Jacob G Hornberger at the Future of Freedom Foundation has a well written article detailing Monetary Destruction in America. It’s a bit of a long read, but worth the Constitutional and monetary education.
The Constitution made it crystal clear what the official money of the United States was to be when it called the federal government into existence. That money was to be gold coins and silver coins, not paper money.
Article 1, Section 10, of the Constitution, which is a restriction on the power of the states, states, “No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts….”
What were “bills of credit”? That was the term used at that time for paper money. Through that provision in the Constitution, the Framers expressly prohibited the states from issuing paper money. It prohibited them from making anything but gold coins and silver coins legal tender or official money. It prohibited the states from issuing their own coins, leaving that power and responsibility to the federal government.
With respect to the federal government, Article 1, Section 8, states, “The Congress shall have Power …To coin Money, regulate the value thereof, and of foreign Coin…. To provide for the Punishment of counterfeiting the Securities and current Coin of the United States.”
Why wasn’t there an express prohibition on the power of the federal government to emit “bills of credit” or paper money? The reason is that the Constitution established a government of limited, enumerated powers. The federal government’s powers were limited to those listed in the Constitution. If a power wasn’t enumerated, it couldn’t be exercised. Since there was no power to issue paper money given to the federal government, it couldn’t exercise such power.
It was different with the states. Under the Constitution, they were to have whatever powers they wished to exercise, unless there was an express restriction on a particular power within the Constitution. That was why the Framers deemed it necessary to restrict the powers of the states when it came to money: no printing of paper money, no coining of money, and no making anything but gold coins and silver coins official money.
The federal government, on the other hand, was given the power to coin money, not print money, and to regulate the value of such money. It was also given the power to punish people for counterfeiting “the Securities and current Coin of the United States.”
Article 1, Section 8 of the Constitution also gave Congress the power “To borrow Money on the credit of the United States.” That’s what counterfeiting “the Securities” of the Constitution was referring to — debt instruments of the United States, such as bills, notes, and bonds.
There is something important to realize about the federal government’s debt instruments: It was understood that they were not money or “legal tender” but rather promises to pay money — i.e., promises to pay gold coins and silver coins.
When we consider all of these constitutional provisions, it is easy to see that the Framers intended to establish a monetary system in which gold coins and silver coins were to be the official money of the United States. And, in fact, that is precisely what happened after the federal government was called into existence. The Coinage Act of 1792 established the first mint in Philadelphia for the purpose of issuing coins. The silver dollar was the first unit of money issued. That would be followed by the silver half-dollar, quarter-dollar, dime, and half-dime. Gold coins consisted of the $10 gold Eagle, $5 Half-Eagle, and $2.50 Quarter-Eagle.
That gold-coin, silver-coin system remained the monetary system of the United States for more than 125 years. It turned out to be the most stable monetary system in history, one that, along with no income taxation, no welfare state, no warfare state, no immigration controls, and very few economic regulations, played an important role in the tremendous rise in economic prosperity and rising standards of living in the United States throughout the 19th and early 20th centuries.
It is often said that America’s “gold standard” was a system in which paper money was “backed by gold.” Nothing could be further from the truth. There was no paper money. There were only debt instruments promising to pay gold and silver. The system was one in which gold coins and silver coins were the official money of the United States.
Why did our American ancestors have such a deep antipathy toward paper money? They knew that throughout history public officials had plundered and looted people through the use of paper money. To finance their ever-burgeoning expenses, public officials, of course, would first resort to tax increases. At some point, however, taxes would get so high that people would begin to resist, cheat, or, in extreme cases, violently revolt. That’s when kings and other regimes would resort to the printing press to finance their expenditures. They would simply crank up their printing presses, print whatever amount of money they needed, and go spend it.
The result would be a devaluation of everyone’s else’s money…(continues)