Proving fiat money is unconstitutional

From Article II, Section 10 of the US Constitution:

No state shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

The bolded statement above is important to grasp.

As of 2014, there is still nothing in the Constitution that explicitly prohibit nor authorizes the federal government from “making any Thing but gold and silver Coin a Tender in Payment of Debts” to the federal government. In fact, the federal government has repeatedly and continuously operated on debts definitely not payable in gold or silver.

For example, this act of Congress dated February 25, 1862:

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Secretary of the Treasury is hereby authorized to issue, on the credit of the United States, one hundred and fifty millions of dollars of United States notes…

and such notes herein authorized shall be receivable in payment of all kinds of taxes, internal duties, excises, debts, and demands of every kind due to the United States…and shall also be lawful money and a legal tender in payment of all debts, public and private, within the United States

The above act was an authorization of fiat money in the form of paper, “greenbacks;” however the bolded part was soon under review in the Supreme Court case Hepburn vs. Griswold, 1871. The debate was around the above mentioned federal ambiguity once more:

But it has been maintained in argument that the power to make United States notes a legal tender in payment of all debts is a means appropriate and plainly adapted to the execution of the power to carry on war, of the power to regulate commerce, and of the power to borrow money. If it is, and is not prohibited, nor inconsistent with the letter or spirit of the Constitution, then the act which makes them such legal tender must be held to be constitutional.

The ruling stated that the 1862 legislation was intended for war-time debts only, i.e.

federal concern = war = wartime debt = issuance of paper currency to aid war debt

…and therefore the fiat currency was legal in paying off federal debts, but none previous.

This was eventually rejected in other Supreme Court cases (Knox vs. Lee, Parker vs. Davis), such that by1884,  Juilliard vs. Greenman gives a clear picture of the Supreme Court’s stance :

The single question therefore to be considered, and upon the answer to which the judgment to be rendered between these parties depends, is whether notes of the United States, issued in time of war, under acts of Congress declaring them to be a legal tender in payment of private debts, and afterwards in time of peace redeemed and paid in gold coin at the Treasury, and then reissued under the act of 1878, can, under the Constitution of the United States, be a legal tender in payment of such debts.

 

As of 1884, the Supreme Court rulings did not address fiat paper issued outside of wartime cases. For all purposes, issuing fiat paper in peacetime was still unconstitutional. The Supreme Court recognized the federal government’s ability to coin money, but not to declare what is legal tender, an important distinction.

This is where history deviates from the course into a gray area.

1914 saw the creation of the Federal Reserve and the issuance of Federal Reserve notes, thereby ending the incentive for the federal government to issue currencies. From 1914 on, the federal reserve note would be the de facto money of the United States.

Jump ahead 51 years. In 1965, section 101 (c) of the coinage act asserted:

All coins and currencies of the United States (including Federal Reserve notes and circulating notes of the Federal reserve banks and national banking associations), regardless of when coined or issued, shall be legal tender for all debts, public and private, public charges, taxes, duties, and dues.

I will quote Lyndon B Johnson in full here, because I think it is important to grasp the emotional side of the decision in 1965. Feel free to skip or read, however the meat of this post starts below the quote.

Distinguished Members of Congress, ladies and gentlemen:

We are gathered here today for a very rare and historic occasion in our Nation’s history.

Before I make some observations that I have made note of here, I want to say to the Congress again, as I do almost daily these days, in the words of the Navy–“Well done.”

When I have signed this bill before me, we will have made the first fundamental change in our coinage in 173 years. The Coinage Act of 1965 supersedes the act of 1792. And that act had the title: An Act Establishing a Mint and Regulating the Coinage of the United States.

Since that time our coinage of dimes, and quarters, and half dollars, and dollars have contained 90 percent silver. Today, except for the silver dollar, we are establishing a new coinage to take its place beside the old.

My Secretary of the Treasury, Joe Fowler, is a little stingy about making samples, but I have some here. Joe made sure that I wouldn’t put them in my pocket by sending them over here in plastic.

Actually, no new coins can be minted until this bill is signed. So these strikes, as they are called, are coins that we will never use. On one side is our first First Lady, Martha Washington. On the other, a replica of Mount Vernon.

The new dimes and the new quarters will contain no silver. They will be composites, with faces of the same alloy used in our 5-cent piece that is bonded to a core of pure copper. They will show a copper edge.

Our new half dollar will continue our silver tradition. Eighty percent silver on the outside and 19 percent silver inside. It will be nearly indistinguishable in appearance from our present half dollar.

All these new coins will be the same size and will bear the same designs as do their present counterparts. And they will fit all the parking meters and all the coin machines and will have the same monetary value as the present ones.

Now, all of you know these changes are necessary for a very simple reason–silver is a scarce material. Our uses of silver are growing as our population and our economy grows. The hard fact is that silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins.

If we had not done so, we would have risked chronic coin shortages in the very near future.

There is no change in the penny and the nickel. There is no change in the silver dollar, although we have no present plans for silver dollar production.

Some have asked whether our silver coins will disappear. The answer is very definitely-no.

Our present silver coins won’t disappear and they won’t even become rarities. We estimate that there are now 12 billion–I repeat, more than 12 billion silver dimes and quarters and half dollars that are now outstanding. We will make another billion before we halt production. And they will be used side-by-side with our new coins.

Since the life of a silver coin is about 25 years, we expect our traditional silver coins to be with us in large numbers for a long, long time.

If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content.

The new coins are not going to have a scarcity value either. The mint is geared to get into production quickly and to do it on a massive scale. We expect to produce not less than 3 1/2 billions of the new coins in the next year, and, if necessary, twice that amount in the following 12 months.

So, we have come here this morning to this, the first house of the land and this beautiful Rose Garden, to congratulate all of those men and women that make up our fine Congress, who made this legislation possible–the committees of both Houses, the leadership in both Houses, both parties, and Secretary Fowler and all of his associates in the Treasury.

I commend the new coinage to the Nation’s banks and businesses and to the public. I think it will serve us well.

Now, I will sign this bill to make the first change in our coinage system since the 18th century. And to those Members of Congress, who are here on this very historic occasion, I want to assure you that in making this change from the 18th century we have no idea of returning to it.

We are going to keep our eyes on the stars and our feet on the ground.

 

 

Now we arrive at the purpose of today’s post.

Until 1965, the three branches of government have acted in alignment with the Constitution, such that “make any Thing but gold and silver Coin a Tender in Payment of Debtscould be legally explained through Supreme Court rulings.

However, no such ruling exists to explain the apparent contradiction between the original article 1 section 10 of the Constitution and the Coinage Act of 1965. Section 10 has never been repealed.

Consider the dissenting opinion of Chief Justice Stephen Johnson Field in Knox vs. Lee:

Undoubtedly Congress can alter the value of the coins issued by its authority by increasing or diminishing, from time to time, the alloy they contain, just as it may alter, at its pleasure, the denominations of the several coins issued, but there its power stops. It cannot make these altered coins the equivalent of the coins in their previous condition; and, if the new coins should retain the same names as the original, they would only be current at their true value.

Any declaration that they should have any other value would be inoperative in fact, and a monstrous disregard by Congress of its constitutional duty.

And now Johnson’s words:

[Silver coins] will be used side-by-side with our new coins.

Unless someone can contradict me, I see grounds for challenging the Coinage Act of 1965 to be unconstitutional, therefore challenging the use of all fiat quarters, dimes, nickels, and pennies to be unconstitutional.

 

 

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