Last edited Thu Jun 25, 2015, 11:10 PM - Edit history (1)
Thus the Federal Government can declare anything it wants to be money AND the states have to accept it. See Article 1, section 8:
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
http://www.archives.gov/exhibits/charters/constitution_transcript.html
Notice the Federal Government has the RIGHT to coin money and regulate the value of Money. The Courts have long ruled that the term "Coin" includes printing money for that had been done during the Revolution and while states are forbidden to do so, se Atricle 1, Section 10:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
Notice that STATES are forbidden to make anything but gold and silver coin as legal tender, the Federal Government has no such restriction. i.e The Federal Government CAN make anything it wants Legal Tender.
Now, this restriction has been worked around by states in the past. For Example various local government issued paper to its employees during the Great Depression with a promise that such paper would be accepted for payment of taxes. That was clearly issuing non gold or silver money, but these local governments got away with it for the Federal Government did not want to cause further problems in that state during the Great Depression.
http://www.ebhsoc.org/journal/index.php/journal/article/viewFile/6/6
http://www.wsj.com/articles/SB124846739587579877
It is Constitutional for Private companies can issue paper money, but it is also illegal. i.e the US Constitution does NOT forbid private people from issuing money, but the Federal Government, using its power to regulate money, has made such practice illegal.
Thus Texas can NOT "Coin" money, but it can permit private people to do so if the Federal Government did not make such private minting illegal.
Please note the term "Bills of Credit" was the term used in the late 1700s to mean paper money. Pennsylvania had successfully used paper money from the 1740s till England outlawed it in the 1760s (Franklin called that act the single biggest act that lead to the Revolution). Pennsylvania issued "Bills of Credit" that could later be used to pay taxes. This ability to pay taxes with these "Bills of Credit" made them valuable to common Pennsylvanians given gold and silver coins were hard to come by in the Colonies. Thus the "Bills of Credit" filled in the role of Money till there were outlawed.
Ben Franklin wanted to preserve the ability of the Federal Government to issue such "Bills of Credit" but agreed to forbid the States from doing so on the grounds if the States did so, you could NOT have a uniform currency for all of the United States (That had been a problem during the Revolution, Congress AND every state issued "Bills of Credit" but due the length of the war, the value of the currency fell for each state only wanted its our "Bills of Credits" used to pay taxes due, not any issued by other states OR the Federal Government).
Starting in the 1830s, the State worked around this restriction by have banks issue the paper money as private money and then accepted those private money for payment of taxes. The problem with that system, is each city had its own currency, and if you moved from one city to another you had to find out what currency was used in that other city. On top of this many of these banks decided to NOT honor the money they had printed, or if they did honor them (i.e. accept them in payment) only gave you 50 cents on the dollar. They were shops in all major cities with lists of how much each banks currency was worth, you went to these shops to exchange your money for hopefully better money. It was a problem for anyone moving from city to city. This continued till the Civil War, when Congress decided to issue its own paper money, that money slowly drove out the rest for it could be used anywhere in the US (even in the South). This paper money was discounted against gold and silver, but after 1861 no one saw Gold or Silver Coins (You had paper money issued as low as 3 Cents, for stamps were used as currency during that time period and the 3 cent paper money was designed to replace stamps that some people were using as currency).
After the Civil War, most of the Paper money was slowly withdrawn, but not till the 1870s. As late as 1869 the Federal Government decided to issue the Nickel to replace the Half dime, for the Nickel was mostly copper with 5% nickel, the half dime was 90% silver and as such was being hoarded during that time period. After the Nickel was issued the price of Silver stated to decline in terms of Gold, In 1857 a Silver Dollar had just a little less then $1 dollar in Silver in it. By 1897, the value of that Silver, in terms of Gold, was 55 cents. The Silver content had remained the same, but its value in term of Gold had dropped that much in those 40 years (and this was the reason for the "Free Silver" Campaign of the 1880s and 1890s, Silver dollar coins would have meant inflation to off set the deflation the US had been going through since the 1870s, a deflation driven by a desire to keep the Dollar price high in terms of Gold (i.e. A Dollar was defined as $20 to an ounce of gold, and Congress spend all types of money to keep it at that level, "Free Silver" was an effort to undo that valuation, a valuation most modern economists blame for the Depression the US was in from about 1973 till 1898.
Side note: Free Silver died out as an issue by 1900. The reason for this was Gold had been found in Alaska, South Africa and Australia. The result of all of this new Gold was "Gold Inflation", in terms of gold, prices started to drop, which was the inflation the Free Silver people had been effectively (while saying they were not) advocating for since the 1870s.
Thus by 1900 Gold started to drop. It increased in value in 1914 as every European Country dropped the Gold Standard. Britain tried to return to the Gold Standard in 1926, but even Churchill commented that that move was one of the leading cause of the Great Depression. FDR reduced the value of the US Dollar to $35 an ounce in 1934, and the US kept that till 1971 when Nixon had a choice, the US had the money to fight the war in Vietnam OR kept the dollar at $35 an ounce. The US did not have the money to do both. Since Nixon did not want to end the war in Vietnam, he floated the Dollar, thus there is no legal relationship between the Dollar and gold to this day.
Thus we started with the constitutional provision restricting what states can do, went through a brief history of money in the US since 1787 and ended up with today's dollar, floating in value to both both and all other currencies.
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