The Legal Tender Cases

This article describes the Legal Tender Cases that began during the Civil War so that paper money could be used to finance the war efforts. During this time period, many creditors were upset that they were forced to accept paper money instead of gold and these "greenbacks" were quickly devalued.

The Gold Standard Now

President Lincoln and Treasury Secretary Chase

In January 1861, president-elect Abraham Lincoln invited Ohio Republican Salmon P. Chas, to Springfield, Illinois. Two months later, just as Chase had taken up his seat in the U.S. Senate, Lincoln called Chase into service as his first Secretary of the Treasury.

In the years that followed, Chase and Lincoln had an uneasy relationship. Lincoln trusted Chase on fiscal matters but was frustrated by his personal ambition and unwillingness to compromise. After three rocky years, Chase left Lincoln’s cabinet in June 1864 when after several false attempts at resignation, President Lincoln surprised Chase, accepting his resignation as Treasury Secretary.

Chase wrote to his daughter, Nettie, on July 5, 1864, several days after his resignation as though reporting a minor turn of events. Recorded in a collection of letters entitled Spur Up Your Pegasus between members of the Chase family, he said,

Today my successor Mr. Fessenden took his seat. I am heartily glad to be disconnected from the administration; though a little sorry to miss the opportunity of doing the great work I felt confident I could with God’s blessing. …in short, [I] did what I could to [show] not merely my personal regard for him, but that my interest in the public service and in the welfare of the country is as earnest as it would have been if I had remained myself in office.

In November, Lincoln handily won reelection and shortly thereafter nominated Chase as the Chief Justice of the Supreme Court to replace deceased Chief Justice Roger B. Taney. Chase was confirmed the same day on December 6, 1864. Writing to President Lincoln and recorded in his diary, Chase said of his nomination and confirmation,

I cannot sleep before I thank [you] for this mark of your confidence, and especially for the manner in which the nomination was made. I shall never forget either and trust that you will never repent either. Be assured that I prize your confidence and good will more than nomination or office.

On December 13, 1864, Chase was sworn in as the sixth Chief Justice of the Supreme Court of the United States.

Lincoln, in part, hoped that Chase would help uphold the policies of his administration. However, it was under Chase’s watch—indeed through his leadership on the Court—that greenbacks, bearing his own image, were declared unconstitutional…at least for a short while until three cases known collectively as The Legal Tender Cases played out.

The Legal Tender Cases

At the end of 1861, the United States Treasury suspended payment in gold and silver as an exigency of the Civil War. The Legal Tender Act of 1862 was enacted to issue paper money—so-called “greenbacks”—to finance the Union’s war efforts. This paper currency became legal tender for all debts public and private.However, the newly issued paper currency was quickly devalued in terms of gold. Creditors were upset that they were legally forced to accept greenbacks instead of gold, even if the executed contract included a gold payment clause. Secretary Chase repeatedly tried to intervene in the gold market to prevent further depreciation of the greenbacks but his attempts failed—and many encouraged further depreciation.

Secretary of the Treasury Chase supported the Legal Tender Act as a necessary means of financing the war effort. Nevertheless, Chief Justice Chase would reverse his own opinion of the Act, declaring and maintaining over the remainder of his life that paper money was unconstitutional.

To be fair, Donn Piatt, a journalist of the era, recorded Chase’s reservations of the constitutionality of the Act at the time it was being debated. According to his account, Chase mentioned his concern about the constitutionality of paper money to President Lincoln himself. Chase pointed to Article I, Sections 8 and 10 of the Constitution which banned the states from “emitting bills of credit” and prohibited from making anything but gold and silver coin legal tender. Lincoln replied that it was his job to worry about the Constitution.

On February 6, 1862, the Legal Tender Act was passed by the House with a vote of 93 in favor and 59 opposed. The bill moved to the Senate where Ohio's John Sherman was its leading champion. President Lincoln signed the legislation on February 25.

However, even if the federal government could issue bills for payment of government obligations, it was a separate question as to whether private citizens could be forced to accept these bills for payment. This was the issue specifically at hand in Veazie Bank v. Fenno(1869), in the run up to Hepburn v. Griswold which would become the first of The Legal Tender Cases.

Hepburn v. Griswold 75 U.S. 603 (1870)

The petitioner, Henry A. Griswold, argued that it was unconstitutional under the Fifth Amendment’s due process clause, to have property taken. Griswold made the case that in forcing him to accept worthless greenbacks in place of gold or silver, was, akin to having his property taken and, therefore, the action was unconstitutional. The respondent, Susan P. Hepburn, replied that the notes were perfectly constitutional since they had been declared legal tender for all public and private debts and that the correct amount was being repaid.

In a 4-3 opinion—written by Chief Justice Chase who broke with his own reasoning when he was Secretary of the Treasury—the Court held in Hepburn v. Griswold (1870) that it was a violation of the contract clause to retroactively change contract terms by permitting payment in greenbacks of an obligation incurred in gold dollars since greenbacks were not immediately redeemable for gold.

In a private letter to Edward D. Mansfield written four days after the Supreme Court decision in Hepburn on February 11, 1871, Chief Justice Chase further explained the Court’s majority opinion:

You have seen the opinion of the Court on legal tender in payment of pre[existing] contracts. I knew it would not please paper money men: but I am sure it is right. The constitution does not permit robbery of citizens by citizens as an appropriate means of carrying on war. I thought I could so administer the Treasury as to protect the people against the worst evils of paper money; and I never meant that more than about five hundred millions should be in circulation. After I left the department the 300 millions of National Bank Currency was added to the 400 millions of Greenbacks, without any provision for retiring any part of the latter. Hence the great inflation, which prevented the return to payments in specie when Grant entered Richmond and still prevents [it]. A wise and bold adm[inistration] would have resumed [payment in gold] at that time any how.

Although the Court had ruled, the matter was far from settled.

In December 1869, there were two vacancies on the Court. President Grant nominated Attorney General E. Rockwood Hoar and Edwin Stanton, Lincoln’s Secretary of War. Hoar never made it through the Senate confirmation process due, in large part, to partisan politics of the day. Stanton was confirmed on the same day as his nomination but he died four days later.

Thus, Grant was still left with two vacancies on the Supreme Court. Grant nominated two new candidates—William Strong and Joseph P. Bradley. Allegations of Grant’s court-packing scheme were boundless, casting long shadows over both nominations. The same day of their appointment, February 7, 1870, the Court ruled in Hepburn that the legal tender acts were unconstitutional by a 4-3 vote.

Four days later, Attorney General Hoar sought reversal of the Court’s decision. After a month of arguing about the mental ability of one of the justices to cast his vote, the Court agreed to take up the legal tender matter again during their next term set to begin in October 1870.

Between the fall of 1870 and the spring of 1871, Chief Justice Chase suffered the first in a series of strokes that led to his death on May 7, 1873. Nonetheless, Chase returned to the bench in April 17, 1871, the day prior to hearing new arguments on the legal tender cases.

Knox v. Lee and Parker v. Davis, 79 U.S. 457 (1871)

With the composition of the Court altered with the confirmations of Strong and Bradley, the Court reversed course, overruling its decision in Hepburn. In a 5-4 ruling, the Court upheld the Legal Tender Act as applied to prospective and retroactive debts. Newly-confirmed Justice Strong read the Court’s majority opinion on January 15, 1872. This time, Chase dissented,maintaining his position in Hepburn that paper money was not constitutionally viable for payment of preexisting debts.

In another private letter to Edward D. Mansfield—written five days after the Supreme Court decision in Knox and Parker on April 24, 1871—Chase expounded upon his view of the legal tender issue once more. He wrote,

…the majority of the Judges had determined to reopen the questions adjudicated more than a year ago in the legal tender case [Hepburn], in connection with the still more important question, as I think, whether the Constitution permits Congress to impose upon the Country irredeemable paper money as a standard of value…

I say, for the present at least, for if a decision made by five to three can be reversed by five to four, it may happen that, under a new president, the later decision may be, itself, reversed, and the former one reinstated.

Chase was both right and wrong, as often seemed to have been the case throughout his life. More than a decade would pass before the Court heard another case about legal tender—Julliard v. Greenman (1884). Ultimately, though, it would extend its ruling under Knox rather than reverting to the unconstitutionality of paper money as the Chase Court had found in the first of the legal tender cases, Hepburn.

In Julliard the Court upheld the validity of legal tender laws during peacetime. The majority opinion reasoned that the federal government’s monetary power was inherent in its sovereignty and thus need not be one of the enumerated powers in the Constitution. The dissent by Justice Stephen Field read, in part, “If there be anything in the history of the Constitution which can be declared with moral certainty, it is that the framers of that instrument intended to prohibit the issue of legal tender notes both by the general government and by the States; and thus prevent interference with the contracts of private parties.”

To see original article CLICK HERE

Follow Us

Share Page

Login

Get access to the latest trading information, tools to help your investing, and much more!

Login   Sign Up

Search

Weekly Charts

Current Spot Prices

Gold$1218.05
Silver$17.25
Platinum$1289.00

Special Offers

 
 
© 2012 Swiss America Trading Corp. All Rights Reserved.   |   Privacy Policy   |   Site Map   |   Contact Us   |   Mobile Version
SWISS AMERICA and Logo are trademarks of Swiss America Trading Corp.
Where did you hear about us?
Roger HedgecockRay Lucia
Pat BooneMichael Savage
Bill CunninghamOther
iHeart Radio/Rush Limbaugh
×