Thursday, June 26, 2008

Larry Becraft responds to Jon Mosley about "COLONIAL ERA PAPER CURRENCY"

Jon Mosley,

In 1789, Peletiah Webster aptly described the social damage resulting from the experiments in paper money:

"Paper money polluted the equity of our laws, turned them into engines of oppression, corrupted the justice of our public administration, destroyed the fortunes of thousands who had confidence in it, enervated the trade, husbandry and manufactures of our country, and went far to destroy the morality of our people."

You, Jon, recently stated, among other contentions, as follows:

“The Framers clearly had in mind the possibility that paper currency and things other than gold and sliver [sic] can be money.”

This and other allegations you make clearly demonstrate that you know next to nothing about the legal history of money in this country, which is long and interesting.
The idea of paper money was clearly rejected by the Philadelphia Constitutional convention, and proof thereof is found in the several notes of the Convention. Furthermore, there are a large number of cases decided before the civil war that held that only gold and silver was money. For example, in Gasquet v. Warren, 10 Miss. 514, 517 (1844), that court stated:

"It means that which in fact and law is money, which is gold or silver coin. This in law is money and nothing else is."

Of the several decisions of the U.S. Supremes, perhaps the decision in United States v. Marigold, 50 U.S. (9 How.) 560, 567-68 (1850), demonstrates the thought of that court:

"They appertain rather to the execution of an important trust invested by the Constitution, and to the obligation to fulfill that trust on the part of the government, namely, the trust and the duty of creating and maintaining a uniform and pure metallic standard of value throughout the Union. The power of coining money and of regulating its value was delegated to Congress by the Constitution for the very purpose, as assigned by the framers of that instrument, of creating and preserving the uniformity and purity of such standard of value * * *.

"If the medium which the government was authorized to create and establish could immediately be expelled, and substituted by one it had neither created, estimated, nor authorized  one possessing no intrinsic value  then the power conferred by the Constitution would be useless  wholly fruitless of every end it was designed to accomplish. Whatever functions Congress are, by the Constitution, authorized to perform, they are, when the public good requires it, bound to perform; and on this principle, having emitted a circulating medium, a standard of value indispensable for the purposes of the community, and for the action of the government itself, they are accordingly authorized and bound in duty to prevent its debasement and expulsion, and the destruction of the general confidence and convenience, by the influx and substitution of a spurious coin in lieu of the constitutional currency."

You may read this decision here:

I have a wide variety of cites to and quotes from cases of this period posted here:

Where did we get federal “legal tender paper money”? During the civil war, Chase was Treasury Secretary and he developed the idea (as published in the Annual Reports of the Treasury) of issuing federal notes to finance the war. Congress followed suit and issued those notes, later making them a legal tender. Chase was later appointed to the Supreme Court as Chief Justice, and I suspect that the reason for doing so was to insure he would uphold the constitutionality of those legal tender acts. However, he disappointed everyone when the Court took cert on a case from Kentucky; see Hepburn v. Griswold, 75 U.S. 603, 625 (1869). In this case, Chase concluded that his own acts of advocating legal tender paper were unconstitutional. I attach hereto a copy of the decision in Hepburn.

Only when the Court was packed with a couple of railroad lawyers did it decide to rehear this question. Then in the Legal Tender Cases, the power to issue such notes during war was upheld. That decision could not isolate where this legal tender power was found in the constitution; it merely pointed to the constitution and by fiat declared that such power was there.

This issue is long and complex. It would benefit you if you would at least minimally educate yourself about the legal history of this issue.


Tuesday, June 17, 2008

Benjamin Frankin & Paper Money


By the mid 1700's Britain was at its height of power, but was also heavily in debt.

Since the creation of the Bank of England, they had suffered four costly wars and the total debt now stood at £140,000,000, (which in those days was a lot of money).

In order to make their interest payments to the bank, the British government set about a programme to try to raise revenues from their American colonies, largely through an extensive programme of taxation.

There was a shortage of material for minting coins in the colonies, so they began to print their own paper money, which they called Colonial Script. This provided a very successful means of exchange and also gave the colonies a sense of identity. Colonial Script was money provided to help the exchange of goods. It was debt free paper money not backed by gold or silver.

During a visit to Britain in 1763, The Bank of England asked Benjamin Franklin how he would account for the new found prosperity in the colonies. Franklin replied.

"That is simple. In the colonies we issue our own money. It is called Colonial Script. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers.

In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one."
Benjamin Franklin 1

America had learned that the people's confidence in the currency was all they needed, and they could be free of borrowing debts. That would mean being free of the Bank of England.

In Response the world's most powerful independent bank used its influence on the British parliament to press for the passing of the Currency Act of 1764.

This act made it illegal for the colonies to print their own money, and forced them to pay all future taxes to Britain in silver or gold.

Here is what Franklin said after that.

"In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed."
Benjamin Franklin

"The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the PRIME reason for the Revolutionary War."
Benjamin Franklin's autobiography

By the time the war began on 19th April 1775 much of the gold and silver had been taken by British taxation. They were left with no other choice but to print money to finance the war.

What is interesting here is that Colonial Script was actually working so well, it became a threat to the established economic system of the time.

The idea of issuing money as Franklin put it "in proper proportion to the demands of trade and industry" and not charging any interest, was not causing any problems or inflation. This unfortunately was alien to the Bank of England which only issued money for the sake of making a profit for its shareholder's.

Click here for more.