Is paper money unconstitutional?

[David S]

Yes, paper money is technically unconstitutional. There is a distinction between "coining money" (issuing money backed by a metal) and "emitting bills of credit" (issuing paper money). The Constitution explicitly recognizes this distinction: Article I, Section 10 provides: "No State shall ... coin Money [or] emit Bills of Credit." The powers of Congress include the power to "coin Money"; however, they do not include the power to "emit Bills of Credit." The federal government only possesses those powers that have actually been enumerated; thus, issuance of paper money is unconstitutional.

The original draft of the Constitution included a clause authorizing the emission of bills of credit. However, this clause was removed from the Constitution, specifically because the Framers wanted to prevent paper money from being issued, as the following excerpt from James Madison's notes indicates:

"Mr. Govr. MORRIS moved to strike out 'and emit bills on the credit of the U. States' ...

"Mr. ELSEWORTH thought this a favorable moment to shut and bar the door against paper money The mischiefs of the various experiments which had been made, were now fresh in the public mind and had excited the disgust of all the respectable part of America. By witholding the power from the new Governt. more friends of influence would be gained to it than by almost any thing else. Paper money can in no case be necessary. Give the Government credit, and other resources will offer. The power may do harm, never good.

"Mr. RANDOLPH, notwithstanding his antipathy to paper money, could not agree to strike out the words, as he could not foresee all the occasions which might arise.

"Mr. WILSON. It will have a most salutary influence on the credit of the U. States to remove the possibility of paper money. This expedient can never succeed whilst its mischiefs are remembered, and as long as it can be resorted to, it will be a bar to other resources.

"Mr. BUTLER. remarked that paper was a legal tender in no Country in Europe. He was urgent for disarming the Government of such a power."

When the Framers struck out the clause authorizing the emission of bills of credit, they clearly believed that they were prohibiting paper money.

And, yes, Feds are private, not parts of the U.S. government at all, but owned by member banks. Ownly the Fed Board in DC is a part of the government, and that one, I think, does not issue paper money.

If the Federal Reserve Notes were nothing more than pieces of paper issued by private banks, then you would be correct: there is no constitutional problem. However, the problem is that the Coinage Act of 1965 makes Federal Reserve Notes legal tender. In the words of Daniel Webster: "As Congress has no power granted to it in this respect but to coin money ... it clearly has no power to substitute paper or anything else for coin as a [legal] tender."

Incidentally, the Supreme Court found paper money constitutional in Julliard v. Greenman (1884). It is, of course, highly unlikely that it will consider any case challenging this precedent.

Very nice research job Emsworth.