The expenses of the Civil War caused a shortage of coins – the only legal tender at that time. With the Legal Tender Act of 1862, Congress revolutionized the U.S. monetary system by making paper notes legal and creating a national currency for the first time. James Madison`s footnotes to the 1787 Constitutional Convention include a footnote in which he says that the Constitution would not allow the federal government to use paper as currency or legal tender, although there is no indication whether the contents of his footnote were spoken aloud at the convention. [19] Subsequently, during the ratification debates, the Federalist Papers No. 44 (presumably written by Madison) stated that the prohibition on states “issuing credit bills must give pleasure to every citizen, commensurate with his love of justice and his knowledge of the true sources of public wealth.” He went on to explain that the issuance of paper money by states has led to “an accumulation of guilt that can only be atoned for by a voluntary sacrifice of the power that was its instrument.” [20] It is quite clear that, whatever the effect of such a law, due process is not part of it. Does that deprive a person of property? A very large part of the property of civilized peoples exists in the form of contracts. These contracts almost always provide for the payment of money. And we have already seen that contracts in the United States, before the law in question on the payment of money, were contracts for the payment of the amounts indicated in gold and silver coins. [5] Ironically, in his previous position as Secretary of the Treasury, Chief Justice Chase had played a role in drafting the Legal Tender Act of 1862.
On the same day Hepburn was decided, President Ulysses Grant appointed two new justices to the court, Joseph Bradley and William Strong, although Grant later denied knowledge of the decision in Hepburn when the appointments were made. [7] Article I, Section 10 of the Constitution explicitly prohibits states from issuing “letters of credit” (promissory notes) or manufacturing anything other than gold and silver coins as legal tender. There are no corresponding explicit prohibitions that limit the power of the federal government, nor are there explicit authorities. The Tenth Amendment refers to reserved powers that only states can exercise, as well as undelegated powers that remain in the hands of the people. There are also “competing powers” that can be exercised by the states or the federal government, such as the power to repel invasions and presumably also the power to make legal tender (for example, in federal areas or elsewhere). Article I, Section 8 of the Constitution explicitly gives Congress the power to “borrow money” as well as the power to “mint money and regulate the value” of U.S. and foreign coins and to regulate interstate commerce, but does not expressly and unambiguously grant Congress the power to print paper money or to make it legal as legal tender. We must conclude that a law that merely promises to pay dollars in legal tender to pay off previously incurred debts is not an appropriate, clearly adjusted, means that is truly calculated to implement any explicit power of Congress; whereas such an act is incompatible with the spirit of the Constitution; and that it is prohibited by the Constitution. [6] What happened? On this day in 1862, U.S.
President Abraham Lincoln signed the Legal Tender Act. The federal government first issued paper money in 1861 to finance the Civil War. [10] Before that, all U.S. paper money was money issued by banks. For example, the paper notes were issued by the First Bank of the United States, a federally licensed private corporation. [11] Congress had also approved paper money (e.g., the Continentals) even before the Constitution was adopted. The Continental was issued both by the individual states and by the Continental Congress in accordance with the Articles of Confederation. These sections expressly authorized the issuance of legal tender notes, which at the time were called “letters of credit”. [12] Another legal tender was adopted in 1863, and by the end of the war, nearly half a billion dollars had been spent on greenbacks. The law on legal tender laid the foundation for the creation of a permanent currency in the decades following the civil war. The U.S.
federal government had issued paper money known as U.S. notes during the American Civil War, under the provisions of the Legal Tender Act of 1861. In Hepburn v. 1869 Griswold, the court ruled that the legal tender law violated the due process clause of the Fifth Amendment to the United States Constitution. In his majority opinion, Chief Justice Salmon P. Chase did not hold that Congress did not have the power to issue paper money, but ruled that bank notes could not be used as legal tender for existing debts. The Supreme Court struck down Hepburn v. Griswold in legal tender cases in which he concluded that U.S.
debt securities could be used to repay existing debt. On that day in 1862, Congress passed the Legal Tender Act to fund the Civil War. It allowed the federal government for the first time to print paper money, called greenbacks, that was not backed by an equal amount of gold or silver. Our editors will review what you have submitted and decide if the article needs to be revised. In Hepburn, Chase C.J. noted, “No one is questioning the general constitutionality, and perhaps not much, of the general appropriateness of the legislation by which a foreign exchange reserve has been approved in recent years. There are doubts as to the authority to declare a particular class of these bonds as legal tender for the payment of existing debts. [13] The 37th Congress (1861-1863) faced a financial crisis in 1862 when rising war costs quickly depleted the Union`s reserves of gold and silver coins, the only legal tender in the United States. After intense debate, Congress authorized the issuance of U.S.
paper notes (commonly referred to as “greenbacks”) and declared them legitimate currency for all payments, except interest on government debt and import duties. The Legal Tender Act, designed as an emergency measure, significantly expanded federal power and changed the country`s monetary standard. Paper notes, called greenbacks, worked much better than expected. The government was able to pay its bills, and by increasing the amount of money in circulation, the wheels of northern commerce were lubricated.