Legal Tender Cases

The Legal Tender Cases were two 1871 United States Supreme Court cases that affirmed the constitutionality of paper money. The two cases were Knox v. Lee and Parker v. Davis.

The U.S. federal government had issued paper money known as United States Notes during the American Civil War, pursuant to the terms of the Legal Tender Act of 1861. In the 1869 case of Hepburn v. Griswold, the Court had held that the Legal Tender Act violated the due process clause of the Fifth Amendment to the United States Constitution. In his majority opinion, Chief Justice Salmon P. Chase did not hold that Congress lacked the power to issue paper money, but rather ruled that the notes could not be used as legal tender for pre-existing debts. The Supreme Court overruled Hepburn v. Griswold in the Legal Tender Cases, holding that United States Notes could be used to re-pay pre-existing debts.

Obverse of the first $1 bill, issued in 1862 as a legal tender note featuring Treasury Secretary Chase, who later held as Chief Justice that such bills are unconstitutional, before being overturned

The Legal Tender Cases primarily involved the constitutionality of the Legal Tender Act of 1862, 12 Stat. 345, enacted during the American Civil War.[1] The Act authorized issuance of paper money, United States Notes, to finance the war without raising taxes.[2] 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.[3]

Chief Justice Chase described the sequence of events:

Now, then, let it be considered what has actually been done in the provision of a National currency. In July and August, 1861, and February, 1862, the issue of sixty millions of dollars in United States notes, payable on demand, was authorized. They were made receivable in payments, but were not declared a legal tender until March, 1862, when the amount in circulation had been greatly reduced by receipt and cancellation. In 1862 and 1863 the issue of four hundred and fifty millions in United States notes, payable not on demand, but, in effect, at the convenience of the government, was authorized, subject to certain restrictions as to fifty millions. These notes were made receivable for the bonds of the National loans, for all debts due to or from the United States, except duties on imports and interest on the public debt, and were also declared a legal tender. In March, 1863, the issue of notes for parts of a dollar was authorized to an amount not exceeding fifty millions of dollars. These notes were not declared a legal tender, but were made redeemable under regulations to be prescribed by the Secretary of the Treasury. In February, 1863, the issue of three hundred millions of dollars in notes of the National banking associations was authorized. These notes were made receivable to the same extent as United States notes, and provision was made to secure their redemption, but they were not made a legal tender.[4]

Hepburn v. Griswold
Main article: Hepburn v. Griswold

In Hepburn v. Griswold (1870), Chief Justice Salmon P. Chase held for a 5–3 majority[5] of the Court that the Act was an unconstitutional violation of the due process clause of the Fifth Amendment:

It is quite clear, that whatever may be the operation of such an act, due process of law makes no part of it. Does it deprive any person of property? A very large proportion of the property of civilized men exists in the form of contracts. These contracts almost invariably stipulate for the payment of money. And we have already seen that contracts in the United States, prior to the act under consideration, for the payment of money, were contracts to pay the sums specified in gold and silver coin.[6]

We are obliged to conclude that an act making mere promises to pay dollars a legal tender in payment of debts previously contracted, is not a means appropriate, plainly adapted, really calculated to carry into effect any express power vested in Congress; that such an act is inconsistent with the spirit of the Constitution; and that it is prohibited by the Constitution.[7]

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.[8]

Knox v. Lee and Parker v. Davis
Main article: Knox v. Lee

Justices Bradley and Strong subsequently voted to reverse the Hepburn decision, in Knox v. Lee and Parker v. Davis, by votes of 5–4.[9]

Juilliard v. Greenman
Main article: Juilliard v. Greenman

The constitutionality of the Act was more broadly upheld thirteen years later in Juilliard v. Greenman.[10]

Background about constitutionality of paper money

Article I, Section 10 of the Constitution explicitly forbids the states from issuing "bills of credit" (promissory notes) or making anything but gold and silver coin legal "tender". There are no corresponding explicit prohibitions limiting the power of the federal government, nor are there any explicit authorizations. 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). Article I, Section 8 of the Constitution specifically gives Congress power to "borrow money" and also power to "coin money and regulate the value" of both U.S. and foreign coins, and regulate interstate commerce, but does not explicitly and unambiguously grant Congress the power to print paper money or make it legal tender.

The federal government first issued paper money in 1861 to fund the Civil War.[11] Before that, all U.S. paper money was bank-issued money. For example, paper notes were issued by the First Bank of the United States, which was a private corporation chartered by the federal government.[12] Congress had also authorized paper money (e.g. Continentals) even before the Constitution was adopted. The Continental was issued by both the individual states and the Continental Congress under the Articles of Confederation. Those Articles specifically allowed the issuance of legal tender paper money, at the time called "bills of credit."[13]

In Hepburn, Chief Justice Chase noted, "No one questions the general constitutionality, and not very many, perhaps, the general expediency of the legislation by which a note currency has been authorized in recent years. The doubt is as to the power to declare a particular class of these notes to be a legal tender in payment of pre-existing debts."[14]

Original intent and original meaning

Originalists like Robert Bork have objected to enforcing the 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."[15] According to law professor Michael Stokes Paulson, "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."[16]

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."[17] 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."[18] 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.[19] The power to "issue bills of credit" is explicitly mentioned in the Constitution as a prohibition on the States, and could therefore be interpreted as a power so momentous that it would have to be conferred explicitly on the federal government rather than inferred from 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 not allow the federal government to use paper as currency or legal tender, though there is no indication whether or not the contents of his footnote were uttered aloud at the Convention.[20] Thereafter, during the ratification debates, the Federalist Papers No. 44 (assumed to be authored by Madison) said that prohibiting states from emitting "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 by the states had 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."[21]

See also

References
  1. Act of Congress, 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.
  2. Newcomer, Philip. The Illegality of Legal Tender, The Freeman: Ideas on Liberty, December 1986, Vol. 36 No. 12.
  3. Legal Tender cases, The Columbia Encyclopedia, Sixth Edition. 2001–05.
  4. Hepburn v. Griswold, 75 U.S. 603, 618–19 (1869).
  5. Sachs, Leon. 1933. "Stare Decisis and the Legal Tender Cases." Virginia Law Review 20: 864–65
  6. Hepburn, 75 U.S. at 624.
  7. Hepburn, 75 U.S. at 625.
  8. Pusey, Merlo. Matter of Delicacy: The Court Copes With Disability Archived 2007-07-13 at the Wayback Machine, Supreme Court Historical Society 1979 Yearbook.
  9. Knox v. Lee, 79 U.S. 457 (1871).
  10. Juilliard v. Greenman, 110 U.S. 421 (1884).
  11. Friedberg, Arthur and Friedberg, Ira. Paper Money of the United States: A Complete Illustrated Guide With Valuations: "From the first year of Federal paper money, 1861, to the present. ... "
  12. Federal Reserve Bank of San Francisco, Fun Facts About Money. Retrieved 2007-02-24.
  13. The Articles of Confederation stated: "The United States in Congress assembled shall have authority ... to borrow money, or emit bills on the credit of the United States"
  14. Hepburn, 75 U.S. at 619.
  15. 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).
  16. Paulsen, Michael Stokes. "How to Interpret the Constitution (and How Not To) Archived 2007-06-09 at the Wayback Machine," 115 Yale Law Journal 2037, 2061 n. 46 (2006).
  17. The Debates in the Federal Convention of 1787 Archived 2007-02-10 at the Wayback Machine, 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 in Revelation".
  18. Siegan, Bernard.. 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."
  19. Siegan, Bernard. 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."
  20. The Debates in the Federal Convention of 1787 Archived 2007-02-10 at the Wayback Machine, 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."
  21. Madison, James. Federalist #44 (January 25, 1788).
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