The Legal Tender Cases (1870) – Guest Essayist: Kevin Walsh

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The legal tender controversy involved Supreme Court decisions that spanned a decade and a half beginning in 1870 with Hepburn v. Griswold 75 U.S. 603 (1870), in which the Legal Tender Act of 1862, 12 Stat. 345, making United States Treasury notes legal tender, was invalidated on constitutional grounds.  In Hepburn, Chief Justice Salmon P. Chase, who as secretary of the Treasury during the Civil War was a key player in the Legal Tender Act’s passage, held for the majority that congressional authorization of the notes (also referred to as “fiat currency” or “greenbacks”) to be used as legal tender violated the Fifth Amendment Due Process Clause protecting property.

Hepburn was followed a year later with the Legal Tender Cases (hereinafter referred to as Knox-Parker), 79 U.S. 457 (1871), which reversed Hepburn by upholding the tender act as a legitimate exercise of national legislative power in a wartime emergency. There were two controlling questions: Was the Legal Tender Act constitutional when applied to contracts made before passage of the act; and, secondly were they valid as applicable to debts contracted since their enactment?

Invoking the logic of Chief Justice John Marshall in McCulloch v. Maryland, 17 U.S. 316 (1819), the Knox-Parker decision asserted that Congress was authorized to make greenbacks legal tender in payment of debts, that it was a “necessary and proper” exercise of power.  The 1884 case of Juilliard v. Greenman, 110 U.S. 421 (1884), conclusively settled the legal tender controversy by ruling that Congress possesses the authority to make treasury notes legal tender both in peacetime and wartime.

The initial Legal Tender Act of 1862 was a desperate measure undertaken by Congress to provide financing for the Civil War. The legislation provided that greenbacks were to be, “lawful money and a legal tender in payment of all debts, public and private, within the United States.” The notes depreciated substantially in terms of gold prices and had the effect of fulfilling contracts with a currency of greatly reduced value. Creditors suffered because the basis of the original contracts had been undermined by the inflationary tendencies of greenbacks. Many creditors believed that the legal tender legislation constituted an impairment of the obligation of contracts. They were on shaky constitutional ground, however, given the fact that the prohibition on contract impairment did not extend to the federal government. Article I, Section 10 of the Constitution forbids states from passing any “Law impairing the obligation of Contracts,” but includes no such prohibition against Congress.

One should look to the Convention debates for insights regarding legal tender, bills of credit, and more generally the extent to which Congress had authority over matters of monetary policy.  Indeed, twelve days after the Convention delegates refused to prohibit Congress’ power to emit bills of credit, the Convention met to debate the question of state coinage and legal tender. The delegates agreed that the states would be prohibited expressly from making anything but gold and silver a legal tender, and from emitting bills of credit.

In perhaps the most important interpretation of the “Bill of Credit Clause” prior to the legal tender controversy, Chief Justice Marshall confirmed in Craig v. Missouri, 29 U.S. 410 (1830), that “the people declared in their constitution, that no state shall emit bills of credit.” Joseph Story echoed like sentiments just three years later in his Commentaries, when the practice of emitting bills of credit (as authorized by Congress) had become quite common. He noted that the language of the Constitution makes clear that the prohibition was directed at state issues, not federal ones. There is no Supreme Court precedent (before the Hepburn ruling) enunciating a comparable prohibition on Congress.

Inferences can be drawn from the constitutional provisions dealing with congressional powers by taking into account historical evidence regarding inclusion and exclusion of certain expressions. One recalls the remark regarding silent aspects of the Constitution made by James B. Thayer when he wrote that the “sagacious policy of silence, rather than positive grant or positive prohibition, as regards the power and duty of the Union, was resorted to on several occasions (Thayer, p. 78).

Subsequent constitutional interpretation and statutory construction during the early years of the republic yielded, to some extent, answers to questions regarding the distinction between language that expressly prohibits and that which impliedly confers power on the legislature. Indeed two lasting principles of construction were established even before 1801. First, doubtful cases were to be resolved in favor of constitutionality, and second congressional statutes were to be construed if possible in a manner consistent with the Constitution.

Hepburn v. Griswold, the case in which the tender act was initially struck down by the Supreme Court in 1870, was only the seventh decision holding congressional legislation unconstitutional. Its abrupt overruling a mere 15 months later in Knox-Parker following a change in personnel on the Court, called into question the extent to which judicial decisions could be plausibly regarded as based on law rather than politics. In fact, on the day Hepburn was decided, President Ulysses Grant nominated two justices to the Court, William Strong and Joseph Bradley. Both of these justices voted to reverse the Hepburn decision a year later in the Knox-Parker decision.

The law-politics distinction, first elaborated by the Marshall Court, had been carefully nourished throughout the remainder of the antebellum period, most notably in the development of the doctrine of “political questions.” One could make the same argument for a law-economics distinction. In the Knox-Parker decision, the Court rejected the political, economic and philosophical speculations made in Hepburn which bemoaned the “horrors of unredeemed paper currency” experienced by the Framers. By logical extension, the Court rejects the proposition that it is proper for judges to determine the economic dimensions of monetary policy? Because political questions are controversies that the U.S. Supreme Court has traditionally regarded as nonjusticiable and inappropriate for judicial resolution, they typically require judicial deference to the political branches for resolution.

One must naturally ask why there was such a dramatic shift in the Court’s interpretation of constitutional language. In 1870, the Court declared unconstitutional the congressional action to make greenbacks legal tender and then reversed itself a year later. Was the Hepburn decision the result of naked judicial activism or merely a flawed interpretation of the Constitution? Was the Knox-Parker “do over” the legitimate correction of flawed interpretation, or the result of Grant’s court-packing?

Though current literature does not generally accord landmark status to the Legal Tender Cases, judicial politics took on perhaps a new tone and anticipated in many important respects how the Court was going to deal with Reconstruction politics and post-Reconstruction legal development. 

Legal Tender Cases (1870) Supreme Court decisions: http://caselaw.findlaw.com/us-supreme-court/79/457.html

Kevin Walsh holds a B.A. from University of Illinois at Urbana-Champaign, an M.A. from Eastern Illinois University, and a Ph.D. in Political Science from Southern Illinois University at Carbondale. He is the two time recipient of the Endowed Teaching Chair at Broward College in Fort Lauderdale. He also teaches courses on the presidency, constitutional law, the history of American political thought, and Congress at Florida Atlantic University.

References

Swisher, American, Constitutional Development (2nd ed.). Cambridge: Riverside Press, 1954

Story, Joseph, Commentaries on the Constitution of the United States. Durham: Carolina Academic Press

Kevin Walsh, “The Legal Tender Cases and the Post-Civil War Origins of Modern Constitutional Interpretation,” Dissertation, March 1999.

2 replies
  1. Publius Senex Dassault
    Publius Senex Dassault says:

    Very interesting. I had never heard of the tender cases. Between this essay and a couple of others I read I’ve learned several new things today. Sweet – maybe I’ll take tomorrow off. Nah, I’ll risk a big head and try to learn something tomorrow too. 🙂

    PSD

    Reply
  2. Kevin Walsh
    Kevin Walsh says:

    Sorry for the delayed response. I was out of the country at publication. Yes, the tender cases are relatively obscure, but important. I think the reasoning in Hepburn anticipated much of the judicial activism of the Lochner era and beyond. Today’s activism may also find it’s origins in the reasoning of activist judges during the era of greenbacks.

    Reply

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