Galbraith on the Constitutionality of Paper Money

July 5, 2009 9:21 AM

This morning I came across the following sentence on pg. 58 of John Kenneth Galbraith's A Short History of Financial Euphoria: "The Constitution forbade the federal government and, needless to say, also the states to issue paper money." Article 1, section 10 says that states can't issue paper money, but where does the Constitution say that the federal government can't?
posted by timmygoestothezoo to law & government (9 comments total)

This wiki article about the Legal Tender Cases might help give some background
posted by bottlebrushtree at 9:34 AM on July 5

Disclaimer: I'm playing Devil's Advocate; I'm not really sure that I agree with what I'm about to say.

The Constitution says that Congress has the power to coin money. Checking both the OED and Merriam-Webster, I see the verb "coin" used, in relation to money, only to refer to the creation of actual coins, not to the creation of money in general.

It doesn't say anything about issuing paper money. And by the Tenth Amendment, Congress therefore doesn't have the power to issue paper money.
posted by Flunkie at 9:39 AM on July 5

Thomas Jefferson said, "If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

You can't say we weren't warned.
Form my understanding the issue of printed money and a federal reserve banking system once went to the supreme court and they deemed in unconstitutional. All the govn't did was call it by a different name and not allow the case to make it to that level again.

Watch how screwed we get in the coming 5 years.
posted by TheDude at 9:45 AM on July 5 [2 favorites has favorites]

There's a difference between allowing the federal government to issue paper money, and making the government's money "legal tender." I.e. Euros are money in the U.S., but they're not legal tender as no one MUST accept it in satisfaction of a debt.

I've never understood exactly how the "legal tender" principle interacts with the fact that most debts are denominated in specific currencies, but there you go. The law probably has some official exchange rate mechanism or something.

Further unnecessary information: "tender" is the act of presenting your part of a contract for acceptance. So if I'm going to sell you my car, we meet in the parking lot, I tender the car and the title document, you tender the money. The idea is to avoid arguing about who has to do what first. You can't sue me for not paying until you "tender" the car. You also "tender" your payment of a debt.

"Satisfaction of a debt" means you can't sue me if I have tendered legal tender. It doesn't mean that stores have to accept cash. There's no debt at that point. If you have a debt, though, legal tender satisfies that debt, though you might be liable for damages for the cost of say, counting pennies, if you had agreed to pay by cash. Nevertheless the underlying debt is extinguished.
posted by yesno at 9:53 AM on July 5

bottlebrushtree's wikipedia article is very helpful here--thanks for that. But what I'm getting from the article is that paper money is clearly constitutional, unless you're a radical originalist. That raises the question: why would a Big Time Economist like Galbraith assert so confidently that the Constitution forbade the federal government to issue paper money?
posted by timmygoestothezoo at 10:14 AM on July 5

The US Government doesn't issue paper money. The Federal Reserve Bank does.

Also, let's not confuse the myriad utterances of the individual founding fathers with the collective wisdom of the Constitution. The Constitution is such a good document because it was a compromise between all the nuttiness of the individuals involved.
posted by gjc at 10:22 AM on July 5

Yes, the "originalists" don't advocate that the original intent of the framers should govern. Rather, they try to discern what the average person alive at the time of the founders would take the actual words put into the constitution to mean.
posted by yesno at 10:35 AM on July 5

While Jefferson had strong words against a national bank, the "homeless on the continent their fathers conquered" thing appears to be apocryphal.
posted by Zed at 12:44 PM on July 5

"It doesn't say anything about issuing paper money. And by the Tenth Amendment, Congress therefore doesn't have the power to issue paper money."

No. This is a common fallacy -- the 10th Amendment is nothing more than a truism. If the 10th had amended Art. I, Section 8, in particular, clause 18, it would have real meaning, but it didn't, thus, Necessary and Proper Clause implicitly grants a great deal of implicit power to the Congress, and thus, to the Federal Government.

Throw in the Commerce Clause and the 10th fades even more. Really, all the 10th states is that this document enumerates the powers of the federal government -- which the document, in fact, does. Indeed, recent limitations to the Commerce Clause don't even mention the 10th as the reason. (see Gonzales v. Raich 545 US 1 (2005) and United States v. Lopez 514 U.S. 549 (1995) )

The 10th, if it was to have real power, should have amended Art. I Sec. 8 explicitly. The 9th does a much better job, it says "Just because we haven't listed a right doesn't mean the right doesn't exist." The 10th tried to work this the other way -- "Because we haven't listed a power means it does not exist, or is reserved to the states or people." Unless you make sure that there isn't a catchall clause earlier (like the above mentioned clauses), it simply doesn't work. What you get is "I can only do the following things. 1) Coin Money 2) Anything 3) Issue letters of Marque...."
posted by eriko at 3:12 PM on July 5 [1 favorite has favorites]