Paper Money and the Federal Constitution.

In 1787 the Federal constitution was framed. It contains a clause that no State shall “ coin money, emit bills of credit, or make anything but gold or silver coin a tender in payment of debts.” The framers of the document thus fixed their condemation of the old paper system, and the people, smarting under recent experiences, acquiesced.

It was proposed in the constitutional convention to give to Congress the right to emit bills of credit, but the proposition was defeated nine States to two. (Madison Papers, III. 1,344.)

Two questions have been raised under this clause: I. Can a State authorize banks to do what it cannot do itself? As the confederation had already chartered the Bank of North America, it does not seem that the “ bills of credit” were understood to cover bank notes. The courts have held that a State may authorize bank issues when itself owns all the stock, the legislature appoints the directors, the faith of the State is pledged for the redemption of the bills, and they are receivable for public dues, provided the capital is paid in and the bank may be sued. (Story, 4th ed., I. 227, note.)

2. Can the national government do what the States cannot do under this clause? The legal-tender cases have recently decided this question in the affirmative. Mr. Gallatin said, in 1831, of Congress: “ As this body has no authority to make anything whatever a tender in payment of private debts, it necessarily follows that nothing but gold and silver coin can be made a legal tender for that purpose, and that Congress cannot authorize the payment, in any species of paper currency, of any other debts but those due to the United States.” This is only important as showing the belief of prominent public men on this point in earlier times. For them it was a simple matter of course that Congress could not pass a legal-tender act of any kind, how much less one which should apply to existing contracts. The legal-tender decision did as great a wrong as the Dred Scott decision, and the latter instance shows us that it is not useless to discuss a constitutional question, even after the court has decided it. It will not probably take a war to overthrow the principle of the legal-tender act, but it may take a national bankruptcy.