If you read last week’s article on the coinage clause, you understand that the creators of the Constitution fully intended for all currency in the United States to have intrinsic value attached to it. Without it, paper money or “legal tender” is just that, tender that has no intrinsic value and is thus only valuable if the society using it believes it’s valuable, and such a state in society is precarious and potentially devastating.
This is not even taking into account the devastating effects of the government taking hold of arbitrary power and throwing off its Constitutional limitations. If government can do one thing outside of its Constitutional limitations, what can’t it do?
The Legal Tender Cases
Let’s rewind a bit. In 1869, the Supreme Court struck down Congress’s use of the coinage power to make legal tender during the Civil War, stating that this power was “inconsistent with the spirit of the Constitution, and is prohibited by the Constitution”.
A few things: the power the Court possessed at the time and still possesses to be the final arbiter on the meaning of the Constitution is itself, unconstitutional and makes the need for the Constitution almost nonexistent. It is incumbent upon the other branches and the states to also preserve the supremacy of the Constitution by pushing back against the Supreme Court when the other branches believe the Supreme Court ruling is itself unconstitutional. This keeps the Constitution supreme rather than the Court.
However, the other branches have benefited from the broader interpretations of the Constitution and the limits it places on their power, thus, the other branches–unsurprisingly hungry for power–have sat back and soaked up the “legitimized” increases in their power by the Supreme Court as the Court slowly erodes the limitations set out by the Constitution, while using the Constitution itself to justify these erosions.
With this as a backdrop, let’s take a look at why our government now possesses the power to create “legal tender” or unbacked money.
Not even two years after ruling that Congress cannot Constitutionally create legal tender, in 1971, the Supreme Court–with two new justices–heard two new cases Knox v. Lee and Parker v. Davis, whose outcomes dramatically changed the face of American politics and the power Congress possesses over currency.
The Legal Tender Act in 1862 authorized Congress to make paper money not redeemable in gold or silver and required, by law, that the legal tender they created ($430 million worth of “greenbacks”) be accepted for all taxes, debts and other obligations, even if those contracts were created prior to the passage of the act.
In these new legal tender Supreme Court cases, the Court used a different tactic, one that the previous Court had not used in the Hepburn Supreme Court ruling. When faced with the question of the Constitutionality of Congress creating legal tender with no intrinsic value and requiring Americans to accept it as legal tender–particularly as it relates to payment of debt to creditors–the Court turned to the “necessary and proper clause” in Article 1, Section 8, Clause 18.
The Constitution says: “The Congress shall have Power to…make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers;…”
The clause concludes Article 1, Sections 8 and the enumerated powers listed there. It’s essentially say, “Hey Congress, you have the power to make laws that you deem necessary and proper to carry into effect the powers listed above…” This is not a blank check of power, giving Congress the arbitrary power to make laws that they deem “necessary and proper”. If that were the case, why give Congress specific enumerated limitations to their power in the first place?
And yet, the Court ruled that Congress has the power to create legal tender because the have they have the power to make laws they deem necessary and proper to carry out the “coinage clause”. The court’s decision made it so that Congress can dictate what “money” is, what it will look like, and how much value it has based on what they establish.
Specifically, in Parker v Davis (1971), Parker sold land to Davis, who then agreed to a contract to pay him. The contract the two had entered into dated before Congress passed their Legal Tender Acts. When Parker sued Davis for not paying him the sum he’d contractually agreed to pay, the Court ruled that Davis pay a sum of money to Parker. Davis paid the sum in greenbacks and Parker refused to accept them because he wanted his payment in coin, per the requirements of the contract. The Court ordered that Parker should accept Davis’ payment in notes, thereby fundamentally expanding Congress’s power over money.
No longer was Congress obligated Constitutionally to any limitations on their power over currency in the country. Prior to this ruling, Congress had to work within the confines of the phrase “coin money” and all the implications attached. Implications such as the the powers not listed in that phrase (i.e. issuing bills of credit or legal tender). However, this new interpretation gave Congress full discretion over banking, currency and the like.
The “New” Coinage Power
At this point and according to Edwin Vieila Jr:
“So, perhaps not surprisingly, the contemporary consensus seems to be that the Constitution somehow affirmatively grants the government (and the private parties behind the Federal Reserve System) unlimited powers over money and banking, and that questioning such an assumption is an exercise in futility, if not a species of intellectual ‘extremism’. James Dorn contends that ‘[p]resent U.S. monetary law incorporates . . . no constitutional limit binding the central bank [i.e., the Federal Reserve System] to a noninflationary path of money growth[,] . . . specifies no single objective for monetary policy[,] and lacks an enforcement mechanism to achieve monetary stability.”Vieila Jr.
Essentially at this point, and due to the interpretations of the Court in the legal tender cases, Congress is now no longer tied to any real limitations to its power over currency in the United States, and this means they are able to create money that has no real or intrinsic value. There’s more to this story regarding the Federal Reserve and the government’s control/manipulation of the economy but for today, understand that a Federal Reserve Note (FRN), which is a dollar bill, is nothing more than a piece of paper–and the government now has no legal requirement to exchange FRNs for any sort of base-metallic coinage.
In other words, “FRNs amount merely to circulating tax-anticipation coupons, nothing more” (Viela Jr).
The US dollar has no real value:
“This is because paper money, though incongruent with the Constitution, has become universally accepted as our economy’s medium of exchange. As Friedman argues, ‘each person accepts [paper money] because he is confident that others will. The pieces of paper have value because everybody thinks they have value. Everybody thinks they have value because in his experience they have had value.” And this acceptance is vital since “[t]he United States could not operate at more than a small fraction of its present level of productivity without a common and widely accepted medium of exchange.6 Thus, pulling the rug out from under this system, as Dr. Vieira suggests, could greatly damage Americans’ confidence in their currency and could lead to irreparable economic harm.”
We’re in a bind and that bind is due to government’s dismissal of the Constitution and the citizenry’s willingness to allow such a dismissal to occur.
The Liberty Belle