For 150 years, many constitutional commentators argued that by the document’s original meaning, Congress had no authority to issue paper money. Libertarians therefore argued that paper currency was unconstitutional. Liberals often agreed that the original meaning forbade paper currency—and then used that example to contend that originalism is simply impractical.

There is no question that the Constitution forbids states from issuing one kind of paper money—bills of credit—and from decreeing as legal tender anything other than gold and silver coin. See Article I, Section 10, Clause 1. Bills of credit are essentially tiny government bonds designed to be circulated as money. (The “fiat” notes we use today are not bills of credit.) A currency is legal tender if the law requires citizens to accept that currency in payment; traditionally, not all paper money was legal tender, although today’s paper money is. (See photo above.)

So the Constitution restricted the states’ coinage power—what of the federal government?

Several years ago, I undertook an investigation into the original meaning of the Constitution’s Coinage Clause—Article I, Section 8, Clause 5. This grants Congress power to “coin Money, regulate the Value thereof, and of foreign Coin.” My findings were published in one of the Harvard University journals, and you can find them here.

I learned that in Founding era discourse, the verb “to coin” had two meanings: (1) to make metallic coin and (2) to fabricate or create. The second meaning survives today in the saying “to coin a phrase.” During the Founding Era, however, the second meaning was much more common than it is today—although not quite as common as the first. People spoke of “coining paper,” “coining leather” (making leather money), and the like.

Which of the two meanings appears in the Constitution?

By closely examining the Constitution’s text, you can see that the second meaning is more probable. If “coin” referred only to metal tokens, then Congress’s power to regulate value (set exchange rates) would apply only to foreign metal coin, but not to foreign paper. This makes no sense. Also, why limit the power at the dividing line of metal versus paper? Prior history had shown that there was little practical difference between forging money from paper and forging it from scraps of tin. If the Coinage Clause was intended to limit Congress to valuable coin, then why didn’t the Coinage Clause specify  gold and silver coin, as did Article I, Section 10, Clause 1?

One reason prior scholars had not solved the mystery is that most had limited themselves to the proceedings of the Constitutional Convention and little more. The convention proceedings tell us most of the Framers did not like paper money. But you can’t therefore jump to the conclusion that their Constitution forbade it. Those same Framers had used paper money extensively during the Revolution, so they recognized that government might have to issue it in emergencies. On the precise question of whether Congress could issue paper, the convention proceedings were inconclusive.

I then proceeded to do what few other researchers had done: I examined how the Constitution was represented to, and understood by, the ratifying public. And that resolved any doubt. As distasteful as paper currency might be, Congress had authority to issue it.

I documented my conclusions heavily. Perhaps as a result, since my article appeared scholarly debate on the issue has dried up.

The latest three volumes of the Documentary History of the Ratification of the Constitution confirm these findings. First, they reinforce the conclusion that most people—or at least most contemporaneous writers on the Constitution—disliked paper money. An example occurs at 32 DH 114: “Away with all worthless paper money.”

But paper did have some defenders, at least conditionally. An example is an article in the Pennsylvania Packet reproduced at 32 DH 32: “The emission of paper was an obvious and necessary expedient [during the Revolution]; yet it was bad policy to throw vast sums into circulation without taking some measures to recall it.” Another writer asserted the only fault with paper money was that some of it was not backed by legal tender laws. 32 DH 310.

In my article I concluded that nearly all of the Federalists and Antifederalists who spoke to the issue agreed the Constitution granted Congress authority to issue paper currency. (The only significant figure to claim the contrary was Antifederalist Luther Martin, who had represented Maryland at the Constitutional Convention.) The latest volumes include two more pieces of corroborating evidence—both articles by Antifederalists. The first is an item reprinted from the Philadelphia Freeman’s Journal of January 9, 1788. The author cited Congress’s power to issue paper money as a reason for opposing the Constitution:

“It is a great argument with the advocates of the new constitution, says a correspondent, that none of the states can make paper money or tender laws if the new constitution is established; true, they cannot, (and perhaps they ought not) but Congress will have that power, they are empowered by this constitution to make as much paper money, and pass as many tender laws as their highnesses may please. . . . ” 33 DH 772-72.

Similarly, an Antifederalist writing under the name “Deliberator” wrote in the same paper on February 20, 1788, “Though I believe it is not generally so understood, yet certain it is, that Congress may emit paper money, and even make it a legal tender throughout the United States. . . . ” 33 DH 905.

Advocates of the Constitution responded to such attacks by essentially predicting that Congress would not issue paper money—or at least would act responsibly. These hopes were expressed even before the Constitution became public by the “Foreign Spectator”, who wrote in the September 13, 1787 Philadelphia Independent Gazetteer, “But a coin of permanent universal value, struck by federal authority, would impress all the citizens of the United States with a constant sense of this power, and of its salutary protection.” 33 DH 941.

However, I have never found a Federalist spokesman who denied categorically that Congress could “coin paper”. On the contrary, quite a few, among them Charles Pinckney of South Carolina, openly acknowledged the power.

Rob Natelson