Not all of our founding fathers fully understood the importance of money creation to their vision for America – a nation of, by and for the people, and thus failed to make the money creation power crystal clear in the Constitution.
Is our money system Constitutional?
What does our Constitution have to say about the creation of money? Not enough. Here’s what relates to money from the Constitution:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America…
Article I, Section 8
The Congress shall have Power To lay and collect Taxes,
Duties,Imposts and Excises,
to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
To borrow Money on the credit of the United States; To regulate Commerce with foreign Nations, and among the several States… TO COIN MONEY,
regulate the Value thereof, and of foreign Coin, and fix the standard of Weights and Measures;…
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.
Article 1, Section 10
No State shall…coin money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;…
Amendment XIV, SECTION 4
The validity of the public debt of the United States,
authorized by law,including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion,
shall not be questioned… Amendment XIV, Section 5 The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.
There are only two specific references to money in the Constitution: “Congress shall have the power …to coin Money…” and, “No State shall… coin money; emit Bills of Credit; make anything but gold and silver Coin a Tender in Payment of Debts;…” Combined, these seem to imply that only gold and silver coin, created by the federal government can be money. However, that has never been the interpretation.
We can look at these sections of the Constitution from the perspective of the people who wrote them in 1787, and from our understanding of the world today. What did “To coin” mean to the framers of the Constitution? Samuel Johnson’s popular dictionary of 1755,9 gives these definitions for the noun coin: (I’ve added the bold type.)
COIN, noun. 1. Money stamped with a legal impression.; 2. Payment of any kind. COIN, verb. 1. To mint or stamp metals for money; and 2. to make or gorge anything. COINAGE. 1. the act or practice of coining money; 2. Coin; money; stamped and legitimated metal; _ 3. The charges of coining money… Forgery; invention.
Curiously, although this dictionary uses the word money in 69 entries, it does not define money itself.
Reflecting the prevalent understanding of the era, here’s what Daniel Webster’s Dictionary of 182810 said fifty years later:
COIN, noun Primarily, the die employed for stamping money. Hence, 1. Money stamped; a piece of metal, as gold, silver, copper, or other metal, converted into money, by impressing on it marks, figures or characters… 3. That which serves for payment. COIN, verb transitive, 1. To stamp a metal, and convert it into money; to mint… MONEY, noun plural moneys. 1. Coin; stamped metal; any piece of metal, usually gold, silver or copper, stamped by public authority, and used as the medium of commerce. We sometimes give the name of money to other coined metals, and to any other material which rude nations use as a medium of trade. But among modern commercial nations, gold, silver and copper are the only metals used for this purpose. Gold and silver, containing great value in small compass, and being therefore of easy conveyance, and being also durable and little liable to diminution by use, are the most convenient metals for coin or money which is the representative of commodities of all kinds, of lands, and of every thing that is capable of being transferred in commerce. 2. Bank notes or bills of credit issued by authority, and exchangeable for coin or redeemable, are also called money; as such notes in modern times represent coin, and are used as a substitute for it. If a man pays in hand for goods in bank notes which are current, he is said to pay in ready money. DOLLAR, noun [G.] A silver coin of Spain and of the United States, of the value of one hundred cents, or four shillings and sixpence sterling. The dollar seems to have been originally a German coin, and in different parts of Germany, the name is given to coins of different values.
From Webster’s definitions, two things are apparent:
- Webster didn’t fully understand money, and so, it’s likely neither did most people. Apparently he thought the money system was a 100% commodity + receipt for commodity system – and bills of credit were exchangeable for coin. We know nearly all Western money systems for the past 800 years have been fractional reserve systems, so Webster’s prevalent view was a misleading misunderstanding, not the reality.
- The noun and the verb forms of coin were used for “that which serves for payment” – in other words for money by broad definition.
So what does the Constitution authorize in regards to money?
To coin that which serves for payment
The Constitution says Congress has the power “To borrow Money on the credit of the United States.” This clearly authorizes Congress to borrow existing money guaranteed by America’s full faith and credit. But, does it also mean Congress can issue IOUs that will be used as money? The founders were clearly aware bills of credit were a form of money and a form of borrowing. The Articles of Confederation more clearly authorized Congress to issue bills of credit to be used as money and they did. They issued the Continentals that won the Revolutionary War for us. But, the Constitution leaves out the clear phrasing that was in the Articles of Confederation authorizing Congress to emit bills of credit that would be used as money. This left the door open for private interests to create our money.
The Constitution says Congress has the power “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.” Were the founders using the words coin money to refer to creating anything that serves for payment? If we examine the original intent of the authors of the Constitution, we must look at their ideas about money.
For the founders who wanted common wealth money, to coin meant creating anything that serves for payment. But, the founders who believed only gold and silver could be true money, undoubtedly meant to limit the government to literally stamping metal coins for money. Some of these gold and silver advocates intended the federal government to have the power to create the only money, some intended the private bankers to have this power.
However, the more savvy financial interests, who knew then as they know now that metal coins are only a tiny portion of money in use, may have quite deliberately meant to limit government to creating this small portion of our money. They were preserving the privilege of the private banks to create most of our money in the form of private bankers’ bills of credit, by leaving out the specific wording in the
Articles of Confederation that gave the federal government the power to issue bills of credit.
To add to the lack of clarity in the Constitution, Article 1, Section 10 bans states from coining money, or emitting bills of credit (a form of money). And, in a seeming contradiction, it forbids states from making anything but gold and silver coin legal tender. This compounds the confusion.
No State shall…coin money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; …
If in every State, only gold and silver coin can be used as legal tender and only Congress has the power to coin money, this section appears to reserve the right to create money to the federal government and to limit money to gold and silver coins. However, that has never been the applied law; the law has always acknowledged coins and bills of credit (bank notes) as forms of money. So, what does this section in the Constitution mean?
Facing the confusion in the Constitution, Congress and the Supreme Court have decided the federal government has the power to create our money and to sub-contract out the privilege to the private sector. I wonder whether anyone has challenged whether Congress should be able to hand off this money-creation power to private entities. It gives those entities an unfair advantage in the economy. Section 8 of the Constitution reads, “but, all duties, imposts and excises shall be uniform throughout the United States.” How can there be uniformity when some have special privilege and their money is worth more in the marketplace? And others must use money that carries a burden of debt-interest?
Then there is the equal protection clause of the Constitution, at the end of Section 1 of the Fourteenth Amendment:
No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.
When an elite group of people create money for the nation, this privilege gives them rights and protections under the law not granted to the rest of the population. They can protect their personal interests in a way that is not subject to a level playing-field, equal-under- the-law free market. All Americans do not have “equal protection of the laws.”
How can it be Constitutional to give private banks the privilege and power to create our money?
So, how did we end up a nation that borrows its own money, based on our own credit, at interest, from private bankers?