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The Power to Declare “Money” a Legal Tender

In the most fundamental sense, the power to declare what shall be a ''legal tender'' resides in the people, not in the government.

Last Updated on September 16, 2021 by Constitutional Militia

The following analysis is an excerpt from
TO REGULATE THE VALUE OF MONEY:
AN ANALYSIS OF THE POWER OF GOVERNMENT TO CREATE AND SET A VALUE ON MONEY
National Alliance for Constitutional Money
Monograph No. 7 
by Edwin Vieira, Jr.

The power to declare “Money” a legal tender

Some of the people who favor a broad power of government over the substance and purchasing-power of money may admit that the Constitution limits actual “Money” to coin, and requires “regulat[ion of] the Value” of such coin according to the standard silver “dollar”. But, these people argue, the Constitution allows Congress to create “legal tender” for “dollars”—that is, things that debtors can require creditors to accept in lieu of the “dollars” the debtors owe. Under this theory, a “legal tender” need not be “Money”, but is merely a substitute for “Money” that Congress compels creditors to accept at the option of debtors.

Obviously, if Congress creates “legal tender” less valuable than the dollars for which it may be substituted, redistribution of wealth occurs every time a debtor pays a creditor with that “legal tender” instead of the “dollars” he owes. Thus, the power to create “legal tender” (if it exists) can  have economic effects as consequential as the power (which does not exist) directly to debase the coinage.

The question the people in favor of Congressional “legal tender” must answer, however, is: “Where in the Constitution does such a power reside?” Article I, Section 8, Clause 5 neither grants a power to declare, nor even mentions, “legal tender”. Indeed, the term “Tender” appears in the Constitution only in Article I, Section 10 Clause 1—reserving to the States a portion of their pre-constitutional “legal-tender” authority for “gold and silver Coin” alone. Analysis of the nature of “legal tender” and constitutional “Money” explains this situation.

To understand the concept “legal tender” requires distinguishing between “money” in the economic sense, as the common medium of exchange, and “money” in the juristic sense, as the common medium of payment (or settlement of debts). In a market-economy something can become a medium of payment only by virtue of already being a satisfactory medium of exchange. In theory, the law can assign the character of a medium of  payment (“legal tender”) to anything, including the three forms of money: “commodity money”, “credit money”, and “fiat money”.[1] But granting such juristic character to something is insufficient to make that something “money” in the economic sense. In a market-economy, things become media of exchange only through their use as such in commercial transactions. Commerce, of course, may adopt as media of exchange such things as the law declares to be media of payment; but it need not do so.[2]

Article I, Section 8, Clause 5 of the Constitution evidently uses the noun “Money” in its economic, as well as its juristic sense, for two reasons. First, linguistically, the clause refers to a “Money” capable of being “coin[ed]”—which, of necessity, identifies that “Money” as “commodity money”, not “credit money” or “fiat money”. Second, historically, the “commodity money” of England and America for hundreds of years prior to ratification of the Constitution consisted only of silver, gold, and (to a lesser degree) copper—which became “money” through the course of trade, not through the dictates of government, and to which government merely extended “legal-tender” character in recognition and adoption of established commercial practices. Therefore, presumptively, whatever commodity could serve as “Money” under Article I, Section 8, Clause 5 could also and consequentially serve as “legal tender”, because (as traditionally was the case) the medium of payment that contracting parties intended in commercial agreements creating monetary obligations was the medium of exchange extant in the community and this medium was generally satisfactory for fulfilling obligations not contracted in money, too.

Reference to common law establishes what commodities can serve as “Money ” under Article I, Section 8 Clause 5. At common law, “the money of England” had to be of either gold or silver, with copper coin * * * not upon the same footing”; and coin of the precious metals was, merely upon its coinage and even without explicit declaration to that effect, “legal tender” for its intrinsic value (i.e., its weight of fine silver or fine gold).[3] Because the power ”To coin Money” derived from the common law coinage-power it must also include an implied power to give “legal-tender” character to all silver and gold coins properly “regulate[d] in “Value” as against the “Money-Unit”—but, as well, an implied disability to make  base-metal coins a full “legal tender”, or even to impose gold or silver coins as such when improperly “regulate[d]’’ in “Value”.

Of decisive importance here, of course, are the explicit constitutional references to the (silver) “dollar” in Article 1 Section 9, Clause 1 and the Seventh Amendment—which references establish the “dollar” as the nation’s monetary unit. Obviously, if the Constitution itself identifies the “dollar” as the “Money-Unit” of the nation’s coinage system, then that “dollar”—the dollar of 371.25 grains fine-silver content—will necessarily be a “legal tender” for all contracts denominated in “dollars”, and for all judgments of governmental courts payable in money.

The apparent problem of “legal tender” arises only because Congress may constitutionally coin “Money” other than the constitutional “dollar” itself. Now, if Congress coined silver and gold coins other than the “dollar” “regulat[ing] the Value thereof” in proper proportion to the “dollar” according to the market exchange-ratio between the precious metals, all of these coins would be equally available as economically equivalent means of paying debts. Under such circumstances, if a contract explicitly specified the medium of payment as one or another of these standard silver or gold coins, then that specified coin alone would be “legal tender” for satisfaction of the contractual obligation, even absent any explicit statutory or constitutional authorization. The question is whether, in satisfaction of a contractual obligation denominated generally in undefined “dollars” (as opposed to silver dollars) other standard coins might not serve as “legal tender” to the extent of their intrinsic values in weight of precious metal. For, if properly “regulate[d]”, these other coins in proportionate amounts would have have the selfsame economic worth (exchange-value or purchasing-power) as the contractually specified “dollars”. The issue in such a case would be whether the contracting parties used the designation “dollar’· literally to identify that silver coin as the unique means of payment or merely figuratively to symbolize a certain exchange-value of “Money” in a general sense. In the former circumstance, only the silver “dollar” could be a “legal tender” consistent with the Fifth and Fourteenth Amendments Due Process Clauses; whereas, in the latter circumstance the payment of actual ‘”dollars”, or of their market equivalent in some other coin, would satisfy the contractual obligation for a determinable value of “money” in the economic sense .

On the other hand, where a debt arose in a non-contractual setting ( such as damages adjudicated in a common-law tort action) the economic value of that judgment-debt would be the same whether denominated and paid in (silver) “dollars” or in any other properly “regulate[d]” silver or gold coin. Therefore, in cases of this kind, all forms of constitutional “Money” would be capable of functioning as “tender” in the economic sense, the choice among them in the juristic sense being that of the adjudicating agency. Indeed, as long as governmental courts exist, capable of summoning defendants before them by coercive process and imposing damage-judgments against those defendants, government will necessarily have a limited “legal-tender” power, in the sense of the authority to conduct a trial at which the finder of fact establishes the compensation to which the complaining party is entitled (“tender” in the economic sense), and to declare what shall constitute the medium of payment for such judgments (“tender” in the juristic sense). Of course, under the injunction to provide “just compensation” pursuant to the Due Process Clauses of the Fifth and Fourteenth Amendments,[4] government can declare as a juristic tender only what in fact provides the complaining party with full economic recovery (“fair market value”) for his damages.[5] So, the government’s “legal-tender” power in these cases, rightly understood, amounts at most to the declaration of which among various media of payment equally suitable in economic terms is most convenient for use by the courts (or other agencies of adjudication). Yet, as limited as this power may be, it nevertheless is inherent in a system of governmental courts. Indeed, even if government decreed that it would recognize as “legal tender” in each specific case whatever medium of exchange the complaining party desired, in the final analysis government would none the less be imposing that tender on the defendant, just as government would impose the damage-judgment itself.[6]

The implicit reservation of the States’ “legal-tender” authority respecting “gold and silver Coin” in Article I, Section 10, Clause 1 supports the interpretation that all properly “regulate[d]” coins of the precious metals can equally serve as media of payment. The Framers understood that, even if a common-law “legal-tender” power for silver and gold coins were implicit in Article I, Section 8, Clause 5, Congress nevertheless received no authority in any constitutional provision under the federal system to interfere with the inherent governmental powers and duties of the States.[7] Yet they also knew that the States would often amass debts in the performance of those powers and duties—and might well, as experience during the War of Independence taught, attempt to default on those debts by tendering to their creditors “Thing[s]” other than “gold and silver Coin”. To preclude this within the federal structure, the Framers included in Article I, Section 10, Clause 1 the prohibition against “mak[ing] any Thing but gold and silver Coin a Tender in Payment of Debts”, so as to constitutionalize for the States in their governmental capacities the monetary rule otherwise applicable to the national government and the people generally through Article I, Section 8, Clause 5. This, however, reciprocally shows that the Constitution does tolerate “gold and silver Coin” as “Tender in Payment of Debts”—presumably at the properly “regulate[d]” intrinsic value in relation to the (silver) “dollar”.

In conjunction with the Tenth Amendment[8] and Article VI, Clause 2 (the Supremacy Clause),[9] Article I, Section 10, Clause 1 provides further evidence that silver and gold—and only silver and gold—may constitutionally function as governmentally declared “legal tender”. Under the Tenth Amendment, there are three possibilities: (i) If a power is delegated to the United States by the Constitution, it is not reserved to the States * * * or to the people”. (ii) If a power is “reserved to the States * * * or to the people”, it is not “delegated to the United States”. And (iii) if a power is “prohibited by [the Constitution] to the States”, it is either “delegated to the United States” or “reserved * * * to the people”. Article I, Section 10, Clause 1 refers to two complementary powers: explicitly, the power to “make any Thing but gold and silver Coin a Tender in Payment of Debts”; and implicitly, the power to make “gold and silver Coin” itself such a “Tender”. The clause prohibits the first of these powers, and reserves the second, to the States. Now, self-evidently, if the Constitution reserves power to make “gold and silver Coin a Tender” to the States, then perforce of the Tenth Amendment it does “not delegat[e]” a “legal-tender” power to the United States—or, it does not delegate that power to the United States in any form that could conflict with the reserved authority of the States. Therefore, if the United States has any constitutional privilege to declare a “legal tender”, that “tender” must consist of the same “gold and silver Coin” the States may “make * * * a Tender”. Congress, of course, has exclusive power under Article I, Section 8, Clause 5 to “regulate the Value” of domestic and foreign “Coin”. So, overall, both Congress and the States have concurrent authority to declare as full “legal tender” gold and silver coins at the properly “regulate[d]” “Value[s]” that Congress sets (or should set, in the exercise of its constitutional duties ).[10]

Conversely, Article I, Section 10, Clause 1 prohibits the States from “mak[ing] any thing but gold and silver Coin a Tender”. And Article VI, Clause 2 shows that the Constitution did not delegate this power to the United States. If Congress had authority to declare something other than gold and silver coin a “legal tender”, while at the same time the States were declaring such coin a ”tender” (presumably for the selfsame debts), then an insoluble constitutional conflict would ensue. For the Supremacy Clause enjoins that “[t]his Constitution and the Laws of the United States which shall be made in pursuance thereof * * *, shall be the Supreme Law of the Land”. If the States could declare specie a “tender” pursuant to their explicit reservation of constitutional power in the Constitution itseIf, and Congress could declare something eIse “tender” in a statute enacted pursuant to a claimed implicit delegation of constitutional power, which declaration would be “the Supreme Law of the Land”? Simple constitutional logic compels the conclusion that the exercise of the power set out explicitIy in the Constitution must override the exercise of  a power claimed only to be implicit therein.

But, then, where in the Constitution resides the “legal-tender” power that Article I, Section 10, Clause 1 prohibits to the States and Congress? The Tenth Amendment answers this question by identifying the locus of the latter authority as “reserved * * * to the people”. The States cannot make anything but gold and silver coin a “Tender” because of Article I Section 10, Clause 1. Congress cannot make anything but gold and silver coin a “tender” because of Article VI Clause 2 (in addition to the common-law interpretation of Article I, Section 8, Clause 5). And, therefore, only the people—through voluntary contractual arrangements among themselves—can make anything but gold and silver coin a ‘tender”. (And, of course, through such contracts they can stipulate for payment in gold and silver coin, too.)

In the most fundamental sense, then, the power to declare what shall be a ”legal tender” resides in the people, not in the government. By contract, individuals can stipulate whatever they will as “tender” in payment of debts among themselves. Congress and the States may declare properly “regulate[d]” gold and silver coins as “legal tender” for the “Value” of those coins. But, for example, any private contract that called for payment of (say) “$1,000 silver dollars” would as much determine the legal tender for fulfillment of that agreement as would the government. Certainly neither Congress nor any State could constitutionally require the creditor in such a contractual situation to accept 1,000 pieces of of leather (or other base material) stamped “dollar”, or 1,000 gold or silver coins improperly “regulate[d]” with respect to the silver “dollar”.

1.) “Commodity money” is money that is simultaneously a non monetary commercial commodity, such as silver or gold. The “money” is the metal itself. “Credit money” is money that consists of a claim not both payable on demand and absolutely secure. The money is the promise to pay at a future time. “Fiat money is money composed of otherwise essentially valueless things that neither have a commercial use nor constitute a claim against anyone, but do have a special legal qualification. The “money” is not the material bearing the stamp of authority, but the stamp alone.

2.) Typically, if the law attempts to force commerce to accept as media of exchange things that commerce finds unacceptable, commerce goes underground, into the so-called “black market”, and operates outside the law.

3.) Compare W. Blackstone, Commentaries on the Laws of England (Amer. ed. 4 vols. & App., 1771-1773), Vol 1, at 277, with, e.g., Dixon v. Willoughs, 2 Salk. 446, 91 Eng. Rep. 387 (1696).

4.) U.S. Const. amend V (“No person shall be * * * deprived of * * * property, without due process of law; nor shall private property be taken for public use without just compensation”), amend. XIV (“No State shall * * * deprive any person of * * * property, without due process of law”). The Fourteenth Amendment, unlike the Fifth, contains no explicit “compensation” clause. But that requirement has been held implicit in the Fourteenth Amendment’s due-process guarantee. E.g., Chicago, B. & Q.R.R. City of Chicago,1 66 U.S. 226, 236-37( 1897); Penn Central Transportation Co. v. New York City, 428 U.S. 104, 122 (1978).

5.) E.g., compare Monongahela Navigation Co. v. United States, 148 U.S. 312, 324-25, 327-28 (1893), with United States v. New River Collieries, 262 U.S. 241, 343-44 (1923).

6.) Cf. Shelley v. Kraemer, 334 U.S. 1 (1948).

7.) Lane County v. Oregon, 74 U.S. (7 Wall.) 71, 76-77 ( 1869) .

8.)  U.S. Const. amend. X provides that “[t]he powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people”.

9.) U.S. Const. art. VI, cl. 2 provides in pertinent part that “[t]his Constitution, and the Laws of the United States which shall be made in Pursuance thereof • • • , shall be the supreme Law of the land”.

10.)  Compare and contrast Passenger Cases, 48 U.S. (7 How.) 282, 399-400 (1849)(opinion of McLean, J.), with id. at 418-19 (opinion of Wayne, J.). Only Congress, of course, has power to declare base metals such as copper “legal tender”—but, as Blackstone put it, “not upon the same footing with [gold and silver]”.

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