The Congress shall have Power To...coin Money, regulate the Value thereof, and of foreign Coin....Article I, Section 8, Clause 5
Congress's power to coin money is exclusive: under Article I, Section 10, the states are not permitted to "coin Money; emit Bills of Credit; [or] make any Thing but gold and silver Coin a Tender in Payment of Debts...." Whereas the prohibitions on the states are clear and detailed, Congress's grant of power under the Coinage Clause is open-ended.
Nonetheless, certain elements are clear. First, Congress is granted the authority to "coin money," which authorizes Congress to coin money from precious metals such as gold and silver. Under the Articles of Confederation, the power to coin money was a concurrent power of Congress and the states. To create a more standardized monetary system and reduce the costs of running mints, the Constitution granted this power to Congress exclusively. The elimination of the states' power to coin money and the exclusive grant to Congress provoked controversy because the power to coin money was traditionally understood as a symbol of political sovereignty. Second, Congress is empowered to regulate the value of the coins struck domestically and to set the value of foreign coins. Under the Articles, Congress held the former power but not the latter. The Constitution gave both powers to Congress to encourage domestic and foreign commerce by preventing the states from attaching disparate valuations to circulating coins.
Beyond these simple issues, however, the scope of the federal government's powers under the Coinage Clause is unclear. In particular, although the Coinage Clause empowers Congress to coin money from precious metals, it is not clear whether the federal government could also issue paper money. Linguistic and conceptual usage during the Founding era distinguished between several different concepts: the power to "coin" specie money (i.e., money backed by gold or silver), the power to borrow money through the issuance of interest-bearing "notes," and the issuance of "Bills of Credit." Unlike coined money, whose value was inherent in the metal that composed the coin, and unlike "notes" that accrued interest, a bill of credit was non–interest-bearing paper money issued on the good credit of the United States with no tangible backing in precious metal.
Under the Articles of Confederation, both the federal and state governments were guilty of rampant inflationary issuance of bills of credit to finance the Revolutionary War. In response to the revolutionary history, Article I, Section 10, of the Constitution expressly prohibits the states from issuing bills of credit. With respect to Congress's power, however, the issue is not as clear. At the Constitutional Convention, it was proposed to give the federal government the power to "emit bills on the credit of the United States," but the language was defeated as being too prone to abuse. As a result, the Constitution's monetary clauses expressly grant Congress the power to coin money and to borrow money by issuing "notes" (i.e., interest-bearing government bonds), but not to issue bills of credit. Given the Framers' general hostility to paper money (James Madison, for instance, bemoaned its "pestilent effects" under the Articles), it is likely that the Framers' intended to prohibit the federal government from issuing bills of credit, just as they expressly barred the states from doing so. Moreover, the Constitution itself created a government of enumerated powers; thus, absent an express grant, Congress lacked the power to act. In fact, both those who spoke for and those who spoke against the proposed language to grant this power to the federal government understood that striking the language amounted to a prohibition on Congress's power to issue paper money.
The monetary system that prevailed throughout most of the eighteenth and nineteenth centuries up until the Civil War comprised a hodgepodge of different types of money. Circulating money consisted of specie, coins minted by the government; privately minted coins; certain foreign coins; and paper banknotes issued by state-chartered private banks and backed by those institutions. Congress regulated the weight of gold and silver required to be contained in coins, but these ratios were often manipulated for political purposes. There were also several private mints, which stamped coins whose value reflected their intrinsic weight in specie. The dominant form of circulating money for most of this period was currency issued by state-chartered private banks and redeemable in gold or silver from the banks. Privately stamped "token" money, often made of copper, also circulated as an instrument for low-value exchange.
In general, the federal government did not issue fiat money (paper money not backed by specie) prior to the Civil War. Issuances were usually short-lived and were intended to be temporary solutions for government finance needs during a war or to shore up the bank system during a crisis. They were receivable for payment of government obligations and taxes, but none of these issuances were declared legal tender for private debts, although they did circulate for private transactions to some degree. Issuances usually were interest-bearing and of relatively large denominations that discouraged the circulation of the notes as money. The federal government issued large denomination interest-bearing notes at the outset of the War of 1812, but subsequent issuances declined in denomination and did not pay interest. Interest-bearing notes also were issued in response to the Panic of 1837. Notwithstanding the Framers' opposition to paper money and principles of constitutional interpretation that suggest that Congress is barred from issuing paper money, in Veazie Bank v. Fenno (1869), the Supreme Court held that the federal government's issuance of bills of credit to fund government operations was a valid exercise of the Necessary and Proper Clause.
To fund the Civil War, Congress also passed the Legal Tender Act of 1862. Unlike earlier issuances that were used to pay government obligations (as well as the paper money issued by the Confederate government), Civil War "greenbacks" (for which redemption in gold was "postponed") were for the first time declared legal tender for all debts, public or private. Even if the federal government had the authority to issue bills for payment of government obligations, it was a distinct question whether the federal government could also force private individuals to accept them for private contracts, an issue specifically withheld in Veazie Bank.
The Framers believed that in prohibiting the authority of the federal government from issuing bills of credit, they also were prohibiting their recognition as legal tender by definition. Moreover, they also separately and expressly barred the states from recognizing anything as legal tender other than gold or silver, which was generally understood as further evidence of the Framer's hostility to legal tender laws. Even those at the Constitutional Convention who supported Congress's power to issue bills of credit opposed granting the power to declare them legal tender.
In a series of nineteenth-century cases dubbed The Legal Tender Cases, the Supreme Court addressed the federal government's power to order its bills of credit to be accepted as legal tender for all debts, public and private. In Hepburn v. Griswold (1870), the Court held it a violation of the Obligation of Contract Clause to retroactively alter contract terms by permitting payment in "greenbacks" of an obligation incurred in gold dollars. Greenbacks were not immediately redeemable in gold. Following a dramatic change in membership, however, just one year later in the Knox v. Lee (1871), the Court expressly overruled Hepburn and upheld the Legal Tender Act as applied to both prospective and retrospective debts. Pointing to the crisis occasioned by the Civil War, Knox upheld the power to declare paper money to be legal tender. In Julliard v. Greenman (1884), the Supreme Court extended Knox, upholding the validity of legal tender laws during peacetime. The Court held that the federal government's monetary power was inherent in its sovereignty; thus it need not be enumerated in the Constitution. Justice Stephen Field's blunt dissent declared, "If there be anything in the history of the Constitution which can be established with moral certainty, it is that the framers of that instrument intended to prohibit the issue of legal tender notes both by the general government and by the States; and thus prevent interference with the contracts of private parties." The recognition of Congress's expansive discretion on monetary issues in The Legal-Tender Cases was later used to support the federal government's invalidation of gold clauses in private contracts in the 1930s.
- Todd Zywicki
- Foundation Professor of Law
- George Mason University School of Law