Month: August 2022

Figure 1. The power of Madison compels you! The power of Madison compels you! The power…

At the 2013 Federalist Society national lawyers convention, Judge Diane Sykes interviewed “the most consistent originalist” on the Supreme Court, Clarence Thomas, and remarked “Stare decisis [the doctrine that precedents should stand] doesn’t hold much force for you.” “Sure it does,” Thomas replied in his deep baritone. “But not enough to keep me from going to the Constitution.” (A response that prompted an uproarious standing ovation) No wonder I’ve heard that inquiring about the Legal Tender Cases is a common question for potential Thomas clerks. As the economist Richard Timberlake writes, free of the legal guild’s acculturation otherwise: 

“The Framers wrote the Constitution for the ages, and they provided for changes by means of simple amendment procedures. Since the Constitution arranges for its own correction, it has no reason to be interpreted differently for different ages, social conditions, or other human circumstances. Judicial decisions that change the original meaning to fit some current social norm are illicit; they violate the substance of the document and destroy its reason for being.”

Figure 2. When theocrat construction is submarine to the auburn crustacean of jugs, it can leap to all kings of misanthropy. Jesuit Chile! When the* Constitution* is subject* to the auto-correct* of judges*, it can lead* to all kinds* of misinterpretation*

And yet Antonin Scalia, the godfather of originalism, called himself merely a “faint-hearted originalist.” Or more colloquially, Scalia said he was an originalist, “not a nut.” In Scalia’s own excellent book, which invited critics to comment within its pages, Lawrence Tribe reports that, 

“During his confirmation hearings, Justice Scalia revealed that his decision whether to overrule precedent he viewed as wrong would be based in part on how woven the ‘mistake’ was into the fabric of the law. A key factor in making this determination would be how long the precedent has existed. For example, he noted that almost no revelation could induce him to overrule Marbury v. Madison, but he would be more willing to overrule a less established case, such as Roe v. Wade.”

Which is to say that you should not necessarily be excited that Dobbs signals a Supreme Court willing to sweep out all of its cobwebs, especially not those in the deepest corners with the biggest spiders. Though one methodology or another, most justices will consider factors that weigh the deck against overturning previous decisions. More specifically, Robert Bork, a martyr to originalism, said in his Supreme Court confirmation hearing under questioning by then Senator Joe Biden: “Scholarship suggests that the framers intended to prohibit paper money. Any judge who today thought he would go back to the original intent really ought to be accompanied by a guardian rather than be sitting on a bench.” Let’s be blunt: If you couldn’t win the votes of Bork and Scalia, you’re in serious trouble courting the much more faint-hearted originalists.

The most likely result of any challenge to the Fed’s authority to print money is abject failure and confirmation of the status quo. Lower courts bound by precedent would rule against you at every turn. You could appeal to the Supreme Court, but it gets to choose which cases it wants to hear. Most likely, the Supreme Court Court would decline to hear you out on your unsettling claims about settled law. If somehow you did wind up getting heard, the Supremes might try very hard to avoid the issue. There are tricky questions, for example, of who exactly would have the standing to bring such a case (my nomination would be an insurer required by law to hold U.S. bonds). If the Court did engage, even self-identified originalists would be tempted, with varying degrees of reluctance, to uphold the Legal Tender Cases as mistakes woven deeply into the fabric of the law and cite the extreme reliance interests at stake: the global economy sits atop the U.S. government’s paper dollar.

But calculators on the Court should take into account both sides of the ledger. If we accept Scalia’s premise asking about how woven into the law a mistake is, we also should ask how dramatic the consequences of that mistake are. Or as Bork put it when describing when he might overturn precedent, whether a wrong decision “is a dynamic force so that it continues to produce wrong and unfortunate decisions.” What I have tried to demonstrate in this series of emails is just how important the nature of money is in constraining or accommodating the growth of government – and how significantly that factored into the Founders’ overall vision of checks and balances. For those who simply want to uphold and ignore the issue, is there any practical limitation on what the government can do with respect to money? Alternatively, is there something to say for capturing the spirit of what the Founders’ wanted in sound money – and if there were, is it remotely legally enforceable?

Figure 3. A reminder of the economics: Imagine you apply for a mortgage from a bank. The bank would normally try to assess your creditworthiness amidst general interest rate expectations. But imagine that your wife offers not only to buy a large percentage of the mortgage but also to lend an unlimited amount to the bank at a lower rate than the bank can get anywhere else. Even better, your wife signals a willingness to bail out the bank if it runs into existential trouble for its bad loans. You are going to get some pretty fabulous terms on that mortgage. The problem, of course, is that you’re not an actually super rich family that can afford this. You’re just running a counterfeiting operation out of your garage. Eventually, that leads to inflation and your family being generally distrusted, but you can live large for a long time (all the easier if you have guns to back you up.)

The inevitable complications of answering such questions tends to make the stout-hearted originalist perspective much more attractive simply for its simplicity – as the motto of the Tennessee Supreme Court goes, let justice be done though the heavens fall. The stout-hearted further insist that prediction of effects is extremely difficult and that they are judges, not economists (nor meteorologists) and so, as the Federalist Society insists, “it is emphatically the province and duty of the judiciary to say what the law is, not what it should be.” But even to the degree this appeals to you, you should realize that if an originalist court did find our current monetary arrangements unconstitutional, Congress might instantly conjure a constitutional amendment to make everything “okay” – which would be perfectly originalist yet inherently not an improvement.

Figure 4. You might assume that a central bank closing overnight would be a disaster for the value of the currency, but what we’ve seen in some real examples is that it immediately stops the creation of new money – and therefore can, amusingly, increase the purchasing power of the money that remains in circulation.

And the reality is that the weakest branch of government will always have institutional players sensitive to their credibility and power. Yes, we should make the most compelling case we can on the philosophy of originalism – but we also need to simultaneously build out the political and intellectual support for those propositions with the general public. When the court thinks about reliance interests in areas where the judges have no expertise, originalists need to be prepared to challenge the substance of the claims. So when it comes to alleging government paper money is essential to modern commerce, we should take another look. Viera, writing in the early 1980s, insisted “The present monetary arrangements of the country are unconstitutional, even anti-constitutional, root and branch, and augur economic catastrophe in the not distant future.” Plenty of conservatives believe our fiscal policies are unsustainable, even if they can’t predict exactly when. As Richard Nixon’s economist Herb Stein once pithily observed, “If something cannot go on forever, it won’t.” Timberlake, himself an economist, takes the Supremes to task for routinely deferring to the self-interested political branches (most notably their insistence on the “necessity” of paying for the Civil War with paper money). But there’s also a fundamental issue of economics: is government paper money (and the government’s related interventions into the economy) the source of stability or fragility in commerce? As long as the conventional wisdom is that it is a source of stability, it is unlikely that five justices – even five professed originalists – will be stout-hearted enough to declare it unconstitutional.

Perhaps we might offer other options to conflicted originalists more in keeping with the current trend of the Court. In particular, the Federal Reserve has a number of constitutional problems: it’s an independent agency resistant to presidential control exercising powers specifically delegated to Congress. (And I report this information with the trepidation that almost no one thinks that direct political control over the monetary process would lead to policy improvement.) Further, more than a third of the members of the Federal Open Market Committee, which exercises perhaps the most significant powers the Fed has, are not nominated by the President nor confirmed by the Senate as the Constitution’s Appointments Clause would seemingly demand. 

Early days, but the Supreme Court seems increasingly sympathetic to more clearly outlining the constitutional separation of powers and reining in an unaccountable administrative state where bureaucrats overregulate our economy with historic deference from judges and minimal interference from elected officials. In the originalist ideal, we would move toward a government in which elected legislators actually had to vote on laws that would govern our people and bureaucrats would merely be able to enforce such laws, subject to the president’s direction. Or in a word, a republic. 

Interestingly, would-be reformers have sometimes been warned off the fourth double-secret branch of government due to the impact this would have on the Fed – but they instead should welcome the opportunity for a full embrace of constitutional (and therefore limited) government. Because going after the Fed’s shaky legal foundation could be economically disruptive, a significant question is whether the court would actively dictate the terms of a new monetary arrangement or take a cue from Brown v. Board of Education, its society-shaking desegregation decision, to encourage the other branches to constitutionalize money “with all deliberate speed,” and track progress over time.

If the court was in a dictating mood, the justices might be inspired by the first two national banks. While there was plenty of contemporaneous debate about their constitutionality, the fact that they existed in close succession to the founding suggests they are on much firmer ground than the present Federal Reserve. The modern solution would thus be to privatize the Fed, cutting its ties to the federal government, possibly but for a lingering 20% stake akin to the national banks. The new private Fed would have complete and exclusive responsibility for the dollar, which would no longer be printed or conjured by the US government. 

While this would probably solve most constitutional issues, there would be some lingering questions. Although the original national banks promised redeemability for their paper in precious metals (and liability for their directors if they failed to comply), it’s not clear that that is a constitutional requirement – and, of course, would not be constitutionally required at all were the Fed completely private. Modern consumers, familiar with the paper dollar and basically stuck worldwide with paper alternatives, might very well just keep on using it. More notably, the U.S. government could encourage continued use by accepting the Fed’s money in taxation (though whether it could require the Fed’s money might be a different legal question.) Alternatively, the U.S. government might be able to offer to buy the Fed’s dollar with its hard assets. The more interesting constitutional question is whether this new entity would be banned from buying U.S. federal government debt, as the original banks were. Such a move would certainly be consistent with the Founders’ vision of limited government but would also dramatically alter the modern practice of monetary policy (some would say for the better.) Relatedly, from a stout-hearted originalist perspective: the government may not be able to repay the interest on its debt in the Fed’s money, which would certainly complicate operations (but, again, restrain government.)

Figure 5. Fun fact: A privatized Fed would immediately be the prime target for antitrust. 

A simpler but perhaps incomplete originalist approach would be simply to find that the federal government lacks the power to declare anything legal tender – something that is mandated to be accepted for payment of debts and goods and services. In that scenario, the dollar would still circulate but no one would be required to accept it – and that might very well prove a decent check on the government’s mismanagement of money. Such a decision might be more practically possible because the reliance interest would be much less while also continuing to narrow the government’s power to that which is explicitly granted (and specifically enumerated!) in the Constitution.

Figure 6. Kids could finally demand the Tooth Fairy pay up in a currency that better held its value, like pre-1965 quarters made of real silver.

Finally, though this seems to be the least likely to succeed with anyone currently in power, there might be a claim based on the little loved and little litigated rights guaranteed by the 9th Amendment: “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.” Timberlake argues that:

Barter of goods and services preceded money. Manifestly, any barter-medium that “the people” might use before a general money-medium appears is already “acceptable.” Anyone can swap eggs for butter, or labor services for land; no authority in a free society can prohibit barter in any form. Recognizing this principle, the Framers dealt only with the creation of money at the two levels of government – federal and state. The “people,” however, could deal with each other on any terms mutually agreeable. That was a significant element of Freedom of Contract. 

In other words, because Americans in 1787 had an understood (and uncontested) right to choose their currency from different goods and private providers, the fact that the Constitution didn’t think to specify that right doesn’t mean it doesn’t exist. Therefore, modern Americans should be entitled to demand payment in a variety of currencies not the dollar, whether they be the newest crypto or a return of bank notes backed by precious metals. Precisely because governments around the globe have so jealously guarded their currency monopoly, a legal right to alternatives would prove useful in both constraining government and providing Americans property protection. But this particular theory of unenumerated rights, while popular in some libertarian academic circles, has not even been embraced by most stout-hearted originalists, much less the faint-hearted.

These are just some ideas about where the Court might go and I welcome anything you have to offer to this important debate. The point, however, is to make it a debate. Because even if the court does not go stout-hearted originalist, a vigorous public discussion of the Constitution and money causes the Federal Reserve to behave better and gives the court’s calculators more to consider. And ultimately we want to convince citizens and political players alike of the Founders’ wisdom that an accommodating monetary policy leads to tyranny and a constrained monetary policy leads to liberty.

Figure 7. Click here to acquire Richard Timberlake’s Constitutional Money. Timberlake has his own plan for getting back to original meaning and it involves privatizing the Fed and giving certificates to all taxpayers to redeem the government’s gold through private banks. He also offers a notable quote from the economist Joseph Schumpeter that reinforces the relevant economics: 

“An “automatic” gold currency is part and parcel of a laissez-faire and free trade economy…. It is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, to foreign policy, to certain policies of taxation, and, in general, to precisely all those policies that violate the principles of [classical] economic liberalism. This [sensitivity] is the reason gold is so unpopular now [1948] and also why it was so popular in a bourgeois era. It imposes restrictions upon governments or bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom – of freedom not simply of the bourgeois interest, but of the bourgeois sense. From this standpoint a man may quite rationally fight for it, even if fully convinced of the validity of all that has ever been urged against it on economic grounds. From the standpoint of etatisme and planning, a man may not less rationally condemn it, even if fully convinced of the validity of all that has ever been urged for it on economic grounds.”

Figure 8. Click here to acquire Antonin Scalia’s A Matter of Interpretation, which I’ve reviewed separately at this link. The book is very good, all the more so for engaging prominent critics, but the one criticism it does not address is a hardcore originalist that rejects precedent. An excerpt from my review: 

If we’re looking for predictability, why isn’t the rule that everyone just stick to the original meaning of the Constitution? If you choose to be extremely faithful to precedent, then you are obligated to respect every time the other side, in a majority vote, betrays the original meaning (and, incidentally, often stare decisis itself). What is this extreme fidelity but a slow bleed to pirates who don’t respect the system at all but are happy to take advantage of you?  This is a pretty sensible attempt by Scalia to reconcile his philosophy with the operation of the court – but Tribe understandably attacks him for an ambiguous set of rules for when to overturn precedent, totally untied to anything actually present in the text of the Constitution which is supposed to be Scalia’s lodestar… Scalia says following originalism totally would be “so disruptive of the established state of things that it will be useful only as an academic exercise and not as a workable prescription for judicial governance.” Ultimately, Scalia admits “stare decisis is not part of [his] originalist philosophy; it is a pragmatic exception to it.” To which Yale law professor Akhil Amar responds, “If pragmatism ultimately determines when we do originalism, this is in the end pragmatism not originalism.”

Figure 9. Click here to acquire the unabridged version of Pieces of Eight: the Monetary Powers and Disabilities of the United States Constitution (9/10), a learned and deep textual analysis that I’ve attempted to summarize as best as possible. You can also check out the related original document collection at the University of Chicago for the coinage power and the borrowing power.

Thanks for reading! If you enjoyed this, forward it to a friend: Know anyone who is interested constitutional originalism? How about anyone desiring limited government? Or anyone who has ever used money?

For more, check out my archive of writings, including my review of Scalia’s A Matter of Interpretation: Check Your Texts.

I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!

Figure 1. “Of course adultery is not permissible in normal conditions, but in the extraordinary circumstance where I find myself working long hours far from home…”

The greenbacks then introduced were controversial on multiple fronts, each a viable and separate objection: (1) that they were issued at all, despite a longstanding understanding of constitutional prohibition; (2) that they did not bear interest, which would have made them akin to the bonds used in the War of 1812; (3) that they were made legal tender, required by the state to be used to satisfy private debts, despite the murkiness on whether the federal government possessed such a never-before-used power; (4) that they could not be redeemed for precious metals (5) that they were oversupplied – they lost over 70% of their purchasing power over the course of the war; and (6) that, simultaneously, the federal government punitively taxed and suppressed state-licensed private currencies to establish a greenback monopoly.

What the Founders had tried to thwart instead came to pass – and the irony is that the “war necessity” of paper money might not have even been necessary for the war. As the Founder Benjamin Rush had argued, “where wars are just & necessary–Supplies may always be obtained by annual taxes from a free people.” John Steele Gordon estimates that the greenback helped pay for about 12% of the war – and Timberlake argues there was more than enough demand for certificates of deposit to cover that entire cost and then some. The Union’s finances prevailed because it had a more robust, more diverse economy that it could effectively tax and borrow against – though there’s a fair separate constitutional objection to the variety of new taxes imposed, including America’s first national income tax. Winning battles also happens to win the confidence of creditors.

I should also briefly report on the financing of the Confederacy, whose constitution kept its predecessor’s language about monetary policy. Incredibly, in the first half of 1861, more than a third of its revenue came from voluntary donations enthusiastic to support secession – but that quickly wasn’t enough. The Confederates cleverly tried to package much of their debt by backing it with their staple crop (cotton) but they also miscalculated by intentionally depriving European cotton mills of their product with the dashed hopes of support from across the pond. Ultimately, with a more constrained government and a smaller economy, the Confederates ignored their aspiration to coin and mostly paid for the war through continuously printing paper money, such that they underwent 3,000% inflation (9,000% if you count the last six months of the war when the end looked near to everyone.) Significantly, the Confederates never made their paper currency legal tender.

Figure 2. And yet despite all that inflation, Confederate dollars (as collectors’ items) have held their value better than the US dollar since 1865.

After the war, an incredible legal story unfolded. Salmon Chase, the Treasury Secretary who asked for the power to print money, became the Chief Justice of the US Supreme Court and had a change of heart about what was legally permissible. First, in Bronson v. Rodes (1868), an 1857 mortgage, concerned about local banks’ viability, explicitly called for repayment “in gold and silver coin.” The debtor complied until 1865, when he instead repaid the entire loan in the much depreciated greenbacks which the federal government had said must be accepted to satisfy any debts. Chase found that the “the intent of the parties… is clear” and that the debt could not be satisfied with uncontemplated greenbacks worth a fraction of the value at stake. For decades thereafter, this case inspired “gold clauses” in contracts, a practice we will revisit. But this case also was a shot across the bow of all paper money: every contract before 1861 was contemplated in terms of precious metals because that was the definition of a dollar for more than the preceding seventy years. What would that mean for those who had simply assumed that commerce would continue as usual?

In Hepburn v. Griswold (1870), Chase reasonably extended the logic and ruled that prewar contracts could not be forcibly satisfied in greenbacks. Making paper legal tender was an alteration of contracts and an assault on property rights. But Chase also started questioning the whole idea of greenbacks, noting that the power to print “is certainly not the same power as the power to coin money.” He reflected that “It is not surprising… that amid the tumult of the late civil war… different views, never before entertained by American statesmen or jurists, were adopted by many. The time was not favorable to considerate reflection upon the constitutional limits of legislative or executive authority.” As for what was necessary and proper to conduct a war, such a notion “carries the doctrine of implied powers very far beyond any extent hitherto given it.” The man who had asked for the power now found that “we are unable to persuade ourselves that an expedient of this sort is an appropriate and plainly adapted means for the execution of the power to declare and carry on war.” The dissent, meanwhile, generously read into Congress’ constitutional power to regulate its coin an ability to make rules about legal tender – and was otherwise persuaded that the war provided any cover necessary for the action. But how would the Court rule if given an opportunity to look at the constitutionality of the greenback itself, especially now that the war was over?

Figure 3. True to his name, Salmon Chase found himself swimming upstream.

The answer came down to partisanship. Between 1863 and 1870, greenback constitutionality had come before state courts sixteen times: “of the seventy state court justices who ruled on the cases, all but one Republican judge upheld the legal tender clause as constitutional, while all save two Democratic judges pronounced it unconstitutional.” Greenbacks were Republican policy and GOP President Ulysses Grant quickly nominated two justices with defined records who shifted the majority on the court. In an extremely unusual move, never mind stare decisis, the very year after Hepburn was decided the Court reversed itself and the new precedents gave an expansive view of the government’s powers. Ignoring the constitutional convention’s vote against giving the federal government the power to print, the Court found that the power to coin was a “general power over the currency which has always been an acknowledged attribute of sovereignty” – and indeed was necessary to not only save the republic in the recent war but compete internationally. A concurrence remarkably made a policy argument in favor of inflation: “If relief were not afforded [to debtors], universal bankruptcy would ensue, and industry would be stopped and government would be paralyzed in the paralysis of the people… But the creditor interest will lose some of its gold! Is gold the one thing needful? Is it worse for the creditor to lose a little by depreciation than everything by the bankruptcy of his debtor?” 

Chase offered up a dissent but he was outvoted. The new minority on the court “reject[ed] wholly the doctrine, advanced for the first time, we believe, in this court by the present majority, that the legislature has any ‘powers under the Constitution which grow out of the aggregate of powers conferred upon the government or out of the sovereignty instituted by it.” Indeed, in the United States, the general idea was that the people, not the government, were sovereign. Another dissenter, Stephen Field, insisted “The doctrine that where a power is not expressly forbidden, it may be exercised would change the whole character of our government.” He was suspicious that advocates of the greenbacks could not agree on what exactly in the Constitution permitted them. For the specific power to make paper money legal tender, Field would later observe about the antebellum period that “there is no recorded word of even one [person] in favor of [the government] possessing the power. All conceded, as an axiom of constitutional law, that the power did not exist.”

The most remarkable aspect of the reaction to this legal kerfuffle is that there was no commercial revolt. Although there was considerable frustration with the depreciating greenback during the war itself, the government had actually bravely embraced deflation in order to restore the purchasing power of the dollar to its prewar rate. By the time that the courts had fully worked out the legal issues, a greenback could be exchanged for a stated amount of gold and America was on a governmental gold standard. From a commercial perspective, federal paper was as good as gold. Though it was not what the Founders intended, the Supreme Court leaned in on the redeemability to further bolster the legality of the regime, finding that the power to print emerged out of the government’s borrowing power in that the paper could be overissued with the promise to pay gold. But of course the states were allowed to borrow and yet forbidden to emit bills of credit, suggesting they were different powers. And that location of constitutional authority worked only if the paper was indeed redeemable.

Figure 4. George Bancroft, Polk’s Secretary of the Navy and a prominent historian, emerged from retirement at 84 years old to author one of the best titled American legal books ever: “A Plea for the Constitution of the United States Wounded in the House of Its Guardians.” 

Still, it was one thing to issue greenbacks; it was another to destroy the currencies that had circulated before the war. In Veazie Bank v. Fenno (1869), the Supreme Court upheld the federal government’s ability to punitively tax currency issued by state-chartered banks out of existence. A local Maine bank had refused to pay and tried to argue that the tax was not apportioned properly according to the Constitution. The majority, including Chase, disagreed and further insisted that the government had “undisputed constitutional power to provide a currency for the whole country … by appropriate legislation, and to that end may restrain, by suitable enactments, the circulation of any notes not issued under its own authority.” Timberlake expands upon the dissent’s defense of the 10th Amendment to suggest that if McCullough established that the states couldn’t tax a federal bank out of existence, the federal government shouldn’t be able to tax state banks out of existence. 

But never fear! The government was totally prepared to redeem its money for gold. Treasury Secretary John Sherman called irredeemable paper money a “mild form of lunacy” and said that “depreciated paper money” was “one of the greatest evils that can befall a people.” Treasury Secretary Hugh McCulloch said that to regard greenbacks as money was a “delusion… They are not money, but merely promises to pay it, and the government must be prepared to redeem all that may be presented, or forfeit its character for solvency.” 

And yet, as it turns out with pretty much every example, central planners were not up to the task. National regulation required its banks to hold U.S. debt as reserves even as the U.S. government was trying to actively retire such debt, leaving bankers with a lack of flexibility. Despite chartering “national” banks, the U.S. government still did not allow interstate banking or many locations for banks to diversify their business. And there were continuous problems leading to recessions surrounding the seasonal money needs of an agricultural sector that still comprised a large part of the economy. 

Naturally, the politicians decided that the solution was to centralize power over money even further, this time into a central bank with the smartest people around who could really figure out the central planning. And yet they also insisted they weren’t designing a central bank – that would be too controversial. One Senator insisted that the new Federal Reserve would have “no power to initiate, to compel or to consummate any inflation whatsoever” – after all, it was on the gold standard, right? Congress tried to make the institution a public-private partnership that represented different regional interests across the country.

Figure 5. Naturally, those “regional interests” represented the economic and political power of different places in 1913 – and they have not been redrawn! So Missouri alone gets to have two of the twelve regional headquarters for the whole United States. 

The new central bank was not exactly a neutral manager of money. World War I would inspire fresh monetary arrangements to pay for the conflict (prompting nearly 60% inflation). In the 1920s, the Fed agreed to prop up the British pound for not especially economic reasons and then decided to punish stock speculators, resulting in Black Monday and the kick off of the Great Depression. Milton Friedman famously blamed the Fed for the whole affair – and while Friedman had advice for what the Fed should have done, he also noted that if the Fed had not existed and America had been on its classical gold standard, there would not have been a Great Depression. Timberlake notes that the Fed had enough gold to safely double the money supply without redeemability problems. (And, as ever, overregulation played a role: Canada, which allowed banks more than one location across its regions, had zero bank failures.)

The final important legal decision regarding monetary policy came during the Roosevelt administration. Through executive order and Congressional ratification, FDR made the private ownership of gold coin and bullion illegal, demanding citizens exchange their metal for paper dollars at a fixed price or risk up to ten years in prison and serious fines. After the gold had been seized, FDR convinced Congress to give him discretion to debase the currency by 59% – this was probably a problem for Congress to delegate this power and was also the most aggressive interpretation of “regulate the value thereof” that had ever been used. But what about those Americans who had learned their lesson from the Civil War and explicitly contracted, including with the US government, for payment in gold? 

A bipartisan Supreme Court majority, Democrats favoring their president, Republicans favoring their precedent, found that the seizure of gold prevented the contracts from being fulfilled and, indeed, the contracts were interfering with Congress’ power to regulate the value of its currency. Rather than ambition clashing against ambition, the Supreme Court now handed over practically unlimited power over monetary policy to Congress and the President. The dissent was not happy:

“we cannot believe the farseeing framers, who labored with hope of establishing justice and securing the blessings of liberty, intended that the expected government should have authority to annihilate its own obligations and destroy the very rights which they were endeavoring to protect. Not only is there no permission for such actions; they are inhibited. And no plentitude of words can conform them to our charter.”

That’s the state of monetary constitutional law today. Altogether the Civil War prompted the U.S. government to centralize control over currency and it has expanded its power while jealously guarding it ever since.  Result? Exploding government. As Hayek noted, “There can be little doubt that the spectacular increase in government expenditure [-] with governments in some Western countries claiming up to half or more of the national income for collective purposes [-] was made possible by government control of the issue of money.”

In our final email in this series, we will explore what it might look like to get our constitutional house in order.

Figure 6. Click here to acquire the unabridged version of Pieces of Eight: the Monetary Powers and Disabilities of the United States Constitution (9/10), a learned and deep textual analysis that I’ve attempted to summarize as best as possible. You can also check out the related original document collection at the University of Chicago for the coinage power and the borrowing power.

Figure 7. Click here to acquire Constitutional Money by Richard Timberlake (8/10), in which an economist reviews the U.S. case law around money and offers both economic commentary and a layman’s legal analysis of original public meaning uncluttered by the typical law school penumbras and gobbledygook. Timberlake insists: “The money clauses in the U.S. Constitution are brief, simple, and explicit; the humblest mind can understand them without elaborate interpretation.”

Figure 8. Click here to acquire Money Free and Unfree by George Selgin (9/10), a collection of essays by one of the leading free banking economists in the United States, opening with a thought experiment about what kind of monetary system a dictator would create to increase his power but also including a history of 19th century U.S. money and an evaluation of how the Federal Reserve has performed according to its own preferred standards in its first 100 years. Also check out his book explaining the theory and practice of free banking.

Thanks for reading! If you enjoyed this, forward it to a friend: Know anyone who is interested constitutional originalism? How about anyone desiring limited government? Or anyone who has ever used money?

For more, check out my archive of writings, including my review of Literally Making Money.

I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!