They protect liberty and prosperity—when we follow them.
Seven clauses of the United States Constitution touch on monetary questions. Together, they form a system of rules that strongly protects economic prosperity and political liberty—when we follow it.
Four of the seven clauses include the word “money,” three include the word “coin,” and two include the word “dollars.”
The Seven Money Clauses
- “Congress shall have Power … To borrow Money on the credit of the United States[.]” Art. I, sec. 8, cl. 2.
- “Congress shall have Power … To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures[.]” Art. I, sec. 8, cl. 5.
- “Congress shall have Power … To provide for the Punishment of counterfeiting the Securities and current Coin of the United States[.]” Art. I, sec. 8, cl. 6.
- “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law[.]” Art. I, sec. 9, cl. 7.
- “The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person.” Art. I, sec. 9, cl. 1.
- “No State shall … coin money; emit bills of credit; [or] make any Thing but gold and silver coin a Tender in Payment of Debts[.]” Art. I, sec. 10, cl. 1.
- “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved[.]” Amdt. VII.
The Resulting Rules
Read in conjunction with the Ninth and Tenth Amendments, the Constitution’s seven money clauses establish the following monetary policies for the United States:
- The basic unit is the dollar, a silver coin containing 371.25 grains of pure silver.
- Only gold or silver coins, or currency backed by the same, are legal tender.
- No state may issue coins or currency.
- No one may counterfeit U.S. coins or currency.
- Fiat money is forbidden.
The Constitution makes the “dollar” the basic unit of account for the republic. But it does not explicitly define the dollar. Why? Because everyone at the time knew exactly what a “dollar” was. It was a silver coin of a fixed weight and fineness: the Spanish milled dollar.
That popular coin, remembered today as “pieces of eight,” contained on average 371.25 grains of pure silver (which is about 24 grams, or about 77 percent of a troy ounce) or 416 grains of standard silver (or about 27 grams, or about 87 percent of a troy ounce). Standard silver is pure silver mixed with other metals, such as nickel or copper, for added durability.
Prior to the Coinage Act of 1792, “pieces of eight” was the only “dollar” Americans knew or used. The U.S. government did not mint its own version of the dollar coin until after the ratification of the Constitution (1788) and the Bill of Rights (1791).
Congress duly followed this fixed definition of “dollar” in the Coinage Act of 1792, which established a United States Mint to coin United States dollars, which were in turn formally defined as follows:
DOLLARS OR UNITS—each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.
That is what a “dollar” is, for constitutional purposes.
The value of the dollar is fixed, because it is a known quantity incorporated by reference into the constitutional text. Congress has no power to alter the value of the dollar. Only a constitutional amendment could do that.
Definition: ‘Regulate the Value’
The term “power to regulate the value thereof,” with respect to “coined” money, means the power to adjust the official exchange rate of gold coins in relation to silver ones, in order to keep both kinds of money in circulation, that is, to counteract Gresham’s Law). This power does not mean Congress can arbitrarily redefine the value of the dollar any way it pleases.
The term “currency,” as I use it here, means banknotes that are readily redeemable in and fully backed by gold or silver coins. Under the Constitution, such coins are the only things that may be required to be used as legal tender.
Definition: ‘Legal Tender’
The term “legal tender,” or “a tender in payment of debts,” means a form of money that the government requires creditors to accept in payment of debts, public or private or both. (“Public debts” are taxes, fines, and the like.) In the U.S. currently, legal tender is statutorily defined as all coins and currency issued by the United States Treasury or the Federal Reserve System, including fiat money coins and notes. But as we shall see, that definition exceeds Congress’s power under the Constitution.
The Founders intended that only gold and silver coins, and notes freely redeemable in and fully backed by such coins, shall serve as legal tender in the United States. While the existing legal tender law (31 U.S.C. 5103), first passed in 1862, declares Federal Reserve Notes to legal tender, they are not, in a constitutional sense, because are fiat money and bills of credit, which the Constitution forbids.
Definition: ‘Fiat Money’
The term “fiat money” means banknotes or paper money with legal-tender status but which are not backed by anything of value.
The Supreme Court, in its famous Legal Tender and Gold Clause Cases, ruled that Congress has “plenary power” to issue fiat money and dictate its value, pursuant to its power to “regulate the value” of foreign and domestic coin. The Court erred. Congress does not have such a “plenary” power. Its power to regulate the value of gold and silver coins is a limited power—granted for the limited purpose of ensuring that both kinds remain in circulation, i.e., to counteract Gresham’s Law. In these famous rulings, the Court made the incorrect assumption that the people had endowed their federal government with attributes of “national sovereignty” like those found in European governments. That assumption has no grounding in the constitutional text and in fact turns the American Revolution on its head. The whole point of the Revolution, indeed its greatest achievement, was to deny the existence of “sovereignty” in the “rulers” and recognize it in the people, considered as individuals. “All men are created equal”—even you, King George. From which it follows that government must be by consent and the rulers’ powers must be limited. Congress’s powers are limited in many ways, including by way of the Constitution’s seven money clauses.
In the U.S. today, a fiat paper currency (the Federal Reserve Note) is legal tender. But that’s not what the Constitution requires. The Constitution requires that paper currency (“representative money”) may serve as legal tender, but it must represent commodity money, specifically gold and silver coins. And it must be freely redeemable in such coins and fully backed by them. The promise made on the note’s face must be true and reliable. To truly have legal tender status, then, a banknote in the U.S. must represent the full amount of ready coin held in reserve by the issuer (fractional-reserve notes aren’t good enough).
Definition: ‘Bills of Credit’
The term “bills of credit” in the Constitution refers to government-issued notes that represent a debt and are typically intended to circulate as money. Bills of credit are a form of paper money, but not the only form. They can be backed by something of value, but typically are not. When they are not, they fall afoul of the constitutional prohibition.
A “bill of credit” represents the government’s indebtedness to the holder, who may use the “I.O.U.” as money in private transactions. The Constitution forbids states to issue bills of credit because they are not readily redeemable in and fully backed by real money, the most “real” form of which, according to both custom and the constitutional text, is gold and silver coins.
The Constitution is silent on whether the federal government may emit bills of credit. A provision specifically authorizing Congress to do so was struck from a draft of the Constitution, suggesting that the framers did not want Congress to have the power. There is some evidence to suggest that some of the framers did want Congress to have the power, and that still others may have decided it was better to leave the issue unsettled in the text. But the most defensible interpretation, in light of the Ninth and Tenth Amendments, is that the Constitution forbids Congress to emit bills of credit, just as it forbids the states.
From this conclusion follows another, namely, that, since the states may make only gold and silver coins legal tender in payment of debts, the same restriction lies on Congress.
In the United States, then, only gold and silver coins, and notes readily redeemable in and fully backed by such coins, can be legal tender.
In American history, examples of federal bills of credit include United States Demand Notes, issued in 1861 and 1862, United States Notes, issued from 1862 to 1971, and Federal Reserve Notes, which have been issued since 1914. All of these issues are unbacked by anything of value and are therefore, as a legal matter, unconstitutional. By contrast, notes that are not “bills of credit” in the constitutional sense, because fully backed by gold or silver coins, include United States Gold Certificates, issued from 1863 to 1933, and United States Silver Certificates, issued from 1878 to 1964.
The Twenty-Dollar Rule
It is common these days for legal scholars to profess not to know the meaning of the Seventh Amendment’s twenty-dollar rule, because, they claim, the dollar’s value has changed since the eighteenth century, and to an extent we cannot fathom. This is incorrect. Our modern Federal Reserve Notes may be denominated in “dollars,” but they are not backed by dollars as defined in the Constitution, and therefore are not “dollars” in the strict sense. And therefore, judges seeking to apply the twenty-dollar rule today need not be intimidated. All they have to do is translate FRNs into constitutional dollars, which is not difficult. To understand how this works, it helps to know some basics. Precious metals are defined in terms of troy ounces (note: not imperial ounces), which are defined in terms of grains. One troy ounce equals 480 grains. A constitutional dollar equals 371.25 grains, or about 77.344 percent of a troy ounce, of pure silver. When a troy ounce of silver is worth one dollar in FRNs, a constitutional dollar is worth 77 cents in FRNs. When a troy ounce of silver is worth ten dollars in FRNs, a constitutional dollar is worth $7.73 in FRNs. And so on. Got all that? Now let’s do the calculation for the twenty-dollar rule. Take the current troy-ounce price of pure silver in terms of FRNs and multiply it by 77.344 percent. The result is one constitutional dollar, expressed in FRNs. Now multiply that figure by twenty. Finally, compare the result to the amount in controversy, which of course is expressed in FRNs. If twenty constitutional dollars, expressed in FRNs, is less than the amount in controversy, then the plaintiff is entitled to a jury trial. If not, not. This would all be easier, of course, if there were no FRNs and we just went back to constitutional dollars.
- The first six of the seven money-related excerpts above are part of the original U.S. Constitution, which was proposed on September 17, 1787, and ratified on June 21, 1788.
- The last excerpt, from the Seventh Amendment, is found in the Bill of Rights, which comprises the first ten amendments, all of which were proposed on September 25, 1789, and ratified on December 15, 1791.
- The Coinage Act of 1792 was passed by Congress on April 2, 1792.
- An Act to Provide for a Copper Coinage (whence the humble penny) was signed into law on May 8, 1792.