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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 [[banknote|bank notes]].<ref>Federal Reserve Bank of San Francisco, [http://www.frbsf.org/federalreserve/money/funfacts.html Fun Facts About Money]. Retrieved [[2007-02-24]].</ref> |
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 [[banknote|bank notes]].<ref>Federal Reserve Bank of San Francisco, [http://www.frbsf.org/federalreserve/money/funfacts.html Fun Facts About Money]. Retrieved [[2007-02-24]].</ref> |
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In 1798, Vice President [[Thomas Jefferson]] denied the federal government’s 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.<ref>Jefferson, Thomas. [http://books.google.com/books?id=5bCT1N2uavQC&pg=RA2-PA260&lpg=RA2-PA260&dq=%22power+of+making+paper+money+or+anything+else+a+legal+tender%22&source=web&ots=pxED9uXPLt&sig=0Dz8zxRVaCcsxIlRFL4T7UuWx8g Letter to John Taylor] (November 26, 1798), reprinted in ''The writings of Thomas Jefferson'', Volume 4, page 260 (1859).</ref> Even if Jefferson's suggested amendment had been successful, still [[Article_One_of_the_United_States_Constitution#Section_8:_Powers_of_Congress|Article I, Section 8]] of the Constitution empowers Congress to "regulate the value" of both U.S. and foreign coins. Justice Field, who believed that Congress had no power to make paper money into a legal tender, |
In 1798, Vice President [[Thomas Jefferson]] denied the federal government’s 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.<ref>Jefferson, Thomas. [http://books.google.com/books?id=5bCT1N2uavQC&pg=RA2-PA260&lpg=RA2-PA260&dq=%22power+of+making+paper+money+or+anything+else+a+legal+tender%22&source=web&ots=pxED9uXPLt&sig=0Dz8zxRVaCcsxIlRFL4T7UuWx8g Letter to John Taylor] (November 26, 1798), reprinted in ''The writings of Thomas Jefferson'', Volume 4, page 260 (1859).</ref> Even if Jefferson's suggested amendment had been successful, still [[Article_One_of_the_United_States_Constitution#Section_8:_Powers_of_Congress|Article I, Section 8]] of the Constitution empowers Congress to "regulate the value" of both U.S. and foreign coins. Justice Field, who believed that Congress had no power to make paper money into a legal tender, therefore believed "the Constitution says that Congress shall have the power to make metallic coins a legal tender."<ref name="Knox" /> |
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To the extent that there is any doubt now about the constitutionality of paper money, or its status as legal tender, courts have historically used a [[Judicial_review_in_the_United_States#Standard_of_review|standard of review]] that seeks to reconcile statutes with the Constitution whenever possible. That is what happened in the ''Legal Tender Cases''. |
To the extent that there is any doubt now about the constitutionality of paper money, or its status as legal tender, courts have historically used a [[Judicial_review_in_the_United_States#Standard_of_review|standard of review]] that seeks to reconcile statutes with the Constitution whenever possible. That is what happened in the ''Legal Tender Cases''. |
Revision as of 07:44, 27 August 2007
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,[1] and then Juilliard v. Greenman in 1884.[2]
The Legal Tender Cases primarily involved the constitutionality of the Legal Tender Act of 1862 enacted during the Civil War.[3] 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.[4] 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.
Background about constitutionality of paper money
At the Constitutional Convention in 1787, James Madison said that the Constitution "would not disable the Govt from the use of public notes as far as they could be safe & proper...."[5] Article I, Section 10 of the Constitution explicitly forbids the states from making anything but coins "tender in payment," but there is no corresponding explicit prohibition against the federal government.
Another representative at the Constititonal Convention, Nathaniel Gorham, said that he "was for striking out" an explicit power of Congress to issue paper money, but Gorham was also against "inserting any prohibition."[5] That is what ultimately happened at the Convention. Article I, Section 8 of the Constitution enables Congress to "borrow money on the credit of the United States," and therefore Gorham envisioned that "The power [to emit paper money], as far as it will be necessary or safe, is involved in that of borrowing."[5] In other words, the power to emit paper money arises from the Necessary-and-proper clause in combination with the power to borrow money.
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.[6]
In 1798, Vice President Thomas Jefferson denied the federal government’s 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.[7] Even if Jefferson's suggested amendment had been successful, still Article I, Section 8 of the Constitution empowers Congress to "regulate the value" of both U.S. and foreign coins. Justice Field, who believed that Congress had no power to make paper money into a legal tender, therefore believed "the Constitution says that Congress shall have the power to make metallic coins a legal tender."[1]
To the extent that there is any doubt now about the constitutionality of paper money, or its status as legal tender, courts have historically used a standard of review that seeks to reconcile statutes with the Constitution whenever possible. That is what happened in the Legal Tender Cases.
Original intent
The idea that originalism would require courts to strike down paper money and send the economy into a tailspin is a very common misconception.[8] 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.[9] 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."[10]
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
- ^ a b Knox v. Lee, 79 U.S. 457 (1871).
- ^ Juilliard v. Greenman, 110 U.S. 421 (1884).
- ^ Act of Congress, Statutes at Large, Volume 12, 37th Congress, Session II, Chapter 33, pp. 345–348 (1862-02-25). This Act authorized issuance of $150,000,000 in United States Notes, commonly referred to as greenbacks, plus $500,000,000 in interest-bearing bonds.
- ^ Pusey, Merlo. Matter of Delicacy: The Court Copes With Disability, Supreme Court Historical Society 1979 Yearbook.
- ^ a b c The Debates in the Federal Convention of 1787, ed. Madison, James (1787-08-16). Retrieved 2007-02-24.
- ^ Federal Reserve Bank of San Francisco, Fun Facts About Money. Retrieved 2007-02-24.
- ^ Jefferson, Thomas. Letter to John Taylor (November 26, 1798), reprinted in The writings of Thomas Jefferson, Volume 4, page 260 (1859).
- ^ Paulsen, Michael. "How to Interpret the Constitution (and How Not To)," 115 Yale Law Journal 2037, 2061 n. 46 (2006): "Among the most common canards in critiques of originalism is that, under the original meaning of the Constitution, the issuance of paper money as legal tender would be unconstitutional, sending our economy into disarray."
- ^ Story, Joseph. Commentaries on the Constitution (1833):
But, whatever may have been the private intentions of the framers of the constitution, which can rarely be established by the mere fact of their votes, it is certain, that the true rule of interpretation is to ascertain the public and just intention from the language of the instrument itself, according to the common rules applied to all laws. The people, who adopted the constitution, could know nothing of the private intentions of the framers. They adopted it upon its own clear import, upon its own naked text. Nothing is more common, than for a law to effect more or less, than the intention of the persons, who framed it; and it must be judged by its words and sense, and not by any private intentions of members of the legislature.
- ^ Hearings Before Senate Committee on the Judiciary, 100th Congress, 1st Session, Nomination of Robert H. Bork to be Associate Justice of the Supreme Court of the United States (1987).