Legal Tender Cases


Legal Tender Cases

The "Legal Tender Cases" were a series of United States Supreme Court cases in the latter part of the nineteenth century that affirmed the constitutionality of paper money. In the 1870 case of "Hepburn v. Griswold", the Court had held that paper money violated the United States Constitution. The "Legal Tender Cases" reversed "Hepburn", beginning with "Knox v. Lee" and "Parker v. Davis" in 1871,"Knox v. Lee", [http://laws.findlaw.com/us/79/457.html 79 U.S. 457] (1871).] and then "Juilliard v. Greenman" in 1884. ["Juilliard v. Greenman", [http://laws.findlaw.com/us/110/421.html 110 U.S. 421] (1884).]

The "Legal Tender Cases" primarily involved the constitutionality of the Legal Tender Act of 1862 enacted during the Civil War. [Act of Congress, " [http://memory.loc.gov/ammem/amlaw/lwsllink.html Statutes at Large] ", Volume 12, 37th Congress, Session II, Chapter 33, pp. 345–348 (1862-02-25). 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.] In "Hepburn", Chief Justice Salmon P. Chase held for a 4-3 majority of the Court that the Act was an unconstitutional violation 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. [http://www.supremecourthistory.org/04_library/subs_volumes/04_c15_i.html Matter of Delicacy: The Court Copes With Disability] , Supreme Court Historical Society 1979 Yearbook.] Bradley and Strong subsequently voted to reverse the "Hepburn" decision, in "Knox v. Lee" and "Parker v. Davis", by votes of 5-4. The constitutionality of the Act was more broadly upheld thirteen years later in "Juillard v. Greenman".

Legal Tender Act of 1862

The Legal Tender Act of 1862 was enacted to issue paper money to finance the Civil War without raising taxes. [Newcomer, Philip. [http://www.fee.org/publications/the-freeman/article.asp?aid=1397 The Illegality of Legal Tender] , "The Freeman: Ideas on Liberty", December 1986Vol. 36 No. 12.] 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. [ [http://www.bartleby.com/65/le/LegalTen.html Legal Tender cases] , "The Columbia Encyclopedia", Sixth Edition. 2001-05.]

Background about constitutionality of paper money

of the Constitution explicitly forbids the states from issuing "bills of credit" (paper or "fiat" money) or making anything but gold and silver coin "legal tender", whereas there are no corresponding explicit prohibitions against the federal government, nor any explicit authorization. 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). of the Constitution specifically gives Congress power to "coin" and "regulate the value" of both U.S. and foreign coins, but does not explicitly grant Congress the power to print paper money or make it legal tender.

The federal government began issuing paper money long before the Legal Tender Act of 1862. In 1791, the First Bank of the United States began issuing paper bank notes, [Federal Reserve Bank of San Francisco, [http://www.frbsf.org/federalreserve/money/funfacts.html Fun Facts About Money] . Retrieved 2007-02-24.] and Congress had also authorized paper money (e.g. continentals) even before the Constitution was adopted.

In 1798, Vice President Thomas Jefferson wrote that the federal government has no power “of making paper money or anything else a legal tender,” and he advocated a constitutional amendment to enforce this principle by denying the federal government the power to borrow. [Jefferson, Thomas. [http://books.google.com/books?id=5bCT1N2uavQC&pg=RA2-PA260&lpg=RA2-PA260&dq=%22power+of+making+paper+money+or+anything+else+a+legal+tender%22&source=web&ots=pxED9uXPLt&sig=0Dz8zxRVaCcsxIlRFL4T7UuWx8g Letter to John Taylor] (November 26, 1798), reprinted in "The writings of Thomas Jefferson", Volume 4, page 260 (1859).] Even if Jefferson's suggested amendment had been successful, still (as mentioned above) Article I, Section 8 of the Constitution gives Congress the additional power to "regulate the value" of both U.S. and foreign coins. According to Justice Stephen Field, dissenting in the "Legal Tender Cases", Congress had no power to make paper money a legal tender, but he believed "the Constitution says that Congress shall have the power to make metallic coins a legal tender."

Original intent and original meaning

The idea that originalism would necessarily require courts to strike down paper money is a matter of controversy. [Paulsen, Michael. " [http://www.yalelawjournal.org/pdf/115-8/Paulsen.pdf How to Interpret the Constitution (and How Not To)] ," 115 "Yale Law Journal" 2037, 2061 n. 46 (2006): "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."] Even if some (or most) of the framers may have privately intended to prohibit paper money, judges look primarily to the actual words used in the Constitution. As long ago as 1833, constitutional scholars like Joseph Story agreed that the mere private intentions of the people who wrote the Constitution are not binding on the judiciary. [Story, Joseph. " [http://press-pubs.uchicago.edu/founders/documents/a1_8_18s21.html Commentaries on the Constitution] " (1833):

quote|But, whatever may have been the private intentions of the framers of the constitution, which can rarely be established by the mere fact of their votes, it is certain, that the true rule of interpretation is to ascertain the public and just intention from the language of the instrument itself, according to the common rules applied to all laws. The people, who adopted the constitution, could know nothing of the private intentions of the framers. They adopted it upon its own clear import, upon its own naked text. Nothing is more common, than for a law to effect more or less, than the intention of the persons, who framed it; and it must be judged by its words and sense, and not by any private intentions of members of the legislature.] In other words, according to Story, the original meaning should prevail over the original intent.

Originalists like Robert Bork have disclaimed any desire to enforce the private 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).]

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."" [http://www.yale.edu/lawweb/avalon/debates/816.htm The Debates in the Federal Convention of 1787] ", ed. Madison, James (1787-08-16). Retrieved 2007-02-24. 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 inRevelation".] 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." [Bernard H. Siegan. [http://books.google.com/books?hl=en&lr=&id=XABdIe1foccC&oi=fnd&pg=PR9&dq=%22power+as+far+as+it+will+be+necessary+or+safe,+is+involved+in+that+of+borrowing%22&ots=buaH2ggTBM&sig=H-GWV0uNXKWOZbojKqU7Qn9_NwE#PPA36,M1 "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. [Bernard H. Siegan. [http://books.google.com/books?hl=en&lr=&id=XABdIe1foccC&oi=fnd&pg=PR9&dq=%22power+as+far+as+it+will+be+necessary+or+safe,+is+involved+in+that+of+borrowing%22&ots=buaH2ggTBM&sig=H-GWV0uNXKWOZbojKqU7Qn9_NwE#PPA27,M1 "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." For a different point of view, see Thomas J. Withers, [http://docsouth.unc.edu/imls/witherst/witherst.html "Cato on Constitutional Money and Legal Tender"] , "Charleston Mercury" (1862):

It is now established, upon a foundation impregnable, that deliberately, on specific motion, and by ayes and noes, the Convention, overruling its committee, denied to Congress the power to emit "bills of credit," or to authorize the States to make a paper issue a legal tender, but explicitly and rigidly confined the former to the power to "coin money"—that is, to make specie, to render it current, at a regulated value, and the States to that, and that only, as a legal tender.
] The power to "issue bills of credit" (paper money) is mentioned in the Constitution as a prohibition on the States, and could therefore be interpreted as a constitutional-level power and not a "lesser" power that can be authorized under 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 allow the federal government to make "use of public notes as far as they could be safe & proper", but would not allow the federal government to use paper as currency or legal tender, though there is no indication whether or not all the contents of his footnote were uttered aloud at the Convention. [" [http://www.yale.edu/lawweb/avalon/debates/816.htm The Debates in the Federal Convention of 1787] ", ed. Madison, James (1787-08-16). Retrieved 2007-02-24. 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 #44 (assumed to be authored by James Madison) discussed which limits the powers of the states. Madison stated that "the prohibition to 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 has 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. [http://www.constitution.org/fed/federa44.htm Federalist #44] (January 25, 1788).]

How money is issued in the U.S. today

Paper money is a form of currency that is physically printed by the Bureau of Engraving and Printing, under authority of the Federal Reserve. The Bureau of Engraving and Printing is part of the U.S. Treasury Department, whereas the Federal Reserve is not. In contrast to paper money, coins are physically produced by the U.S. Mint, within and under authority of the U.S. Treasury. The Federal Reserve can authorize as much paper money as it sees fit, but the U.S. Treasury is restricted by law to a certain maximum amount of coinage in circulation.

The Federal Reserve can increase the money supply by creating money to purchase U.S. Government securities on the open market. These U.S. Government securities have been issued by the federal government to finance deficit spending. Article I, Section 8 of the Constitution explicitly contemplates U.S. Government "securities."

The Federal Reserve can also increase the money supply by allowing banks to issue more loans, which is accomplished by reducing the reserve requirement ratio. Such regulation of banks is pursuant to the Commerce Clause.

Conversely, the Federal Reserve can reduce the money supply, by selling securities or by increasing the reserve requirement ratio.

Footnotes

ee also

*United States note
*Demand note
*List of United States Supreme Court cases, volume 79

*Fiat money
*Commodity money

External links

* [http://www.civilwarhome.com/legaltender.htm Legal Tender Acts]


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Look at other dictionaries:

  • Legal Tender Cases — ▪ United States history       (1870, 1871), two cases decided by the U.S. Supreme Court regarding the power of Congress to authorize government notes not backed by specie as money that creditors had to accept in payment of debts.       To finance …   Universalium

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  • Legal Tender Acts — Acts of Congress, particularly the act of February 25, 1862, making treasury notes of the United States a legal tender for the payment of all debts. Legal Tender Cases (US) 12 Wall 457, 20 L Ed 287 …   Ballentine's law dictionary

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  • Tender years doctrine — Caroline Norton, the person who initiated the tender years doctrine The tender years doctrine is a legal principle which has existed in family law since the late nineteenth century. This common law doctrine presumes that during a child s tender… …   Wikipedia


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