiority to fuse big government and big business into a single force aimed at the authoritarian domination of all major aspects of life.

“If the power to tax involves the power to destroy” as SCOTUS Chief Justice John Marshall argued in McCulloch v. Maryland (1819), then the power to tax and regulate is the power to dominate. Big businesses stand to make or lose billions based on policy decisions, some conspicuous like bailouts or large government contracts but most innocuous lines thrown into multi-thousand page laws or negotiated understandings with administrative agencies like the EPA, IRS, or SEC. 

Many economists fear that businesses might “capture” their regulators but few worry about regulators capturing businesses although only the government can wield the legitimate use of violence to enforce its claims. Essentially, big business and big government have become codependent, merging in an informal but very real sense into a single entity with the single goal of maximizing the utility (income, power, safety) of those on both sides of the nominal public/private divide. They did not capture each other so much as they captured liberty.

Nothing but the merger of big government and business can readily explain some of the crazy Covid restrictions like those of many U.S. states and other fascistic nations, including Australia. As you watch this funny video and this one, note how business interests have clearly influenced what the government has deemed “safe,” watching commercial sporting events, flying, and eating and drinking, and what it deems a public health risk, non-commercial entertainment.

But Covid restrictions are only the most salient aspect of the emerging fascist phalanx. If some part of the U.S. government wants to censor somebody, it doesn’t have to pass embarrassing laws like the 1798 Alien and Sedition acts, it can backchannel Twitbook into doing its dirty work, like suppressing the Hunter Biden laptop story just before the 2020 election or silencing famed scientists all while claiming to follow “the” science.

Similarly, if some inconvenient fool demolishes plans for a national mask mandate, the government can induce big corporations with market power to enforce its immoral and unconstitutional whims using the carrot of tax inducements and/or the stick of regulations, both of which abound. Many people will acquiesce because a private business mandates it, and a business is not the government, except when it essentially is.

All fascists must be resisted, like the too-little-known White Rose movement that opposed Hitler and the Holocaust. The question is how. One big part of the answer, in the present case, appears to be federalism, or, as critics will surely tar it, States’ Rights. Federalism, or the division of power between the federal and state governments, was once the illiberal tool of slaveholders. Their “slavocracy” controlled local and state governments in the South but as their slower growing section lost representation in Washington, DC they increasingly jealously guarded the power of state governments from federal encroachments.

For some time, though, federalism has stood more as a bulwark of freedom than a bastion of slavery, as shown in books like A Less Perfect Union: The Case for States’ Rights by Adam Freedman, a Dickensian name if there ever was one. States filed 156 multi-state lawsuits against the Trump administration, about twice the number filed against the two-term Obama and George W. Bush administrations, which doubled the number filed against Clinton, which doubled the number filed against the one-term Bush administration, or just ten fewer than filed during the two-term Reagan administration (30). Recently, states like Texas and Alaska have sued the federal government over border control issues and federal energy policies, while Florida has been outright defiant over federal Covid restrictions and Big Tech rules.

It’s possible that the increasingly obvious existence of a fascist phalanx is spurring the formation of a liberty-loving phalanx consisting of “Red” state governments like that of South Dakota, what is left of the commonsensical, largely centrist small business sector, pro-liberty nonprofits, like AIER, the Center for American Liberty, FEE, the Independent Institute, and Judicial Watch, and civil/economic/human rights activists fleeing former affiliations.

The outcome of any nonviolent struggle pitting the federal against a subset of state governments may well hinge upon another concept well understood by the Founders, the power of the purse. Right now, the bulk of Americans’ taxes go to their local governments and the federal government, which then doles out funds back to the states, often with strings of dubious constitutionality attached

In fact, the current arrangement defies the revolutionary credo that there should be no taxation without representation. The notion was that instead of taxing the people directly, large, distant governments, like those in London and later Washington, should tax only indirectly, like with tariffs or imposts, lest the harpies feared by Jefferson, Parker, and the other Founders multiply and eat out the people’s substance

Distant imperial governments, the Founders believed, should receive requisitions from colonial (later state) governments. That way, taxes were raised locally, according to local economic conditions and traditions. In addition, the requisition system gave colonial and state governments the power of the purse by allowing them to withhold taxes from corrupt or incompetent imperial governments, as many did from both the Mother Country and a bungling Congress during the Revolution.

Perhaps we should consider returning to a system where state governments operate revenue systems designed to pay requisitions to the federal government to fund the constitutional core (basically courts, national defense, and some international trade infrastructure and border controls) while leaving the provision of other government services to the wisdom of the voters of each state? 

Once states face hard budget constraints — they cannot print money and hence cannot borrow as much or as cheaply as the federal government and of course will no longer be subsidized by other states as they are now — they will have to pay for their own foibles. Presumably then they will look to successful states for better policy ideas.

Robert E. Wright

Robert E. Wright

Robert E. Wright is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic ReviewBusiness History ReviewIndependent ReviewJournal of Private EnterpriseReview of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. Robert E. Wright was formerly a Senior Research Faculty at the American Institute for Economic Research.

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