The Legal Tender Cases - Part II

A while back, I wrote about a pending academic research project on digital currencies I was embarking upon with Jeremiah Newhall, a good friend of the site. Below you will find a draft version of a section of our paper addressing the legal context under which Congress has been granted power over all currencies in the US. Part of the reason I am posting this is to solicit feedback, so please feel free to submit your thoughts in the comments section below, and please bear with us on the citations, the poor grammar, the odd formatting etc. etc.

After a vote against bills as legal tender in Hepburn, and a half-step in the opposite direction in the intermediary Veazie Bank case, President Grant’s two recent appointees to the Court[i], replacing a vacancy which existed at the time of the first Legal Tender Case[ii] and Justice Grier[iii], respectively, joined with the previous minority in effecting a complete volte-face. In doing so, the (now) majority relied on several arguments, including the presumptive validity of Congressional statutes and the fact that the Constitution, with its inability to contemplate all scenarios which might arise, required the use of the Necessary and Proper Clause to ensure that Congress would have great leeway in how its enumerated powers are exercised[iv].
 
While the Court’s discussion of the presumptive validity of Congressional acts was perhaps intended to camouflage its clear disregard for the principles of stare decisis, its discussion of the Necessary and Proper Clause was a bit more convincing (if still at odds with precedent). Noting that the government has the power to borrow, the majority argued that it must follow that Congress could also consider and pursue the best means by which to do so. By making its treasury notes a legal tender for private debts, the majority argued, it made them more valuable, and thus ensured increased demand[v]. “Making the notes legal tenders gave them a new use, and it needs no argument to show that the value of things is in proportion to the uses to which they may be applied.”[vi] Because, the majority argued, legal tender power was necessary and proper to borrowing money to fund the government, it was therefore constitutional[vii].
 
In addition, and in a further nod to pragmatism, the majority opinion also stressed the national emergency the country which precipitated the Legal Tender Act:

We do not propose to dilate at length upon the circumstances in which the country was placed, when Congress attempted to make treasury notes a legal tender. They are of too recent occurrence to justify enlarged description. Suffice it to say that a civil war was then raging which seriously threatened the overthrow of the government and the destruction of the Constitution itself. It demanded the equipment and support of large armies and navies, and the employment of money to an extent beyond the capacity of all ordinary sources of supply. Meanwhile the public treasury was nearly empty, and the credit of the government, if not stretched to its utmost tension, had become nearly exhausted[viii] [ix] [x].

The dissent in Knox did not go down without a fight; after all, it was under the belief that the issue had been settled in its favor less than two years previously.  The essence of the dissenting opinion was what we would now call a strict constructionist objection to giving the notes the quality of “legal tender,” which would make them tender for private debts as well as public debts[xi], because the coinage clause only addressed ‘coins’:

It is not claimed that any express prohibition exists, but it is insisted that the spirit of the Constitution was violated by the enactment. Here those who assert the unconstitutionality of the acts mainly rest their argument. They claim that the clause which conferred upon Congress power ‘to coin money, regulate the value thereof, and of foreign coin,’ contains an implication that nothing but that which is the subject of coinage, nothing but the precious metals can ever be declared by law to be money, or to have the uses of money[xii].

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[i] Justices Joseph P. Bradley and William Strong, respectively. Grant’s appointment of Bradley and Strong could (and has) provide a topic for a journal article in its own right as a discussion of an early example (in the US at any rate) of packing a court.

[ii] Which was the reason it came out 5-3 in a eight-justice vote.

[iii] Because Grier had already retired from the bench at the time the decision was announced, his vote is interestingly not counted by some historians who thus assert that the decision in the first Legal Tender Case was 4-3 rather than 5-3 (despite the decision itself noting that Grier agreed with, and voted with, the published opinion). Whether or not his vote counted, and far more consequentially than this interesting anecdotal historical footnote, the anti-paper-money justices still, of course, had a majority.

 

[iv] Citing both McCulloch v. Maryland and Martin v. Hunter’s Lessee in doing so

[v] Legal Tender Cases 2, 79 U.S. 542-543 (1870).

 

[vi] Legal Tender Cases 2, 79 U.S. 457, 543 (1870).

[vii] Id.

[viii] Legal Tender Cases 2, 79 U.S. 457, 540 (1870).

 

[ix] The point of the majority was to cast the Legal Tender Acts as an act of national survival; as a later Court would put it, the Constitution “is not a suicide pact.” Kennedy v. Mendoza-Martinez, 372 U.S. 144, 160 (1963).

 

[x] Legal Tender Cases 2, 79 U.S. 457, 540 (1870).

[xi] By this point it didn’t seem that anyone had an objection to the Congress declaring that bills could serve as a means of payment for debts to the government. It was rather only the payment of private debts which was up for dispute at this point.

[xii] Legal Tender Cases2, 79 U.S. 457, 544 (1870)

 
Jeremiah Newhall is a graduate of The George Washington University Law School and currently serves as a law clerk in Chicago. He can be reached via the miracle of email. Joshua Sturtevant is also a GW Law grad, and currently serves as an in-house legal fellow at a renewable energy financing and development firm.