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Inflation: Congress’s Constitutional Powers and Disabilities

Those who view the battle against inflation as one of political "policy" correctly observe that Congress has the constitutional power to end inflation tomorrow by legislation.

Last Updated on September 2, 2022 by Constitutional Militia

A good practical definition of “hyperinflation” is depreciation in the purchasing-power of a currency at the rate of 50% or more per month. On the likelihood of such a calamity occurring in the United States in the near future, see, e.g., Laurence J. Kotlikoff, “Is the United States Bankrupt?”, Federal Reserve Bank of St. Louis Review (July/August 2006), at 235, and especially at 241-242. Some may dismiss this prediction as too darkly pessimistic. But, as the folk wisdom has it, “a pessimist is merely an optimist who knows the facts”. Or, in the words of Bernard de Voto, “[p]essimism is only the name that men of weak nerves give to wisdom”.

Inflation is contemporary America’s most pressing economic, social, and political problem. Reliable sources are available to describe the history of inflation in this and other societies, to explain its cause of effects, and to indicate the policies necessary to eradicate it.[1] Unfortunately, the vast majority of the American people receives its information on this subject, not from capable economists and historians, but instead from the electronic media—the performance. of which draws into serious question the competence, if not the motives, of leading reporters and commentators.[2] Yet even many of those knowledgeable about the mechanisms of fiat paper currency, unlimited central-bank credit-expansion, and the other paraphernalia of inflation fail to realize that the solution to the problem does not require development of a new, antiinflationary policy based on the “gold standard”, or on the “degovernmentalization” of money. Rather, it merely requires convincing or compelling Congress to implement the old, anti-inflationary policy the United States Constitution enunciated from the beginning.

Of course, those who view the battle against inflation as one of  correctly observe that Congress has the constitutional power to end inflation tomorrow by legislation. Whether it has the will to exercise this power, in the face of incessant pressure from special-interest groups for the continuation and expansion of spending-programs by the national and state governments, is less than certain, however. More important than the constitutional power of Congress to end inflation, though, is its constitutional duty to do so—or, put another way, its constitutional disability to cause or permit inflation in the first place. About this, hardly anyone says anything. To the contrary: Many legally trained opponents of inflation claim that, at a minimum, a constitutional amendment is necessary to end governmental manipulation of money.[3] Nothing could be further from the truth.

The chief mechanism of inflation today is the ability of the Federal Reserve System to generate an endless stream of paper currency that: (i) is purportedly a legal tender for all debts, public and private: and (ii) is not redeemable in gold  or silver coin or bullion. Amazingly, the supposed authority of Congress, under the Constitution, itself to issue irredeemable, legal-tender paper currency, or to delegate such a power to the Federal Reserve System, finds no basis in either the Constitution or even in any decision of the United States Supreme Court. Indeed, no challenge to these assumed powers has ever come to the Supreme Court for adjudication, let alone been adjudicated!

This study investigates what monetary powers and disabil­ities the Constitution contains, and the extent to which they deny Congress the authority to maintain the contemporary system of “fiat currency” that most Americans erroneously treat as “money”.

1.) The so-called “Austrian School” alone has elaborated a comprehensive analysis of money integral to general economic theory. See, e.g., L. von Mises, The Theory of Money and Credit (H. Batson transl., new ed., 1971);  Idem, Human Action: A Treatise on Economics (3d rev. ed. 1963), chs. xvii-xx, xxxi; M. Rothbard, Man, Economy, and State: A Treatise on Economic Principles (1970), chs. 3, 11, 12.

2.) T. Bethell, Television Evening News Covers Inflation: 1978-79 (Media Institute 1980).

3.) H. Holzer, Government’s Money Monopoly, Its Source and Scope and How to Fight It (1981), at 195-203.

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