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Introduction to Edwin Vieira,
Jr.’s Work on Money
This article outlines what the U.S.
Constitution’s clauses and references to money mean. It examines constitutional
money from a legal perspective. It does not examine money and banking from an
ethical, economic, or political point of view. The idea is simply to set down
in the clearest terms possible what kind of money is legal in the U.S.,
according to the Constitution, and what kind of money is not.
My source of information on this subject
is Dr. Edwin Vieira, Jr.’s 1,722 page opus Pieces of Eight. The second edition appeared in 2002, and
all references in this article are to the second edition. This article
summarizes the first 177 pages of Vieira’s work. I have found it
necessary at times to insert explanatory material in order to provide a
self-contained narrative. All errors in interpretation of his work are solely
mine.
Vieira’s book (in two volumes) may
be found in law and other libraries, but it is out of print. Even if it were
in print, it would not provide everyday reading for most Americans because it
is long and complex. Vieira summarizes and extracts from his work in his many
articles and talks. This article adds to and endorses that work. It
summarizes a small portion, far from all, of what
Vieira conveys to us concerning the U.S.
Constitution and money.
Dr. Vieira is a lawyer who specializes
in constitutional law. He has argued or briefed cases before the Supreme
Court. He holds four degrees from Harvard. This does not suffice to make his
work authoritative. It is the work itself that does that. Pieces of Eight goes into the legality and
constitutionality of all the major issues and cases in American monetary
history. It analyzes them in detail with ample excerpts from original
documents. It contains the highest level of scholarly citation, footnotes,
and referencing that anyone might demand. Its arguments are masterly and
logical.
The knowledge of the Constitution and
money that is conveyed in Pieces of Eight is
separate from taking a particular political position on the Constitution.
None is taken here, not on its viability, nor its validity, nor on anarchism
vs. minarchism, nor on what should or should not be
done about existing conditions and constitutional violations. All positions
on the political spectrum, of which there are many, may possibly benefit from
understanding what the Constitution says is the law of the land and what is
not. Whoever wishes reform of money within a constitutional framework will
have to come to grips with the understanding of the system that Vieira
conveys.
Vieira’s View of Constitutional
Meaning
Vieira begins by spelling out and
justifying his view of constitutional interpretation in general. This
preliminary is absolutely essential. For example, the Constitution uses the
term “dollar” in several places. What is a dollar? The Constitution
was drawn up with great care. We have to presume that the framers knew what
was meant by a dollar. Vieira therefore asks the question: What is a dollar?
Those who propose a living Constitution say that each generation or
each Supreme Court or government defines the dollar as they see fit, and each
definition is constitutional. By contrast, the original meaning concept says instead that the dollar
means what the average educated person of the time when they were being asked
to ratify the Constitution thought it to mean. It turns out that the
constitutionally legal meaning of the dollar that is found by looking at its
original meaning is something quite definite. We today are then legally bound
by that meaning. It turns out then that a Federal Reserve dollar bill is legally
(by constitutional law) not a dollar at all.
One finds original meaning by examining
the language and logic of the Constitution, the then contemporary meaning of
words, the legal precedents prior to its passage, the then-current legal and
political understanding, and history.
What if it is the case, which it is,
that we are not acting in accordance with the constitutionally legal meaning?
What if our government is giving us an unconstitutional money and/or WE THE
PEOPLE accept such a money as constitutional when it is not? Then the
possibility of legal reform opens up. But if a convincing case is made for
what a constitutional dollar is, then it constrains everyone. It constrains both those who support
unconstitutional money and money laws and monetary reformers who support new
alternative measures. Both face legal requirements that cannot be ignored.
Vieira does not subscribe to the notion
of a living Constitution, that is, a document whose words, language, and
ideas are perpetually reinterpreted by successive generations, in ways that
are foreign and hostile to the document’s original intent. He
subscribes to the idea that the Constitution has an original meaning or
original intent that holds unless and until the Constitution is amended to alter
that meaning.
Why is original meaning important and
essential? We need to understand the original meaning of what the
Constitution says, for that tells us how it should have been construed and
applied from the beginning. In turn, that enables us to see how it may have
been or has been misapplied by our governments and us Americans in the past
so as to give us an unconstitutional money and monetary system. If we do not
maintain the doctrine of original meaning, then we have no objective way to
evaluate the constitutionality of laws.
Vieira connects both the Articles of
Confederation and the Constitution legally to the Declaration of
Independence. For details, see his article Bedrock
of the Constitution. His legal view is that WE THE PEOPLE
ratified the Constitution through special state conventions. In so doing we
put it forward for ourselves, as its preamble declares. We meant it, among
other things, to protect our rights as affirmed in the Declaration. We
created a federal system of government in which states had certain powers,
and certain other powers were enumerated and lodged in the government we call
the United States of America or just the United States or the federal
government. In all of this, the earthly power and sovereignty rests with WE
THE PEOPLE. Governments are our agents to serve our purposes according to
this compact, and we ourselves pledged to live by this compact, only changing
it by the amendment procedures in the document itself and not by either
legislative law or judicial rulings or executive actions.
Arguments for Original Meaning
Let’s now go through the arguments
that support interpreting the Constitution by reference to its original
meaning and not adhering to the living Constitution idea.
To begin with, the doctrine of original
meaning is logically necessary if the Constitution is to act as a constraint
on government action. The Constitution is supposed to give rise to a
government that protects the rights that are declared in the Declaration. To
determine if a law is not unconstitutional and infringing on rights or if the
government is doing something it has no warrant to do, we have to refer to the meaning of the
Constitution, i.e., we have to refer to its original intent or meaning. If we
deny that such a fixed meaning is present or, at our pleasure, read new
meanings into the Constitution that are not there, then we are denying that
there is an objective check and balance that we are using to protect our
rights. If we do that, then we are denying both the legal legitimacy and the
practical efficacy of the Constitution as an instrument that
institutionalizes the fixed principles of the Declaration that found the
nation.. This means that those in government are being empowered or allowed
to pass any laws they wish to pass, including laws that abrogate our rights.
And so unless there is original meaning, we end up with the contradiction
that we have a Constitution that is really not a Constitution that protects
rights.
Four more arguments support the doctrine
of original meaning. One is that in 1787 this doctrine already existed for
hundreds of years. The second is that since the Constitution was new in 1787,
it could have had no meaning to Americans of the time but what its original
intent was. Third, as time passes and more and more of the
Constitution’s provisions have to be understood more explicitly, any
doctrine other than original intent creates legal confusion; for if
subsequent generations adopt ever-changing standards of construing the Constitution
other than original meaning, then instead of the Constitution being the
controlling law, such things as fashion, whim, power, interest groups, and
fads become the controlling law. Such a process denies the Constitution.
Fourth, the Supreme Court itself, up until the late 1900s, repeatedly, in
case after case after case, acknowledged the concept of original meaning.
One more argument favoring a
Constitution of fixed meaning is that since all government officials take
oaths of affirmations “to support the Constitution,” there must
be something fixed to “preserve, protect and defend.” One cannot
support, preserve, protect, and defend only the procedures of government. The
Constitution is not an empty shell or blank check whose legal content is
filled in by lawmakers and compliant courts. It enumerates specific powers as
well as involves specific disabilities or absence of powers, and these are
designed to protect rights.
Living Constitution Faulty
The concept of a living Constitution
that is prevalent today is actually anti-Constitutional or antirights in nature, i.e., at bottom it is a
totalitarian concept. If what the Constitution means changes depending on
changing political, social, economic, and cultural fashions, ideas, and
agendas, then this simply denies the Constitution, overturns it, and creates
confusion. Government becomes a government of men, not of fixed laws and
rights. The concept of a living Constitution turns judges into governors and
determiners of rights as they see them or invent them, as opposed to
protectors of known rights and laws established in the Constitution and
Declaration of Independence. If the meaning of the Constitution is whatever
the latest Supreme Court says it is, according to no fixed meaning but
according to whatever factors determine the living Constitution, then no one
can ever contend that the Court is wrong or has made an incorrect decision
according to any fixed set of constitutional precepts and principles.
Instead, everyone is forced into arguments on other arguable grounds, such as
social conditions. These grounds are not constitutional in nature. If the
Constitution’s meaning is not fixed but depends in theory or practice
on errors, biases, and interests, then the government, due to its power, will
reflect the worst in people, their “folly, avarice, ambition, and the
lust for power.” (p. 28) Government becomes totalitarian; it gains the
power to legislate on everything and anything, with no fixed bounds.
If conditions require constitutional
change, the appropriate means is to amend the Constitution. If instead
Federal justices override the Constitution by their decisions, the result is
incoherence and chaos. These undermine the objectives of the Constitution by
producing rights violations, insecurity, and injustice. The living
Constitution is illegitimate.
Criticisms of Judicial Supremacy
Another modern doctrine must be debunked
as well, and that is the doctrine of judicial supremacy. In ascertaining the
original meaning of the Constitution in regard to money and banking, we do
not defer blindly or only to Supreme Court judgments and interpretations.
There are many good reasons why we do not. A partial list follows.
First, the “supreme Law of the
Land,” in the words of the Constitution, is the Constitution itself, as
written, not that which is handed down as a Supreme Court interpretation
thereof and surely not the latter when the interpretation goes against the
Constitution. The Constitution is fixed in meaning and content. The
Constitution is not a living Constitution, that is, it is not what justices say it is at any given time or what they
make of it at that time.
Second, observers of judges have long
held that “ignorant, confused, or power-seeking judges often misapply
or subvert the laws.” (p. 41) This is as true today as ever. Supreme
Court judgments contains errors, misjudgments, and faulty statements of many
kinds. We are under no obligation to accept them.
Third, quoting Vieira (p. 42):
“Judicial decisions, that is, can
never be a source of
constitutional law, from which anyone can unfalteringly induce or deduce even
a correct, let alone a binding, interpretation of the Constitution. For
judicial decisions are only the result of some courts’ having applied
certain preëxisting legal principles, rightly or wrongly in the adjudication of particular cases
or controversies.”
The concept behind these ideas is that
the law and its principles are known. William Blackstone made clear that
judges judge according to the known law and customs of the land. They are not
deputed to pronounce new laws “but to maintain and expound the
old.” If they overrule precedents, they do not pretend to make a new
law but “to vindicate the old one from misrepresentation. For if it be
found that the former decision is manifestly absurd or unjust, it is
declared, not that such a sentence was bad law, but that it was not law.” “So that the law and the opinion of the judge are not always convertible
terms, or one and the same thing; since it may sometimes happen that the
judge may mistake the
law.”
Fourth, the Constitution itself does not
grant the Supreme Court a monopoly or a final say on what the Constitution
means. It does not say that Supreme Court decisions are part of the supreme
Law or any law at all. It grants it only a judicial power in given cases
brought before it. Specifically, the Constitution says that the
“judicial Power of the United States, shall be vested in one supreme
Court, and in such inferior Courts as the Congress may from time to time
ordain and establish.” Further, “The judicial Power shall extend
to all Cases, in Law and Equity, arising under this Constitution, the Laws of
the United States, ...” This is not a broad-reaching power of judicial
review or judicial supremacy, where such power binds other branches of
government, such as is claimed by modern courts. In Massachusetts v. Mellon,
262 U.S. 447, 488 (1923), the Court spelled out the older moderate and more
accurate constitutional position:
“The functions of government under
our system are apportioned...The general rule is that neither department may
invade the province of the other...We have no power per se to review and annul acts of Congress on
the ground that they are unconstitutional. That question may be considered
only when the justification for some direct injury suffered or threatened,
presenting a justiciable issue, is made to rest upon such an act. Then the
power exercised is that of ascertaining and declaring the law applicable to
the controversy. It amounts to little more than the negative power to
disregard an unconstitutional enactment, which otherwise would stand in the
way of the enforcement of a legal right.”
Fifth, in their deliberations, the
framers had many and varied views as to the notion that the federal judiciary
is supreme in spelling out and interpreting the law of the constitution. The historical record
does not indicate that they meant the Court to have the final or definitive
say about what the Constitution means or whether or not a law is
constitutional.
Sixth, the Supreme Court has never
directly addressed all the pertinent issues concerning money and banking, so
that we cannot rely solely on its rulings on cases that have come before it.
The Court has not ruled on (i) what a dollar is,
(ii) the lawfulness of issuing (emitting) legal tender paper that is not
convertible (redeemable) in silver or gold, (iii) the lawfulness of the
government’s 1933 seizure of gold, (iv) the lawfulness of making the
notes of a private bank into obligations of the U.S. and legal tender, (v)
the lawfulness of allowing private banks to have discretion via an
administrative agency to draw money from the Treasury without a Congressional
appropriation, and (vi) the lawfulness of the Federal Reserve system. In order
fully to understand what the Constitution says in regard to money, we have to
analyze many matters like these ourselves.
Common Law Background
Numerous Supreme Court decisions specify
that pre-Constitutional English common law is a highly relevant means to
understand provisions in the U.S. Constitution. Blackstone’s Commentaries was the “standard legal treatise
among Americans.” (p. 67.)
Blackstone taught concerning English
monetary matters and powers that the precious metals (gold and silver) are used
as money, or that money consists of precious metals, both as a standard of
account and as a medium of exchange. English law equated money with coin and
coin with silver and gold. Silver and gold coin are also called specie. The
Crown had the power to coin money, which meant stamping it and fixing its
metallic content. The phrase used at the time was “fix the
value.” This did not mean fixing the price. It meant fixing the weight
or metal content of a coin. True money was undebased
coin, meaning coins whose metal weight was not altered by the Crown. Foreign
coins were fixed in value by comparing their metal weights to the domestic
standard. This was called also regulating their value. In this way, foreign
coins could circulate along side domestic coins.
From 1603 to 1816, England had a silver standard and circulated both silver
and gold coins (bimetallic media of exchange). The common law denied the
Crown (Executive) the power to compel loans from the people. Government
borrowing had to be consensual.
Bills of Credit
Prior to the Revolution, the American
colonies by and large did not coin money or regulate the value of foreign
coin, although there were at times such efforts, but Parliament forbade them
in 1707. For media of exchange, the Colonies used specie, commodities (such
as tobacco), book credits or advances made by merchants, and paper
currencies. The coins were mostly Spanish and Portuguese coins. The paper
went by the name bills of credit. A
bill of credit was a debt instrument, issued or emitted, that promised
redemption in the future, not in money itself, but in a value equivalent to a
certain amount of specie or money. For example, an early bill issued in 1690
by the government of the Massachusetts Colony reads “No (419) 20S This
Indented Bill of Twenty Shillings due from the Massachusetts Colony to the
Possessor shall be in value equal to money & shall be accordingly
accepted by the Treasurer and Receivers subordinate to him in all Publick payments and or any Stock at any time in the
Treasury. Boston in New England February the third 1690 by Order of the
General Court.”
The bill of credit was not money but
made equal in value to money (coin) in paying taxes to the Treasurer. Hence,
it could circulate as a medium of exchange. Its market value would depend on
supply and demand. It would depend, among other things, on how great an
amount was issued by the government in comparison to taxes receivable and to
the demand to use it as a medium of exchange in the population.
Another such bill emitted on February 4,
1736 reads :
“This Bill of Six Shillings and
Eight Pence Due from the Province of the Massachusetts Bay in New England to
the Possessor thereof Shall be in Value equal to One Ounce of coin’d Silver, troy weight, of Sterling Alloy, or
Gold Coin at the Rate of Four Pounds eighteen Shillings p’ Ounce; and
shall be accordingly accepted by the Treasurer or Receivers Subordinate to
him in all Payments...”
The term legal tender refers to a means of payment that by law
has to be accepted as payment for debts. The reach of legal tender varies. It
may apply to public payments only, as for taxes and fees; or it may be
extended to privately made debt contracts as well. The Colonial bills of
credit were usually legal tender for public payments, and sometimes made
legal tender for private payments.
Bills of credit had two kinds of
backing. The first, already discussed, is that they were good for paying
taxes and fees to issuing authorities. Secondly, colonial governments issued
bills backed by mortgages on land. The colonial governments ran land banks.
These colonial bills of credit tended to
be over issued by the colonial governments. They therefore tended to
depreciate against silver and gold, that is, it took more and more of them to
buy a given amount of silver or gold as their value sank. The extent of the
depreciation varied among issuers. They also became a bone of contention
between the colonial governments and Parliament. In 1740, Parliament forbade
these emissions. A statute was passed that required the bills to be paid in
“lawful Money”, meaning specie. In 1751, Parliament passed
another such act (renewed in 1763), again forbidding any further emissions of
bills of credit and also forbidding their being legal tender in any
“private Bargains, Contracts, Debts, dues or Demands whatsoever.”
(p. 76.)
Starting on September 5, 1774, the
colonies convened a Continental Congress, the first of two. These governed
until 1781 when the Articles of Confederation were adopted. Congress then
convened as the Congress of the Confederation until 1789, at which time the
U.S. Constitution came into being. The American Revolutionary War or War of
Independence dates from the Battle of Lexington on April 19, 1775 (brought
about on the previous day) to September 3, 1783, when the Treaty of Paris was
signed.
From 1775 to 1779, Congress emitted
bills of credit. These typically were issued by The United Colonies or the
United States. They carried various small denominations such as Five Dollars
or Thirty Dollars. The Bill read something like the following:
“This Bill entitles the Bearer to
receive THIRTY Spanish milled Dollars, or the value thereof in Gold or
Silver, according to a Resolution passed by Congress at Philadelphia,Sept.
26th, 1778.”
The Spanish milled Dollar was a silver
coin carrying the name Dollar and having a weight in silver of approximately
368 to 374 grains of fine silver. It was also known as “Pieces of
Eight”. Divided into 8 parts or bits, two bits were a quarter, slang
still used today.
The Spanish milled Dollar, as we shall
see, became the money unit or dollar of the United States or what the word
Dollar means as used in the Constitution. It was not defined within the
Constitution. We have to go to various surrounding documents, reports,
recommendations, etc. in order to see this, but already in the promises made
in these bills of credit, we have evidence of what was meant by a dollar.
These bills of credit were meant to
circulate as a paper medium of exchange or as paper money. They could be
passed from hand to hand: payment was to the bearer; no endorsement was
required; the denominations were low; there was usually no interest paid on
them; they usually carried no maturity date; and they were not issued with the
many terms that attach to debts. The bills of credit were “paper
money.” Money itself was precious metal, and a precious metal was also
used to define the money-unit. But there is a firm economic distinction
between paper money and money (specie.) Paper money is a liability of the
issuer. Its features distinguish it from debt, but like debt it is a
liability. As such it is a promise to pay in money or in something of
equivalent worth to the money it specifies as the units being promised. Paper
money cannot be defined until there exists some real asset that has value or
is a standard. Hence, paper money is a derivative whose value depends on the
many factors that influence the probability of payment and also the value of
the gold and silver that it may promise to pay. Money (gold and silver coin)
is not a liability or debt of any kind, and it is not a derivative. It is an
asset whose value depends solely on what it itself as gold and silver is
worth. Paper money and coin are only both termed money because they both are
being used as a convenient medium of exchange.
Congress never paid off on these bills
of credit; it defaulted on its promises. They became worthless for several
reasons. They were not accepted by the Congress or the States as payment for
dues and taxes, and so they lacked a tax foundation. Congress had no power to
tax in order to pay them off, and the States made no credible commitments to
supply the necessary specie. Furthermore, they were issued in very large
quantities. By 1781, Congress had devalued them by 75 to 1 and eventually
declared them not to “be current.” They were worthless as
currency. They were a paper money that became worthless. Money itself, gold
and silver coin, might fluctuate in value to some extent but the likelihood
of its losing all of its value is extremely small.
The period from 1783 to 1787 was one of
great economic and monetary instability. A depression set in after the prior
inflation of these bills of credit. Unemployment rose, agriculture and real
estate collapsed, and rates of interest were high. Trade fell off sharply.
Regulating the Value of Coin and the
Spanish Dollar
The Articles of Confederation (1781)
were to contain a provision, Article IX, for regulating the value of coin
struck (minted) by authority of Congress or the states:
“The United States in Congress
assembled shall also have the sole and exclusive right and power of
regulating the alloy and value of coin struck by their own authority, or by
that of the respective States...”
This power to set “value”
and regulate alloy means only a power to establish a standard weight of metal
in a coin across all the states, so that a dollar has the same weight
(“value”) of metal across all regions. Congress took on an
authority to determine the unit of account function of money. This is not a
power to control the issuance of coin or determine its price in market
exchange or monopolize its issuance or supply; for people could bring metal
to mints and have it struck into coin form, or they could privately melt down
coin and use it for other purposes.
Prior to the Articles, Congress had
begun to develop a metal coinage system. A committee of Congress in 1776
recommended that the value of dollars and other coins of silver and gold
should be regulated “by declaring the precise weight and fineness of
the s’d Spanish milled dollar...now becoming
the Money-Unit or common measure of other coins in these states, and by
explaining the principles and establishing the rules by which...the said
common measure shall be applied to other coins...in order to determine their
comparative value...” (p. 88.) The committee provided a table of values
of various coins relative to the Spanish milled dollar.
In 1777, a committee of Congress
recommended forming a mint and coining gold and silver bullion “into
money, of such value and denominations as shall hereafter be ordered by
Congress.” Also, “That any person who will bring gold and silver
to the mint may have it coined on their own account.”
In 1785, Congress considered a plan to
make the Spanish milled dollar “the Money-Unit.” And it noted
that “the Dollar...has long been in general Use. Its Value is
familiar.” Congress then “Resolved, That the money unit of the
United States of America be one dollar,” but did not yet determine its
silver content. In 1786, the Congressional Board of Treasury calculated that
the “Money Unit or Dollar will contain three hundred and seventy five
grains and sixty four hundredths of a Grain of fine Silver,” and
“will be worth as much as the New Spanish Dollars.” The Articles
allowed Congress various powers if a majority of States approved them. These
included the authority to “coin money” and “regulate the
value thereof.” Article IX of the Articles of Confederation also
provided the United States in Congress with authority “to borrow money,
or emit bills on the credit of the United States...” The money was gold
and silver. The money-unit was a specific weight of fine silver. The Congress
regulated the value of coins it did not mint, i.e., determined their metal
content relative to the standard unit. And the Congress allowed a free market
in coins by opening the mint to private conversions of metal to coins. The
main changes to come in the Constitution that replaced the Articles were to
remove the power to emit bills of credit, to forbid the states to coin money,
and to make nothing but gold and silver a legal tender. In addition, the
dollar received a somewhat different silver content definition.
Constitution’s Money Provisions
The U.S. Constitution, approved by the
Convention in 1787 and ratified in 1788 by nine states, contains seven major
provisions having to do with money.
Congress shall have Power “To
borrow Money on the credit of the United States[.]” Article I, Section
8, Clause 2.
Congress shall have Power “To coin
Money, regulate the Value thereof, and of foreign Coin, and fix the Standard
of Weights and Measures[.]” Article I, Section 8, Clause 5.
Congress shall have Power “To
provide for the Punishment of counterfeiting the Securities and current Coin
of the United States[.]” Article I, Section 8, Clause 6.
A tax was allowed “not exceeding
ten dollars for each Person” on the “Migration or Importation of
such Persons as any of the States now existing shall think proper to
admit...” Article I, Section 9, Clause 1.
Article I, Section 9, Clause 7 reads in
part: “No Money shall be drawn from the Treasury, but in Consequence of
Appropriations made by Law...”
Article I, Section 10, Clause 1 reads in
part: “No State shall...coin money; emit bills of credit; make any
Thing but gold and silver coin a Tender in Payment of Debts...”
And Amendment VII reads in part:
“In suits at common law, where the value in controversy shall exceed
twenty dollars, the right of trial by jury shall be preserved...”
Meaning of Money in the Constitution
We can grasp the meanings of these
provisions at various levels of understanding and depth of analysis. No
matter how deep the arguments go, the conclusions will be the same.
Let’s start with the simplest arguments.
What is the Money that these articles
refer to? We have seen that already that without exception in the years
preceding the Constitution, Money means specie, coin, gold and silver coin,
and nothing else. When Congress is given the power to coin Money, there is no
mistaking the continuation of that meaning because it is metal that is made
into coins. Similarly, we have seen that regulating the value of other coins,
like the foreign coins mentioned, means a procedure of establishing a
standard coin by its metal weight, finding the weight of metals in other
coins (their “value”), and settling their relation to the
standard. Congress subsequently did this in the Coinage Act of 1792. Congress
may punish the counterfeiting of current coin of the United States, a further
indication that by the term money is meant coin, and another indication is
the article that prohibits the states from making thing but gold and silver a
legal tender. Since tenders are the making of payments, this underscores that
creditors could only be made by states to accept payments in gold and silver.
Metallic money would be the only possible legal tender that a state could
declare.
Even without going into depth, there is
no little or no doubt that the Constitution sets up a system of metallic money
(or hard money or commodity money).
Congress is nowhere empowered to issue
or emit bills of credit, which was allowable under the Articles of
Confederation. After debate in the Constitutional Convention of which we have
the record (pp. 145-152), the phrase allowing this power was consciously
struck out. Recall that these bills of credit were promises of various kinds,
such as promises of value equivalent to money or promises eventually to
redeem in money (gold and silver); they were not literally money but they
were designed as paper money. This shows again that the Constitution meant to
create a hard money system.
Instead of funding itself by emitting
bills of credit or paper money, a power that was disabled and thus forbidden,
Congress was given the power to tax and the power to borrow. It was empowered
to borrow Money on the credit of the United States. This means to borrow coin
since Money is lawfully supposed to be coin under the Constitution. It also
means that the borrowing is to occur in a free market in which lenders lend
to the U.S. on its credit as a worthy borrower that will repay the loan.
Forced loans are not empowered.
Meaning of the Dollar
In What Is A Dollar?, Vieira summarizes and excerpts his longer
work. The bottom line is this: “Thus did the first Congress - which
knew what the Constitution meant
if any Congress ever did - rigorously apply the Constitution's mandate: It
determined as a fact ‘the value of a Spanish milled dollar as the same
is now current,’ and thereby permanently fixed the constitutional
standard of value, or ‘money of account,’ as a unit of weight
consisting of 371.25 grains of fine silver in the form of coin. It coined
American ‘dollars’ as ‘Money’, containing this
intrinsic value of silver.”
Dollars are mentioned in two places in
the Constitution. As explained above, just two years prior, in 1785-6, a
previous pre-Constitutional Congress had designated the dollar as the
money-unit and identified it with a Spanish silver dollar with a known weight
of fine silver. Other evidence overwhelmingly, one might say definitively,
supports the conclusion that this is what the dollar meant in the
Constitution.
Queen Anne’s Proclamation of 1704
regulated all other current foreign coins in proportion to the rate set for
various pieces of eight. There was variation among these coins in silver
weight that settled down over time. Sumner notes
that it was not a definite unit in 1704 but that it became so between 1728
and 1772:
“...but in practice a Spanish
piece of eight always was a discharge for 6 shillings colonial, whatever the
laws might say. Seventeen-and-a-half pennyweights worth 4 s. 6 d., put for 6
shillings colonial, gave 386.694 grains pure silver as 6 shillings. The same
amount, assumed to be sterling fine, gave 388.5 grains. At 6 s. 8 d. per
ounce, 6 shillings colonial would be 399.6 grains of pure silver. As we have
just seen, the milled dollars of 1728 and the following years were down to
377.4 grains fine contents. This last was, therefore, the
definition of the ultimate money of
reference, 1728-1772.”
Robert Morris, Superintendent of the
Office of Finance, in a letter dated January 15, 1782 states that there
“can be no doubt therefore that our money standard ought to be affixed
to silver...there is hardly any which can be considered as a general
standard, unless it be Spanish dollars.” Thomas Jefferson (July 24,
1784) in his money plan endorsed
the Spanish dollar as a money-unit. After listing three conditions that
included a convenient size coin, with parts and multiples in easy
proportions, and having value near that of known coins, he concluded
“The Spanish dollar seems to fulfill all these conditions.”
“If we adopt the Dollar for our Unit,” he recommended four coins.
The second coin was “The unit or Dollar itself, of silver.” The
others were a gold coin worth ten dollars, a tenth of a dollar coin in
silver, and a one hundredth of a dollar coin in copper. He strongly favored
the dollar over the pound, observing that “Happily, the dollar is
familiar to...all.” Due to the small variation in silver weight in the
Seville, Mexico, and Pillar pieces of eight, he recommended taking a sample
and assaying them to find an average. He recommended to Congress that it
instruct a committee to prepare an ordinance with one principle being
“That the Money Unit of these States shall be equal in value to a
Spanish milled dollar containing so much fine silver as the assay, before
directed, shall show to be contained, on an average, in dollars of the
several dates in circulation with us.”
On April 8, 1786, the Board of Treasury
reported to Congress. It noted first that Congress “by their Act of the
6th July last resolved, that the Money Unit of the United States should be a
Dollar, but did not determine what number of Grains of Fine Silver should
constitute the Dollar.” The Board “made our calculations
accordingly.” It determined that
“The Money Unit or Dollar will
contain three hundred and seventy five grains and sixty four hundredths of a
Grain of fine silver. A Dollar containing this number of Grains of fine
Silver, will be worth as much as the New Spanish Dollars.”
Congress adopted this standard on August
8, 1787 as “the money Unit of the United States.” Hence, on the
eve of the Constitution, we know what was meant by money and the dollar. The
unit of money was a coin with a fixed weight of silver equal in weight to the
Spanish dollars of the time. However, no coins were issued of that weight.
The weight was subsequently slightly adjusted downward (to 371.25 grains) in
1792, and that settled once and for all what became the permanent weight of
the constitutional standard of value.
After the Constitution was adopted,
Alexander Hamilton made his Report on the
Subject of a Mint. He recommended that the dollar be the
money unit and that it contain 371.25 grains of fine silver. The Coinage Act
of 1792 stated that “the money of account of the United States shall be
expressed in dollars or units.” It defined the “DOLLARS or UNITS
[as] of the value of a Spanish milled dollar as the same as is now current,
and to contain three hundred and seventy-one grains and four sixteenth parts
of a grain of pure...silver.”
Vieira makes a subtle point (p. 194)
about the dollar. Before the time and by the time that the Constitution was
enacted, the framers and past Congresses already recognized the Spanish
dollar as money. They did not make it
into money or authorize its use as money. The market already had been using
it for decades. The market already recognized the value in the Spanish dollar
due to its silver content. The framers did not create a value by assigning
the name dollar
to an arbitrary coin made of base metal. They decided that U.S. dollar coins
would have a certain weight of silver so that they would match the existing
value of a Spanish milled dollar. That made such a coin and weight into an
official U.S. unit of account. The Coinage Act of 1792 is a statute or
legislative enactment that defines the statutory dollar of 1792 as “the
value of a Spanish milled dollar as the same as is now current,” and
the latter is the value of a constitutional dollar.
The 1792 statute does not make the
dollar into money by labeling the coin as a dollar, but by identifying it
with, as nearly as they could, the same fixed weight of silver that gave
value to the Spanish milled dollar of the time. This means that the dollar
designated in the Constitution existed before the 1792 Act and, as we have
seen, before the Constitution was even adopted. To a certainty, we know what
a constitutional dollar was and still is, namely, a certain and fixed weight
of pure silver (371.25 grains). We know that the U.S. adopted a silver
standard by its Constitution.
The original meaning of the Constitution
with respect to money has not altered since its adoption because the
provisions relating to money have not been amended, nor have other amendments
weakened them or changed their substance. The constitutional money of the
U.S. was and still is a silver standard dollar or coin or unit of this weight
of silver.
Although the U.S. has, constitutionally,
always had a single metal standard and never had a dual monetary standard,
the Congress has exercised its power to regulate the coinage so as, at times,
to promote the circulation of gold coins. A silver standard by no means rules
out a parallel coinage of gold because the Constitution gives Congress the
power to regulate the value of gold and foreign coins, by which is meant
establish their weights relative to the standard dollar of silver. Done
properly, both silver and gold will be money. Done improperly, Gresham’s
law will come into play, and one metal will disappear from circulation.
Legal Tender, Borrowing, and
Counterfeiting
We may now consider several remaining
constitutional money issues.
What constitutional power does
government have regarding making money legal tender? Since the states have
the reserved power to declare that gold and silver, and nothing else but gold
and silver, are legal tender, the Constitution approves of or allows one or
more states’ making gold and silver legal tender for their states. The
U.S. government has no explicit or delegated power to make gold and silver a
legal tender. If it has any implicit legal tender power, as, for example,
through the regulation of commerce, then that power cannot conflict with the
states’ reserved power, which means that any such legal tender power of
the federal government is restricted to making gold and silver into legal tender.
For if the federal government could make one thing like copper a legal tender
and a state had made silver a legal tender, then a constitutional dilemma
would occur since the Constitution is the supreme law of the land. This means
that Congress cannot make something into legal tender that the states cannot
themselves make into legal tender.
What constitutional power to emit bills
of credit does the Constitution grant? The states are specifically forbidden
or disabled from issuing bills of credit by Article I, Section 10, Clause 1.
As noted above, the framers debated allowing Congress to continue the power
to emit bills that it had under the Articles of Confederation, but in
drafting the Constitution they changed the language by eliminating the phrase
“emit bills on the credit of the united states” that was in the
Articles. Hence, they saw to it that the federal government has no
constitutional power to emit bills of credit or paper money, as these bills
are also termed. The vote in the Convention was 9 states to 2 to eliminate
the phrase “and emit bills” from appearing after “To borrow
Money”. The final language is that Congress shall only have Power
“To borrow Money on the credit of the United States”, which is
Article I, Section 8, Clause 2.
The only possible argument in support of
Congress still having a power to issue paper money or bills of credit,
despite what the Constitution says, is by way of mis-construing
the borrowing of money on the credit of the United States to include emitting
bills. A superficial economic argument to that end is to say that emitting a
bill of credit is like issuing non-interest bearing bearer debt in small
denominations that lack a maturity date. But borrowing money involves receiving coin now in exchange
for paying it back later with interest on a specified date. The coin received
is already in existence. By contrast, emitting a bill involves no receipt of
coin. It involves creating a paper instrument to function as money. It is an
addition to the media of exchange. Furthermore, if the government pays
people, for example, with bills of credit, they provide goods and services to
the government, not money. That exchange is not empowered by the
Constitution. It is also not necessary to the exercise of a Congressional
power since the Congress is equipped with powers to tax and borrow. If it can
borrow on its credit, there is no need to issue paper money on its credit.
This bars invoking the “necessary and proper” proviso. Possibly
Congress might pay people using bills of credit that it declares to be legal
tender. This is unconstitutional in two ways. The first is that if Congress
has any legal tender capacity, it is to make gold and silver legal tender and
nothing else. Second, forcing people to accept bills because they are made legal
tender is a forced loan. Congress is not empowered to make forced loans. It
can only borrow, and only borrow on the credit of the United States.
Borrowing on credit means borrowing on the basis of trust in lenders that the
borrower will repay; to force a loan is not to borrow on credit.
Congress shall have Power “To
provide for the Punishment of counterfeiting the Securities and current Coin
of the United States[.]” Article I, Section 8, Clause 6. Among other
things, this clause has interest in its relations to the other clauses. It
recognizes two and only two categories of financial items that can be
counterfeited, which means that they are mutually exclusive and cover all
possibilities. They are securities, a class that includes the evidence of
borrowing, and coin, which is money. The Constitution here underscores that
money is to be coined, money is to be regulated in value, and money is to be
borrowed. Money is not a security and securities are not money. Borrowing
money is not the same as creating money, as by issuing a bill of credit; and
coining money is not the same as borrowing. The Constitution is all of one
piece and consistent in its provisions regarding money.
Conclusion
The U.S. Constitution’s provisions
on money are clearly written, well-defined, consistent, and well-thought out.
The result has no little beauty and simplicity. The Framers asked WE THE
PEOPLE to commit (or not) to a specific set of monetary principles and not to
others. Certain powers and disabilities are spelled out. The constitutional
monetary system is a hard money or metallic money system as opposed to a
system of government-issued paper. It is a free market system in which the
government does not control the money supply, but opens the mint to private
coinage.
In this system, the federal government
has several specific roles. One is to mint coins of a known weight of metal.
Another is to regulate the value of other coins, including foreign coins, so
as to be of proportionate worth based on their metal content as compared to
the standard constitutional dollar, which is a silver standard coin as the
money-unit or unit of account. The system envisages gold and silver coins as
media of exchange and such coins, properly regulated, being the sole legal
tender.
The Constitution outlaws the emission of
bills of credit (paper money) by both state governments and the federal
government. Only gold and silver coin may be made legal tender. Congress may
not levy forced loans.
The Ninth and Tenth Amendments to the
Constitution make clear that the monetary powers and disabilities that
constrain government do not foreclose lawful or traditional rights of the
People. The governmental money system is that which the government must use as it goes about its business, if it
is to behave constitutionally. Hence when people interact with government as
in the payment of taxes, they are obligated to use the money that the
Constitution requires the government to use. For their private transactions,
they may choose whatever media of exchange they want to and contract with
them as they see fit. They are masters of their own forms of legal tender in
private transactions if they spell them out in contracts.
The money and money system of
today’s government are entirely divorced from gold and silver in any
form. The system uses a combination of paper money and electronic credits
created by the Federal Reserve system. This system is evidently
unconstitutional.
The remainder of Vieira’s exacting
work provides a comprehensive account of the legislative enactments and
Supreme Court decisions and non-decisions that produced this astounding
transformation from a constitutional into an unconstitutional system that is
its polar opposite. He examines such major turning points as:
1. The First and Second Banks of the
United States.
2. The first emission of government
legal-tender paper currency in 1862.
3. The establishment of the Federal
Reserve System in 1913.
4. The gold seizure and abrogation of
gold contracts in 1933 that demonetized gold domestically.
5. The 1971 demonetization of gold
internationally.
6. The 1968 demonetization of silver.
Vieira provides an extensive account of
the Federal Reserve and its unconstitutionality. He closes the work with a
roadmap to the reconstruction of America’s constitutional systems of
money and banking.
Michael
S. Rozeff
March 16, 2010
Michael S. Rozeff is a retired Professor of Finance living in East
Amherst, New York. He publishes
regularly his ideas and analysis on www.LewRockwell.com
.
By permission
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