In 1821, the State of Missouri enacted legislation entitled, “An act for the establishment of loan offices,” which permitted the Missouri Treasurer to issue loan certificates – a form of paper currency issued by the state – up to a total of $200,000. The Missouri Supreme Court found the loans to be valid, and the appellants submitted a writ of error to the United States Supreme Court. Missouri Senator Thomas Hart Benton argued the Missouri law was a valid exercise of state sovereignty and also urged the Supreme Court to declare unconstitutional Section 25 of the Judiciary Act of 1789, the putative basis for the Supreme Court’s jurisdiction over the case. The Court decided both issues.
Background of the Case and the Controversy
Under the 1821 Missouri law, loan certificates were issued to those who promised to repay the state and were receivable at the treasury of any loan office created under the law. The underlying action was filed against Hiram Craig and others, who had made a promissory note in County of Chariton in exchange for the loan certificates. The defendants did not repay the state, and the state sued for collection. The defendants challenged the state’s ability to issue loan certificates as a violation of Article I, Section 10, of the United States Constitution, which provides that “No State shall…emit Bills of Credit.” Missouri argued that the loan certificates were not “Bills of Credit” and the Missouri Supreme Court found for the state. The defendants in the Missouri action appealed on a writ of error, pursuant to Section 25 of the Judiciary Act of 1789, which provided:
That a final judgment or decree in any suit, in the highest court of law or equity of a State in which a decision in the suit could be had, where is drawn in … the validity of a statute of, or an authority exercised under any State, on the ground of their being repugnant to the constitution, treaties or laws of the United States, and the decision is in favour of such their validity, …may be re-examined and reversed or affirmed in the Supreme Court of the United States upon a writ of error.
The Supreme Court Decision
Senator Benton argued to the Court that Missouri had authority to issue the loan certificates on the basis of state sovereignty and also that Section 25 of the Judiciary Act of 1789 was unconstitutional, a position he and others in Congress had asserted supporting their argument for the section’s repeal. The Supreme Court held, by a 4-3 majority, that the Court had jurisdiction under Section 25 of the Judiciary Act, rejecting Benton’s argument. Chief Justice John Marshall, writing for the majority, further found that the Court had no discretion, citing Cohens v. Virginia (1821).
Justice Marshall next examined the drafters’ intent in prohibiting any state from being able to “emit bills of credit,” finding:
To ‘emit bills of credit’ conveys to the mind the idea of issuing paper intended to circulate through the community for its ordinary purposes, as money, which paper is redeemable at a future day. This is the sense in which the terms have always been understood.
Marshall then recited the colonial history and considered the prohibitions on states issuing paper money throughout our nation’s history, concluding that the Missouri statute was unconstitutional as a violation of Article I, Section 10’s ban on states emitting bills of credit.
Justices William Johnson, Smith Thompson, and John McLean each dissented, based on their reading of the state statute, finding that there was enough latitude so that the loan certificates did not violate the “bills of credit” prohibitions. For example, Justice Thompson discussed the history of the challenges presented by depreciated currency during the early days of the United States, but concluded that the intention of the Constitution crafters was so broad that the prohibition would extend to
“a paper circulating medium of every description, and thereby render illegal the issuing of all bank notes by or under the authority of the states, will not, I presume, be contended for by anyone.”
In the early days of the Marshall Court, the opinions often were unanimous, and there was strong comity among the justices. Toward the end of his tenure as Chief Justice, the Court more often was divided. In Craig, of the three dissenting justices, only Johnson had been on the Court for an extended period before Craig was decided. Thompson joined the Court in 1823 and Mclean in 1829.
The Craig decision was a landmark one because the Court addressed the inability of states to issue their own currency. The dissenters would be vindicated seven years later, when Chief Justice Marshall was replaced by Roger B. Taney, in the case, Briscoe v. Bank of Kentucky (1837), which held that another state’s bank’s notes were not a violation of the “Bills of Credit” prohibition. While McLean writing for the Court asserted that nothing in Craig was inconsistent with Briscoe, and distinguished the cases because in Craig the state gave its pledge for repayment and in Briscoe the state made no such backing, the difference in the Court’s makeup was a major factor in the change in views of states’ rights. In addition, Justice Baldwin switched from dissent in Craig to majority in Briscoe, based on the difference in state’s backing in each case.
Craig v. Missouri (1830) Supreme Court decision 4-3:
Dan Cotter is a Partner at Butler Rubin Saltarelli & Boyd LLP and an Adjunct Professor at The John Marshall Law School, where he teaches SCOTUS Judicial Biographies. He is also a Past President of The Chicago Bar Association. The article contains his opinions and is not to be attributed to Butler Rubin or any of its clients, The Chicago Bar Association, or John Marshall.