The Constitution and Money

The Constitution is not silent on the matter of money.  The original intent of the constitution is spelled out quite clear, not only in the document but in the immediate history surrounding its construction.  Members of the newly created union agreed to use a common coinage in order to facilitate trade amongst the states.  States would give up this right and entrust it to the newly created federal government who would be in charge of monitoring it making sure that it set the standards for the coinage and that those standards remained equal and pure.  The text of this mandate can be seen below:

“No state shall…coin money, emit bills of credit, make anything but gold and silver a tender in payment of debts…”

Article I, section 10 clause I

Constitution of the United States

The first part limits the powers of the states, “No state shall…coin money…”.   States’ had coined money at the time. The second part “No state shall…emit bills of credit…” Now, that is one of those peculiar words, if you were living in that time, you knew what that meant. It meant what essentially we know of today as unbacked paper money (not to be confused with gold or silver certificates). So, no state government itself can create unbacked paper money, nor set up any kind of a bank that’s controlled by the state to do it for them. The third part “No state shall…make anything but gold and silver coin a tender in payment of debts…” Now, notice the language, no state shall make anything BUT gold and silver coin.  When drafting any legal document, the term shall is used to say that something must be done (as opposed to the term may which simply means that something is allowed).  So, when put in legal context, states CAN and SHOULD make only gold and silver coin a tender in payment of debts.

The next part of the Constitution states the federal government’s responsibility, specifically congress:

“To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;”

Article I, Section 8, Clause 5

Constitution of the United States

So, congress is tasked with making sure that coins are minted in an amount to make sure that trade keeps flowing.  They are tasked with regulating the value of each coin as well as any foreign coins coming in and “fixing the standard of weights and measures”.  Put another way, how much gold and/or silver is in each coin.

And, most importantly, the historical background (covered in greater detail below in the audio lecture) shows absolutely clearly that unbacked paper money (fiat currency) was not going to be allowed at the national level or the state level. This is because the same people who wrote the Constitution had been, to a large extent, in control of the states and of the congress under the Articles of Confederation during the War of Independence. These people had emitted LARGE amounts of paper money to finance the war; the states did it, and congress did it. They did this in amounts that finally destroyed the currency (named at the time, the Continental). This gave rise to the phrase, “Not worth a Continental”.  So, at the construction of the Constitution, those same people looked back at what they’d done only a few years earlier and said, “We’re not going to do this again”.

Constitutional Money

The following video outlines the Constitution’s description of money and takes us historically through to the “dollar” of today.

The Revolutionary War and the Destruction of the Continental

If the above video is an explanation of Constitutional Money. Then, the following lecture is the reason why it was put into our founding document. The founders had experience with money, in fact, they destroyed the first currency they created. For a historical lesson on the destruction of America’s first currency, The Continental, listen to the audio below. It is Dr. Thomas Woods, Jr’s lecture on the subject. You can also download the Mp3.

The Revolutionary War and the Destruction of the Continental

by Thomas E. Woods, Jr. | THE FED AND WAR FINANCE

The Federal Reserve (Our National Bank)

The Federal Reserve Act was signed into law in 1913 establishing this nation’s third central bank; The Federal Reserve. There has been debate over whether our nation should have a central bank or not. One thing is certain, when a nation does have a central bank, the government grows at a staggering rate and inflation becomes a serious issue for the average citizen. The film below is setup in a Question and Answer style session with G. Edward Griffin, author of the book, “The Creature From Jekyll Island“. Mr. Griffin gives the institution’s history and explains the Federal Reserve System to the viewer in easily understandable terms.

On a side note, did you know that a central bank is called for in the fifth plank of the Communist Manifesto?

Money In A Free Society

What is money? Though this might sound like a strange question it is actually the basis for all economic thought. Are the paper and metal you keep in your pocket or purse actually “money” or is it something else? Is money a useless token only good for exchange? Does it have to have innate value or are pieces of paper that the government declares to be money, money? Before you can engage in any serious discussion about the economy or economics you need to have a basic understanding of money and the monetary system as well as their relationship to government. This film looks at these questions and answers them but, also shows that money happens in a society without ANY government involvement in the monetary system at all.

Our Current Monetary System

We currently operate under what is called a fiat currency system. Fiat money is money that is not backed by a commodity such as gold or silver. The film below does an excellent job of explaining how the fractional reserve system operates in our monetary system. It must be pointed out that the film gets its facts wrong at one point by stating that the founders intended for us to print our own money, when this is not true (as shown in the film above). But, because it does such an excellent job of showing the fractional reserve system, we have included it in this section as well.