Constitutional Economics 101: What is a Dollar?
Dr. Judd W. Patton
A dollar? Most Americans today think it's a Federal Reserve Note. You know, the one with George Washington's picture on the front. But they are wrong! In point of fact it was the Coinage Act of 1792 that created and defined exactly what a U.S. dollar is. "Fine," you might say, "interesting historical insight, but so what?" "Is it really significant that Americans no longer know the original definition of a dollar?" Yes, absolutely! In fact, it is vital to know what a dollar is and the authority the Constitution gives our Federal government in regards to monetary affairs.
Howard Buffett, four-term Nebraska Congressman (R) and the father of Warren Buffett, got to the "bottom line" of this issue in 1948 when he said, "So far as I can discover, paper money systems have always wound up with collapse and economic chaos. if human liberty is to survive in America, we must win the battle to restore honest money."
Representative Buffett knew the difference between irredeemable paper money (called bills of credit in the 1700s) and sound honest money, between Constitutional and unconstitutional money. And he recognized the urgency of restoring the "dollar of our fathers."
Let's discover what Rep. Buffett knew, by going back to our nation's Founders, by looking at the monetary debate at the Constitutional Convention, the Constitution itself, and the Coinage Act of 1792.
During the Revolutionary War (1776-1783) the
Continental Congress issued $225 million dollars of paper money to finance
the war. These "Continental paper dollars" were not redeemable into
gold or silver coins (specie) but they were to be "retired" in seven
years through taxes levied on the States. That never happened. As a result of
this massive increase in the money supply our nation experienced a runaway price
George Washington wrote in 1779 that "a wagon load of money will scarcely purchase a wagon load of provisions." By the spring of 1781 the Continentals were virtually worthless, giving rise to the phrase, "not worth a Continental."
This hyperinflation experience was fresh in the minds of the delegates as they arrived in Philadelphia for the Constitutional Convention in May, 1787. On August 16th, part of the agenda of that day was to discuss the proposals concerning the monetary affairs for the new nation. The proposal under consideration was: "The legislature of the United States shall have power. to coin money. to regulate the value of foreign coin. to borrow money and emit bills on the credit of the United States. The ensuing debate, as recorded by James Madison, the Father of the Constitution, is most telling.
Gouverneur Morris, delegate from Pennsylvania, moved to strike out and emit bills on the credit of the United States." He went on to say, "If the United States had credit such bills would be unnecessary; if they had not, unjust and useless." Pierce Butler of South Carolina seconded the motion. Later in the discussion he remarked that "paper was a legal tender in no country in Europe." He was "urgent for disarming the government of such a power." James Mason of Virginia had a "mortal hatred to paper money" but was unwilling to tie the hands of the legislature. A few others agreed with him, but most of the delegates were vehement in their opposition to irredeemable paper money.
Oliver Ellsworth of Connecticut "thought it was
a favorable moment to shut and bar the door against paper money." He went
on to say, "Paper money can in no case be necessary.
Give the government credit, and other resources will offer. The power may do harm, never good." James Wilson of Pennsylvania believed, "It will have a most salutary influence on the credit of the United States, to remove the possibility of paper money." George Read of Delaware "thought the words, if not struck out, could be as alarming as the mark of the beast in Revelation." And John Langdon of New Hampshire "had rather reject the whole plan (Constitution) than retain the three words, and emit bills."
On the motion for striking out the phrase, nine state delegations voted "aye" and two "no." New Jersey and Maryland were the "no" votes. The New York delegates were not present. The next day, August 17th, the delegates adopted a measure to punish the counterfeiting of coins and U.S. securities.
Then on August 28th, the delegates debated two articles
concerning the role of coinage and paper money for the States. During the debate
Roger Sherman of Connecticut expressed the view that, "this is a
favorable crisis for crushing paper money." The delegates agreed. The vote
was 8 to 1 (Maryland was divided and abstained) to prohibit "bills of
credit" (paper money) and 11 to 0 to require States to pay their debts in
or silver coin only.
On September 12 the committee of revision reported back to the delegates a revised draft of the Constitution. It was not modified. Therefore our Constitution, in regards to monetary affairs, reads as follows:
Article I Section 8: The Congress shall have Power.
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; and To provide for the Punishment of counterfeiting the Securities and current Coin of the United States.
Article I Section 10: No State shall coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of debts.
Such was the action of our Founders. Irredeemable paper money is unconstitutional. Only the minting of coins is lawful.
Coinage Act of 1792
Our Second Congress (1791-1793) then implemented the
Constitutional requirements by passing the Coinage Act of April 2, 1792.
It established the U.S. Mint and defined and
"regulated the coins of the United States." (The complete Act can be found on the Internet at: http://www.logoplex.com/shops/leaders/coinage1792.txt). Black's Law Dictionary at the time defined "regulate" as meaning "fix, establish, or control." The Act established or
defined the "dollar" as a weight of silver (371.25 grains (troy) of fine silver) and then regulated the value of gold coins to it in a 15 to1 ratio, that is, as 15 grains of silver to every grain of gold. The regulation also included establishing the purity and the various denominations.
Thus the Coinage Act gave the new nation three gold coins (the Eagle or $10 gold piece, Half Eagle and Quarter Eagle); five silver coins (the Dollar, Half Dollar, Quarter, Dime (originally spelled Disme), Nickel (or half Disme); and two copper coins (the Cent and Half Cent). This is Constitutional money. Moreover, the Act provided all citizens access at the Mint to coin their gold, silver, and copper (free coinage) and established any debasement of the coinage as a capital offense!
We can now answer our question: What is a dollar? The "dollar of our fathers" is a silver coin weighing almost one ounce. It was never to be debased; it was never to be any weight less than 371.25 grains of pure silver.
Today our "paper dollar" or Federal Reserve Note,
once a silver and gold certificate redeemable into "lawful" money
before 1963, and something our Founders hoped to banish from our nation, is an
"IOU Nothing." It is not redeemable into a fixed amount of silver or
gold, let alone the Constitutional amount. As a result it can be reduced in
value year by year by means of the printing presses. Our 20th century
dollar has become a means to big and bigger government, and to massive income and wealth redistributive schemes - legal plundering - by our politicians, contrary to Article I Section 8 of the Constitution.
Next spring, perhaps in May of 2000, the U.S. Mint will place into circulation a new dollar coin. (See: www.usmint.gov) It will be similar in size to the defunct Susan B. Anthony dollar coin but will contain copper and nickel, yet appear to be a gold coin! Our Founders, were they alive, would be undoubtly disappointed, perhaps outraged. George Read of Delaware would likely view the new coin "as alarming as the mark of the beast in Revelation." But Americans will probably hail it as a beautiful, much-needed new coin.
Congressman Buffett understood what a Constitutional dollar was and still is. Americans desperately need to know as well. That is why he warned us in the strongest terms, "For if human liberty is to survive in America, we must win the battle to restore honest money. There is no more important challenge facing us than this issue - the restoration of your freedom to secure gold (and silver) in exchange for the fruits of your labors."