The Monetary Powers and Disabilities of the US Constitution

Briefing Doc: A Review of Edwin Vieira's "The Monetary Powers and Disabilities of the US Constitution"

Author: Edwin Vieira, Jr.

Source: The Monetary Powers and Disabilities of the US Constitution: A Study in Constitutional Law (1982)

Context: This study was prepared for the United States Gold Commission, tasked with investigating the role of gold in the U.S. monetary system.

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Summary: Edwin Vieira Jr.'s 1982 study for the United States Gold Commission examines the history of American monetary policy through a constitutional law lens. Vieira argues that the Constitution explicitly limits the government's power to coin money and regulate its value, prohibiting the issuance of paper currency as legal tender. He traces the evolution of monetary policy from colonial times, highlighting instances of Congress exceeding its constitutional authority. His analysis critiques the Federal Reserve System as an unconstitutional delegation of power and advocates for a return to a system based on a sound metallic standard. The text uses historical legal precedent and Supreme Court cases to support its arguments.

Main Theme: Vieira argues that the Constitution establishes a strict "hard-money" policy based on gold and silver coinage. He systematically analyzes the monetary powers granted to Congress and the restrictions imposed on the states, drawing on historical precedents and Supreme Court decisions.

Key Arguments and Facts:

1. Constitutional "Hard-Money" Policy:

• Vieira asserts that the Framers intended to "exclude everything from use, as a circulating medium, except gold and silver." (p. 46)
• He interprets Article I, Section 8, Clause 5 ("To coin Money, regulate the Value thereof, and of foreign Coin") as limiting Congress's power to coining precious metals and adjusting their relative values.
• He emphasizes that the power "To regulate the Value" does not encompass debasing coinage or creating fiat currency.

2. Prohibition of "Bills of Credit":

• Article I, Section 10, Clause 1 prohibits states from emitting "Bills of Credit" and making anything but gold and silver coin legal tender.
• This prohibition, Vieira argues, stems from the historical abuses of paper money issued by colonies and states.
• He contends that Congress also lacks the power to emit "Bills of Credit," even though the Constitution does not explicitly state this.

3. Limited Scope of the Borrowing Power:

• Article I, Section 8, Clause 2 grants Congress the power "To borrow Money."
• Vieira argues that this power does not authorize the issuance of paper currency as a substitute for borrowing actual "Money."
• He distinguishes between issuing "Securities" as evidence of debt and creating paper "Money."

4. Unconstitutionality of the Federal Reserve System:

• Vieira criticizes the Federal Reserve System as unconstitutional for issuing irredeemable, legal-tender Federal Reserve Notes (FRNs).
• He traces the history of the U.S. monetary system's decline from a bimetallic standard to a fiat currency system.
• He denounces FRNs as "Bills of Credit" and argues that their legal-tender status violates the constitutional limitations on both Congress and the states.

5. Bank of the United States Precedent:

• Vieira analyzes the constitutionality of the Bank of the United States, chartered in 1791 and 1816.
• He argues that, although Congress had the power to incorporate the Bank, its issuance of bills and notes did not constitute an act of the national government.
• He distinguishes between the Bank exercising its power to issue notes as a private corporation and the government directly emitting "Bills of Credit."

Quotes:

• "The great end and object of this restriction on the power of the states…was…to exclude everything from use, as a circulating medium, except gold and silver…That the real dollar may represent property, and not the shadow of it." (p. 46)
• "The omission to give the power to the Federal Government 'to emit bills of credit' as completely bars that Government from the exercise of the power, as does the express prohibition to the States…" (p. 93)
• "The word ['regulate'] ordinarily implies not so much the creating or establishment of a new thing, as the arranging in proper order and controlling that which already exists." (p. 62)

Recommendations:

Vieira advocates for a return to a constitutional monetary system based on:

• A silver standard as the primary unit of value.
• Free coinage of gold and silver at a fixed weight and fineness.
• Abolition of the Federal Reserve System and its power to issue FRNs.
• Prohibition of legal tender status for any currency other than properly regulated gold and silver coins.

Significance:

Vieira's work presents a rigorous, originalist interpretation of the Constitution's monetary provisions. It provides valuable historical context and legal analysis for contemporary debates about monetary policy and the role of central banking. While his conclusions remain controversial, they raise important questions about the legitimacy of the current U.S. monetary system under the Constitution.

A Study in Constitutional Law: The Monetary Powers and Disabilities of the US Constitution

I. Introduction

This table of contents provides a comprehensive overview of Edwin Vieira Jr.’s “The Monetary Powers and Disabilities of the US Constitution.” It explores the historical context of monetary powers and disabilities, delves into the specific clauses within the Constitution related to coinage, legal tender, and bills of credit, and examines how Congress and the executive branch have applied, and often misapplied, these powers over time.

II. The Monetary Powers and Disabilities of the US Constitution

A. The Monetary System at Common Law

1. English Monetary History: This section examines the historical evolution of English monetary policy, focusing on the monarch’s prerogative to "fix the value" of coins and the meaning of "regulating" currency. It also explores historical instances of currency debasement and the emergence of legal tender laws.
2. American Monetary History Before the Constitution: This section examines the colonial experience with paper money and bills of credit, outlining the problems that arose from their issuance and the subsequent depreciation. It delves into the monetary powers held by the states under the Articles of Confederation and the reasons behind the limitations placed upon those powers.

B. The Monetary Powers and Disabilities in the Constitution

1. Purpose and Policy of the Monetary Powers: This section discusses the Framers’ intentions in designing the Constitution's monetary provisions. It emphasizes their desire to establish a stable and uniform monetary system based on intrinsic value, drawing a sharp contrast with the previous experiences with fiat currencies.
2. Article I, § 10, cl. 1: This section analyzes the clause that prohibits states from emitting bills of credit and making anything but gold and silver coin a tender in payment of debts. It provides a detailed analysis of the meaning of "making a tender" and the absolute nature of this restriction on state power.
3. Article I, § 8, cl. 5: This section examines the clause granting Congress the power to "coin Money, regulate the Value thereof, and of foreign Coin." It defines the power "To coin Money," its relationship to the regulation of value, and why only gold and silver coin may constitutionally possess legal tender status. It also addresses the limitations of this power, specifically refuting the idea that it allows Congress to debase the coinage.
4. Article I, § 8, cl. 2: This section analyzes the clause granting Congress the power "To borrow Money on the credit of the United States.” It clarifies that this power does not include the authority to emit bills of credit or to create legal tender outside of properly regulated gold and silver coinage. This section reinforces the Framers' intent to prevent the federal government from engaging in inflationary monetary practices.
5. Article I, § 8, cl. 6: This section examines the clause granting Congress the power “To provide for the Punishment of counterfeiting the Securities and current Coin of the United States.” It clarifies the distinction between the borrowing power and the power to coin money, emphasizing that Congress cannot issue legal tender paper currency under the guise of borrowing.
6. Summary of Monetary Powers and Disabilities: This section synthesizes the key points of the previous sections, reiterating the limitations and the intended purpose of the Constitution’s monetary provisions.

C. Congressional and Executive Application of the Monetary Powers and Disabilities

1. The Coinage Acts of the 1790s and Mid-1800s: This section examines historical coinage acts, including Alexander Hamilton’s Report on the Mint and the debates surrounding these acts. These examples showcase the early Congress’s commitment to a sound monetary system anchored to precious metals. It examines specific coinage acts and the legislative intent behind them, highlighting their adherence to the principles of a stable monetary system.
2. The Issuance of Treasury Notes Prior to the Civil War: This section discusses the constitutionality of treasury notes issued in the early and mid-1800s. This analysis underscores the tension between the constitutional limitations on paper currency and the government's perceived need for flexible financial instruments.
3. Incorporations of the Bank of the United States in 1791 and 1816: This section analyzes the constitutionality of the Bank of the United States and the issuance of its notes. It delves into the debate surrounding the Bank’s existence, the nature of its notes, and whether those notes were considered bills of credit.

III. Decisions of the United States Supreme Court on the Monetary Powers and Disabilities

A. The Legal Tender Cases: This section analyzes Supreme Court decisions related to the constitutionality of legal tender laws. It explores the Court’s shifting interpretations of Congress’s power to issue legal tender paper currency, highlighting the significant departure from the Framers’ original intent.

B. The Gold Clause Cases: This section examines cases dealing with the government's abrogation of gold clauses in contracts. This section focuses on the legal challenges to the government’s efforts to confiscate gold and abrogate gold clauses in contracts, revealing the further erosion of sound money principles.

IV. Abuses of the Monetary Powers Under the Contemporary Federal Reserve System

A. The Unconstitutionality of Irredeemable, Legal-Tender Federal Reserve Notes: This section argues that the current monetary system based on Federal Reserve Notes (FRNs) is unconstitutional. It traces the historical progression from a bimetallic standard to a fiat currency system, highlighting the key legislative acts and executive orders that brought about this transformation. This analysis provides a critique of the current monetary system, arguing for its unconstitutionality based on its deviation from the principles of precious metal-backed currency.

B. The Unconstitutionality of a Monetary System Consisting of Base-Metal Coinage and Irredeemable Bank-Notes: This section further condemns the use of base-metal coinage and irredeemable bank-notes, deeming them incompatible with the Constitution’s monetary framework.

V. Conclusion

Vieira concludes by suggesting ways to reform the monetary system and bring it back into line with the Constitution. He advocates for a return to a sound monetary system based on precious metals, arguing that it is essential for economic stability and individual liberty. The essay serves as a call to action for policymakers and citizens alike to reassert the Constitution’s original intent in monetary matters.

A Constitutional Analysis of American Monetary Policy: A Study Guide

I. Short Answer Questions (2-3 sentences each)

1. What were the primary monetary powers and disabilities of the states under the Articles of Confederation?
2. Explain the purpose of Article I, Section 10, Clause 1 of the U.S. Constitution.
3. How does Article I, Section 10, Clause 1 differ from the second and third clauses of the same section?
4. According to Vieira, what does the power "To coin Money" in Article I, Section 8, Clause 5 encompass?
5. Explain the concept of "regulating the value" of money as understood by the Framers.
6. What is the historical and legal basis for Vieira's argument against the constitutionality of debasing coinage?
7. How does Vieira distinguish between "Bills of Credit" and "Money"?
8. What is the significance of the omission of the power to "emit Bills of Credit" from the Constitution?
9. According to Vieira, how did the creation of the Bank of the United States relate to the government's monetary powers?
10. Explain Vieira's argument regarding the unconstitutionality of the Federal Reserve Note as "legal tender."

II. Short Answer Key

1. Under the Articles of Confederation, states generally held broad monetary powers, including the ability to coin money, emit bills of credit, and declare legal tender. However, this decentralized system led to economic instability and inconsistencies.
2. Article I, Section 10, Clause 1 prohibits states from coining money, emitting bills of credit, and making anything but gold and silver coin a tender in payment of debts. This clause aimed to establish a uniform national monetary system based on precious metals.
3. The first clause of Article I, Section 10 begins with "No State shall," imposing absolute prohibitions on the states. In contrast, the second and third clauses use "No State shall, without the Consent of Congress," allowing for conditional exceptions with Congressional approval.
4. Vieira argues that the power "To coin Money" involves striking coins from precious metals (gold and silver), determining their weight, purity, and design, and fixing their value in relation to a standard unit.
5. The Framers understood "regulating the value" as adjusting the weight and fineness of coins to maintain a consistent intrinsic value relative to the established standard. This involved preventing debasement or arbitrary changes in the metal content of coins.
6. Vieira traces the historical condemnation of debasement to English common law and emphasizes its harmful economic consequences. He argues that the Constitution explicitly denies Congress the power to debase coinage by granting it only the power to "regulate the value" in a manner consistent with the established standard.
7. Vieira defines "Money" as coined metal with intrinsic value, while "Bills of Credit" are promises to pay money backed by the government's credit, not by tangible assets.
8. The omission of the power to "emit Bills of Credit" from the Constitution, coupled with the explicit prohibition on states, demonstrates the Framers' intention to prevent the issuance of fiat currency and maintain a monetary system based on precious metals.
9. Vieira contends that while Congress had the power to charter the Bank of the United States as a means to execute its other enumerated powers, the Bank's issuance of bills and notes did not constitute an act of the national government. The Bank operated as a private corporation, not a government entity.
10. Vieira argues that the Federal Reserve Note is unconstitutional as legal tender because it is not "Money" within the meaning of the Constitution. FRNs are irredeemable fiat currency, backed only by the government's fiat, not by gold or silver.

III. Essay Questions

1. Analyze the historical context surrounding the framing of the Constitution's monetary powers. What were the key concerns and motivations of the Framers?
2. Critically evaluate Vieira's interpretation of Article I, Section 8, Clause 5 ("To coin Money"). Do you agree with his analysis of the scope and limitations of this power?
3. Discuss the relationship between the power "To borrow Money" (Article I, Section 8, Clause 2) and the prohibition against "Bills of Credit" (Article I, Section 10, Clause 1). Can the former power be used to justify the issuance of fiat currency?
4. Analyze the Supreme Court's decision in McCulloch v. Maryland (1819) and its implications for the interpretation of the government's monetary powers. Did this decision establish a precedent for the later development of the Federal Reserve System?
5. Evaluate the constitutionality of the contemporary Federal Reserve System in light of Vieira's analysis. What specific aspects of the system does he deem unconstitutional, and what are the potential consequences of these constitutional violations?

IV. Glossary of Key Terms

• Bill of Credit: A promissory note issued by a government, representing a promise to pay a specified amount of money in the future.
• Coin Money: To strike coins from metal, typically gold or silver, and to fix their weight, purity, and design.
• Debasement: The act of reducing the precious metal content of a coin while maintaining its face value, effectively diminishing its intrinsic value.
• Fiat Currency: A form of money that derives its value from government decree or legal tender laws, not from any intrinsic value or backing by a commodity.
• Legal Tender: Currency that must be accepted in payment of debts by law.
• Monetary Powers: The constitutional authority of the government to coin money, regulate its value, and establish a monetary system.
• Monetary Disabilities: Constitutional limitations on the government's authority in the monetary realm.
• Regulate the Value: To adjust the weight and fineness of coins to maintain a consistent intrinsic value relative to the established monetary standard.
• Silver Standard: A monetary system where the basic unit of currency is defined in terms of a specific weight of silver.
• United States Notes: A form of fiat currency first issued during the Civil War, declared legal tender by Congress, and still circulating today.

FAQ: Monetary Powers and Disabilities of the US Constitution

1. What are the primary monetary powers granted to Congress by the U.S. Constitution?

The Constitution grants Congress the power "To coin Money, regulate the Value thereof, and of foreign Coin" (Article I, Section 8, Clause 5). This clause empowers Congress to:

• Coin Money: Produce physical coins made of precious metals (historically gold and silver).
• Regulate the Value: Determine the weight, purity, and denomination of coins, ensuring they represent a specific amount of the chosen metal.
• Regulate Foreign Coin: Establish the legal value of foreign coins within the U.S. monetary system.

2. Why does the Constitution explicitly prohibit states from issuing "Bills of Credit"?

The Founding Fathers included this prohibition (Article I, Section 10, Clause 1) due to negative experiences with state-issued paper money during the colonial era. These "Bills of Credit," often lacking sufficient backing, were prone to:

• Depreciation: Losing value rapidly, causing economic instability and harming creditors.
• Manipulation: Being printed excessively to fund state governments, leading to inflation.

The intention was to establish a more stable system based on gold and silver coinage, managed by the federal government.

3. Does the Constitution allow for a "legal tender" beyond gold and silver coins?

The Constitution only explicitly mentions "gold and silver Coin" as potential "Tender in Payment of Debts" (Article I, Section 10, Clause 1). However, the interpretation of "make" in this clause is debated. Some argue it encompasses any form of currency a state attempts to force creditors to accept, while others contend it refers only to the act of physically producing coins. This ambiguity leaves open the question of whether other forms of legal tender, authorized by Congress, might be constitutional.

4. What is the historical significance of the "bimetallic standard" in the U.S.?

From the 1790s to the late 19th century, the U.S. operated under a bimetallic standard, meaning both gold and silver coins were legal tender. The relative values of the two metals were fixed by law. This system aimed to:

• Increase Money Supply: Provide more circulating currency for a growing economy.
• Flexibility: Adapt to fluctuations in the global supply of both metals.

However, maintaining a fixed ratio between gold and silver proved challenging, leading to periods of instability and eventual abandonment of bimetallism in favor of a gold standard.

5. What was the constitutional basis for the Bank of the United States, and did it have the power to emit "Bills of Credit"?

While not explicitly mentioned in the Constitution, the Bank of the United States was established under the "Necessary and Proper" Clause (Article I, Section 8, Clause 18), granting Congress implied powers to enact laws necessary to carry out its enumerated powers.

The Supreme Court in McCulloch v. Maryland upheld the Bank's constitutionality, reasoning that it served as a legitimate means for Congress to manage finances and regulate currency. However, the Bank's power to issue notes was derived from its corporate charter, not a delegation of congressional power to emit "Bills of Credit." The notes represented the Bank's debt, not that of the government, and weren't legal tender.

6. How has the U.S. monetary system deviated from the original constitutional framework?

The current system, based on Federal Reserve Notes (FRNs) as legal tender, departs significantly from the Constitution's emphasis on gold and silver coinage:

• Fiat Currency: FRNs are not backed by any specific commodity and derive their value from government decree.
• Centralized Control: The Federal Reserve, a quasi-public entity, manages the money supply, rather than Congress directly.

7. What are the potential consequences of having a monetary system based on irredeemable fiat currency?

Critics of the current system point to several potential risks:

• Inflation: Unrestrained money creation can devalue the currency and erode purchasing power.
• Economic Instability: Manipulation of interest rates and money supply can lead to booms and busts.
• Loss of Control: Transferring monetary control from elected officials to unelected bureaucrats reduces accountability.

8. What measures could be taken to reform the monetary system and bring it into greater alignment with the Constitution?

Advocates for reform suggest various measures:

• Return to a Commodity Standard: Reintroduce gold or silver backing for currency to limit inflation and government control.
• Abolish the Federal Reserve: Restore direct congressional authority over monetary policy.
• Competetive Currencies: Allow for private issuance of currencies alongside government-issued money, promoting choice and stability.

These proposals aim to restore the principles of sound money and limited government enshrined in the Constitution.