The Legal Tender (Paper Money) Cases are Unconstitutional

ARTICLE SUMMARY:

The “Legal Tender Cases” resulted in a constitutional disaster that remains with us today in the form of the ever-falling dollar. In the second and third cases of the trilogy, and in scuttling the Constitution’s requirement (5th Amendment: “nor shall private property be taken for public use, without just compensation”), the court held the U.S. Government could compel its creditors to receive depreciated paper currency (“Greenbacks”) in satisfaction of its debt. Moreover, the court ravaged the “necessary and proper” clause [1] by approving Congress’s justification for Greenbacks—that a paper money power derived from the war and borrowing powers. The legislation was neither necessary nor proper. Also, in tragic irony, Congress in spewing out Greenbacks, succeeded in violating the counterfeiting clause that required it “To provide for the Punishment of counterfeiting the Securities and current Coin of the United States.” [2] Finally, Congress and the court violated the prohibition against ex post facto laws: “No . . . ex post facto Law shall be passed.”[3]

CROSS REFERENCES: The Gold Clause Cases are Unconstitutional

LEGAL TENDER CASES: THE BACKGROUND AND THE DECISIONS:

(From Oxford Companion to the US Supreme Court) [4]

“Collective name for three cases of the 1870s: Hepburn v. Griswold, 75 U.S. 603 (1870), [5] argued 10 Dec. 1869, decided 7 Feb. 1870 by vote of 4 to 3; Chase for the Court, Miller in dissent; and Knox v. Lee and Parker v. Davis, 79 U.S. 457 (1871) [6], argued 23 Feb. and 18 Apr. 1871, decided 1 May 1871 by vote of 5 to 4; Strong for the Court, Chase, Clifford, and Field in dissent. The Legal Tender Cases stand for the proposition that the United States can compel creditors to receive its paper money in payment of debt. These cases also raised the issue of whether the Constitution is to be applied pursuant to the original understanding or judicially amended for unforeseen exigencies (see Original Intent). The cases also illustrate that whenever a Supreme Court decision is at odds with the Constitution, the result may well be irreversible and beyond judicial overruling, legislative recall, or possibly formal constitutional amendment (see Constitutional Amending Process).

The legal tender controversy resulted from the decision of Secretary of Treasury (later Chief Justice) Salmon P. Chase to help finance the Civil War by issuing paper money not redeemable in species. Such money was popularly known as greenbacks. The bulk of subsequent monetary transactions—borrowing, lending, investment came to be conducted in paper currency rather than by gold coin, which also remained lawful money. To ensure the acceptance of greenback dollars, it was proposed in Congress that they be made legal tender for debts and taxes. This meant that creditors were compelled to accept greenbacks when offered or forfeit further interest on their debt, or possibly, the debt itself. Chase reluctantly went along, and Congress enacted the Legal Tender Act of 1862. Greenback dollars, however, rapidly depreciated in value.

Historically, legal tender had been the hallmark of an irredeemable, deteriorating paper money. The framers of the Constitution clearly intended to banish it from the American scene. Reflecting this view, Chief Justice John Marshall excoriated legal tender. In 1862, the legal tender statute was seen as a temporary, if unfortunate, expedient.

The doctrine of implied powers, derived from the war and borrowing authority, was repeatedly invoked in Congress to justify the legal tender quality of greenback dollars. The validity of the Legal Tender Act was challenged in Hepburn v. Griswold. Chief Justice Chase, with the support of three colleagues, reverted to his original reluctance and overturned the statute. Speaking for the Court, Chase found that the law was unconstitutional as applied to contracts made before its passage. He concluded that the act violated the Due Process Clause of the Fifth Amendment and impaired the obligation of contract contrary to the spirit of the Constitution.

Chase’s judgment was flawed in two particulars. First was the sheer subjectivity of an appeal to an amorphous “spirit” of the Constitution, particularly when a substantial part of the Court, the Congress, and the presidency found that spirit quite compatible with what was done. [DHB: Horrible reasoning.] Second, Hepburn was decided without a full bench. In 1863, the Court had been enlarged to ten, but sectional tension and reconstruction politics resulted in a fluctuating membership between seven (1866) and nine (1869). (See Judiciary Act of 1866; Judiciary Act of 1869.) In consequence, Hepburn was decided by a narrow 4 to 3 margin. The one existing vacancy was enlarged to two by the resignation of the venerable Justice Robert C. Grier between the decisional conference and the formal entry of judgment.

President Ulysses S. Grant promptly appointed two Republican stalwarts to bring the Court to its reconstituted strength of nine. The new tribunal almost immediately heard reargument on the constitutionality of legal tender. Grant’s action aroused controversy, but it does not appear that he consciously packed the Court. The Legal Tender Act had become a party line issue, and Hepburn had been foredoomed by the obvious reaction of debtors, fearful of having to repay in gold what had been borrowed in paper.

The stark fact of practical irreversibility was evident in the opening lines of Justice William Strong’s opinion in Knox v. Lee. This case involved debts contracted after the passage of the Legal Tender Act. Such ex post facto obligations, noted Strong, constituted the greater part of the indebtedness of the country. He observed that the injustice of voiding retroactive application alone would be compounded by holding the act invalid across the board. Accordingly, the Court by a vote of 5 to 4 overruled Hepburn and sustained the constitutionality of the Legal Tender Act. Although the Legal Tender Cases upheld broad congressional power over the currency, they impaired the Court’s reputation for political independence and consistency.

DISCUSSION:

Here are a few lines from the (epic) dissenting opinion of Justice Field. I include them not only in relation to the Legal Tender Cases, but for what they say about constitutional interpretation.

“It was hoped that [first legal tender case, Griswold, striking down the issuance of paper money] had settled forever that under a Constitution ordained, among other things, ‘to establish justice,’ legislation giving to one person the right to discharge his obligations to another by nominal instead of actual fulfilment, could never be justified.”* * *

“The objection to the act . . . lies in the provision which declares that the notes shall be ‘a legal tender in payment of all debts, public and private,’ so far as that provision applies to private debts, and debts owing by the United States.”* * *

On the misuse of congressional power to declare war and borrow money:

“But it is evident that the notes have no relation to these powers, or to any other powers of Congress, except as they furnish a convenient means for raising money for their execution. The existence of the war only increased the urgency of the government for funds. It did not add to its powers to raise such funds, or change, in any respect, the nature of those powers or the transactions which they authorized. * * * The wants of the government can never be the measure of its powers.” * * *

On the power to coin money

“But this is not all. The power ‘to coin money’ is, in my judgment, inconsistent with and repugnant to the existence of a power to make anything but coin a legal tender. To coin money is to mould metallic substances having intrinsic value into certain forms convenient for commerce, and to impress them with the stamp of the government indicating their value. Coins are pieces of metal, of definite weight and value, thus stamped by national authority. Such is the natural import of the terms ‘to coin money’ and ‘coin;’ and if there were any doubt that this is their meaning in the Constitution, it would be removed by the language which immediately follows the grant of the ‘power [79 U.S. 457, 650] to coin,’ authorizing Congress to regulate the value of the money thus coined, and also ‘of foreign coin,’ and by the distinction made in other clauses between coin and the obligations of the General government and of the several States.” * * *

“The inhibition upon the States to coin money and yet to make anything but gold and silver coin a tender in payment of debts, must be read in connection with the grant of the coinage power to Congress. The two provisions taken together indicate beyond question that the coins which the National government was to fabricate, and the foreign coins, the valuation of which it was to regulate, were to consist principally, if not entirely, of gold and silver.” * * *

“Every one appears to have understood that the power of making paper issues a legal tender, by Congress or by the States, was absolutely and forever prohibited.”

On federal laws which impair contracts

“A law which changes the terms of the contract, either in the time or mode of performance, or imposes new conditions, or dispenses with those expressed, or authorizes for its satisfaction something different from that provided, is a law which impairs its obligation, for such a law relieves the parties from the moral duty of performing the original stipulations of the contract, and it prevents their legal enforcement.” * * *

“The only express authority for any legislation affecting the obligation of contracts is found in the power to establish a uniform system of bankruptcy, the direct object of which is to release insolvent debtors from their contracts upon the surrender of their property. From this express grant in the Constitution I draw a very different conclusion from that drawn in the dissenting opinion in Hepburn v. Griswold, and in the opinion of the majority of the court just delivered. To my mind it is a strong argument that there is no general power in Congress to interfere with contracts, that a special grant was regarded as essential to authorize a uniform system of bankruptcy.” * * *

“The doctrine that where a power is not expressly forbidden it may be exercised, would change the whole character of our government.”

On Chief Justice Marshall’s view of paper money

“Speaking of paper money issued by the States,—and the same language is equally true of paper money issued by the United States—Chief Justice Marshall says, in Craig v. The State of Missouri:245 ‘Such a medium has been always liable to considerable fluctuation. Its value is continually changing; and these changes, often great and sudden, expose individuals [79 U.S. 457, 679] to immense loss, are the sources of ruinous speculations, and destroy all confidence between man and man. To cut up this mischief by the roots, a mischief which was felt through the United States, and which deeply affected the interest and prosperity of all, the people declared in their Constitution that no State should emit bills of credit.’”

Justice Field’s parting shot

“In the discussions which have attended this subject of legal tender there has been at times what seemed to me to be a covert intimation, that opposition to the measure in question was the expression of a spirit not altogether favorable to the cause, in the interest of which that measure was adopted. All such intimations I repel with all the energy I can express. I do not yield to any one in honoring and reverencing the noble and patriotic men who were in the councils of the nation during the terrible struggle with the rebellion. To them belong the greatest of all glories in our history,-that of having saved the Union, and that of having emancipated a race. For these results they will be remembered and honored so long as the English language is spoken or read among men. But I do not admit that a blind approval of every measure which they may have thought essential to put down the rebellion is any evidence of loyalty to the country. The only loyalty which I can admit consists in obedience to the Constitution and laws made in pursuance of it. It is only be obedience that affection and reverence can be shown to a superior having a [79 U.S. 457, 681] right to command. So thought our great Master when he said to his disciples: ‘If ye love me, keep my commandments.’”

_______________________________

[1] Article 1, Section 8, CL. 18: “To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”

[2] Article 1, Section 8, CL. 6.

[3] Article 1, Section 9.

[4] http://www.answers.com/topic/legal-tender-cases#ixzz1SfJ8Cygt

[5] For some reason now called, Veazie Bank v. Fenno, 75 U.S. 533 (1869), found @ http://laws.findlaw.com/us/75/533.html

[6] http://laws.findlaw.com/us/79/457.html

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Published in: on March 16, 2012 at 10:16 am  Leave a Comment  

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