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.
However, the majority resisted this idea; it argued that Congressional power under the coinage clause was, rather than a limitation, instead meant to give Congress the traditional sovereign power to freely regulate money, “especially when considered in connection with the other clause which denies to the States the power to coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts.”[i]In other words, it read the states’ collective inability to regulate money as an express power reserved to the federal government. The majority attempted to support the idea of a broad reservation of powers to the federal government further:
However, the majority resisted this idea; it argued that Congressional power under the coinage clause was, rather than a limitation, instead meant to give Congress the traditional sovereign power to freely regulate money, “especially when considered in connection with the other clause which denies to the States the power to coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts.”[i]In other words, it read the states’ collective inability to regulate money as an express power reserved to the federal government. The majority attempted to support the idea of a broad reservation of powers to the federal government further:
“We do not, however, rest our assertion of the power of Congress to enact legal tender laws upon this grant. We assert only that the grant can, in no just sense, be regarded as containing an implied prohibition against their enactment, and that, if it raises any implications, they are of complete power over the currency, rather than restraining.”
This isn’t to say that the decision was free from problems or ambiguities. The majority insisted[ii]that the coinage clause remained intact, and that making paper money legal tender was still not making paper “dollars.” Instead, it insisted, paper money remained no more than a contractual promise to pay dollars (in coin form), a promise which would, at some point in time, be honored. “It is not an attempt to coin money out of a valueless material, like the coinage of leather or ivory or kowrie shells. It is a pledge of the national credit. It is a promise by the government to pay dollars; it is not an attempt to make dollars. The standard of value is not changed.” And despite the ability of the government to decree that such paper-based promises should be treated exactly like a metal-based dollar, it was insisted that such actions were not “…an attempt to make dollars”[iii]
“The legal tender acts do not attempt to make paper a standard of value. We do not rest their validity upon the assertion that their emission is coinage, or any regulation of the value of money; nor do we assert that Congress may make anything which has no value money. What we do assert is, that Congress has power to enact that the government’s promises to pay money shall be, for the time being, equivalent in value to the representative of value determined by the coinage acts, or to multiples thereof.”
In a third Legal Tender case nearly twenty years later, the Court finally eliminated any pretense that its decisions had done anything other than give Congress the ability to declare paper money to be legal tender as even greenbacks issued during peacetime were held to have the power to satisfy debts in the US[iv].
In any case, those who advocated for a broad, Congressionally-determined definition of legal tender had won the day. By the end of the Legal Tender Cases, Congress could declare most anything it liked to be “money,” i.e. legal tender. And it had the ability to prevent anyone else from creating something intended to be used as money. The end result of this all was a regime that persists – and is very familiar to Americans – today. In short, Congress has the ability to both create and declare paper currencies to be legal tender and has the ability to foreclose others from doing the same.
In any case, those who advocated for a broad, Congressionally-determined definition of legal tender had won the day. By the end of the Legal Tender Cases, Congress could declare most anything it liked to be “money,” i.e. legal tender. And it had the ability to prevent anyone else from creating something intended to be used as money. The end result of this all was a regime that persists – and is very familiar to Americans – today. In short, Congress has the ability to both create and declare paper currencies to be legal tender and has the ability to foreclose others from doing the same.
[iii] Whatever (considerable by any backward looking measure) utility arose out of the Legal Tender Cases, the final outcome was certainly an elaborate and not terribly persuading fiction. Of course decreeing paper dollar notes to be dollars and “legal tender” was creating paper dollars. The illusory promise that the notes would one day be paid—not even in dollar coins, as the majority admits, but possibly in yet another set of treasury notes—was a happy conceit. The third, and final Legal Tender Case, Julliard, served as a recognition of this and extended the legal tender status of paper money to peacetime. Perhaps the disingenuousness of the Court here was merely a recognition, similar to that in Veazie, that it would need a few formal steps to get where everyone could see it was going.
[iv]Juilliard v. Greenman, 110 U.S. 421 (1884).
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.
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