Coin Money and Regulate the Value Thereof, the Founders' Monetary Clauses

The men who wrote the Constitution had lived through something most Americans never have: watching their own government's money become worthless in their hands. Not losing value slowly. Collapsing. The phrase "not worth a Continental" was not a figure of speech to them. It was a description of their wallets.

That experience is written into the Constitution in three places. Understanding them requires us to separate two questions people usually blur together. First, what monetary powers does the Constitution actually grant, and to whom? Second, is what Washington does with money today consistent with those grants? The first question has a clear answer. The second is where the argument lives.

The three clauses, read exactly

The grant to Congress. Article I, Section 8 gives Congress the power:

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

The borrowing power. The same section gives Congress power "To borrow Money on the credit of the United States."

The ban on the states. Article I, Section 10 provides, in relevant part:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;

Three definitions will keep us honest.

1. To coin money means to stamp metal into money of a fixed weight and fineness.
2. Bills of credit are paper notes issued by a government, payable later, meant to circulate as money.
3. Legal tender is money a creditor must accept in payment of a debt. If a currency is legal tender, you cannot refuse it.

Now notice the placement. "Regulate the Value thereof" sits next to "fix the Standard of Weights and Measures." The Founders treated the value of money like the length of a foot or the weight of a pound: a standard the government defines and keeps steady so that people can trade honestly. That is not a coincidence of drafting. It is a theory of money.

What the Continental taught them

The Revolution was financed largely with paper. The Continental Congress had no power to tax, so it printed bills of credit, more than $200 million worth in face value over the course of the war, and the states printed their own on top of that. With no tax revenue behind them and more printed every year, the bills sank. In March 1780 Congress itself officially revalued the old Continental bills at forty to one in silver. Prices for ordinary goods rose so fast that merchants refused the notes, and the states passed laws trying to force people to accept them at face value. Those laws failed too.

After the war, the problem shifted to the states. Several state legislatures, under pressure from debtors, printed new paper money and passed tender laws, forcing creditors to accept depreciated notes for debts contracted in hard money. Rhode Island became the most notorious example. To the Founders, this was not merely bad economics. It was a moral wrong: a government using its power to transfer wealth from people who had lent in good faith to people who had borrowed, by changing the meaning of a dollar after the contract was signed.

James Madison, in Federalist 44, defended the ban on state paper money in exactly those terms. He described the "pestilent effects" of paper money on the necessary confidence between people and on the industry and morals of the people. When you read the ban on state bills of credit and tender laws, read it as a sentence written by men who had watched a currency destroyed.

August 16, 1787: the power the Convention took away

The draft Constitution that came out of the Committee of Detail gave Congress power "to borrow money, and emit bills, on the credit of the United States." On August 16, 1787, Gouverneur Morris moved to strike the words "and emit bills." The debate that followed, recorded in Madison's notes, is one of the most pointed exchanges of the summer.

Delegates supporting the motion argued that paper money had been ruinous and that leaving the door open would invite the same abuse. Oliver Ellsworth of Connecticut said the moment was favorable to shut and bar the door against paper money. George Read of Delaware said the words, if kept, would be as alarming as the mark of the Beast in Revelation. A few delegates objected that in an emergency the government might need to issue paper. Madison asked whether it would be enough to deny the power to make such notes a legal tender, and he concluded that striking the words would not disable the government from using public notes where they were proper and safe.

The motion passed, nine states to two. The power to "emit bills of credit" was removed from the federal grant, and the states were flatly forbidden to emit them.

So the textual record has three facts:

1. The Convention considered a federal power to issue paper money and struck it.
2. It forbade the states to issue paper money or to make anything but gold and silver coin a tender.
3. It gave Congress no express power to make paper a legal tender at all.

The Coinage Act of 1792

The First and Second Congresses put the clause to work. Alexander Hamilton, as secretary of the treasury, sent Congress a report on establishing a mint in 1791. The result was the Coinage Act of 1792, signed on April 2 of that year. It created the United States Mint. It defined the dollar as a coin containing 371 and a quarter grains of pure silver. It authorized gold coins, including a ten-dollar eagle, at a ratio of fifteen units of silver to one of gold. And it made debasing the coinage by mint officers a crime punishable by death.

That last provision tells you how seriously the founding generation took the integrity of money. A mint officer who shaved the silver content of the coin was stealing from every person who held it. The Founders treated that as one of the gravest crimes a public servant could commit. Compare the penalty for quietly diluting a currency today, which is roughly a press conference.

The Legal Tender Cases: the Court changes its mind in fifteen months

The clauses sat quietly through decades of gold and silver money, state bank notes and fights over national banks. Then came the Civil War. In February 1862 Congress passed the Legal Tender Act, authorizing United States notes, the "greenbacks," and making them legal tender for most debts, public and private. The Union needed to pay for a war, and paper was the quickest way.

The constitutional question went to the Supreme Court after the war.

Hepburn v. Griswold (1870)

In February 1870 the Court held that the Legal Tender Acts were unconstitutional as applied to debts contracted before their passage. The opinion was written by Chief Justice Salmon Chase. The detail that makes historians smile is that Chase, as Lincoln's treasury secretary, had administered the very notes he now held could not be forced on prior creditors. To his credit, he concluded that his duty as a judge outranked his record as an administrator. The majority reasoned that forcing a creditor to accept depreciated paper for a debt contracted in gold offended the Constitution's protection of contracts and took property without due process.

Knox v. Lee and Parker v. Davis (1871)

The Court's composition then changed. President Grant appointed two new justices, William Strong and Joseph Bradley, and in May 1871 the Court overruled Hepburn. In the Legal Tender Cases, a 5-4 majority held that Congress could make paper notes legal tender for both old and new debts as a war measure, drawing on the combination of the war powers, the borrowing power and the Necessary and Proper Clause.

Juilliard v. Greenman (1884)

The last step came in 1884, when the Court upheld making paper a legal tender in peacetime too, reasoning that the power was an attribute of sovereignty like that of other nations. Justice Stephen Field, who had joined the Hepburn majority, dissented in the later rounds, insisting that the Constitution's grants did not include the power the Convention had struck.

Notice the arc. A power the Convention deliberately removed was restored first as an emergency measure, then as a permanent attribute of sovereignty. That is how constitutional limits usually die. Not by repeal. By exception, then by precedent, then by habit.

The steelman: why the modern system is lawful

Here is the strongest case for the Federal Reserve and fiat money, put as its defenders would put it.

The Constitution gives Congress power to "regulate the Value" of money and to borrow, plus the power to make all laws necessary and proper to carry those powers out. In McCulloch v. Maryland (1819), Chief Justice Marshall upheld the national bank on exactly that reasoning. A central bank that manages the money supply is a modern means of regulating the value of money. The Supreme Court has upheld paper legal tender since 1871. The gold standard brought its own disasters, including deflations and banking panics. Congress created the Federal Reserve in December 1913 by statute, and it gave the Fed its goals by statute. Everything about the arrangement runs through Congress. It is constitutional by any standard the Court has used for a century and a half.

That argument is legally strong. Today, under the precedents, the system is constitutional. But constitutional and faithful are not the same thing, and there are four answers worth giving.

1. "Regulate the Value" means keep it steady. Placed beside weights and measures, the phrase describes a standard. A Congress that delegated the job to a body whose stated goal is a currency that loses value every year has inverted the clause. At two percent a year, a dollar loses half its purchasing power in about 35 years, because 1.02 multiplied by itself 35 times is almost exactly 2. A yardstick that shrank by half over a working life would not be called a standard.
2. The Convention's choice was deliberate. The power to emit bills was struck on a recorded vote, for stated reasons. When precedent restores a power the text's authors removed on purpose, the precedent bears the burden of proof.
3. Delegation compounds the problem. The clause gives the money power to Congress, the branch that answers to voters. Congress has handed most of its practical exercise to an independent board. Whatever its merits, that arrangement moves one of the most consequential powers of government away from the people's representatives.
4. Inflation is a tax no one voted for. When money loses value, wealth moves from savers and wage earners to debtors, including the largest debtor of all, the federal government. The Founders called the state version of that transfer a moral wrong. The arithmetic does not change when the debtor is Washington. We have written about who pays in inflation hurts the poor most, and the arithmetic of a fixed paycheck.

The verdict: the Fed is constitutional under the precedents and unfaithful to the design. The remedy is not to pretend the Legal Tender Cases did not happen. It is for Congress to take back responsibility for the value of the dollar.

What the clauses imply for the Federal Reserve today

What would a Congress that took the clauses seriously actually do? The options are not limited to "abolish the Fed" or "leave it alone."

• Write a clear rule. Congress could direct the Fed to follow a stated rule, such as a price-level target or a rule tied to the growth of spending in the economy, and require it to explain any departure in testimony. The comparison is in Gold standard, Friedman's rule or today's Fed, three answers compared.
• Revisit the mandate. The Fed's dual mandate came from a 1977 law. Congress made it and Congress can change it, as we explained in The Fed's dual mandate and the 1977 law that gave it two masters.
• Keep the money power out of surveillance. A central bank digital currency would give Washington a programmable dollar, which is the opposite of a fixed standard. See A central bank digital currency is a dollar Washington could program.
• Remember gold and silver are still lawful tender in the states. Several states have passed laws recognizing gold and silver coin as legal tender or exempting it from sales tax, using the very words of Article I, Section 10.

History supplies the warnings. In 1933 Americans were ordered to turn in their gold, a story we tell in Executive Order 6102, the Spring Americans Were Ordered to Turn In Their Gold. In August 1971 the last link between the dollar and gold, for foreign governments, was closed. The decade that followed delivered the inflation we describe in The Great Inflation of the 1970s was a policy choice, not bad luck.

The case in brief

1. The Constitution gives Congress power to coin money and "regulate the Value thereof," placed beside the power to fix weights and measures, and it forbids the states to emit bills of credit or make anything but gold and silver coin a tender.
2. The Founders wrote those clauses after the Continental currency collapsed, and on August 16, 1787 the Convention struck the power to emit bills of credit, nine states to two.
3. The Coinage Act of 1792 defined the dollar in silver and made debasing the coinage a capital crime.
4. The Legal Tender Cases of 1870 and 1871 first rejected and then upheld paper legal tender, and the modern Federal Reserve rests on those precedents.
5. The system is constitutional under the precedents but unfaithful to the design, and Congress should reclaim responsibility for a stable dollar.

What you can do: read Article I, Sections 8 and 10 on the Constitution page, then ask your representative whether they would support legislation requiring the Fed to follow a stated monetary rule.