Amidst the tempest produced among politicians and the mainstream press over the Obama administration’s decision to replace Andrew Jackson with Harriet Tubman on the $20 bill, no one bothers to ask some very simple questions: Why does the $20 bill say: “Federal Reserve Note” on it? Doesn’t the term “note” connote a promissory note, which entails a promise to pay something? What exactly is the $20 “Federal Reserve Note” promising to pay? How and when is the promise fulfilled? When does the note come due? Can holders of the $20 bill demand to be paid now? If not, when?
The answers to those questions are rooted in the monetary system that was originally established for the United States under the U.S. Constitution and in the abandonment of that system during the Franklin Roosevelt administration.
Under the original system, the official money of the United States consisted of gold coins and silver coins. The Framers wanted it that way because they knew what public officials historically did with paper money — they inflate its quantity in order to finance ever-growing government expenditures. After the hyperinflation of the Continental Currency in the Revolutionary War, and knowing about similar experiences in history, the last thing our American ancestors wanted was a system of paper money for the United States.
The Constitution — the document that called into existence the federal government — established the official monetary system within the federal government framework. That monetary system was based on gold coins and silver coins being the official money of the American people.
We know this for two reasons: The wording in the Constitution itself and by the fact that the U.S. government began minting gold coins and silver coins soon after it was called into existence.
The Constitution called into existence a government of limited, enumerated powers. If a power wasn’t enumerated, it could not be exercised. Therefore, to determine whether the federal government is authorized to exercise a particular power, the appropriate course of action is to examine the document to see if a particular power is authorized.
It’s different with the states. Under the Constitution, the states were authorized to exercise whatever powers they wanted unless such powers were expressly prohibited in the Constitution (or unless they were prohibited by the state’s constitution).
Thus, the inquiry on the constitutionality of state powers is different than it is with federal powers. For state powers, one searches the document to see if there is a prohibition on it, while with federal powers one searches the document to see if there is an express authorization of it.
The Constitution expressly forbade the state governments from making anything but gold coins and silver coins “legal tender” or official money. The states were also expressly prohibited from issuing paper money or, as the Constitution put, emitting bills of credit.
The Constitution also failed to delegate a power to issue paper money (or emit bills of credit) to the federal government. The express federal power that was enumerated was the power to “coin money.”
The Constitution also delegated to the federal government the power to borrow money. When the government exercised that power, it would issue notes — notes that promised to pay people a certain amount in gold coins or silver coins. Everyone understood that the notes were promises to pay money, not money itself. The official money of the American people consisted of the gold coins and silver coins that the U.S. government was minting and entering into circulation.
Everything changed during the presidential administration of Franklin D. Roosevelt, who used the Great Depression as the excuse for nationalizing everyone’s gold coins, much as communist countries would nationalize people’s homes and businesses. Every American was ordered to turn in his gold holdings to the federal government, on pain of fine and imprisonment for a felony on failing to do so. Imagine that: going to jail for owning what had been the official money of the United States for some 150 years.
At the same time, U.S. officials decreed that the federal notes that promised to pay gold coins and silver coins would henceforth be the official money of the United States, notwithstanding the fact that they would continue to be called “notes” and effectively promise to pay nothing.
One of the most interesting aspects to all this is how Roosevelt and his cronies were able to permanently alter America’s monetary system based on an economic crisis that would inevitably be temporary in nature. After all, the purpose of the Constitution was to set forth a particular type of government and a particular type of monetary system. If people wanted to change the nature of the government or the monetary system, the Constitution provided a way to do that — by securing an amendment to the Constitution. The Constitution did not permit the government or the monetary system to be changed by presidential decree or legislative law, not temporarily and certainly not permanently.
Yet, that is precisely what Roosevelt did — he brought about a permanent, revolutionary change in America’s monetary system, and he did it without the constitutionally required constitutional amendment.
Even though gold coins were removed from circulation as a result of Roosevelt’s revolution, silver coins continued to freely circulate. However, as the government printed up ever-increasing amounts of paper money over the decades to fund the ever-growing expenditures of the welfare-warfare state way of life that Roosevelt’s revolution also brought to America, silver coins were ultimately driven out of circulation owing to their high value relative to the federal government’s ever-increasing quantity of paper bills and notes.
And so it is that today we have a monetary system of paper money, which was never intended to be the official money of the United States. In a bitterly ironic way, the verbiage on the paper money — “Federal Reserve Note” — serves as a constant reminder to the American people that a paper-money system was not what America was founded on. It also serves to remind us of how our monetary system was changed in a very fundamental way without even the semblance of a constitutional amendment.
Tubman or Jackson? Who cares? We’re talking about notes, not real money and certainly not the money that the Constitution established for America.