|
|
|
|
Legal Tender Cases
|
| |
|
| |
The Legal Tender Cases were a series of United States Supreme Court cases in the latter part of the nineteenth century that affirmed the constitutionality of paper money. In the 1870 case of Hepburn v. Griswold, the Court had held that paper money violated the United States Constitution. The Legal Tender Cases reversed Hepburn, beginning with Knox v. Lee and Parker v. Davis in 1871, and then Juilliard v. Greenman in 1884.
The Legal Tender Cases primarily involved the constitutionality of the Legal Tender Act of 1862 enacted during the Civil War.
Discussion
Ask a question about 'Legal Tender Cases' Start a new discussion about 'Legal Tender Cases' Answer questions from other users |
Encyclopedia
The Legal Tender Cases were a series of United States Supreme Court cases in the latter part of the nineteenth century that affirmed the constitutionality of paper money. In the 1870 case of Hepburn v. Griswold, the Court had held that paper money violated the United States Constitution. The Legal Tender Cases reversed Hepburn, beginning with Knox v. Lee and Parker v. Davis in 1871, and then Juilliard v. Greenman in 1884.
The Legal Tender Cases primarily involved the constitutionality of the Legal Tender Act of 1862 enacted during the Civil War. In Hepburn, Chief Justice Salmon P. Chase held for a 4-3 majority of the Court that the Act was an unconstitutional violation of the Fifth Amendment. Ironically, Chief Justice Chase had played a role in formulating the Legal Tender Act of 1862, in his previous position as Secretary of the Treasury. On the same day that Hepburn was decided, President Ulysses Grant nominated two new justices to the Court, Joseph Bradley and William Strong, although Grant later denied that he had known about the decision in Hepburn when the nominations were made. Bradley and Strong subsequently voted to reverse the Hepburn decision, in Knox v. Lee and Parker v. Davis, by votes of 5-4. The constitutionality of the Act was more broadly upheld thirteen years later in Juillard v. Greenman.
Legal Tender Act of 1862
The Legal Tender Act of 1862 was enacted to issue paper money to finance the Civil War without raising taxes. The paper money depreciated in terms of gold and became the subject of controversy, particularly because debts contracted earlier could be paid in this cheaper currency.
Background about constitutionality of paper money
Article I, Section 10 of the Constitution explicitly forbids the states from issuing "bills of credit" (paper or "fiat" money) or making anything but gold and silver coin "legal tender", whereas there are no corresponding explicit prohibitions against the federal government, nor any explicit authorization. The Tenth Amendment refers to reserved powers that only the states can exercise, as well as powers not delegated that continue to reside in the people. "Concurrent powers" also exist, which may be exercised by either the states or the federal government, such as the power to repel invasions, and arguably including power to make legal tender (e.g. in federal territories or elsewhere). Article I, Section 8 of the Constitution specifically gives Congress power to "coin" and "regulate the value" of both U.S. and foreign coins, but does not explicitly grant Congress the power to print paper money or make it legal tender.
The federal government began issuing paper money long before the Legal Tender Act of 1862. In 1791, the First Bank of the United States began issuing paper bank notes, and Congress had also authorized paper money (e.g. continentals) even before the Constitution was adopted.
In 1798, Vice President Thomas Jefferson wrote that the federal government has no power “of making paper money or anything else a legal tender,” and he advocated a constitutional amendment to enforce this principle by denying the federal government the power to borrow. Even if Jefferson's suggested amendment had been successful, still (as mentioned above) Article I, Section 8 of the Constitution gives Congress the additional power to "regulate the value" of both U.S. and foreign coins. According to Justice Stephen Field, dissenting in the Legal Tender Cases, Congress had no power to make paper money a legal tender, but he believed "the Constitution says that Congress shall have the power to make metallic coins a legal tender."
Original intent and original meaning
The idea that originalism would necessarily require courts to strike down paper money is a matter of controversy. Even if some (or most) of the framers may have privately intended to prohibit paper money, judges look primarily to the actual words used in the Constitution. As long ago as 1833, constitutional scholars like Joseph Story agreed that the mere private intentions of the people who wrote the Constitution are not binding on the judiciary. In other words, according to Story, the original meaning should prevail over the original intent.
Originalists like Robert Bork have disclaimed any desire to enforce the private intentions of those framers who may have believed that paper money should be prohibited: "Scholarship suggests that the Framers intended to prohibit paper money. Any judge who thought today he would go back to the original intent really ought to be accompanied by a guardian rather than be sitting on a bench."
Regarding paper money, Nathaniel Gorham explained at the Constitutional Convention that he "was for striking out" an explicit power of Congress to issue paper money, but Gorham was also against "inserting any prohibition." That is what ultimately happened at the Convention: language explicitly giving the federal government power to issue legal tender paper money was removed on a vote of 9-2, but an option allowing the issuance together with a prohibition against making it legal tender was not acted upon. Article I, Section 8 of the Constitution gives Congress power to "borrow money on the credit of the United States," and therefore Gorham envisioned that "The power [e.g. to emit promissory paper], as far as it will be necessary or safe, is involved in that of borrowing." The power to emit paper money (e.g. bank notes) has been justified by invoking the Necessary and Proper Clause in combination with the other enumerated powers which include the power to borrow money. The power to "issue bills of credit" (paper money) is mentioned in the Constitution as a prohibition on the States, and could therefore be interpreted as a constitutional-level power and not a "lesser" power that can be authorized under the Necessary and Proper Clause, although it is not entirely clear whether or not the framers intended such an interpretation, nor did the Supreme Court adopt such an interpretation in the Legal Tender Cases or subsequently.
James Madison's notes, from the Constitutional Convention in 1787, include a footnote where he says that the Constitution would allow the federal government to make "use of public notes as far as they could be safe & proper", but would not allow the federal government to use paper as currency or legal tender, though there is no indication whether or not all the contents of his footnote were uttered aloud at the Convention.
Thereafter, during the ratification debates, the Federalist Papers #44 (assumed to be authored by James Madison) discussed Article I, Section 10 of the Constitution which limits the powers of the states. Madison stated that "the prohibition to bills of credit must give pleasure to every citizen, in proportion to his love of justice and his knowledge of the true springs of public prosperity." He further stated that the issuance of paper money has resulted in "an accumulation of guilt, which can be expiated no otherwise than by a voluntary sacrifice of the power which has been the instrument of it."
How money is issued in the U.S. today
Paper money is a form of currency that is physically printed by the Bureau of Engraving and Printing, under authority of the Federal Reserve. The Bureau of Engraving and Printing is part of the U.S. Treasury Department, whereas the Federal Reserve is not. In contrast to paper money, coins are physically produced by the U.S. Mint, within and under authority of the U.S. Treasury. The Federal Reserve can authorize as much paper money as it sees fit, but the U.S. Treasury is restricted by law to a certain maximum amount of coinage in circulation.
The Federal Reserve can increase the money supply by creating money to purchase U.S. Government securities on the open market. These U.S. Government securities have been issued by the federal government to finance deficit spending. Article I, Section 8 of the Constitution explicitly contemplates U.S. Government "securities."
The Federal Reserve can also increase the money supply by allowing banks to issue more loans, which is accomplished by reducing the reserve requirement ratio. Such regulation of banks is pursuant to the Commerce Clause.
Conversely, the Federal Reserve can reduce the money supply, by selling securities or by increasing the reserve requirement ratio.
Footnotes
See also
External links
|
| |
|
|
