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Article Excerpt
"The Congress shall have Power... To coin Money, regulate the Value thereof, and of foreign Coin...."
--Constitution of the United States (1)
"Poor? Look upon his face. What call you rich? Let them coin his nose, let them coin his cheeks."
--William Shakespeare (2)
Over a century ago, the Supreme Court decided the Legal Tender Cases, holding that Congress could authorize legal tender paper money in addition to metallic coin. In recent years, some commentators have argued that this holding was incorrect as a matter of original understanding or original meaning, but that any other holding would be absolutely inconsistent with modern needs. They further argue that the impracticality of functioning without paper money demonstrates that originalism is not a workable method of constitutional interpretation.
Those who rely on the Legal Tender Cases to discredit originalism are, however, in error. This Article shows that the holding, although not all the reasoning, of those cases was fully consistent with the original understanding of the Coinage Clause. This Article tells the intriguing story of Colonial America's extraordinary monetary innovations, examines contemporaneous law and language, and shows how the paper money question was addressed during the framing and ratification of the Constitution.
INTRODUCTION I. EARLIER ARGUMENTS OVER THE QUESTION A. Summarizing Earlier Arguments B. Assessing Earlier Arguments II. THE HISTORICAL CONTEXT OF THE COINAGE CLAUSE A. English Law and Practice B. Law and Practice in the Colonies 1. Before the Currency Act of 1764 2. The Currency Act of 1764 and Aftermath 3. Kinds of American Paper Money C. Revolutionary War Emissions D. The Confederation Era E. The Constitutional Convention 1. Why a Coinage Clause Was Necessary 2. What the Convention Records Have to Say About Paper Money III. THE ORIGINAL PUBLIC MEANING OF THE COINAGE CLAUSE A. Initial Considerations B. The Clear Original Meaning and Understanding of "Regulate the Value" C. The Ambiguous Original Public Meaning of "Coin" IV. THE RATIFIERS CHOOSE A MEANING FOR "COIN" CONCLUSION
INTRODUCTION
In the latter half of the nineteenth century, the Supreme Court decided a series of cases that upheld the power of Congress to issue paper money and to make it legal tender for all debts. (3) Although the last of these cases was decided in 1884, (4) several constituencies have kept the issues decided in those cases alive. One of these constituencies is a small, but vocal, group that has never been reconciled to the idea of American paper currency. They maintain that the Constitution did not authorize paper money and that the United States, as a matter of constitutional fidelity and sound policy, should return to a monetary regime centered on the coinage of precious metal. (5) More influential, perhaps, have been legal commentators who agree that the Legal Tender Cases were wrongly decided from an originalist point of view, but who do not advocate a return to metal coinage. (6) Some, such as the late Professor James Willard Hurst, employ the Legal Tender Cases to argue that pure originalism is not a workable method of constitutional interpretation. (7) They contend that courts sometimes must decide constitutional cases according to current exigencies (8) or current values, (9) rather than according to original meaning or original understanding. Finally, a third group of commentators, such as Judge Robert H. Bork (10) and more recently Professors Michael J. Gerhardt (11) and Daniel A. Farber, (12) advance the related argument that the Legal Tender Cases are among those Supreme Court decisions that should be treated as "Super Precedents"--decisions that are now so central to the social order that the Supreme Court must follow them even if they were wrongly decided from an originalist standpoint.
Yet the conclusion that the Legal Tender Cases conflict with an originalist view of the Constitution rests on a fairly slender foundation. (13) Indeed, the same might be said for those who have argued for the contrary conclusion. (14) This Article is an effort to investigate the question more thoroughly.
The method of originalist analysis employed in this Article is the same that lawyers in the Founding generation would have used. (15) It might be called "original understanding originalism," as opposed to "original public meaning" or "original intent originalism." (16) Under the original understanding method, the interpreter seeks and applies the ratifiers' subjective understanding of the constitutional language, to the extent that subjective understanding is recoverable. If it is not recoverable, then one applies the original public meaning of the words. Note that the subjective understanding sought is that of the ratifiers rather than that of the drafters, for it was the ratifiers who transformed the Constitution from a proposal into basic law. (17)
Under the Founding-era method of originalism one may proceed either by first identifying the ratifiers' subjective understanding and then using public meaning as a gap-filler, or by first identifying the public meaning and then seeking evidence that the ratifiers had a different or specialized understanding. For purposes of structure and convenience, this Article generally takes the latter approach. Under either approach, however, one should reach the same result.
This Article concludes that the holdings of the Legal Tender Cases were consistent with original understanding. Therefore, although it is true that some of the Supreme Court's reasoning in the Legal Tender Cases was superfluous, and some was wrong, the end results were dearly correct.
I. EARLIER ARGUMENTS OVER THE QUESTION
A. Summarizing Earlier Arguments
The originalist arguments previously made on both sides of the paper money issue are fairly straightforward. Those who contend that the text of the Constitution does not authorize paper currency read the term "coin" in the Coinage Clause (18) as denoting only tokens made of metal. (19) Hence, any power to issue paper money must be deduced from the Necessary and Proper Clause. (20) However, the argument goes, the Necessary and Proper Clause's authority is limited to incidental powers--to means subordinate to the main powers--that would be included even in absence of that Clause. (21) The capacity to issue legal tender paper is not incidental to any enumerated power, (22) but is an independent, unconnected power. (23)
Those who contend that there was no federal power to emit paper money further observe that in McCulloch v. Maryland, (24) Chief Justice Marshall said that to be incidental a power must be consistent with the "spirit" of the Constitution. (25) But the spirit of the Constitution, the opponents of paper currency say, is hostile to paper currency. Their evidence includes (1) the instrument's ban on state emission of bills of credit and on certain related actions, (26) (2) the Fifth Amendment Due Process (27) and Takings Clauses (28) (both designed to prevent expropriation of the kind historically associated with paper money), (29) (3) the Founders' general dislike of paper money, (30) and (4) proceedings at the federal Convention where delegates deleted from an earlier draft of the Constitution an enumerated congressional power to emit bills of credit. (31) Commentators of the anti-paper money school also cite Ratification-era statements by Luther Martin of Maryland, an Antifederalist who argued that the Constitution gave Congress no power to issue paper money. (32)
On the other hand, those who argue that the original Constitution authorized paper currency observe that the Constitution's specific bans on bills of credit and tender laws apply only to the states, and therefore (expressio unius est exclusio alterius) those prohibitions do not apply to the federal government. (33) Additionally, some of the federal Convention delegates who voted to remove the express bill of credit power did so only because they believed that the government would still be able to issue paper money without it. (34) Defenders of paper currency add, further, that the Fifth Amendment is a bar only to direct takings, not to the exercise of regulatory authority that incidentally reduces property values. (35)
Perhaps surprisingly, paper money advocates generally concede that the Coinage Clause authorizes only metallic tokens. (36) They maintain, however, that the authority incidental to various express federal powers (37) was sufficient to permit emission of paper. (38) To support this argument, they adopt definitions of "incidental" that embrace all actions facilitating express powers (39) or linked to express powers in the aggregate. (40) Some paper money advocates have argued that the federal government has authority to issue legal tender paper money even in the absence of constitutional enumeration, simply because the authority to emit paper money is inherent in national sovereignty. (41)
B. Assessing Prior Arguments
Most of the foregoing arguments are unsatisfying. One might have expected an inquiry into whether the phrase "to coin Money" encompassed paper, for an affirmative answer would render the implied-powers arguments of both sides unnecessary. But neither side has made such an inquiry, and both have assumed that the phrase "to coin Money" was limited to metallic tokens. They have so assumed even though the Constitution's wording and structure should have encouraged investigation. As explained below, (42) ascribing a purely metallic meaning to "coin" creates serious textual difficulties. Similarly uninvestigated has been whether the phrase "to regulate the Value" (43) was intended to grant Congress authority to confer legal tender status.
Two doctrinal arguments raised by the advocates of paper money are seriously flawed. First, the concept of inherent sovereignty, although referenced in a few Supreme Court decisions, (44) is flatly precluded by the text of the Tenth Amendment, (45) as the Court itself has observed. (46) Second, paper advocates' interpretation of the doctrine of incidental powers is inconsistent with the law of the Founding Era, which limited incidental authority to that either customary or reasonably necessary for exercising a principal power. (47) A power did not become incidental merely because it facilitated the exercise of the principal power, (48) and it could never be incidental if it was independent of, or as important as, the principal. (49) The Framers would not have classified a power as important as the issuance of paper money as a mere incident to the issuance of metallic coinage. (50)
On the other hand, the opponents of paper money cite no decisive evidence that the Founders understood the Takings Clause to extend beyond direct takings. (51) Instead, they retroactively insert the doctrine of substantive due process into the Founding Era, even though that doctrine was not invented until Dred Scott (52) almost a century later, and was not generally applied until the late nineteenth century. (53) They also cite Chief Justice Marshall's reference to the "spirit" of the Constitution, (54) but appear to be unaware of what he meant. In Marshall's time the "spirit" of a document was a synonym for the intent of the makers. (55) In the constitutional context, the "spirit" was the understanding of its ratifiers. (56) However, opponents of paper money (like their adversaries) have investigated only the intent of the drafters, with inconclusive results. (57) They have sought almost nothing of the views of the ratifiers. (58) All this explains the need for a fresh look at the evidence.
II. THE HISTORICAL CONTEXT OF THE COINAGE CLAUSE
A. English Law and Practice
In eighteenth century Anglo-American law and practice, when the term "commerce" was used in an economic sense, it encompassed the buying and selling of goods and several associated activities, such as navigation, marine insurance, commercial paper, and banking. (59) The Framers all had lived the first part of their lives under law that identified the Crown as "the arbiter of commerce" (60) within Great Britain. The royal prerogative was the primary source of commercial regulation, although in practice Parliament enjoyed a significant role as well. (61) In the words of William Blackstone:
WITH US in England, the king's prerogative, so far as it relates to mere domestic commerce, will fall principally under the following articles: FIRST, the establishment of public marts, or places of buying and selling, such as markets and fairs, with the tolls thereunto belonging.... SECONDLY, the regulation of weights and measures.... THIRDLY, as money is the medium of commerce, it is the king's prerogative, as the arbiter of domestic commerce, to give it authority or make it current [that is, to declare it to be legal tender]. (62) The king may also at any time decry, or cry down, any coin of the kingdom, and make it no longer current. (63)
Blackstone's summation was supported by the leading judicial decision on the subject: (64) the Case of Mixed Money. (65)
James I was on the throne when the Privy Council decided the Case of Mixed Money, but the controversy had begun during the reign of Queen Elizabeth. In April 1601, an Irish merchant, Brett of Drogheda, purchased some goods from a London merchant named Gilbert, for which Brett promised to pay 200 [pounds sterling], half of which was to be remitted at a certain locale in Dublin shortly thereafter, payable in "sterling, current and lawful money of England." (66) On May 24, 1601, however--before Brett was to tender the first 100 [pounds sterling]--Elizabeth issued for Ireland, then under English control, a coinage made of an alloy of silver and base metal. The Queen ordered that this "mixed money" was to replace the more nearly silver "sterling" coins that before had circulated in Ireland. She further ordered that the new coinage was to be legal tender, for she
expressly commanded that this money should be so used, accepted and reputed by all her subjects and others, using any traffick, or commerce within this kingdom; and that if any person or persons should refuse to receive this mixed money according to the denomination or valuation thereof, viz. shillings for shillings, sixpenny pieces for sixpenny pieces, &c. being tendered for any payment of any wages, fees, stipends, debts, &c. they should be punished.... (67)
At the appropriate time and place, therefore, Brett offered Gilbert 100 [pounds sterling] in the new, less valuable currency, which, of course, Gilbert did not want to accept. The question before the Privy Council was whether Brett had made a good tender.
The Council decided that he had. First, it declared that every country needed a common standard of money for purposes of exchange. Citing civil law scholar Jean Bodin, the Council characterized money as a "public measure," (68) for "[m]oney is the proper medium and measure of the exchange of things." (69) Implicit in this characterization was the idea that the power over money was closely related to the weights and measures power: a relationship acknowledged as uncontroversial fact in eighteenth-century American writings. (70)
Next, the Council ruled that it was the Crown's exclusive prerogative to make or coin money (71) and that "it appertaineth to the King only to put a value upon coin, and make the price of the quantity, and to put a print to it; which being done the coin is current." (72) The Council asserted that "[t]here should be one faith, weight, measure, money." (73) It was custom for the Crown to exercise this power by royal proclamation, although, the Council added, Parliament sometimes adopted acts in aid of royal authority. (74)
Thirdly, the Privy Council ruled "that as the King by his prerogative may make money of what matter and form he pleaseth, and establish the standard of it, so may he change his money in substance and impression, and enhance or debase the value of it, or entirely decry and annul it" (75) and that he could "set the value of money" at his own discretion, without the consent of others. (76) In the Council's view, the power to strike coin and to regulate its value went together as a matter of law: "Monetae aestimationem dat qui cudendi potestatem habet." (77) In other words, the Crown had full right to claim seigniorage, the profit generated from pegging the currency at a legal tender value greater than the sum of the minting and material costs. (78) The Council added that the power of the sovereign to alter the form of money included the power to use any material he or she chose. The sovereign could even fabricate money out of leather if he or she so pleased. (79) (Indeed, later in the century, the deposed James II, then in possession of Ireland, actually did coin leather money. (80))
Finally, the Privy Council ruled that the King's prerogative extended to Ireland as well as to England. (81) Notwithstanding the difference in intrinsic value between the older and newer Irish coinage, therefore, Gilbert was bound to accept Brett's tender.
The holding of the Case of Mixed Money was reinforced by other circumstances. Just three years previously, Wade's Case (82) had held that the Crown could proclaim what foreign coin was legal tender and the exchange rate at which one was compelled to accept it. (83) In later years, English sovereigns actively employed the powers recognized in the Case of Mixed Money and in Wade's Case. For instance, in 1672, Charles II coined copper farthings and half-pence as subsidiary coins, (84) and proclaimed them legal tender for payments under the value of sixpence. (85) His successors, James II (1685-1689) and William and Mary (1689-1702), coined half-pence and farthings in tin. (86) In 1704, Queen Anne extended her prerogative beyond the British Isles by fixing the legal rates for various foreign coins circulating in the colonies. (87)
The sovereign was always free to set the legal tender value well above intrinsic value, as Queen Elizabeth had done for Ireland. Queen Anne's proclamation for the colonies mandated legal tender values higher than intrinsic values for all coins listed. (88) In Britain, gold passed by weight, but the legal tender value of silver or copper coin was set at its "tale," or face amount, (89) which was generally above intrinsic value. (90)
To summarize: The royal prerogative included authority to regulate British domestic commerce, and regulation by prerogative sometimes was extended to the colonies. As the Framers recognized, this commercial authority included governance of weights and measures, of which the medium of payment was considered one branch. (91) The royal power over the medium of payment included authority to strike "coin" of any denomination and from any material, and to regulate the value of that coin and of foreign money. Regulating the value of money encompassed designating what items were legal tender and at what rates (and for what debts) they had to be accepted. The Crown took any profit derived from setting legal tender value higher than minting costs.
B. Law and Practice in the Colonies
1. Before the Currency Act 0f1764
a. Origins to Mid-Century
In England, metal had been the only serious money over a continuous history of nearly two thousand years. (92) When the first bank notes (93) and Exchequer bills (94) appeared in the seventeenth century, they were not legal tender, (95) nor, apparently, were they thought of as money, containing inherent value. (96) Contemporary British lay dictionaries, (97) legal dictionaries, (98) and digests (99) usually referred to both "coin" and "money" in terms of metal.
In Britain's American colonies, however, conditions were very different. Throughout the seventeenth and eighteenth centuries, British America enjoyed what was probably the fastest-growing economy in the world. (100) A surging rate of economic exchange required a circulating medium that would keep pace. Yet British America had no gold or silver mines, and the authorities in London decided against flooding their colonies with specie. With one temporary exception, the authorities also forestalled efforts to establish mints in America. (101)
Most of the limited specie available was Dutch, Portuguese, or Spanish, (102) with the most common coin being the Spanish dollar, or "piece of eight." (103) The British accepted these foreign tokens as the primary colonial circulating medium, and set their values by royal proclamation. (104) But even with foreign issues available, the quantity of specie proved woefully inadequate for American needs. (105) Americans also resorted to sophisticated forms of barter, which proved to be clumsy and therefore unsatisfactory. (106)
It was in this context that the colonists embarked upon an extraordinary voyage of financial creativity. "One would be hard pressed," observed Professor Richard Sylla, "to find a place and time in which there was more monetary innovation than in the British North American colonies in the century and a half before the American Revolution." (107)
During the seventeenth century, New Englanders made wampum their principal measure of ordinary retail trade. (108) Virginians and Marylanders paid their bills in tobacco. (109) South Carolinians remitted quit rents and public charges with skins, cheese, tar, whale oil, butter, tallow, corn, wheat, tobacco, pork, and beeswax. (110) At various places and times other colonists resorted to sugar, rum, molasses, beads, bullets, rice, indigo, and other products as currency. (111)
Such practices encouraged colonial governments to bestow legal-tender quality upon different media at different times, without waiting for royal permission to do so. In 1637, the government of Massachusetts declared white wampum legal tender for debts under twelve pence at the rate of four white beads per penny, and in 1640 it declared "blueu" wampum legal-tender at 2 beads per penny. (112) Wampum retained this legal tender status for another twenty-one years. (113) Massachusetts also designated musket balls legal tender at four per penny. (114) Wool became legal tender for some purposes in Rhode Island, as did rice in South Carolina. (115)
Not surprisingly, this experimentation gave Americans expansive ideas about the materials proper for money. One Boston essayist writing in 1740 defined "Money" as "any Matter, whether Metal, Wood, Leather, Glass, Horn, Paper, Fruits, Shells, Kernels &c. which hath Course as a Medium of Commerce" (116)--a formulation in sharp contrast to the metal-oriented definitions current in Britain. (117) It was during the course of this experimentation that the British colonists created "the first fiat paper moneys in the western world." (118)
The colonists were familiar with bills of exchange in foreign transactions, promissory notes in domestic transactions, and letters of credit. (119) These instruments may have planted the idea of using paper as material for currency. Whatever the inspiration, some kind of informal paper medium--its exact nature is uncertain--was circulating in New England well before 1684. (120) In 1690, Massachusetts issued the first government-sponsored American paper money in the form of 7000 [pounds sterling] in bills of credit. (121) That colony emitted another 33,000 [pounds sterling] the following year, of which 10,000 [pounds sterling] was eventually redeemed and burned. (122) More Massachusetts paper appeared in 1702 and later. (123) The colony of South Carolina issued paper money in 1703; New Hampshire, New York, and Connecticut did so in 1709; Rhode Island in 1710; North Carolina in 1712; Pennsylvania in 1723; and Maryland in 1733. (124) By 1760, every colony had followed suit. (125)
Much has been said of the depreciation of American paper money during the eighteenth century. Power over the currency is, of course, a standing temptation for the government to cheat the public, and--human nature being what it is--sometimes the government yields to the temptation. Even in Britain, which for centuries prided itself on a sound system grounded in precious metals, there were recurrent instances of devaluation and, occasionally, of outright theft. (126) When currency is fabricated from base material, it is fairly easy for those in power to "pay" the government's bills by issuing money faster than the economy produces goods and services.
During the first half of the eighteenth century, the currencies in all four New England colonies performed as poorly as a pessimist might expect. (127) The value of paper bills was stable for a few years after the 1690 Massachusetts emission, (128) but then began to dwindle. In 1736, Thomas Hutchinson--a leading political figure who later became the colony's last civilian royal governor--reported that Massachusetts notes initially worth twenty-seven shillings were then worth only eight. (129) In 1702, 100 [pounds sterling] sterling could be had for 133 [pounds sterling] in Massachusetts currency; by 1749 one needed 1100 [pounds sterling] in Massachusetts bills to purchase the same amount in the relatively stable (130) British medium. (131) Over a fifteen year period, from 1744 to 1759, Rhode Island notes lost more than eighty percent of their value. (132) Over a much wider stretch of time, from 1720 until 1765--the year after Parliament's Currency Act (133) became effective--Massachusetts currency inflated against sterling more than fourfold (all before 1750), and Rhode Island currency more than twelvefold. (134) Gresham's Law holds that "bad money drives out good," (135) and Gresham's Law was sovereign in New England: specie essentially disappeared from daily trade. (136)
On the other hand, a pessimist might be pleasantly surprised by the more mixed record in the other colonies. Maryland and the Carolinas experienced significant inflation, but Virginia did not. (137) Nor did New York, New Jersey, or Pennsylvania. For example, over the forty-five year period from 1720 to 1765, Pennsylvania currency rose only twenty-nine percent against the pound sterling. (138) By comparison, the United States consumer price index rose 586 percent in the forty-five year period leading up to 2007. (139)
Professors Paul Studenski and Herman E. Krooss have summed up the colonial experience with paper money in this way:
The depreciation of colonial paper money has usually been exaggerated. Where the bills were used in moderation and not as substitutes for taxes to pay current expenses, and where the bank notes were issued cautiously and subject to rigid redemption, they did not have a bad history. Indeed, in seven colonies the experience was favorable while in the six others it was unfavorable. (140)
Amid this mixed record, one unmixed fact stands out: paper money was popular. (141) People were willing to accept the risks of inflation and the inconveniences of the lack of monetary uniformity (142) over the economic consequences of deflation. (143) As historian Mary M. Schweitzer observed of Pennsylvania, "paper money was virtually an 'apple pie and motherhood' issue throughout the colonial period." (144)
Nor were the advocates of paper money all--or even mostly-radical redistributionists and demagogues. Many responsible Americans believed that paper money, when properly secured, was a sensible approach to the colonies' need for liquidity. They believed that the colonies needed paper money to prevent the deflation that results when the supply of circulating media does not keep pace with a quickening economy. (145)
One paper money advocate was Benjamin Franklin, who while still a young man wrote A Modest Enquiry in the Nature and Necessity of a Paper Currency, in which he urged Pennsylvania to adopt a land-bank or loan-office system. (146) Franklin argued that, to a greater extent than in Europe, American assets consisted primarily of illiquid real estate, and to put those assets to work in the daily business of commerce they could be used to collateralize a circulating medium. Franklin continued to support paper emissions throughout his life, so long as such emissions were secured by valuable assets (147) and remained free of tender laws binding those from outside the issuing jurisdiction. (148) While serving in London as Pennsylvania's colonial agent, Franklin published a pamphlet urging repeal of the 1764 Currency Act, which had imposed strict restraints on colonial paper. (149) Franklin's views were shared by many others of great respectability, including Daniel Dulany, a distinguished essayist and lawyer, (150) and several of the King's colonial governors. (151)
b. Mid-Century Reforms in New England
British imperial authorities and their American allies were unsympathetic to colonial paper currency, (152) and made various efforts to control it. (153) For example, in 1749, when the British government shipped 183,000 [pounds sterling] in specie to Massachusetts to reimburse the colony for war expenses, Thomas Hutchinson, the conservative Speaker of the colony's House of Representatives, convinced the legislature to dedicate the specie to retire outstanding bills of credit. (154) In 1751, Parliament prohibited the colonies from issuing any further "Paper Bills or Bills of Credit, of any Kind or Denomination whatsoever" other than short-term tax anticipation notes and funding for emergencies. (155) Parliament also provided that no paper money in New England should be legal tender. (156)
Although three New England colonies somehow managed to issue paper after 1751, it was better secured and carried no legal tender status. Massachusetts and Connecticut labeled their new issues "treasury notes" rather than "bills of credit." In Massachusetts, they bore interest and were convertible into specie on demand. (157) In Connecticut, they also bore interest....
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