§ 183. “The Issue of Paper Money.”

The Federal Parliament has power to legalize or prohibit the issue of paper money. In this respect it has received a grant of power conspicuously more liberal than that which was intended, by the framers of the American Constitution, to be conceded to Congress. At the time when that Constitution was framed general apprehension was felt throughout the States at the dangerous strength acquired by the movement in favour of paper money. During the War of Independence, the drain on the financial resources of the country was very great, and consequently distress was wide-spread and deep-seated. (Fiske, Critical Period of American History, p. 67.) In order to raise supplies the Congress of the Confederation established an inconvertible paper currency. In 1780 the continental paper currency had become so discredited that it utterly collapsed. In 1786, it is said, that as starving men dream of dainty banquets, so a craze for fictitious wealth, in the shape of paper money, ran like an epidemic through the country. (Critical Period of American History, p. 168.) “Several States sought to apply the paper money remedy for public distress; each making the attempt in its own way. In seven States, at least, the ‘rag-money party,’ as it was called, dominated the legislatures. North Carolina issued a large amount of paper. It was no sooner placed in circulation by the Government than the value of the paper dollar fell to seventy per cent. of its face value. In South Carolina, paper money was issued, but the planters and merchants refused to take it at its face value. In Georgia, paper money was made a legal tender, and refusal to accept it was declared an offence. In Pennsylvania a guarded attempt was made to issue money in the shape of bills of credit, which, however, were not made legal tender for the payment of private debts, but the value of these bills soon fell 12 per cent. below par. In New York a million dollars were issued in bills of credit, which were made a legal tender, but their value similarly declined. A ‘Rag-Money Bill’ was passed in New Jersey, but the merchants of New York and Philadelphia, who traded with New Jersey, refused to accept the money, and it became worthless. In Rhode Island the paper money agitation reached a white heat. Half a million dollars were issued in scrip to be loaned to the farmers on the security of a mortgage of their land. The merchants refused to take the paper dollars at their face value. An act was passed commanding everyone to take paper money, as equivalent for gold, under a penalty of 5000 dollars, and loss of the right of suffrage. The merchants thereupon shut up their shops. A terrible crisis followed. The unhappy little State was nicknamed ‘Rogues Island.’ The rag-money movement was happily defeated in Massachusetts. Shay's rebellion, in January, 1787, brought matters to a climax, and

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hastened the calling of a Convention to frame a national Constitution.” (Critical Period of American History, p. 177.)

Consequently, when the Federal Convention met in August, 1787, its members had a full knowledge of the dangers of a paper currency. When it was proposed to give the government of the Union power to borrow money and emit bills on the credit of the United States, Gouverneur Morris “recited the history of paper emissions and the perseverance of the legislative assemblies in repeating them, though well aware of all their distressing effects, and drew the inference that, were the national legislature formed, and a war to break out, this ruinous expedient, if not guarded against, would be again resorted to. He moved to strike out the power to emit bills on the credit of the United States.” If the government of the Union had credit, he said, it could borrow money without bills; if it had no credit such bills would be unjust and useless. Other members expressed a mortal dread and hatred of paper money, and urged the necessity of disarming the central government of such a power; they regarded that as a favourable moment to shut and bar the door against paper money for ever. James Wilson said “paper money could never succeed whilst its mischiefs were remembered, and so long as it could be resorted to it would discourage other resources.” John Langdon “would rather reject the whole plan of Union than give the power.” Accordingly, the authority to issue bills of credit that would be a legal tender was refused to the Federal Government by the votes of nine States against two. “Thus,” wrote Madison “the pretext for a paper currency, and particularly for making bills a legal tender, either for public or private debts, was cut off.” (Bancroft, Constit. Hist. ii. p. 134.)

“This is the interpretation of the clause, made at the time of its adoption alike by its authors and by its opponents, accepted by all the statesmen of that age, not open to dispute because too clear for argument, and never disputed so long as any one man who took part in framing the Constitution remained alive. History cannot name a man who has gained enduring honour by causing the issue of paper money.” (Bancroft, Constit. Hist. ii. pp. 134–5–6.)

“In the plan of government concerted between the members from Connecticut, especially Sherman and Ellsworth, there was this further article: ‘That the legislatures of the individual States ought not to possess a right to emit bills of credit for currency, or to make any tender laws for the payment or discharge of debts or contracts in any manner different from the agreement of the parties, or in any manner to obstruct or impede the recovery of debts, whereby the interests of foreigners or the citizens of any other State may be affected.’ The committee of detail had reported: ‘No State, without the consent of the legislature of the United States, shall emit bills of credit.’ With a nobler and safer trust in the power of truth and right over opinions, Sherman, scorning compromise, cried out: ‘This is the favourable crisis for crushing paper money,’ and, joining Wilson, they two proposed to make the prohibition absolute. Gorham feared that the absolute prohibition would rouse the most desperate opposition; but four northern States and four southern States, Maryland being divided, New Jersey absent, and Virginia alone in the negative, placed in the Constitution these unequivocal words: ‘No State shall emit bills of credit.’ The second part of the clause, ‘No State shall make anything but gold and silver coin a tender in payment of debts,’ was accepted without a dissentient State. So the adoption of the Constitution is to be the end for ever of paper money, whether issued by the several States or by the United States, if the Constitution shall be rightly interpreted and honestly obeyed.” (Id. pp. 136–7.)

Never were the founders of a plan of government more resolved to deprive a legislative body of a legislative power than were the framers of the Constitution of the United States of America, in their determination not to clothe Congress with authority to issue paper money. At the same time, they created a judicial tribunal to interpret and uphold that Constitution, and the time came when that tribunal decided, in solemn judgment, that the Constitution had de jure actually granted to Congress a power which its authors had openly denied it. On 25th February, 1862, during the financial strain of the civil war, Congress passed an Act making the United States treasury notes lawful money. It was sought to justify this measure on the ground that Congress had power to coin money; that it had the power to borrow money on the credit of the United States; that it had power to declare and carry on war, and that to issue treasury notes and make them legal tender was a necessary incident of the combined power to coin and

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borrow money and prosecute a war. The validity of this Act was tested in the Supreme Court, and a number of conflicting decisions were given thereon. In the case of Willard v. Tayloe, 1870, 8 Wall. 557, the Court, as then constituted, decided that the Act could not be constitutionally applied to contracts in existence prior thereto, and that a contract entered into before the Act must be paid in coin; in Hepburn v. Griswold, 1870, 8 Wall. 603, it was decided that making bills of credit a legal tender was inconsistent with the spirit of the Constitution, and in violation of it.

These decisions were afterwards revised and overruled by the Court, when differently constituted, which decided that the Act of Congress was valid. (Legal Tender Cases [1871], 12 Wall. 457.) It was there stated by the Court that the true rule of construction was to keep in view the object for which powers were granted. It was impossible to know what the non-enumerated powers are, and what is their nature and extent, without considering the purpose they were intended to subserve. These purposes were left to the discretion of Congress, subject only to the restrictions that they be not prohibited, and be necessary and proper for the carrying into execution the enumerated powers. It is not indispensable to the existence of any power, claimed for the Federal Government, that it can be found specified in words in the Constitution, or clearly and directly traceable to some one of the specified powers. Its existence may be deduced from more than one of the substantive powers expressly defined, or from them all combined. It is allowable to group together any number of them, and infer from them all that the power claimed has been conferred. (Baker, Annot. Const. p. 15.)

In time of peace (1878) an Act of Congress was passed authorizing the issue of treasury notes and making them a legal tender. The Act was sustained not on the ground that it was a war power, but on the ground that it was an inherent incident of the Federal authority, under the power to borrow money on the credit of the United States, and to issue circulating notes for the money borrowed. The authority of Congress to define the quality and force of these notes, as currency, was as broad as the like power over metallic currency under the power to coin money and regulate the value thereof. Under the two powers, taken together, Congress was authorized to establish a national currency, either in coin or in paper, and to make that currency lawful money for all purposes, as regards the national government or individuals, and this whether in time of war or peace. (Juilliard v. Greenman [1884], 110 U.S. 421. Baker, Annot. Const. pp. 15 and 19.)

Referring to these conflicting decisions of the Supreme Court on a constitutional question of great moment, Bryce says:—

“Two of its later acts are thought by some to have affected public confidence. One of these was the reversal, first in 1871, and again, upon broader but not inconsistent grounds, in 1884, of the decision given in 1870, which declared invalid the Act of Congress making government paper a legal tender for debts. The original decision of 1870 was rendered by a majority of five to three. The Court afterwards changed by the creation of an additional judgeship, and by the appointment of a new member to fill a vacancy which occurred after the settlement, though before the delivery, of the first decision. Then the question was brought up again in a new case between different parties, and decided in the opposite sense (i.e., in favour of the power of Congress to pass legal tender Acts) by a majority of five to four. Finally, in 1884, another suit having brought up a point practically the same, though under a later statute passed by Congress, the Court determined with only one dissentient voice that the power existed. This last decision excited some criticism, especially among the more conservative lawyers, because it seemed to remove restrictions hitherto supposed to exist on the authority of Congress, recognizing the right to establish a forced paper currency as an attribute of the sovereignty of the national government. But be the decision right or wrong, a point on which high authorities are still divided, the reversal by the highest court in the land of its own previous decision may have tended to unsettle men's reliance on the stability of the law; while the manner of the earlier reversal, following as it did on the creation of a new judgeship and the appointment of two justices, both known to be in favour of the view which the majority of the court had just disapproved, disclosed a weak point in the constitution of the tribunal which may some day prove fatal to its usefulness.” (Bryce, Amer. Com. vol. i. p. 263.)

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DEVELOPMENT OF IMPLIED POWERS.—“The three lines along which this development of the implied power of the Government has chiefly progressed,” says Bryce, “have been those marked out by the three express powers of taxing and borrowing money, of regulating commerce, and of carrying on war. Each has produced a progeny of subsidiary powers, some of which in their turn have been surrounded by an unexpected offspring. Thus from the taxing and borrowing powers there sprang the powers to charter a national bank and exempt its branches and its notes from taxation by a State (a serious restriction on State authority) to create a system of custom-houses and revenue cutters, to establish a tariff for the protection of native industry. Thus the regulation of commerce has been construed to include legislation regarding every kind of transportation of goods and passengers, whether from abroad or from one State to another, regarding navigation, maritime and internal pilotage, maritime contracts, &c., together with the control of all navigable waters, the construction of all public works helpful to commerce between States or with foreign countries, the power to prohibit immigration, and finally a power to establish a railway commission and control all interstate traffic. The war power proved itself even more elastic. The executive and the majority in Congress found themselves, during the War of Secession, obliged to stretch this power to cover many acts trenching on the ordinary rights of the States and of individuals, till there ensued something approaching a suspension of constitutional guarantees in favour of the Federal Government. The courts have occasionally gone even further afield, and have professed to deduce certain powers of the legislature from the sovereignty inherent in the National government. In its last decision on the legal tender question, a majority of the Supreme Court seems to have placed upon this ground, though with special reference to the section enabling Congress to borrow money, its affirmation of that competence of Congress to declare paper money a legal tender for debts, which the earlier decision of 1871 had referred to the war power. This position evoked a controversy of wide scope, for the question, what sovereignty involves, is evidently at least as much a question of political as legal science, and may be pushed to great lengths upon considerations with which law proper has little to do.” (Bryce, Amer. Com. I. pp. 371–2.)

51. (xiv.) Insurance184, other than State insurance185; also State insurance extending beyond the limits of the State concerned:

HISTORICAL NOTE.—This sub-section was first introduced in the Adelaide draft in the following form:—“Insurance, including State insurance extending beyond the limits of the State concerned.” In Committee, it was amended by omitting the words “including State insurance extending,” &c. Mr. Walker opposed the exception of State insurance. (Conv. Deb., Adel., pp. 779–82.)

At Sydney, a suggestion of the Legislative Council of New South Wales to insert “Assurance and” was negatived as unnecessary; and another suggestion by the same Chamber to omit the words “excluding State insurance,” &c., was also negatived. A drafting amendment was subsequently made. (Conv. Deb., Syd., 1897, pp. 1075–6.)