CHAPTER II.

PAPER MONEY AUTHORIZED BY THE CONTINENTAL CON

GRESS.

THE second Continental Congress was convened in 1775, and, in order to raise funds, having no power to institute taxation, naturally turned toward the expedient of an emission of paper money on the credit of the Union, but in the redemption of which each colony was to bear a part. The first issue was made in June, 1775. For a year these issues continued equal to gold; in two years they had depreciated to 2 for 1; in three years to 4 for 1; in nine months more their relative value was 10 for 1; in September, 1779, it was 20 for 1. Congress now determined that the total issues should not exceed $200,000,000, and renewed the declaration that this currency should be redeemed in full, and went to some labor to prove that the States had the ability to do so. In March, 1780, these issues had so depreciated that their value, as compared with specie, was as 40 to 1. Congress now required the whole to be brought in for redemption at its market value in coin, and also authorized the emission of new notes bearing interest at 5 per cent., and payable six years from date in silver and gold. These were to be exchanged in the proportion of 1 dollar of the new for 20 dollars of the old emission.

During the year 1780 the notes of the old issue sank first to 75 to 1, then ceased to circulate in the States north of the Potomac. In Virginia and North Carolina they passed for a year longer, and finally depreciated to 1,000 to 1, and then ceased to circulate.

According to Thomas Jefferson, but 200 millions of the first emission was issued, which was the amount authorized by resolution of Congress; but other authorities state the amount much higher. Joseph Nourse, register of the treasury in 1828, places it at $241,552,780. The amount as given in the treasury statement of 1843 was $242,100,176. The aggregate loss to the people of the country from this currency was estimated by Secretary Woodbury at $196,000,000. During the war paper money, distinct from the continental currency, was also issued by several of the States. The amount thus issued has been placed at $209,000,000, which is probably too high. It is, however, difficult to obtain exact information in reference to these emissions.

At the close of the war the minds of all classes were imbued with a wholesome antipathy to paper money, and as a consequence, when the Federal Constitution was under consideration, the power to emit bills, which in the original draft was given to the United States, was stricken out. Moreover, the original draft having contained a qualified permission to the States to issue paper money, an amendment was inserted which took away from the States all power to coin money, emit bills of credit, or make anything but gold or silver coin a tender in payment of debts. It has been held that the lack of power on the part of a State to coin money, taken in connection with the prohibition of the emission of bills, prevents the

VIEWS OF WEBSTER AND STORY.

11

issue of paper money by banks chartered by the State, as well as such issue by the State itself. This view was held by Daniel Webster, in his speech on the Bank of the United States, on the 25th and 28th of May, 1832, and his arguments are quoted with commendation by Mr. Justice Story, in his commentaries on the Constitution, as follows: "It will be hereafter seen that this (the power to coin money) is an exclusive power in Congress, the States being expressly prohibited from coining money. And it has been said by an eminent statesman that it is difficult to maintain, on the face of the Constitution itself, and independent of long-continued practice, the doctrine that the States, not being at liberty to coin money, can authorize the circulation of bank paper as currency at all. His reasoning deserves grave consideration, and is to the following effect: The States cannot coin money. Can they, then, coin that which becomes the actual and almost universal substitute for money? Is not the right of issuing paper intended for circulation in the place and as the representative of metallic currency, derived merely from the power of coining and regulating the metallic currency? Could Congress, if it did not possess the power of coining money and regulating the value of foreign coins, create a bank with the power to circulate bills? It would be difficult to make it out. Where, then, do the States, to whom all control over the metallic currency is altogether prohibited, obtain this power? It is true that in other countries private bankers, having no legal authority over the coin, issue notes for circulation. But this they do always with the consent of the Government, express or implied; and Government restrains and regulates all their operations at its pleasure. It would be a startling propo

sition in any other part of the world, that the prerogative of coining money held by the Government was liable to be defeated, counteracted, or impeded by another prerogative, held in other hands, of authorizing a paper circulation. It is further to be observed that the States cannot issue bills of credit; not that they cannot make them a legal tender, but that they cannot issue them at all. This is a clear indication of the intent of the Constitution to restrain the States as well from establishing a paper circulation as from interfering with the metallic circulation. Banks have been created by States with no capital whatever, their notes being put in circulation simply on the credit of the State. What are the issues of such banks but bills of credit issued by the State?" Mr. Justice Story says: "This opinion was not peculiar to Mr. Webster; it was maintained also by Hon. Samuel Dexter, one of the ablest statesmen and lawyers who have adorned the annals of the country."

Nearly thirty years after, Chief Justice Chase, when Secretary of the Treasury, in his report to Congress, of December 9, 1861, said: "It has well been questioned by the most eminent statesmen, whether a currency of bank notes, issued by local institutions under State laws, is not, in fact, prohibited by the national Constitution. Such emissions certainly fall within the spirit, if not within the letter, of the constitutional prohibition of the emission of bills of credit by the States, and of the making by them of anything except gold and silver coin, a legal tender in payment of debts."

CHAPTER III.

BILLS OF CREDIT IN THE FEDERAL CONVENTION.

THE Committee appointed by the Federal Convention held in Philadelphia on May 14, 1787, reported, on August 6, a draft of the Constitution, which contained, in article thirteen, a clause giving qualified authority to the States to issue paper money, as follows: "No State without the consent of the Legislature of the United States shall emit bills of credit, or make anything but specie a tender in payment of debt." This clause, after discussion, was finally so amended as to read as follows: "No State shall coin money, emit bills of credit, make anything but gold and silver coin a tender in payment of debts." The eighth clause of the first section of the seventh article of the Constitution, as presented for the consideration of the Convention, provided that "the Legislature of the United States shall have power to borrow money, and emit bills on the credit of the United States." This clause, as embodied in the eighth section of the first article of the Constitution as finally adopted, reads, "The Congress shall have power to borrow money on the credit of the United States." The debate on the question of striking out the words "and erait bills," is important, for the reason that the subject of making

1 Madison papers, vol. iii., p. 1343.