Inherent Power and Legal Tender

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The U.S. constitution, as a compromise between liberty and a central state, has been degraded step by step, like The Picture of Dorian Gray. Liberty has lost. The degradation is a continuing enterprise, constantly renewed.

How can future generations do better? They need to know how and why liberty lost. They need to know the past errors that produced the loss of liberty.

People justified each step by some ideas or philosophy, and the current generation continues to support these pro-State and anti-liberty ideas. We are now immersed in them. They are in the air. They are often subliminal, catching us unawares and getting under our skin. They lie just beneath the surface of our consciousness, and they motivate many of us to support big government.

One of these ideas is that the government has inherent powers that are constitutional. The Justice Department, for example, has asserted that "the Constitution vests in the President inherent authority to conduct warrantless intelligence surveillance (electronic or otherwise) of foreign powers or their agents, and Congress cannot by statute extinguish that constitutional authority." Alberto R. Gonzales stated: "The President has the inherent authority under the Constitution, as Commander-in-Chief, to engage in this kind of activity."

The Supreme Court usually supports the government’s claims to inherent power. Government power could not have grown without that support. In a 2004 decision (Hamdi v. Rumsfeld), the Court said that the Executive could detain a U.S. citizen as an "enemy combatant" without Congressional authorization: "the Executive possesses plenary authority to detain pursuant to Article II of the Constitution." The debate between the Legislative and Executive branches about which one has various inherent powers is secondary to the main claim that such powers are present in the government and legalized by the supreme law of the land.

One of the most serious errors of the Constitution was to make the judiciary part of the federal government. Since the Executive nominates justices and the Senate confirms them, they control the judicial philosophy of the Court. That control while imperfect has resulted in judgments with a strong bias toward favoring government power. The justice system should be entirely separate.

The Constitution has other major errors that supply the pro-State judges with plenty of ammunition. Chief among these is the "necessary and proper" clause:

"The Congress shall have Power…To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof."

Money, taxation, and borrowing are essential for the government to use its powers. It is therefore no accident that one of the earliest controversies over this clause concerned the charter of the First Bank of the United States. And it is no accident that in 1819 Chief Justice Marshall wrote his famous opinion in McCulloch v. Maryland that supported the Second Bank of the United States. He found that the government had the implied power to set up a federal bank under the necessary and proper clause.

Once the Court illuminated the road to implied powers, the government traveled that road as far as it could, even when it ran over other provisions of the Constitution. Once the national government was established and a few precedents set of using powers not expressly mentioned in the Constitution, it became easier and easier for statist ideas to become the unwritten constitution and for Supreme Court judges to affirm the constitutionality of far-reaching legislative and executive powers.

In this article, I go back to the Supreme Court cases in 1870 that justified making greenbacks legal tender. There we find a clear statement of the inherent power ideas that we need to contend with consciously today if we are ever to gain the liberties that the Declaration of Independence so passionately supports. These ideas need to be brought to light. Their glorification of the State and their antagonism to liberty need to be exposed.

Legal tender law

Before there were Federal Reserve notes (our current paper money instrument), there were U.S. notes. These were issued by the U.S. Treasury, not the Federal Reserve, which is a central bank created by Congressional action.

Looking at a clear picture of a $20 U.S. note, we see at the top "Legal Tender for Twenty Dollars." Legal tender means that the note must, by law, be accepted as payment for all debts, public charges, taxes, and dues.

The U.S. Treasury began issuing non-interest bearing notes in 1862 after Congress passed several Legal Tender Acts authorizing their issue. The notes came to be known as greenbacks. The law, which did not distinguish debts contracted before the law was passed from debts contracted thereafter, read as follows:

"Be it enacted …, That the Secretary of the Treasury is hereby authorized to issue on the credit of the United States, one hundred and fifty millions of dollars of United States notes, not bearing interest, payable to bearer, …, and such notes herein authorized shall be receivable in payment of all taxes, internal duties, excises, debts, and demands of every kind due to the United States,…, and shall also be lawful money and a legal tender in payment of all debts, public and private, within the United States,…"

The existing U.S. law is not far different:

"Section 5103 of title 31, United States Code

5103. Legal tender

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts."

Ex post facto law

The 1862 statute conflicted with the Constitution in several ways. In the first place, it was an ex post facto law. It was retrospective or retroactive. It impaired contracts made before the date of the law. Article I, Section 9, which applies to the federal government, says: "No bill of attainder or ex post facto Law shall be passed." Article I, Section 10, which applies to the states, says: "No state shall…pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts,…"

In his article written in 1900 titled "Are Our Legal Tender Laws Ex Post Facto?", Brainerd Taylor DeWitt examines the issue thoroughly. The evidence that the legal tender laws are retroactive and thus, in his view, unconstitutional is overwhelming. His own conclusion is this:

"Laws impairing the obligation of contracts being embraced in the prohibition of Article I, Section 9, under the terms "ex post facto law," as explained by the Constitution itself, by The Federalist and by the usage of our English ancestors long previous to the formation of the Constitution, the conclusion is unavoidable that our legal-tender laws are ex post facto, and that Congress in enacting them violated an express provision of the Constitution."

To Justice Strong, who wrote the majority opinion that upheld the legal tender laws, it did not matter if those laws impaired contracts and violated some provisions of the Constitution. There were more important fish to fry. He wrote:

"If, then, the legal tender acts were justly chargeable with impairing contract obligations, they would not, for that [79 U.S. 457, 551] reason, be forbidden, unless a different rule is to be applied to them from that which has hitherto prevailed in the construction of other powers granted by the fundamental law. But, as already intimated, the objection misapprehends the nature and extent of the contract obligation spoken of in the Constitution. As in a state of civil society property of a citizen or subject is ownership, subject to the lawful demands of the sovereign, so contracts must be understood as made in reference to the possible exercise of the rightful authority of the government, and no obligation of a contract can extend to the defeat of legitimate government authority."

In unambiguous words, Strong asserts that government authority trumps the property of citizens (subjects) and the contracts they may make in civil society. He holds this view, as we shall soon see, because he believes that government itself is entitled to whatever powers it requires to perpetuate and preserve itself. In other words, we not only must have government, we must have the government we now have that was established by the Constitution, and that government has a right to preserve itself. We are subject to it. It is not subject to us.

In some cases, the Framers linked the impairment of contracts by ex post facto laws to the production of paper notes, known then as bills of credit. They knew that historically legal tender laws had the intent of making people accept a devalued currency in place of money instruments like gold and silver and augmenting the power and resources of the sovereign while diminishing the liberty of the sovereign’s subjects. Roger Sherman and Oliver Ellsworth, in recommending the Constitution to their state, wrote:

"The restraint on the legislatures of the several states, respecting emitting bills of credit, making anything but money [gold and silver] a tender in payment of debts, or impairing the obligation of contracts by ex post facto laws, was thought necessary as a security to commerce, in which the interest of foreigners as well as the citizens of different states may be affected."

In Number 44 of The Federalist, Madison speaks strongly against bills of credit being issued by the states. The Federal Convention refused to grant Congress this power as well.

Emitting bills of credit, then the term for non-interest bearing paper notes to be used as currency, is not the same as making such bills into legal tender. The Supreme Court later held that the federal government could issue bills of credit.

Hepburn v. Griswold

The first test of the constitutionality of the legal tender law came in 1869. The Supreme Court found that the law was unconstitutional.

The Court said that (1) the Constitution contained no express provision to make any credit currency a legal tender in payment of debts, and (2) the legal tender laws were not justifiable under the "necessary and proper" clause:

"The making of notes or bills of credit a legal tender in payment of preexisting debts is not a means appropriate, plainly adapted, or really calculated to carry into effect any express power vested in Congress, is inconsistent with the spirit of the Constitution, and is prohibited by the Constitution."

The Court pointed out another major conflict of legal tender laws with the Constitution. The Fifth Amendment declares that "no person shall be deprived of life, liberty, or property, without due process of law." The legal tender laws by directly impairing the value of contracts deprived persons of property without due process of law.

Knox v. Lee

The Court reversed Hepburn v. Griswold in the following year in two cases: Knox v. Lee and Parker v. Davis. Such a reversal was unprecedented. The majority of 5-3 in Hepburn changed into a 5-4 decision favorable to legal tender laws with the Chief Justice dissenting. One of the original five had retired. The remaining four maintained their position. The minority of three became four when a vacant seat was filled, and it became the majority of five through a new appointee when the court was expanded from 8 to 9 seats in December, 1869.

Statements made by the majority in support of the legal tender laws are what interest us. They are of the utmost importance to us today, inasmuch as we hear them echoed on all sides as every government, Democrat and Republican, reaches for more power.

Justice Strong made several arguments. He began with this statement:

"If it be held by this court that Congress has no constitutional power, under any circumstances, or in any emergency, to make treasury notes a legal tender for the payment of all debts (a power confessedly possessed by every independent sovereignty other than the United States), the government is without those means of self-preservation which, all must admit, may, in certain contingencies, become indispensable, even if they were not when the acts of Congress now called in question were enacted."

This statement contains justifications for the government power. Not one of them refers directly to the Constitution. A first technique of subverting the Constitution is simply to ignore its language and bring in other considerations. This technique is always in vogue.

Strong mentions extreme circumstances and emergencies in which Congress should have power to act, such power being constitutional, even if it be not present in that document. His idea is that practical necessity is the real ruler at times. He is saying that there is a tradeoff of constitutional constraints on power for another urgent need. This assumes that the Constitution is of second-order or third-order importance. Necessities hold sway.

A second technique of subverting the Constitution is thus to cry "Emergency!" This technique, which relegates the Constitution to secondary status, is also always in vogue. Any leader can easily find a dozen pressing needs, problems, disasters, exigencies, and necessities. He will then urge that they be dealt with no matter what the Constitution says. The Constitution, being the general document that it is, is denigrated as being unable to handle events that it could not have foreseen. Room must be made for stretching its words to fit the necessities of today. Under this philosophy one may well ask, why bother to have a constitution?

Obviously, if the Constitution is ignored in times of emergency or pressing need, then it is no longer the fundamental or supreme law of the land. Something else is, namely, practical need or pragmatism. They are assumed to be more important than the law. The problem with this approach is that it is lawless. Practical needs are not defined by law. They are defined by men, and that means there is no constitution acting as law. Once the Constitution has been ignored or twisted so as to conform to some supposed need, it is then easy to ignore it again and again. It cannot retain its former character as a constraint on government power. When pragmatic matters are primary, the role of the Constitution is that of providing a patina of legality that covers over the actual illegality.

Ignoring the Constitution’s limitations on government power in time of emergency or practical exigency not only assumes that the Constitution is of second-order importance, it also presumes that the government is the only means of possible action. It presumes that the government is the sole organization that can and must act and that it must be empowered to find the solution to the supposed emergency. But this is hardly ever so. In case after case, the government is the worst possible organization chosen to handle problems.

The question at issue in the legal tender case is whether or not the government has the power constitutionally to make everyone accept its paper money as legal tender. Justice Strong begs that question. He presumes that we as persons need the government to solve various problems and have put that government in place as the sole and only means to solve these questions. He presumes that we are incapable of organizing ourselves in any other ways to resolve particular problems. Having made that postulate, he easily deduces the implication that the legal tender power is necessary and proper for the government’s exercise of its other powers.

If one glorifies government to begin with, by placing it on a pedestal, by assuming that it and no other organizations and associations, it and no other means, can solve the common problems we as persons face, one then is ineluctably led to the conclusion that any powers that the government exercises that are needed to support its unique position in solving our problems must be necessary and proper to those exercises of power. If one assumes the uniqueness and singular importance of a government, one is led away from a government with limited powers. One is led to a government with unlimited powers. But since the Constitution established the national government as a unique government, it left itself open to expansive interpretations such as Justice Strong’s.

Strong’s second argument begins in the offhand remark that every other independent sovereignty had the power to make its note into legal tender. He views this as an indispensable means to the "self-preservation" of governments. This argument is false on several grounds, both theoretical and constitutional.

Mr. Justice Clifford, dissenting, demolished Strong’s argument. He pointed out that there was no implied power in the Constitution to make bills of credit into legal tender. Congress already had ample constitutional power to conduct war and preserve the government.

"Congress may appropriate all moneys in the treasury [79 U.S. 457, 630] to carry on the war, or Congress may coin money for that purpose, or borrow money to any amount for the same purpose, or Congress may lay and collect taxes, duties, imposts, and excises to replenish the treasury, or may dispose of the public lands or other property belonging to the United States, and may in fact, by the exercise of the express powers of the Constitution, command the whole wealth and substance of the people to sustain the public credit and prosecute the war to a successful termination."

In another dissent, the Chief Justice gave an economic or theoretical argument. He laid out the basis for a "tax" foundation for U.S. notes to become currency:

"The real question is, was the making them a legal tender a necessary means to the execution of the power to borrow money? If the notes would circulate as well without as with this quality it is idle to urge the plea of such necessity. But the circulation of the notes was amply provided for by making them receivable for all national taxes, all dues to the government, and all loans. This was the provision relied upon for the purpose by the secretary when the bill was first prepared, and his reflections since have convinced him that it was sufficient."

Governments do not disappear when they lack the legal tender power. The U.S. has fifty state governments that lack this power. Nor do paper monies issued by governments fail if they are not legal tender. A government can support its note issues as currency, without making them legal tender, by making them payable for the taxes that it assesses. Since the notes can be returned to the government to extinguish tax bills, they can circulate as a money instrument that has value.

Returning to Justice Strong, we find next an amazing argument:

"…the powers conferred upon Congress must be regarded as related to each other, and all means for a common end. Each is but part of a system, a constituent of one whole. No single power is the ultimate end for which the Constitution was adopted. It may, in a very proper sense, be treated as a means for the accomplishment of a subordinate object, but that object is itself a means designed for an ulterior purpose. Thus the power to levy and collect taxes, to coin money and regulate its value, to raise and support armies, or to provide for and maintain [79 U.S. 457, 533] a navy, are instruments for the paramount object, which was to establish a government, sovereign within its sphere, with capability of self-preservation, thereby forming a union more perfect than that which existed under the old Confederacy."

Strong argues that the Congressional powers, as granted in the Constitution, and the Constitution itself are means to an overriding end: to establish a perpetual government. Government itself is the paramount end! It is true that the Constitution’s preamble says that we the people established the Constitution to form a more perfect union, but it does not say that union of the states is the premier end or even anything but a means to the other objects it lists: justice, domestic tranquility, the common defense, the general welfare, and the blessings of liberty. For us the people, having a union of states makes no sense in and of itself unless it is a means to these other ends.

He quotes approvingly from Justice Marshall:

"Said Chief Justice Marshall, in Cohens v. The Bank of Virginia, 86 u2018America has chosen to be, in many respects and to many purposes, a nation, and for all these purposes her government is complete; for all these objects it is supreme. It can then, in effecting these objects, legitimately control all individuals or governments within the American territory.’"

Some of our Justices seem to have had Hobbes at their elbows or for bedtime reading.

Strong holds that the government, by the necessary and proper clause, can do whatever it wants to that it is not prohibited from doing:

"That would appear, then, to be a most unreasonable construction of the Constitution which denies to the government created by it, the right to [79 U.S. 457, 534] employ freely every means, not prohibited, necessary for its preservation, and for the fulfilment of its acknowledged duties. Such a right, we hold, was given by the last clause of the eighth section of its first article."

Mr. Justice Bradley, a member of the majority, explained at length why the government had the power to make its paper money a legal tender. He ended up saying that it is "one of those vital and essential powers inhering in every national sovereignty and necessary to its self-preservation."

The notion of inherent powers, supported by Bradley, arises at the inception of the U.S.A. and carries forward to this day. Hamilton in The Federalist 23 made incredibly broad claims for government power:

"The authorities essential to the common defense are these: to raise armies; to build and equip fleets; to prescribe rules for the government of both; to direct their operations; to provide for their support. These powers ought to exist without limitation, because it is impossible to foresee or define the extent and variety of national exigencies, or the correspondent extent and variety of the means which may be necessary to satisfy them. The circumstances that endanger the safety of nations are infinite, and for this reason no constitutional shackles can wisely be imposed on the power to which the care of it is committed."

Is it really the case that free people cannot defend themselves without giving up their liberty? Must they commit their lives and liberties to a central power and give that power carte blanche? If they do that, how can they control their controllers? Obviously, a government with no constitutional shackles concerning the war power is exceedingly dangerous and inimical to liberty. It seems that the U.S. has taken the Hamiltonian philosophy to heart. But should it have done so? The passage quoted seems to express an inordinate degree of paranoia and fear combined with an inordinate faith in government as the remedy for that fear. It is hardly wise for an entire country to follow out intemperate and extravagant rambling that has so little balance and restraint.

John Yoo’s memoranda within the Bush administration articulate and justify the doctrine of inherent executive power with a degree of imbalance equal to Hamilton’s. In his expansive view, among many other claimed powers, "the President may deploy military force preemptively against terrorist organizations or the States that harbor or support them, whether or not they can be linked to the specific terrorist incidents of September 11." The nation seems to be perpetuating in its leadership a highly dangerous degree of power-worship that is capable of self-fulfillment as it induces the conflicts and wars it supposedly wishes to avoid.

Was the U.S.A. to be no different than any Old World nation or any despotic power elsewhere on earth? Government is government, the U.S.A. being no exception, Justices Strong and Bradley argued. Bradley spelled this out in his exposition. His amazing statements could easily serve as a basis for the absolutist rule of Hitler, Stalin, or any number of American Congresses and Presidents:

"It is absolutely essential to independent national existence that government should have a firm hold on the two great sovereign instrumentalities of the sword and the purse, and the right to wield them without restriction on occasions of national peril. In certain emergencies government must have at its command, not only the personal services — the bodies and lives — of its citizens, but the lesser, though not less essential, power of absolute control over the resources of the country. Its armies must be filled, and its navies manned, by the citizens in person. Its material of war, its munitions, equipment, and commissary stores must come from the industry of the country. This can only be stimulated into activity by a proper financial system, especially as regards the currency."

Sentiments like these, expressed by a Supreme Court Justice in 1870, are now and always have been a constant strain in the American system, ranging as they do at least from Hamilton to Yoo and Gonzales. American government on many occasions has used these powers. They and more are now fixtures in American life.

Proponents of liberty are up against many obstacles, of which the American willingness to give in to absolutist rule is one. Heightened fear that is tantamount to paranoia is deeply embedded in the American experience and philosophy. Any kind of distress or severe problem is likely to be labeled an emergency whereupon the conditioned and habitual response is now to yield to the power of government as the great savior. This is not a characteristic that will be easily resolved or changed.

Gold and silver

Justice Clifford in his dissent began by pointing out that

"Money, in the Constitutional sense, means coins of gold and silver fabricated and stamped by authority of law as a measure of value, pursuant to the power vested in Congress by the Constitution."

The federal power to coin money does not mention gold and silver, but the very next section of the same article that restricts the states does. The two sections are logically connected, and Clifford made the connection:

"Coined money, such as is authorized by that clause of the instrument, consists only of the coins of the United States fabricated and stamped by authority of law, and is the same money as that described in the next clause of the same section as the current coins of the United States, and is the same money also as u2018the gold and silver coins’ described in the tenth section of the same article, which prohibits the States from coining money, emitting bills of credit, or making u2018anything but gold and silver coin a tender in payment of debts.’"

What did the Framers intend in the Constitution?

"Paper emissions have, at one time or another, been authorized and employed as currency by most commercial nations, [79 U.S. 457, 589] and by no government, past or present, more extensively than by the United States, and yet it is safe to affirm that all experience in its use as a circulating medium has demonstrated the proposition that it cannot by any legislation, however stringent, be made a standard of value or the just equivalent of gold and silver. Attempts of the kind have always failed, and no body of men, whether in public or private stations, ever had more instructive teachings of the truth of that remark than the patriotic men who framed the Federal Constitution, as they had seen the power to emit bills of credit freely exercised during the war of the Revolution, not only by the Confederation, but also by the States, and knew from bitter experience its calamitous effects and the utter worthlessness of such a circulating medium as a standard of value. Such men so instructed could not have done otherwise than they did do, which was to provide an irrepealable standard of value, to be coined from gold and silver, leaving as little upon the subject to the discretion of Congress as was consistent with a wise forecast and an invincible determination that the essential principles of the Constitution should be perpetual as the means to secure the blessings of liberty to themselves and their posterity."

Clifford’s invaluable review of 70 years of history establishes the firm place of gold and silver as money instruments in American history and of the hostile sentiments of the Framers toward paper money. At the end, he notes that the Court has always "held opinions utterly opposed to such a construction of the Constitution as would authorize Congress to make paper promises a legal tender as between debtor and creditor."

Conclusion

Flaws in the U.S. Constitution have inevitably led to a loss of liberty in America. The flaws include the Supreme Court as part of the federal government and language such as the necessary and proper clause.

The legal tender cases acquaint us with a number of pro-State points of view that I summarize as follows. The federal government is premier, over its citizens and subjects. The federal government is the sole government, having a constitutional mandate and right to be perpetual and self-preserving. There are no legal competitors to it. The option for people to organize themselves in other ways no longer exists; the adoption of the Constitution foreclosed those options. The existence and survival of this form of government are forever established by the Constitution. Whatever implied powers it requires for its existence take precedence over other liberty-sustaining and power-limiting provisions of the Constitution, and they may be violated if the government decides that circumstances warrant such violations.

Furthermore, the government has inherent powers. In situations of practical necessity, in emergencies, in cases of great need, the government has powers to act so as to insure its own security and survival. The government set up by the Constitution must control the sword and the purse. These are inherent sovereign powers. If that means impressing every citizen into armed service and taxing every last resource, the government has that power by its very existence as government. If that means controlling the definition of money, making its own bills of credit into legal tender, it has that power. If that means establishing central banks, it has that power.

The legal tender cases of 1870 brought out the conflict between two views. On one side is liberty and a constitution with enumerated and limited powers that serves people. On the other side is the predominance of government with whatever inherent powers it takes for it to survive. In that view, liberties are dispensable for the greater good of the preservation of an immortal constitution (as Justice Marshall expressed it in Cohens v. The Bank of Virginia). We are far down the latter road. It is a one-way street. It seems to me that we are bound and gagged by the Constitution. This is why I have called for dissolving the U.S.A. and ending the rule of this flawed document. Adhering to it has led us to where we stand today.

Let us go our many ways. The land is broad enough and we are intelligent enough to manage our affairs with any number of governments of our choice. Let there be competition in governance. Why can’t there be innovation in constitutions, a constitution with a sunset provision, a constitution with electronic referenda, or any number of other innovations? Why must governments be territorial? Why must a person be subject to a government merely because of where he happens to live? Why must a government control what money is? Why can’t we have monetary freedom? Why must governance involve forced taxation? Why can’t we agree to the government of our choice and to paying our share of its costs?

Sooner or later, we will get off the one-way street we are on. What we can do now is prepare ourselves and those who come after us, so that we and they have a chance to do better.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York.

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