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                                   Money



                             by Richard Forest



In United States v. Rifen (577 F2d 1111, 1113 (8th Cir. 1978)) the court 

stated that the Constitution "prohibits the States from declaring legal 

tender anything other than gold or silver, but does not limit Congress' 

power to declare what shall be legal tender for all debts."



An Alaskan appellate court states, "United States Congress has power to 

make anything it wishes legal tender; Congress is not limited to gold or 

silver coins." (Lowry v. State, 655 F2d 780).



A Kansas appellate court states, "power to declare what shall be money and 

regulate it's value is vested in Congress, which has Constitutional power 

to make paper money legal tender in payment of debts." (Allen v. Craig, 1 

Kan App 2d 301)



These courts appear to pay great lip service to the Constitution. Are these 

courts really correct?  Can Congress exercise the power to make paper -- or 

chickens -- a legal tender under the Constitution?



In order to find the truth, we are going to have to define some terms. The 

terms "bill of credit" and "Legal tender" are defined in the 1877 Bouvier's 

Law Dictionary:



     "LEGAL TENDER. That currency which has been made suitable by law for 

     the purposes of a tender in the payment of debts.



     "The following descriptions of currency are legal tender in the United 

     States:--



     "All the gold coins of the United States are a legal tender in all 

     payments at their nomonal value when not below the standard weight and 

     tolerance provided by law for the single piece, and, when reduced in 

     weight below such standard tolerance, they are a legal tender at 

     valuation in proportion to their actual weight. The silver dollar of 

     412 1/2 grains is a legal tender for all debts and dues, public and 

     private, except where otherwise expressly stipulated in the contract.  

     The silver coins of the United States of smaller denominations than 

     one dollar are a legal tender in all sums not exceeding ten dollars in 

     payment of all dues, public and private.  The trade dollar of 420 

     grains is not a legal tender.  The five-cent piece, the three-cent 

     piece, and the one-cent piece are legal tender for any amount not 

     exceeding twenty-five cents in any one payment.  No foreign coins are 

     now a legal tender.



     "By acts of Feb. 25, 1862, July 11, 1862, and March 3, 1863 [Civil War 

     years], congress authorized the issue of notes of the United States, 

     declaring them a legal tender for all debts, public and private, 

     except duties on imports and interest on the public debt.  12 Stat. at 

     L. 345,532,709.  These notes are obligations of the United States, and 

     are exempt from state taxation; 7 Wall. 26; but where a state requires 

     its taxes to be paid in coin, they cannot be discharged by a tender of 

     these notes. A debt created prior to the passage of the legal tender 

     acts, and payable by the express terms of the contract in gold and 

     silver coins, cannot be satisfied by a tender of treasury notes: 7 

     Wall. 229; id. 258; 12 id. 687. The legal tender acts are 

     constitutional, as applied to pre-existing contracts, as well as to 

     those made subsequent to their passage; 12 Wall. 457; per Strong, J., 

     overruling their previous opinion of the court in 8 Wall. 604, per 

     Chase, C.J. See 17 Am. L. Reg. 193; 19 id. 73; 21 id. 601."



Also from Bouvier's:



     "BILL OF CREDIT.  Paper issued by the authority of a state on the 

     faith of the state, and designed to circulate as money; 11 Pet. 257.



     "Promissory notes or bills issued by a state government, exclusively, 

     on the credit of the state, and intended to circulate throughout the 

     community for its ordinary purposes as money, redeemable at a future 

     day, and for the payment of which the faith of the state is pledged; 4 

     Kent. 408.



     "The constitution of the United States provides that no state shall 

     emit bills if credit, or make any thing but gold and silver coin a 

     tender in payment of debts. U.S. Const. art. 1. sec. 10. This 

     prohibition, it seems, does not apply to bills issued by the state but 

     having a specific capital set apart; 2 M'Cord. 12; 4 Ark. 44; 11 Pet. 

     257; 13 How. 12; but see 4 Pet. 410; 2 Ill. 87; nor does it apply to 

     notes issued by corporations or individuals which are not made legal 

     tender; 4 Kent, 408, and notes. See 2 Pet. 318; 4 Dall. xxiii.; 3 

     Wall.Jr. 381; Story, Const. Secs. 1362-1364. As to the power of 

     ursurping governments to bind the public faith for the redemption of 

     notes issued by a revolutionary power, see 35 Ga. 330; 1 Abb. U.S. 

     261."



Article 1, Section 8 of the United States Constitution gives congress the 

power to "borrow money on the credit of the United States" and to "coin 

money."



The first two drafts of the Federal Constitution included the power to 

"emit bills of credit" among the powers of congress.  On August 16, 1787, 

that power was struck off the list of the enumerated powers of congress.  

The following record of the minutes of the Constitutional Convention for 

that day gives full understanding of the legal intent of the convention:



     Mr. GOUVERNEUR MORRIS moved to strike out "and emit bills on the 

     credit of the United States." If the United States had credit, such 

     bills would be unnecessary; if they had not, unjust & useless.



     Mr. BUTLER seconds the motion.



     Mr. MADISON.  Will it not be sufficient to prohibit the making them a 

     tender? This will remove the temptation to emit them with unjust 

     views; and promissory notes, in that shape, may in some emergencies be 

     best.



     Mr. GOUVERNEUR MORRIS. Striking out the words will leave room still 

     for notes of a responsible minister, which will do all the good 

     without the mischef.  The moneyed interest will oppose the plan of 

     government, if paper emissions be not prohibited.



     Mr. GORMAN was for striking out without inserting any prohibition.  If 

     the words stand, they may suggest and lead to the measure.



     Mr. MASON had doubts on the subject.  Congress, he thought, would not 

     have the power, unless it were expressed. Though he had a mortal 

     hatred to paper money, yet, as he could not forsee all emergencies, he 

     was unwilling to tie the hands of the legislature.  He observed that 

     the late war could not have been carried on, had any such prohibition 

     existed.



     Mr. GORMAN.  The power, as far as it will be necessary or safe, is 

     involved in that of borrowing.



     Mr. MERCER was a friend to paper money, though, in the present state 

     and temper of America, he should neither propose nor approve of such a 

     measure. He was consequently opposed to a prohibition altogether.  It 

     will stamp suspicion on the government, to deny it a discretion on 

     this point. It was impolitic, also, to excite the opposition of all 

     those who were friends of paper money.  The people of property would 

     be sure to be on the side of the plan, and it was impolitic to 

     purchase their further attachment with the loss of the opposite class 

     of citizens.



     Mr. ELLSWORTH thought this a favorable moment to shut and bar the door 

     against paper money.  The mischiefs of the various experiments which 

     had been made were now fresh in the public mind, and had excited the 

     disgust of all the respectable part of America.  By withholding the 

     power from the new government, more friends of influence would be 

     gained to it than anything else. Paper money can in no case be 

     necessary. Give the government credit, and other resources will offer. 

     The power may do harm, never good.



     Mr. RANDOLPH, notwithstanding his antipathy to paper money, could not 

     agree to strike out the words, as he could not forsee all the 

     occasions that might arise.



     Mr. WILSON.  It will have a most salutary influence on the credit of 

     the United States, to remove the possibility of paper money. This 

     expedient can never succeed whilst its mischiefs are remembered; and, 

     as long as it can be resorted to , it will be a bar to other 

     resources.



     Mr. BUTLER remarked that paper was a legal tender in no country in 

     Europe. He was urgent for disarming the government for such a power.



     Mr. MASON was still adverse to tying the hands of the legislature 

     altogether.  If there was no example in Europe, as just remarked, it 

     might be observed, on the other side, that there was none in which the 

     government was restrained on the head.



     Mr. READ thought the words, if not struck out, would be as alarming as 

     the mark of the Beast in Revelation.



     Mr. LANGDON had rather reject the whole plan than retain the three 

     words, "and emit bills."



     On the motion for striking out,--  



          New Hampshire  

          Massachusetts  

          Connecticut  

          Pennsylvania  

          Delaware  

          Virginia*  

          North 

          Carolina  

          South Carolina  

          Georgia

             Ay -- 9  

          New Jersey  

          Maryland

             No -- 2  

     The clause for borrowing money was agreed tom nem. con.  Adjourned.



     * The vote in the affirmative by Virginia was occasioned by the 

     acquiescence Mr. Madison, who became satisfied that striking out the 

     words would not disable the government from the use of public notes, 

     as far as they could be safe and proper; and would only cut off the 

     pretext for a paper currency, and particularly for making the bills a 

     tender, either for public or private debts. 



The following sources were used for the foregoing:  "The Records of the 

Federal Convention," Max Ferrand, Vol 2, pp. 308-311; "Elliott's Debates on 

the Adoption of the Federal Convention," Jonathan Elliott, Vol. 5 pp. 434-

435; "The Debates in the Federal Convention of 1787 Which Framed the 

Constitution of the United States of America," as reported by James 

Madison, pp. 413, 414; :Journal of the Federal Convention," kept by James 

Madison, pp. 541-543.



Since the adoption of the Federal Convention, three classes of paper have 

circulated as legal tender in America:



     1. Notes payable on demand in gold or silver coin.



     2. Notes payable in gold or silver coin at an unspecified future date    

     (bills of credit).



     3. Nonredeemable "notes" redeemable in nothing at any time, apparently    

     having value through the force of law.



The minutes of the convention demonstrate that the Constitution gives 

Congress authority to make gold coin, silver coin, and no less a class of 

paper than notes payable on demand in gold or silver coin a legal tender.



While congress has the authority to issue bills of credit through its power 

to borrow money on the credit of the United States, the power to make them 

a legal tender was withdrawn on August 16, 1787.



Clearly,  nonredeemable federal reserve notes have no  constitutional 

authorization as legal tender.  They do not appear to have congressional 

authority either, since under 31 USC 411 a federal reserve note is defined 

by law to be redeemable on demand.



 

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