Financial CatechismCHAPTER II.
FIAT PAPER MONEY.
Question. If the fiat of a nation makes the money, is it necessary that it should be composed of metals ?
Answer. No. Whatever a nation chooses to select, upon which to stamp its device and so stamp and declare it money, it is money to all intents and purposes, within the limits of such government, and none can go farther than that as money.
Q. Have we any instances on record of any nation, by its fiat, making money of any material other than metals ?
A. Yes. The list of articles used by the different nations in past ages is very large.
Mr. Madden, the author of a work entitled The Coins of the Jews, says that the people of the West Indies and South America, used bread, soap, snuff, eggs and chocolate as current money.
As late as 1673, the Massachusetts colonists made and used wampum as legal-tender money. In the twelfth century, in the reign of William I., the Sicilian Government used leather legal-tender money with which gold and silver was redeemed. The Chinese Government, by its fiat, coined money made of the inner bark of the mulberry tree, as late as the fourteenth century. The Roman Government made money of both wood and leather, 700 years B.C. France made leather money in 1360, and Spain in 1574. Jevon, in his work entitled Money and the Mechanism of Exchange, informs us that a fiat money composed of leather was used in Persia and Tartary in the fourteenth century ; that this money was full legal-tender, and at that time, there was no other money coined within the empire. Seneca, writing of the Spartans, says : They used leather money, having a stamp to show what value it represented, and by whose authority it was issued.
Jonathan Duncan says :
From the reign of Henry I. to the establishment of the Bank of England, the legal-tender money of England was made of wood. These were called exchange tallies, and sustained the trade of England until the Bank of England was created.
During the reign of Queen Catharine of Russia, that government was at war with Turkey. The metallic money was not sufficient to sustain the nation. The government issued treasury notes, which carried it through the war successfully. It done the same thing in order to carry on its war with Napoleon. So popular was this national fiat money with the people, that before it was withdrawn from circulation, it commanded a premium over coin. By the fiat of the British Government, the notes of the Bank of England were made legal-tender money from 1797 until 1823. This money sustained the government during its wars with the French, and the war of 1812 with the United States. In 1813, the allied powers of Russia, Prussia and England, in their attempt to conquer Napoleon discovered that their gold and silver money had retired from circulation, and could not be relied upon. The notes of the banks of the several powers were not international money, and would not support them. The three nations, by agreement, issued a joint paper fiat money, with which they prosecuted the war to a successful termination. The credit of France was shaken after the abdication of Louis Philippe, and the change to a Republican form of government, in 1848. The Bank of France was unable to procure coin enough to conduct its legitimate business ; its circulation was necessarily greatly reduced, which threw the people into idleness for want of means to stimulate the industries of the country. In this condition of things the government took charge of the bank, and by its fiat, made the notes full legal-tender, and increased its circulation to six hundred million dollars, being a much larger amount than it had in circulation before. This money was the money of the government, and always at par with coin.
France was conquered by Germany in 1870-71 ; and beside the loss of two of her most valuable provinces, she was compelled to pay Germany an indemnity of one billion one hundred million dollars. The bank and the country were both in a prostrate condition. But the government again took charge of the Bank, making its notes full legal-tender, and increasing its issues two hundred millions. These notes depended entirely upon the credit of the government for their par value, for the bank had suspended specie payment, and never has professed to pay coin since. These notes are preferred to coin by the people on account of their greater convenience and the implicit confidence they place in the integrity of their government.
Q. What was the character of the money issued during the revolution by the Colonial Congress ?
A. It had but little of the form or character of money. The Colonies had surrendered their individual Sovereignty to the Colonial Congress, but they had not endowed it with the power to collect customs or coin money. As a government, it had no power to collect revenue, neither had it any revenue to collect. But, notwithstanding its weakness, Congress issued $200,000,000 of paper money, which carried our fathers through the great struggle for liberty against one of the most powerful nations on the earth, and provided the means for defense until 1780, when France loaned them five million dollars in coin, and assisted them to establish their independence. Six millions of this continental money was issued prior to the Declaration of Independence.
Q. What was the final result of the issue of this money by the Colonial Congress ?
A. The first result was their success in securing their independence, which gave them a national character.
Q. Did not this money largely depreciate in value ?
A. It did. Not because it was fiat money, for it promised to pay in coin when there was no coin to pay with, and no power was obligated to pay it.
Here is the form of the continental notes :
This note entitles the bearer to receiveSpanish mill dollars or the value thereof in gold or silver, according to the resolution of Congress of the 10th of May, 1775.
These notes circulated at par until the most critical period in the revolutionary struggle, when the faith of the people was shaken with regard to their success ; and knowing that the notes could not be paid in case of the failure of the colonies to establish their independence, they were placed at a discount, and when confidence was once lost, the Tory element exerted its power to destroy it as money, in order to weaken the colonial government. Added to this, the English flooded the country with counterfeits, so that but few could distinguish it from the genuine. These circumstances, all combined, reduced the value of the notes until a one pound note was only worth two shillings and six pence, while many of them were sold at a much greater sacrifice. The Colonial Congress, in 1779, passed an act pledging the faith of the United Colonies for their payment, but having no credit abroad, and no coin to pay with, this assurance did not satisfy the holders, and, believing that they would be an entire loss, many disposed of them for any thing they could get.
These notes lacked the properties essential for their successful use as a circulating medium. They were not made legal-tender for private debts or public dues ; but they were not an entire loss.
On the 10th of April, 1780, Congress passed the following resolution :
Resolved, That when Congress shall be furnished with proper documents to liquidate the depreciation of the continental bills of credit, we will, as soon thereafter as the state of public finances will permit, make good to the line of the army and the independent corps thereof, the deficiency of their original pay occasioned by their depreciation.Journals of Congress, vol. 3,p.447.
There were more than fifty acts of Congress, running from 1783 to 1832, providing for liquidating the debts contracted by the depreciation of the value of the continental money during the period of the revolution. Some of the best lands in the world were dedicated by the government for that purpose ; so that, notwithstanding these notes depreciated in value for a time, the government of the United States has fully liquidated every claim, which has been duly presented, for loss by such depreciation.
From 1777 to 1784, the territory, of which Tennessee is constituted, formed a part of North Carolina. In 1785, the Tennesseeans, becoming dissatisfied with their government, organized a state government under the name of Franklin, which was maintained for several years. This state afterward surrendered its organization, and its territory was again attached to North Carolina. Daniel Webster, in a speech delivered by him on the currency question in 1838, refers to this organization, and quotes the statute providing for the payment of the salaries of the officers.
We insert the act in full in order that our readers may see that these unsophisticated pioneers did not consider it necessary to base their currency on gold and silver. They were hunters and could get deerskins, and converted them by fiat of law into legal-tender money.
Here is the statute :
Be it enacted by the General Assembly of the State of Franklin, and it is hereby enacted by the authority of the same,
That, from the first day of January, 1789, the salaries of the officers of the Commonwealth be as follows :
His Excellency, the Governor, per annum, 1,000 deer skins.
His Honor, the Chief Justice, per annum, 500 deer skins.
The Secretary to His Excellency, the Governor, per annum, 500 raccoon skins.
The Treasurer of the State, 450 raccoon skins.
Each County Clerk, 300 beaver skins.
Clerk of the House of Commons, 200 raccoon skins.
Members of the Assembly, per diem, 3 raccoon skins.
Justices fees for signing a warrant, 1 muskrat skin.
To the Constable, for serving a warrant, 1 mink skin.
Enacted into law the 18th day of October, 1780, under the great seal of the State.
Q. Were not the French assignats fiat money ?
A. No. They were based on the confiscated lands of banished priests and nobles. When the French people deposed their king in 1790, and declared for a republic, a large amount of the land in France was held by priests and nobles, who had formed an aristocracy which had become so arrogant and overbearing that it produced a revolution. When the revolutionists came into power, they banished the priests and nobles and confiscated their property. The new government issued these notes, not on the faith and credit of the nation, but payable in coin as it was realized from these confiscated estates.
Q. Did not this money depreciate in value and finally become worthless ?
A. It did depreciate in value, but did not become worthless. From 1790 to 1792, one billion two hundred million francs, equal to about two hundred and forty million dollars, was issued and circulated as money, never in that time falling below ten per cent. discount for coin ; though money dealers done all they could to discredit it. The government very unwisely continued to issue on this basis, until the amount in circulation reached forty-five billion five hundred and seventy-eight million of francs, or nine billion dollars. This amount was entirely beyond the demands of commerce ; but it was still worth sixty cents on the dollar in coin for a considerable time.
These notes, like the continental notes, were counterfeited extensively by those opposed to their circulation as money, in order to destroy their credit with the people. The further fact that schisms arose in the revolutionary government, such as gave evidence of its early dissolution, and the probable return of the confiscated estates to their original owners, destroyed the confidence of the people in the assignats, until it required eighteen dollars of this money to purchase one dollar in coin. As the evidence of this destruction of the government grew more conclusive, the money continued to decline in value. At this juncture an edict was issued requiring that it be received at the value to which it had fallen, and authority given to enter any of the confiscated lands with it at this reduced value. The peasantry of the country availed themselves of this opportunity and invested their assignats in small tracks of the confiscated lands, securing themselves homes which no government has dared to take from them. Owning them in fee simple, they have no rents to pay, and are able to enjoy the fruit of their own labor. They are now able to make and save money ; as is proved by the fact that when the first payment of two hundred and fifty million dollars fell due to Germany as indemnity for the war of 1871-72, this class of farmers advanced all the money. So that, notwithstanding the depreciation of the assignats in value as compared with coin, France is a richer nation to-day than it would have been had they never been issued. The French people realize this fact ; and in 1848-49, and again in 1870-71, when panics occurred in the country, the notes of the Bank of France were increased in volume sufficient to meet the demands of commerce, and made full legal-tender by the fiat of the government. These notes never depreciate, because they are fiat money. The assignats depreciated because they promised to pay coin which the government had not and could not get, just as all notes must depreciate when issued on a coin basis, unless every dollar put in circulation is represented by a coin dollar in the Treasury.
Q. Have we any instances in which paper money issued by the fiat of any government has proved a safe and reliable currency ?
A. Many instances. In 1770 the Russian government issued its own notes, which sustained the government through two wars, and the people were so well satisfied with them as money, that they commanded a premium over coin.
The English government made the notes of the Bank of England full legal-tender money, from 1797 to 1823 ; and we are informed by history that the nation never enjoyed such prosperity as it did during that twenty-six years. In that period, her currency was inflated from forty to one hundred and twenty-seven million dollars.
Sir Archibald Allison, in speaking of the great benefit derived from this act of the government, says :
It was ushered in by a combination of circumstances the most calamitous, both with reference to external security and internal industry, yet it terminated in a blaze of glory and flood of prosperity which have never, since the beginning of the world, descended on any nation.
The government of the United States issued treasury notes in 1812, 1813, 1814 and 1815, and made them legal-tender for all debts due the government. The people were so well satisfied with this money that it required two acts of Congress to withdraw it from circulation.
Treasury notes were issued and made lawful money of the United States in 1837, and used until 1848, at the close of the Mexican War, being always at par with coin, and were at a premium in Mexico during the war. During the great panic of 1857, when the banks suspended, the government issued twenty million dollars of legal-tender notes, with which the business of the country was transacted.
Since 1861 the Congress of the United States has exercised its legitimate power in the issue of demand notes, legal-tender notes, 7.30 notes, three years interest notes, compound interest notes, certificates of indebtedness, certificates of deposit for coin, and 3 per cent. interest certificates ; these were all made money of the government and circulated as such.
In 1873, when the banks all suspended, and were unable to meet their obligations, they besought the Secretary of the Treasury to pay out the reserve of forty-four millions of legal-tender money which had been held in the Treasury after it had been retired from circulation under the contraction policy, in order to save them from destruction. At their solicitation the Secretary paid out twenty-six million dollars of this reserve, which tided them over the great panic until they could get themselves in a condition to transact business.
Q. If these notes issued by the government are safer and more reliable in cases of emergency than other paper money, why do bankers and men dealing in money always oppose their issue and circulation ?
A. For the very simple reason that it interferes with their business. The business of these gentlemen is to make money by usuryby charging the people a certain per cent. for the use of money. Every dollar issued and paid out by the government in its disbursements to the people, robs the banker of so much usury. Like Demetrius and the craftsmen at Ephesus, they know that if such money is allowed to circulate, their craft is in danger, for it is by this they have their wealth.
Q. How does the money issued by the government rob the bankers of usury ? Please explain.
A. Give us your attention and we will try to make that clear to your comprehension.
The government pays out, for ordinary expenditures, about two hundred and fifty millions of dollars each year. If it uses its own legal-tender money it would cost the people about 1 per cent. to pay the expense of issuing it. But, suppose the government refuses to issue legal-tender paper money, and has not gold and silver enough to defray its expenses, it is compelled to borrow from the banks, or realize the money by the sale of interest-bearing bonds. In either case, if the banks had the entire control of the paper money of the nation, the rate of usury would never be less than 6 per cent. In this case, while the money of the government would cost the people 1 per cent., or two million five hundred thousand dollars per annum, the money of the banks would cost 6 per cent., or fifteen million dollars for the same amount for one year. This makes a difference of twelve million five hundred thousand dollars, which the government can save to the people each year by issuing its own money instead of delegating that power to the banks. Under the operation of the national banking system it is still worse. The banker buys a government bond for one hundred thousand dollars, bearing 3½ per cent. usury, and deposits it with the Treasurer of the United States, and receives in return ninety thousand dollars in bank notes, which he loans to the people at 6 per cent. per annum. The people pay the 3½ per cent. per annum on the whole of the bond of one hundred thousand dollars and 6 per cent. on the ninety thousand dollars of bank notes, making the national bank notes cost them nearly 9 per cent. per annum, or 8 per cent. more than the legal-tender money of the government costs them. Eight per cent. on two hundred and fifty million, is just twenty millions of dollars taken from the banks each year by the use of United States currency, instead of bank currency, in the disbursements of the government alone.
We have now, in round numbers, seven hundred millions of dollars of paper money in circulation. Eight per cent. on this amount makes fifty-six millions of dollars of tax the people would pay annually on that amount of national bank currency, more than for legal-tender currency, which would only cost seven million. So, you see, the use of money issued by the government would rob the banks annually of fifty-six million dollars. This is the reason why the bankers always oppose the issue of paper money by the government.
Q. That appears to be clear, but are these national banknotes really money ?
A. They are only money for that which the government by its fiat has made them a legal tender. In fact, they are only certificates of corporate indebtedness, or promises to pay money endorsed by the government. When they go into circulation they represent so much debt, and whenever these notes are loaned to individuals the persons borrowing pay usury on what the banker owes. So, that strictly speaking, the banker lives in luxury on the usury on what he owes.
Q. Is all money, both coin and paper, issued by a government of competent jurisdiction fiat money ?
A. It is, so far as it is money. If the fiat of the nation makes it full legal-tender, it is money in the broadest sense. If it makes it a partial legal tender it is money in a limited sense. The United States Government by its fiat makes its gold coins and its silver dollars full legal-tender ; which makes them money for every purpose within the limits of the government. It has restricted the legal-tender note and the national bank note in their legal-tender properties ; hence they are money in a limited sense. By the fiat of the government the greenback is money for every purpose except for duties on imports and interest on the public debt ; for these purposes they are not money. By the fiat of the government, the national bank notes are money for taxes, excises, public lands, and all other dues to the United States, except for duties on imports ; also for all salaries and other debts and demands owing by the United States to individuals, corporations and associations within the United States, except interest on the public debt, and in redemption of the national currency. For these purposes, and in transactions between individuals they are not money, and only used as money by consent of the parties using them.
Q. Have not the legal-tender notes been used for paying interest on the public debt and for paying customs dues ?
A. Yes. But in direct violation of law. The law positively provides that the interest on its bonds and customs dues shall be payable in coin, and as positively provides that the greenback shall not be a legal tender for these purposes. So that when it has been used for paying customs dues or interest on bonds, it was used just as the national bank note is used between individuals ; because the creditor preferred it to coin, and not because it was money for that purpose which could be paid or not at the option of the debtor.
Q. How has the greenback been made receivable for duties on imports ?
A. By the order of the Secretary of the Treasury to the collectors of customs at the different custom houses in the United States.
Q. How long have they been so received ?
A. Since a little before the 1st of January 1879, the time fixed by the law of 1875 for the resumption of specie payment. The government had in circulation at that time $376,000,000 of this partial legal-tender money, and only $133,000,000 of coin in the treasury to redeem it with. So long as these notes were not received at the custom house for duties on imports they were held at a discount at the banks. Secretary Sherman knew that unless they were raised to par with coin, the treasury would be drained in less than one week after the 1st of January, 1879. In order to prevent this drain he ordered the collectors of customs to receive them for customs dues, which immediately raised them to par with gold. As soon as this occurred they were preferred to coin by those who held the government obligations, and they requested that payments be made to them in legal-tender notes instead of coin as the law requires.
Q. Does not this contradict the proposition that all money is made by the fiat of law ?
A. No. The fiat of the nation made these notes money for every purpose except for duties on imports and interest on the public debt. Secretary Sherman, the financial agent of the government, took the responsibility of ordering his subordinates in the custom house to receive them for duties the same as coin. The government has not countermanded his order, and these notes are used as money in the custom house, not as legal-tender, but as the national bank notes are used between individuals, by consent of parties ; but the money property of the bills are in no way affected thereby.
Q. Is there any other instance in which United States treasury notes, which were not made full legal-tender by law, have raised from a discount to par with coin by the order of the Secretary of the Treasury that they should be received for duties on imports ?
A. Yes. In accordance with the laws of July 17 and August 6, 1861, $50,000,000 of treasury notes were issued and made payable in coin on demand, but were not made legal-tender. When the first of these notes was issued the banks professed to pay coin and refused to receive them. Though the government had guaranteed their payment in coin on demand, the banks placed them at a discount. Mr. Chase, who was then Secretary of the Treasury, as soon as he ascertained this fact, telegraphed to the Assistant Treasurer in the city of New York to receive these notes in payment of customs dues. As soon as this order was made by the Secretary the notes sprang to par and the banks suspended, while the demand notes remained at par, and went to a premium the same as gold.
In 1862, $10,000,000 more were issued, making $60,000,000 in all. This act, February 3, 1862, made both issues legal-tender. They were always thereafter at par with gold, and on account of their great convenience, sometimes at a premium. To the extent of their circulation they took the place of gold ; but the bankers and money dealers of Wall street denounced this money as beneath the dignity of a great nation, and demanded its withdrawal from circulation. In obedience to their demands provision was made for its withdrawal from circulation, but it was not demonetized by law ; and the people liked it so well that they would not return it to the Treasury and exchange it for coin, as seen by the report of the Secretary of the Treasury for July 1, 1879, which shows that $61,470.00 was still in circulation eighteen years after the provision had been made for its withdrawal.
Q. Are there any other instances in which the United States Government has issued full legal-tender money ?
A. Yes. The government has issued certificates for the deposit of both gold and silver coin. These certificates bear no interest and are legal-tender for all debts, public and private. The law limited the issue to $50,000,000. There has been from $30,000,000 to $50,000,000 of these certificates in circulation since 1863.
Q. Is it not a fact that in every instance where the United States Government has declared anything but gold and silver money, it has been done in violation of the constitution ?
A. No. The constitution is entirely silent on the subject. It simply authorizes Congress to coin money and regulate the value thereof, and leaves it discretionary with that body to select the material upon which it will stamp the design and denomination of the money. It further delegates to Congress the power to make all laws which shall be necessary and proper for carrying into execution the foregoing power, and other powers vested by this constitution in the government of the United States, or in any department or officer thereof.
By these clauses of the constitution, Congress is not only endowed with power to select the material of which it makes money, but it is given full power to pass such laws as are necessary for the enforcement of obedience to the laws which they pass declaring what is money, as for the enforcement of the law for collecting revenue.
Q. Has it not been contended by our ablest statesmen and wisest and most experienced financiers, that Congress is not clothed by the constitution with power to issue full legal-tender paper money, unless as a last resort, to save the nation in time of war.
A. This objection has been raised and strongly urged by statesmen of noted ability ; but with all their legal acumen, they have been unable to point out any clause in the constitution which in the least degree abridges the power of Congress to coin money and regulate the value thereof ; while all through the history of America, from the first settlement of the British Colonies to the adoption of the constitution of the United States, and on down through one hundred years of national existence, our purest patriots and statesmen of unquestioned ability have contended that the right to make money was inherent in the people until it was delegated to their representatives by the formation of a government. This power being delegated by the constitution to Congress, it has full power to issue money.
Benjamin Franklin, one of the greatest philosophers and purest statesmen of his day, and the originator and defender of the Pennsylvania system of Colonial paper money, when called before a committee of Parliament in 1764, after showing the great advantage the use of the paper money had been to the Colony, summed up in these words :
On the whole, no method has hitherto been formed to establish a medium of trade, in lieu of coin, equal in all its advantages to bills of credit, founded on sufficient taxes for discharging it at the end of the time, and in the meantime, made a general legal-tender.
Thomas Jefferson, who has the reputation of having drafted the constitution, and should certainly understand with what power it clothes Congress, when writing to Mr. Eppes on the danger of bank associations, says :[As you well knew, Mr. Jefferson was NOT referring to legal-tender Treasury notes, but to Treasury notes promising to pay coin, "upon which the nation may rely for loan". And just why did you leave out the first part of the sentence ?]
Bank paper must be suppressed, and the circulating medium must be restored to the nation, to whom it rightly belongs. * * * * * * it is the only resource which can never fail them, and it is an abundant one for every necessary purpose. Treasury bills, bottomed on taxes, bearing or not bearing interest, as may be found necessary, thrown into circulation will take the place of so much gold and silver
Albert Gallatin, who was twelve years Secretary of the Treasury, said :
The right of issuing paper money as currency, like that of gold and silver, belongs exclusively to the nation.
Daniel Webster, who stands acknowledged as one of the most profound constitutional lawyers and statesmen the world has ever produced, in a speech delivered in the United States Senate on the 31st day of January, 1833, said :
The constitutional power vested in Congress over the legal currency of the country is one of the very highest powers, and the exercise of this high power is one of the strongest bonds of the union of the States. It is not to be doubted that the constitution intended that Congress should exercise a regulating power, a power both necessary and salutary, over that which should constitute the actual money of the country, whether that money were coin or the representative of coin.
President Madison said, in his message to Congress in 1816 :
It is essential that the nation should possess a currency of equal value, credit and use wherever it may circulate. The constitution has intrusted Congress, exclusively, with the power of creating and regulating a currency of that description.[Mr. Madison was referring to a currency issued by a central bank; and in 1816 he and Calhoun revived the idea and set up a currency-issuing central bank.]
In a speech delivered in the Senate on September 28, 1837 Mr. Webster used this language :[Mr. Webster was no friend or proponent of government-issued, legal-tender paper money. As you well know, in the speech, from which you fabricated this "quote" Mr. Webster was advocating a central bank and its notes as national currency.]
But the constitution does not stop with this grant of the coinage power to Congress. It expressly prohibits the states from issuing bills of credit. ****** The states therefore are prohibited from issuing paper for circulation on their own credit, and this provision furnishes additional and strong proof that all circulation, whether coin or paper was intended to be subject to the regulation and control of Congress. ******* The constitution declares that Congress shall have power to regulate commerce, not only with foreign nations, but among the states. This is a full and complete grant and must include authority over everything which is a part of commerce, or essential to commerce. And is not money essential to commerce ? No man in his senses will deny that. ******* If Congress then, has power to regulate commerce, it must have a control over that money, whatever it may be, with which commerce is actually carried on, whether that money be coin or paper. ******* The regulation of money is not so much an inference from the commercial power of Congress as it is a part of it. Money is one of those things without which, in modern times, we can form no idea of commerce. ******* I insist that the duty of Congress is commensurate with its power. ******* A general and universally accredited currency, therefore, is an instrument of commerce, which is necessary to its just advantages, or, in other words, which is essential to its beneficial regulation. Congress has power to establish it, and no other power can establish it, and therefore Congress is bound to exercise its own power. It is an absurdity on the very face of the proposition to allege that Congress shall regulate commerce, but shall nevertheless abandon to others the duty of sustaining and regulating its essential means and instruments.
Mr. Dallas, who was Secretary of the Treasury in 1816, said in his report of that year :
Whenever the emergency occurs that demands a change of system, it seems necessarily to follow that the authority which was alone competent to establish the national coin is alone competent to create a national substitute.
In the annual message of President Madison, of December 5 , he said :
It may become necessary to ascertain the terms upon which the notes of the government (no longer required as an instrument of credit) shall be issued upon motives of general policy as a common medium of circulation.
John C. Calhoun said in a speech in the United States Senate, on the 18th of September, 1837 :
I would ask, then, why should the government mingle its credit with that of private corporations ? No one can doubt but that the government credit is better than that of any bankmore stable and more safe. Why, then, should it mingle its credit with the less perfect credit of those institutions ? Why not use its own credit to the amount of its own transactions ? Why should it not be safe in its own hands, while it shall be considered safe in the hands of eight hundred private institutions scattered all over the country, and which have no other object than their own private profits, to increase which they almost constantly extend their business to the most dangerous extremes ? And why should the community be compelled to give 6 per cent. discount for the government credit blended with that of the banks, when the superior credit of the government could be furnished separately, without discount, to the mutual advantage of the government and the community ? Why, let me ask, should the government be exposed to such difficulties as the present, by mingling its credit with the banks when it could be exempt from all such by using by itself its own safer credit ? It is time the community, which has so deep an interest in a sound and cheap currency, and the equality of the laws between one portion of the country and another, should reflect seriously on these things, not for the purpose of oppressing any interest, but to correct gradual disorders of a dangerous character, which have insensibly in the long course of years, without being perceived by any one, crept into the state. This question is not between credit and no credit, as some would have us believe, but in what form credit can best perform the functions of a safe and sound currency. On this important point I have freely thrown out my ideas, leaving it for this body and the public to determine what they are worth, believing that there might be a sound and safe paper currency founded on the credit of government exclusively.
President Jackson said, in his message to Congress in 1829 :
I submit to the wisdom of the legislature whether a national one (currency), founded on the credit of the government and its resources, might not be devised which would obviate all constitutional difficulties, and at the same time secure all the advantages of the government and the country that were expected to result from the present bank.
The reference here made is to the United States Bank, the charter of which expired in 1837, and was not renewed. Senator Wilson, of Massachusetts, than whom there was no purer statesman in his day, said, in a speech in the Senate in opposition to the Senate amendment to the legal-tender act which robbed the greenback of the most important feature of its legal-tender property :
I venture to express the opinion that ninety-nine out of every hundred of the loyal people of the United States are for the legal-tender clause. I do not believe there are one thousand people in the State I represent who are not in favor of it. The entire business community, with hardly a single exceptionmen who have trusted out in the country in commercial transactions their tens and hundreds of millionsare for the bill with the legal-tender clause. Yes, sir, the people in sentiment approach unanimity on this question. I believe that no measure that can be passed by Congress, unless it be a bill to provide revenue to support the government, will be received with so much joy as the passage of the bill with the legal-tender clause.
Thaddeus Stephens, whose name will go down in history to future generations as one of the ablest statesmen and most conscientious representatives that ever occupied a seat in the American Congress, when the bill was returned from the Senate with the exceptions to the legal-tender clause, after denouncing the amendment as an outrage upon the soldiers and the people at large for the benefit of the few, said :
I approach this subject with more depression of spirits than I ever approached any question. * * * I have a melancholy foreboding that we are about to consummate a cunningly devised scheme which will carry great injury and great loss to all classes of the people throughout the Union, except one. No act of legislation of this government was ever hailed with so much delight throughout the whole length and breadth of the Union, by every class of people, without exception, as the bill we passed and sent to the Senate. * * * * It is true there was a doleful sound came up from the caverns of the bullion brokers and the salons of the associated banks. Their cashiers and agents were soon on the ground and persuaded the Senate, with little deliberation, to mangle and destroy what it cost the House months to digest, consider and pass. They fell upon the bill in hot haste and so disfigured and deformed it that its very father would not know it. * * * * It now creates money, and by its very terms declares it a depreciated currency.
A host of other names of the most illustrious men of the country, all bearing testimony to the fact that they all understood the constitution to give full power to issue full legal-tender paper money, and make it the current money of the nation, could be given. But the limits of this work will not admit of further quotations from this source.["A host of other names" ? Even above-mentioned names did not support your proposition ! Andrew Jackson was strictly for coin, and would not have signed an act authorizing legal-tender notes. Mr. Calhoun was for coin, also, and for Sub-Treasury (which excluded paper). Mr. Wilson is not supporting your argument, either. Thaddeus Stevens wanted a funded debt, into which the greenbacks he expected to turn. Why not use quotes that support the concept of constitutional right to issue legal tender paper ?]
Q. Have not a number of men occupying high positions in the government, entertained and expressed a different opinion with regard to the power delegated to Congress by the constitution ?
A. Yes. But such present their objections as doubts, without showing any constitutional grounds upon which such doubts are predicated. Senator Sherman said, in a speech delivered in the Senate in 1863, as chairman of the finance committee of that body :
The issue of government notes can only be a temporary measure, and is only intended as a temporary measure, to provide for national exigency.
Secretary Chase, in his report in 1862, objected to legal-tender notes, not because the constitution did not authorize Congress to issue them, but on account of the facility of excessive expansion.
In Secretary Bristows report to Congress, in December, 1875, he says, in speaking of the great financial distress of that period :
These disastrous disturbances have been brought about in our own country by over-trading, over-credit and excessive enterprise of a speculative character, stimulated by too great abundance of promises to pay, existing in the form of currency not based upon or convertible into the only actual money of the world and the constitutiongold and silver.
The Secretary simply assumes, without giving any reason therefor, that gold and silver is the only money of the world and the constitution, in the face of the fact that there is no such thing as a money of the world or of the constitution.
As we have previously shown, every nation in the world makes its own money, and the constitution is silent upon the kind of material Congress shall select and make the money of the United States.
Secretary Sherman, in his report to Congress in 1879, says :
It would seem, therefore, that now, and during the maintenance of resumption, it (the legal-tender clause) was a useless and objectionable assertion of power, which Congress might now repeal on the ground of expediency alone. When it is considered that the constitutionality is seriously contested, and that from its nature it is subject to grave abuse, it would now appear to be wise to withdraw the exercise of such a power, leaving it in reserve to be again resorted to in such a period of war or grave emergency as existed in 1862.
President Hayes said, in his message to Congress, December 2, 1879 :
It is my firm conviction that the issue of legal-tender paper money, based wholly upon the authority and credit of the government, except in extreme emergency, is without warrant in the constitution, and a violation of sound financial principles.
These objections are mere assumptions, without a shadow of proof for their establishment, the constitution being entirely silent as to the kind of material Congress should select.
Q. Does not the word coin, in the constitution, imply that all money should be made of metal ?
A. No. The words coin and print are synonymous terms, and are used interchangeably in Europe. If we construe coining to mean melting and casting the metal into moulds, that would not constitute money. It must pass through the dies and have the legal device stamped or printed thereon before it becomes money, whether of gold, silver or paper. As it is the stamping or printing in obedience to law that imparts the money property, the word coin in the constitution means to stamp or print, and this can be done on paper as well as on gold.
Q. If Congress so understood the constitution, why did it pass a law in 1792 for establishing a mint for coining metallic money ?
A. The fact that metallic coins, used as money by other nations, found their way to this country, and in order to utilize them as a part of the currency, it was expedient to establish a mint and coin them into money of the United States instead of using them with a foreign stamp, which did not indicate the value set upon them by Congress. And, as gold and silver bullion were articles of commerce, it was thought to be good policy to prepare for its coinage in order to swell the amount of money so as to meet the demands of commerce at home, and have a metallic reserve to adjust balances with other nations. But Congress fully recognized its power, under the constitution, to create paper money, as to coin metallic money, for, on the 25th of February, 1791, it passed a law chartering the First United States Bank for a term of twenty years, with a capital stock of $10,000,000. Becoming satisfied that it had transcended its constitutional authority in giving into the hands of a private corporation the power to issue money, it so amended the charter, on the 2d day of March following, that the government should own $2,000,000 of the stock and have a controlling voice in the directory. This act shows that that Congress not only understood that the constitution clothed it with power to issue paper money but to form a partnership with individuals for that purpose, which it certainly could not do if it had not power to issue it itself.
This bank was authorized to issue bills of credit, which were made legal-tender for all debts due the United States. After the expiration of this charter, the Congress of 1812, 1813, 1814 and 1815 issued Treasury notes, all of which were made legal-tender. The Congress of 1816, chartered the Second United States Bank for twenty years, with a capital of $35,000,000, the government owning $7,000,000 of the stock. In this charter the government agreed to relinquish to the bank the power to issue all legal-tender paper money for the term of twenty years, in consideration of which grant the bank paid the government $1,500,000.
Thus Congress not only recognized its power to issue legal-tender paper money, but asserted the right (which is nowhere guaranteed in the constitution) to transfer a part of this power to private individual for a consideration. If that body did not possess such power under the constitution, it could not transfer it to others, for it is an axiomatic fact that no legislative body can transfer any power to an individual or corporation which it does not itself possess.
Q. As there appears to be so wide a difference of opinion as to the power conferred by the constitution upon Congress to issue legal-tender paper money, why has the matter not been brought before the courts and settled by judicial decision ?
A. It has in a number of instances. When the Second Bank of the United States went into operation in 1816, a large amount of the treasury notes of 1813, 1814 and 1815 were in circulation. These notes were legal-tender for all debts due the government, and circulated among the people on a par with gold. The government having sold to the bank the exclusive privilege of issuing all the legal-tender paper money of the United States for a term of twenty years, the bank claimed that the government, permitting these treasury notes to remain in circulation, was violating the contract entered into with the bank, and demanded their withdrawal. In 1817, Congress, in obedience to this demand, passed an act calling in all the said notes, and providing that they should be receivable at the treasury only.
The people paid no attention to this act, knowing that it did not demonetize the notes as they were still receivable at the treasury ; they therefore held on to them and kept them in circulation. In 1818 a business firm in Boston tendered some of these treasury notes for duties on imports, for which they had formerly been received. The District Attorney in Boston instructed the collector of the port to refuse to receive treasury notes for duties and they were so refused at the Custom House. The government brought suit for the duties. The merchant pleaded a tender of treasury notes. The government responded that treasury notes were not a legal-tender. The case was agued before Judge Story, in 1819. His review of the case is very elaborate, covering eighteen pages. He gave judgment in favor of the defendants. In his decision he says :
Treasury notes were and are a legal-tender for everything for which the law makes them receivable. (2d Mason, pp. 1 to 18.)
The result of this decision was to keep the notes in circulation, notwithstanding the protest of the bank, until the 3d day of May, 1822, when Congress passed another act, providing that these treasury notes should not be received by any collector of revenue in the United States, and that they should be received and paid at the treasury of the United States only.
Congress did not, by these acts, unmake the money which previous Congresses had made, but it threw such restrictions around it as to drive it out of circulation. The decision of Judge Story, though against the government, was never appealed to the United States Court, and stands upon the statute books as the law at the present time.
As additional evidence of the recognition of the power of Congress to issue legal-tender paper money in time of peace, by the people and the courts, I quote from a speech delivered in the House of Representatives in February, 1880, by Hon. John M. Bright, of Tennessee, in which he said :
I shall not elaborate the constitutionality of this subject, but will give a synopsis, which I submit to the consideration of any of the objectors in relation to it. I say it has been held to be constitutional by Congress in various acts and by the courts in repeated cases ; that it has been held to be constitutional by both parties ; that it has been held to be constitutional by a majority of the state courts of the United States ; that it has repeatedly been held to be constitutional by the Supreme Court of the United States, that it has been acquiesced in by the people of the United States and they have adopted it as their money of account, and that the man who would rush against this question with such an array of authority against him, must be struck with an unaccountable presumption. Now let us look a little in detail at the question. Here is the legislative action of February 25, 1862 ; July 11, 1862, and March 3, 1863, all declaring it lawful money and legal-tender. February 4, 1868, when contraction was going too rapidly, another act was passed to prevent the further contraction of the currency, and stopped it at $382,000,000. Why was that, if it were unconstitutional when the zephyrs of peace were blowing over the land ? Not only so, February 17, 1876, Mr. Kasson offered a resolution in this House which is in the following language :
Resolved, That the constitutional authority of Congress to coin money and regulate the value thereof, and of foreign coins, does not include the authority to issue the paper of the government as money, and in the judgment of this House the constitution nowhere confers on Congress the power to issue, in time of peace, promises or obligations of the government as legal-tender in payment of debts.
The vote on the resolution stood yeas 97, ayes 146, thus denying the affirmative power of the resolution and affirming the opposite that the legal-tenders in time of peace were constitutional, and that the authority and power to issue them were found in the constitution. * * * * * * Not only so, but in 1878, there was a joint resolution passed herethat is of recent date, after ample room for reflectionto suspend the further retirement of these notes, which were said to be unconstitutional. The joint resolution was passed by a decided majority.
Up to the time of the decision of the Supreme Court of the United States, in the case of Knox against Lee, 12 Wallace, page 457, there were fifteen state courts which had affirmed the constitutionality of it, independent of the Supreme Court of the United States.
I have six cases from the Supreme Court of the United States : Knox against Lee, 12 Wallace, 457 ; Tribilcox against Wilson, 12 Wallace 687 ; Dooley against Smith, 13 Wallace, 604 ; Bigler against Waller, 14 Wallace, 297 ; R.R. Company against Johnson, 15 Wallace, 195 ; Broderick against McGraw, 15 Wallace, 639all affirming the constitutionality of it. Chief Justice Chase himself, in Hepburn against Griswold, stated that the constitutionality had never been called in question except as to its retrospective effect ; and then, by the submission of the people to this and the contemporaneous construction of other courts bring to its relief a general principle of law which has all the force of law itself. The there fact that there is a concurrence is an argument in favor of the proposition, which is concurred in by the different courts.
Here is an array of testimony which it would seem ought to satisfy the mind of every honest doubter, that the constitution clothes Congress with unlimited power in the selection of the material of which it creates the money of the United States ; but in order to remove every possible doubt on the subject, I will give a synopsis of the decision rendered by the Supreme Court of the United States in the case of Knox vs. Lee, and Parker vs. Davis, which were consolidated and brought before the court and fully argued for the purpose of obtaining a decision from that body which would put the question of the constitutionality of the legal-tender acts of Congress, and its power to determine when such power should be exercised, fully at rest. I give the language of the court, as recorded in 12 Wallace, United States Supreme Court reports. It says :
Before we can hold the legal-tender acts unconstitutional, we must be convinced they were not appropriate means, or means conducive to the execution of any or all of the powers of Congress or the government, not appropriate in any degree (for we are not judges of that degree of appropriation), or we must hold that they were prohibited. Page 509.
On page 542 of these reports we find this language :
The degree of the necessity for any congressional enactment, or the relative degree of its appropriateness, is for consideration in Congress, not here. When the law is not prohibited, and is really calculated to effect any of the objects entrusted to the government, to undertake here to inquire into the degree of the necessity, would be to pass the line which circumscribes the judicial department, and to tread on legislative grounds.
It will be seen by the above quotations, that the court did not decide the simple question of the constitutional power of Congress to issue legal-tenders in time of war, but the whole matter of the necessity of all acts for whatever purpose not prohibited by the constitution. The court continues on page 545 :
The constitution was intended to frame a government as distinguished from a league or compact ; a government supreme in some things overstates and people. It was designed to provide the same currency having a uniform legal value in all the states. It was for this reason the power to coin money and regulate its value was conferred upon the federal government, while the same power to emit bills of credit was withheld from the states. The states can no longer declare what shall be money or regulate its value. Whatever power there is over the currency is vested in Congress. If the power to declare what is money is not in Congress it is annihilated.
Still further, on page 546, the court says :
And, generally, when one of such powers was expressly denied to the states only, it was for the purpose of rendering the federal power more complete and exclusive ; how sensible, then, its framers must have been that emergencies might arise where the precious metals might prove inadequate to the necessities of the government and the demands of the peoplewhen it is remembered that paper money was almost exclusively in use in the states as a medium of exchange, and when the great evil sought to be remedied was the want of uniformity in the current value of money ; it might be argued, we say, that the gift of power to coin money and regulate the value thereof was understood as conveying general power over the currency, and which had belonged to the states and which they had surrendered.
By this decision the whole power over the currency whether metallic or paper, is vested in Congress, by the constitution, to regulate in its wisdom for the interests of the whole people. This question being settled, the court proceeds to decide upon the power to make whatever the government issues as money, legal-tender. On pages 548 to 549 it says :
By the obligation of a contract to pay money is to pay that which the law shall recognize as money when the payment is to be made. If there is anything settled by decision it is this, and we do not understand it to be controverted. No one ever doubted that a debt of one thousand dollars, contracted before 1834, could be paid with one hundred eagles coined after that year, though they contained no more gold than ninety-four eagles when the contract was made, and this is not because of the intrinsic value of the coin, but because of its legal value. The eagles coined after 1834 were not money until they were authorized by law, and had they been coined before, without a law fixing their legal value, they could no more have paid a debt than uncoined bullion, or cotton, or wheat.
Once more, on page 553 :
It is hardly correct to speak of a standard value. The constitution does not speak of it. It contemplates a standard for that which has gravity or extension ; but value is an ideal thing. The coinage acts fix its unit as a dollar, but the gold or silver thing we call a dollar, is in no sense a representation of it. There might never have been a piece of money of the denomination of a dollar. * * * * * It will be seen that we hold the acts of Congress constitutional as applied to contracts made before or after their passage.
Q. Has it not been charged that the Supreme Court was packed in order to obtain a decision sustaining Congress in its legal-tender acts ?
A. Such charges were made, but only by those who opposed the legal-tenders and contended that their issue and use as money was in violation of the constitution. That such charges had no foundation in fact is more fully demonstrated as the subject becomes more fully and fearlessly investigated by the people.
Three points, then, are definitely settled.
First. The only power to issue money and regulate the value thereof in the United States is vested by the constitution in Congress.
Second. The constitution does not restrict Congress to any special material of which to construct money.
Third. Any money which Congress creates and declares a full legal-tender, will pay any debt, either public or private.