THE work of Mr. John Jay Knox, lately comptroller of the currency, upon United States Notes1 is a useful monograph. The style is that of an official report rather than that of a philosophical study of the subject, and the reader must trace for himself the connection between the several events recorded, and supply such reflections as seem to him appropriate upon the wisdom or the folly of Congress in the gradual development of the system of “ coining ” paper money. Bnt Mr. Knox has furnished all the facts which are necessary for a full understanding of the subject, in a concise and readable form ; and as we have now reached a point in constitutional interpretation, if not in legislative practice, where there is no further progress to be made in the direction we have been going, Mr. Knox’s work may be accepted as the full history of a completed incident in constitutional development.
It is a little remarkable that two deliberate omissions by the convention of 1787 should have been followed by an assertion in each case, by the Supreme Court, of the right of Congress to do what the Constitution, by its ostentatious silence, withheld the power to do; that in each case the financial necessities of the government led to the passage of the acts, — certainly not authorized by the plain terms of the Constitution, — the validity of which was so sustained ; and that the two judicial decisions relating to these laws have done more in the past and are capable of doing more in the future to make the United States government sovereign and supreme, in the broadest sense, to tlie fullest extent, and in all its relations, than any other event in our history, with the possible exception of the civil war. The first of the two acts referred to was, of course, the charter of the second bank. In the convention of 1787 it was proposed that Congress should be allowed to grant incorporations, and the power was expressly refused ; that is to say, being urged thereto, tlie convention deliberately declined to confer the privilege, on the ground that the clause would empower Congress to charter a bank. Yet the new government was hardly organized when a bank was chartered; and, the exercise of the power having been called in question a quarter of a century later, it was affirmed by Chief Justice Marshall in a decision which ultimately overthrew the school of “ strict construction,” and made the United States a nation, with the power to preserve and protect itself, and to enforce its own authority at home and abroad.
The authority to “emit bills of credit” was withheld from Congress in a similar way, but the denial was more emphatic than it was in the case of corporations. The men who framed the Constitution had present before their eyes the evils of government paper money. They were substantially unanimous in holding that the States ought not to be permitted to issue such currency ; and the prohibition upon them in this regard was allowed to stand. Some members, however, believed that, great as the evil might be, the possibility of its becoming a necessary expedient required that the power to emit bills of credit should be allowed to the general government. After a long and careful discussion of the subject the clause was struck out of the draft of the Constitution. Although no direct prohibition of an issue of bills of credit was inserted, the universal belief at the time — based on the theory that no powers were possessed by Congress except such as were conferred in express terms — was that the prohibition was absolute. Who could have supposed that the first issue of treasury notes, under the act of June 30, 1812, was to be the first step on a road which we have followed to a point where the ultimate goal of “ fiat money ” is in sight? These notes were for not less than $100 each, they were reimbursable at a specified time, and they bore interest. They were not a legal tender, and no person needed to become the possessor of one of them, save by his own voluntary act. In principle the notes differed in no important respect from small government bonds to secure a short loan.
One by one the differences between such notes and “ bills of credit,” as they were known in revolutionary and prerevolutionary times, disappeared. Notes of as small denomination as five dollars were issued under the act of 1815, and these were available as circulating notes in the pockets of the people, as the large notes of 1812 had not been. The next step was taken after the financial imbecility of Jackson and his followers, notably illustrated by the war upon the Bank, which brought about the crisis of 1837. The payment of interest on notes was no longer promised, or, as there was a lingering idea that non-interest bearing notes might not be constitutional, the fancied obstacle was overcome by promising interest at the rate of one mill per annum on each one hundred dollars. Then at the beginning of the civil war notes were issued, bearing no interest and payable at no definite time; that is, on demand. Finally the last step was taken, and promises to pay which could not be met, or which might legally be met by other promises of the same sort, were issued as a forced loan, and made a legal tender between man and man. Upon the series of enactments which gave the country this currency for a standard of value, there have been three decisions by the Supreme Court of the United States : first, that Congress could not make such notes a legal tender in the payment of debts contracted before their issue ; second, that, in time of war and great financial necessity, Congress might make such notes a legal tender in the payment of debts contracted either before or after their issue ; third, that Congress may, at any time, and at its own discretion, make whatever it pleases a legal tender in the payment of all debts whatsoever.
Mr. Knox, we have already said, has made his work a record of facts, and not a philosophical treatise upon the subject of government paper money. But every observer of governments knows that a tendency so pronounced as that which has been briefly noted is not arrested when the last barrier to the free exercise of a right is removed. There is no present temptation to emit irredeemable paper money, stamped “ This is —— dollars,” or even to increase the issue of promises to pay which are nominally redeemable. But evidently, should the fancied necessity arise, there will be little disposition to choose the hard but safe system of finance, when there is open to Congress the seductive course of issuing a forced loan, by which, however much the cost of a war may be increased by it, the payment of that cost is postponed indefinitely. There are very many persons among us who are fully convinced not only that a greatly increased issue of paper money would be harmless, but that it would be positively beneficial to business. Those who know better are not eager to offer active resistance to the advocates of “ soft money,” because they are sure to be denounced at once as capitalists, monopolists, and slaves of the banks. Moreover, the American people are a long-suffering race, who reconcile themselves to things as they are, whether to the impertinences of hotel clerks, to the petty extortions of the newsboy who pockets five cents for a three-cent paper, or to the all-pervading evil of bad money. The unpleasant discovery by the Supreme Court of the fact that Congress has unlimited power over the legal tender has excited surprise, but it has incited no one to energetic action. A few newspapers have abused the court, as though that would mend matters. Two or three Senators and an equal number of Representatives have introduced resolutions to amend the Constitution, but not one of them has accomplished, or even tried to accomplish, anything. Constitutional change is peculiarly difficult and infrequent in this country, and this particular change can never be effected until strong leaders become not merely champions of the cause, but persistent agitators. To introduce a resolution and to let the matter rest there is about as effective as aiming a pistol at the moon, and then concluding, out of consideration for the moon, not to fire.
This being the case, in common with all the rest of the American people we give up the fight and trust to luck until the required leader appears. If the country can avoid a war for a quarter of a century, and if it shall be favored during that time with a reasonable degree of commercial prosperity, the danger may be escaped. In that time the debt will be nearly or wholly paid. The increase of wealth will be very great, and the credit of the government will stand so high that only a very reckless demagogue would propose to meet an unusual demand upon the treasury by forcing irredeemable paper money into circulation. In short, the country may not adopt the silliest and most short-sighted financial policy that is possible, because it may not be under the necessity of borrowing any money at all. This is a slender reliance, it must be confessed, but it is the only one we have.
There is one chapter of Mr. Knox’s book which is not covered by the title of the work. It is devoted to a full account of the distribution of the surplus in Jackson’s time. The author finds a reason for including this chapter in his work ; but most readers will think the connection somewhat strained, and will surmise that Mr. Knox wrote it having in view some other use than that which he has made of it, and having it on hand put it into the volume. Although it is artistically somewhat misplaced, yet it is well worth possessing for its own sake, for it is the fullest and best account yet printed of one of the strangest passages in our political history. Is there not, moreover, a suggestion that the country may make constitutional progress — if it be progress — in this respect, as well as in the matter of the issue of notes ? No one could have dreamed, when the issue of large interest-bearing notes payable at a definite time was proposed in 1812, that the power would ever be discovered in the Constitution under which irredeemable legal tender notes, intended to circulate as money and to be the standard of value even for gold and silver, could be emitted. Nor was it supposed, when the idea of “ depositing ” with the States “ for safe keeping ” the surplus, unusable revenues of the government was conceived, that any statesman would ever advocate the policy of maintaining a system of excessive national taxation for the express purpose of obtaining a surplus to be given to the States for the relief of local taxation. And yet, why not ? The principle is fully established. The money “ deposited ” in 1836 has never been called for by the national government, and cannot be called for until Congress has passed an act directing that a demand be made for it. To all intents and purposes, therefore, it is a gift to the States. Manifestly, if the government may distribute its surplus among the States when it is free from debt, it may do so when it has a debt which Congress does not regard it as expedient to pay too rapidly. Nor is there any difference in principle between devoting to such a purpose the proceeds of taxes which, originally barely adequate to meet current expenditures, have, by the twofold process of enlarged yield and diminished government charges, become excessive, and a direct imposition of taxes in order to obtain a distributable surplus.
This matter bids fair soon to rise to the rank of a political issue. The Democratic platform this year specifically condemns the policy of a distribution of the surplus. Doubtless its position on the question has been deliberately chosen ; and in the present unformed state of public opinion, probably three fourths of the voters of the country would say off-hand that the position is the right one. But who can say what those same voters will think when it is artfully put before them that, while this policy means no increase of national taxation, it does involve a perceptible reduction of that direct local taxation which is discharged by going to the city treasurer’s office and handing to that official a check or a roll of greenbacks ? Indeed, it might be asked if any Senator of either party, who voted for the Blair Education bill during the late session of Congress, can make a distinction, however fine, between the principle of that bill and that of a frank and undisguised distribution of the surplus.
Here, again, we run for luck. It may not be worth the while of any demagogue to base an appeal to the people upon this subject of taxation. If not, the States and the nation may be confined within their present respective spheres of taxation and revenue. But fancy a movement springing up in those States where taxes are most unwillingly levied and most unwillingly paid to demand of Congress relief by the measure here suggested. We need not trace the process by which it would gain strength, and perhaps by and by become irresistible. Let those who think this to be impossible reflect upon the history of the internal improvements controversy. Once it was deemed unconstitutional to appropriate money to repair the Cumberland Road, the main and the only post-road over which the government mail could be sent to Ohio and the rest of the Northwestern Territory. To-day members of all parties vote to appropriate money for clearing snags out of shallow channels in a river in Oregon or Washington Territory, for the sole object of enabling the owners of timber tracts on the upper waters to float their logs to market.
- United States Notes. A History of the Various Issues of Paper Money by the Government of the United States. By JOHN JAY KNOX. New York : Charles Scribner’s Sons. 1884.↩