The Legal Tender Cases were two 1871 United States Supreme Court cases that affirmed the constitutionality of paper money. The two cases were Knox v. Lee and Parker v. Davis.
The U.S. federal government had issued paper money known as United States Notes during the American Civil War, pursuant to the terms of the Legal Tender Act of 1862. In the 1869 case of Hepburn v. Griswold, the Court had held that parts of the Legal Tender Act violated the Due Process Clause of the Fifth Amendment to the United States Constitution. In his majority opinion, Chief Justice Salmon P. Chase did not hold that Congress lacked the power to issue paper money, but rather that the notes could not be used as legal tender for pre-existing debts. The Supreme Court overruled Hepburn v. Griswold in the Legal Tender Cases, holding that United States Notes could be used to repay preexisting debts.
Legal Tender Act of 1862
The Legal Tender Cases primarily involved the constitutionality of the Legal Tender Act of 1862, , enacted during the American Civil War.Act of Congress, Statutes at Large, Volume 12, 37th Congress, Session II, Chapter 33, pp. 345–348 (1862-02-25).Library of Congress: First Legal Tender Act Passed 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. 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.Legal Tender cases, The Columbia Encyclopedia, Sixth Edition. 2001–05.
Chief Justice Chase described the sequence of events:
Hepburn v. Griswold
In Hepburn v. Griswold (1870), Chief Justice Salmon P. Chase held for a 5–3 majoritySachs, Leon. 1933. "Stare Decisis and the Legal Tender Cases." Virginia Law Review 20: 864–65 of the Court that the Act was an unconstitutional violation of the Due Process Clause 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.Pusey, Merlo. Matter of Delicacy: The Court Copes With Disability , Supreme Court Historical Society 1979 Yearbook.
Knox v. Lee and Parker v. Davis
Justices Bradley and Strong subsequently voted to reverse the Hepburn decision, in Knox v. Lee and Parker v. Davis, by votes of 5–4..
Juilliard v. Greenman
The constitutionality of the Act was more broadly upheld thirteen years later in Juilliard v. Greenman..
Background about constitutionality of paper money Article I, Section 10 of the Constitution explicitly forbids the states from issuing "bills of credit" (promissory notes) or making anything but gold and silver coin legal "tender". There are no corresponding explicit prohibitions limiting the power of the federal government, nor are there any explicit authorizations. 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 "borrow money" and also power to "coin money and regulate the value" of both U.S. and foreign coins, and regulate interstate commerce, but does not explicitly and unambiguously grant Congress the power to print paper money or make it legal tender.
The federal government first issued paper money in 1861 to fund the Civil War.Friedberg, Arthur and Friedberg, Ira. Paper Money of the United States: A Complete Illustrated Guide With Valuations. "From the first year of Federal paper money, 1861, to the present. ..." Before that, all U.S. paper money was bank-issued money. For example, paper notes were issued by the First Bank of the United States, which was a private corporation chartered by the federal government.Federal Reserve Bank of San Francisco, "Fun Facts About Money" . Retrieved 2007-02-24. Congress had also authorized paper money (e.g. Continentals) even before the Constitution was adopted. The Continental was issued by both the individual states and the Continental Congress under the Articles of Confederation. Those Articles specifically allowed the issuance of legal tender paper money, at the time called "bills of credit".The Articles of Confederation stated: "The United States in Congress assembled shall have authority ... to borrow money, or emit bills on the credit of the United States"
In Hepburn, Chief Justice Chase noted, "No one questions the general constitutionality, and not very many, perhaps, the general expediency of the legislation by which a note currency has been authorized in recent years. The doubt is as to the power to declare a particular class of these notes to be a legal tender in payment of pre-existing debts."Hepburn, 75 U.S. at 619.
Original intent and original meaning
Originalists like Robert Bork have objected to enforcing the 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."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). According to law professor Michael Stokes Paulson, "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."Paulsen, Michael Stokes. "How to Interpret the Constitution (and How Not To)" , 115 Yale Law Journal 2037, 2061 n. 46 (2006).
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".The Debates in the Federal Convention of 1787 , ed. Madison, James (August 16, 1787). Retrieved February 24, 2007. One delegate at the Constitutional Convention went so far as to say that an express power to emit paper money would be "as alarming as the mark of the Beast in Revelation". 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."Siegan, Bernard. The Supreme Court's Constitution, (1987), page 36: "The central government would be able to emit promissory paper 'as it will be necessary or safe' pursuant to the borrowing power." 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.Siegan, Bernard. The Supreme Court's Constitution, (1987), page 27: "Because the power was not banned, Congress could print paper money and designate it legal tender under its necessary and proper power (article I, section 8, clause 18) once the required relationship to an enumerated power had been established." The power to "issue bills of credit" is explicitly mentioned in the Constitution as a prohibition on the States, and could therefore be interpreted as a power so momentous that it would have to be conferred explicitly on the federal government rather than inferred from 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 not allow the federal government to use paper as currency or legal tender, though there is no indication whether or not the contents of his footnote were uttered aloud at the convention.The Debates in the Federal Convention of 1787 , ed. Madison, James (August 16, 1787). Retrieved February 24, 2007. The full text of Madison's footnote is as follows: "This vote in the affirmative by Virga. was occasioned by the acquiescence of Mr. Madison who became satisfied that striking out the words would not disable the Govt. from the use of public notes as far as they could be safe & proper; & would only cut off the pretext for a paper currency, and particularly for making the bills a tender either for public or private debts." Thereafter, during the ratification debates, the Federalist Papers No. 44 (assumed to be authored by Madison) said that prohibiting states from emitting "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 by the states had 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."Madison, James. Federalist #44 (January 25, 1788).
See also Legal tender Commodity money Demand Note Federal Reserve Note Fiat money List of United States Supreme Court cases, volume 79 United States Note
References
External links
Legal Tender Acts "Paper Money and the Original Understanding of the Coinage Clause" by Robert Natelson, Harvard Journal of Law and Public Policy (2008). Act to authorize the Issue of United States Notes, and for the Redemption or Funding thereof, and for Funding the Floating Debt of the United States. 37th Congress, 2d Session, Ch. 33, 12 Stat. 345. [Legal Tender Act]