Chapter X
Money And The Constitution
Article I, Section 8, Clause 1
"The Congress shall have Power to lay and collect Taxes . . .” This clause of the United States Constitution gives Congress the power to lay and collect taxes in order to pay for the government's needed expenditures. With these powers Congress decides what items it will use to pay for the expenditures and what the people will use to pay those taxes. If honesty is practiced, the Congress must receive as payment for those taxes the same items it used to pay for its expenditures.
In this clause the Constitution gives Congress the power to issue tax credit certificates and to receive and redeem those certificates when they are presented as payment for taxes.
If governmental bodies do not issue tax credit certificates for the purpose of paying for their needed expenditures, they cannot operate unless they incur interest-bearing debts, or wait until taxpaying time to pay their bills, or require the taxpayers to pay their taxes in advance.
The issuance of tax credit certificates would enable a governmental body to pay for its expenses concurrently and also lighten the taxpayers' burden because no interest-bearing debts would be incurred and enough certificates (currency) would be in circulation to pay the taxes. An additional benefit would be the free use of these certificates as a medium of exchange. [p. 94]
Article I, Section 8, Clause 2
"The Congress shall have Power . . . to borrow Money on the credit of the United States: . . .”
In order for the members of Congress to adhere to the Constitution when they plan to borrow money, they must understand what the writers of the Constitution meant by the word "money." They must know what items of currency the government can lawfully borrow.
In chapter I it was noted that at the time the Constitution was written the word "money" meant coins and only coins. The Constitution did not say that the Congress shall have power to borrow unredeemable bank notes or bank credit. Bank credit is make-believe money.
When the United States government borrows bank credit from Federal Reserve banks or from commercial banks, the government's account is credited for the amount borrowed. The government, on its part, gives the bank a United States interest-bearing bond, note, or bill for that credit.
The government spends such bank credit by issuing checks and creating greater buying power; should there be insufficient increase in the amount of goods and/or services being offered for sale, an inflation of the purchasing media occurs and abnormally high prices are the result. It does not appear likely that the writers of the Constitution intended to give Congress that kind of power.
If the government officials borrow real money which someone has earned and spend it, no inflation will occur and no increase in the general price level will result because there will be no increase in the money supply.
While the Constitution gives Congress the power to borrow real earned money (not bank credit) there is no need to do so because the government can pay for whatever goods or services it needs by issuing interest free bona fide tax credit certificates. [p. 95]
Article I, Section 8, Clause 5
"The Congress shall have Power . . . to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures…”
The above section of the Constitution is frequently quoted but seldom explained. We are not able to ask the writers of the Constitution what they meant by that clause, so let us, by studying the monetary customs and usages of the period, try to deduce the meaning they had in mind.
Note that the Constitution does not say, “to regulate the value of the dollar." Dollars are not coins. The Constitution does not specify the number of coins to be minted. It does not stipulate that the amount of coins to be minted should correspond to the amount of goods and services being offered for sale; nor does it indicate how the coins are to be placed in circulation. It does not grant Congress the power to set a fixed exchange value on the coins. Finally, and perhaps most important, it does not designate when and how the exchange value of the coins should be regulated.
To begin our study let us return to the verb "to coin," which means to make coins. In the usage of the period when the Constitution was written, the expression, "to coin money,” meant to make coins. The word "money" meant coins, not notes or certificates. "To coin money" did not and does not mean any of the following:
- To issue United States notes.
- To issue Federal Reserve notes.
- To issue tax credit certificates,
- To provide the government and the people with all the media of exchange they need.
- To declare anything to be legal tender.
- To operate banks.
- To establish a Monetary Commission (The Federal Reserve System) to increase and decrease the [p. 96] “money supply” (secretly) for the government and the people.
- To store gold and silver and then issue certificates which are a combination of warehouse receipts, certificates of credit, and certificates of legal tender.
- To give charters to banks.
These are some examples of prerogatives the expression, "to coin money," does not authorize. If the writers of the Constitution had wanted to give Congress the power to issue notes as media of exchange, they would have used explicit language to express something that had contextual meaning at the time; they would have written "to emit Bills of Credit" after the phrase, “to coin money.” That is exactly what they wrote in the Articles of Confederation and in Article I, Section 10, Clause 1 of the Constitution.
Thomas James Norton writes in The Constitution of the United States—Its Sources and Its Application, “The Articles of Confederation forbade Congress to borrow money or 'emit bills' unless 'nine States assent to the same.' In the Constitutional Convention the words 'or emit bills,' following the word 'money' in the foregoing clause, were stricken out."
What this tells us is that the writers of the Constitution intentionally did not give Congress the power to issue bills of credit, i.e., unredeemable notes to be used to pay for goods and services.
The passage which reads, "The Congress shall have the power to . . . regulate the Value thereof (of money), and of foreign coin,” also requires careful study. It does not tell us how, when, or to what value the coins should be regulated. The Constitution does not instruct Congress "to fix the value thereof." Likewise, it does not direct the Congress “to regulate the alloy thereof." The alloy of a coin is not the exchange value of the coin. The alloy of a coin is the metal substance of the coin. The exchange value of a coin is one's idea of the things for which the coin can be exchanged. [p. 97]
The word “value" by itself has no meaning because there are a number of different values, such as food value, sentimental value, utility value, and exchange value, among others. When we are talking about the amount of goods or services for which coins can be exchanged, we should use the term "exchange value."
The verb "to regulate" means to adjust. And value, in this context, means the exchange value of the coins. So we must determine to what value and, most important, when the exchange value of the coins, including foreign coins, should be adjusted.
The phrase "to regulate the value thereof" cannot mean to regulate, to adjust, or to change the number of grains of metal in the coins because after the coins are made their metal content cannot be changed without destroying them. We know that the value of the foreign coins was regulated without destroying the coins. We know that the exchange value of coins can fluctuate without in any way changing the number of grains of metal in the coins, just as the exchange value of a bushel of wheat can change without adding to or taking away any of the wheat from the bushel.
It may be useful here to review briefly the term, "exchange value." The exchange value of an item is a person's idea of the things for which an item can be exchanged. If I know that I can exchange one bushel of wheat for two bushels of oats, I will say that the exchange value of one bushel of wheat is two bushels of oats. Or I may say that the exchange value of one bushel of oats is one-half bushel of wheat.
If another person has different information, however, and he knows that he can exchange one bushel of wheat for three bushels of oats, he will say the exchange value of one bushel of wheat is three bushels of oats. It is not the bushel of wheat or the bushels of oats that changed, but the exchange value of the wheat and the oats. So we see that the exchange value of an item is a person's idea of the things for which the item can be exchanged.
The same principle applies to gold and silver coins. The writers of the Constitution knew that the exchange [p. 98] value of gold and silver coins changes because they and the rest of the population were using foreign gold and silver coins. There were no United States coins in existence at the time the Constitution was written.
Thus the writers of the Constitution had a good reason for stipulating that the value of the coins should be regulated, i.e., adjusted; not fixed.
Therefore, the phrase "to regulate the value thereof" has to mean just what it says, i.e., to regulate or adjust the exchange value (not the metal content) of the coins. The coins remain the same, but the exchange value of the coins will increase or decrease according to the market exchange value of the metal in the coins.
The exchange value of the coins and the number of grains of metal in the coins are two different things. Any regulating or adjusting of the number of grams of metal in the coins can be done only by making new coins. The regulating or adjusting of the exchange value of the existing coins, however, has to be done after the coins are minted.
Because the exchange value of the coins may increase or decrease according to the market value of the metal in the coins, it was proper for the writers of the Constitution to give Congress the power to regulate or adjust the value of the coins to the market value of their metal content after the coins were minted; this was how the value of foreign coins was regulated.
It was the practice of government officials and others to accept for payments due all foreign gold and silver coins and value them for payment purposes according to the market value of their gold or silver content at the time of the transaction.
When we consider the passage in Article I, Section 8, Clause 5, which states “The Congress shall have Power . . . to coin Money, regulate the Value thereof, and of foreign coin . . .” it strongly indicates that the writers of the Constitution wanted Congress to regulate the exchange value of the United. States gold and silver coins in the same manner as foreign coins.
It is proper for us, therefore, to conclude that the [p. 99] writers of the Constitution meant that Congress should have the power to adjust or to regulate the exchange value of the United States gold and silver coins to the market value of their metal content at the time the coins were used as a payment to the government or by the government. That is exactly what the federal government and the states were doing and intended to continue to do with foreign gold and silver coins. Why? Because foreign coins were the only gold or silver coins they had or would have for some time. The idea was practical because it worked. It was just because everyone received what was due him.
How do we know that the legal tender value or the exchange value of the gold or silver coins should be adjusted to the market value of their metal content? If the legal tender value of the coins is adjusted to an amount below the market value of their metal content, people will not use the coins as legal tender. They will hoard the coins or exchange them for the higher market value. If the Congress adjusted the legal tender value above the market value, as was done with silver coins between 1854 and 1964, the coins become token coins. Token coins do not need to be made of silver or gold, as we learned after 1965. The only practical thing for the government to do, therefore, is to adjust the exchange value or the legal tender value of gold and silver coins to the market value of their metal content at the time the coins are presented as a payment or used as a payment.
The Congress on one occasion did regulate the value of the U.S. gold coins in the same manner as foreign coins. It did that in a separate part of the Act of 1834, when it declared that all gold Eagles ($10 gold coins) coined up to that time would have a legal tender value of $10.60, the then current market value of the metal in the coins.
Token Coins
The phrase "to regulate the Value thereof" was not intended to apply to token coins. Token coins are coins [p. 100] with a face value or a legal tender value that is higher than the market value of their metal content. They may or may not contain gold or silver. Token coins are issued as documents. They give certain evidence. Before 1933, they gave evidence that Congress authorized their exchange for gold coins in an amount equal to their face value and they were legal tender for payments up to 25 cents for the one-cent and the five-cent coins and for payments up to $10 for the silver fractional coins. After 1933, the United States token coins were declared to be legal tender for all payments and therefore gave evidence that they would be received by the United States government for any kind of payment at their face value.
So the directive "to regulate the Value thereof" does not apply and never did apply to the United States token coins.
"And Fix The Standard of Weights and Measures"
Now we come to the Constitutional mandate that Congress fix the Standard of Weights and Measures." Note that the word "fix" was used in the language pertaining to standards for weights and measures, but not in the wording covering the coining of money. Article I, Section 8 does not, after granting Congress the power "to coin money," add that Congress should "fix the value thereof." It said that Congress was "to regulate the value thereof.” Is that not another reason to deduce that the writers of the Constitution did not intend to give Congress the power to set or fix the exchange value of gold and silver coins? Is it not reasonable to conclude that the Constitution gives the Congress the power only to regulate the exchange value of the United States gold and silver coins in the same manner as the government was doing with the foreign gold and silver coins?
Furthermore, the enjoining of Congress to fix the Standard of Weights and Measurements did not include the power to fix or establish the exchange value of the gold and silver coins as a "standard of value." The only [p. 101] standards to be fixed were for weights and measurements. Coins are not weights or measurements.
It is true that standard coins were made and all coins were made to conform to those standard coins. Thus, the coins were called standard gold or standard silver coins. But the Constitution did not provide that the gold and silver coins have a standard exchange value. That is, the Constitution did not give Congress the power to declare the amount of goods or services for which the coins can be exchanged.
Article I, Section 10, Clause 1
"No State shall . . . make any thing but gold and silver Coin a Tender in Payment of Debts . . .”
That clause does not give Congress the right or the power to do anything. That clause does not even give the states the right to declare gold and silver coin to be legal tender. The states already had that right. After the states became independent from England, they had complete sovereignty. They could declare anything to be legal tender and they did declare bills of credit to be legal tender.
However, from their experience with bills of credit, they learned that when anything other than gold or silver coin was declared to be legal tender, injustices occurred. Therefore, when the Constitution was written, that clause was inserted to prohibit the state officials from making anything other than gold or silver coin a legal tender.
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