Americans Like Fighting About Money
August 20, 2008
No, the fight isn't always about how to spend money, but about what the nature of money itself is. That historical idea came to mind when I was at the American Numismatic Association convention. I talked to all sorts of people about all sorts of topics.
One fellow I have known for years wanted to talk about the gold standard. He almost seemed to want to fight about it. He declared paper money was unconstitutional. He cited what he said was the constitutional language that says only gold and silver are legal tender.
I couldn't resist pointing out to him that the Supreme Court said that paper money was legal in 1870. That court case was a whopper. It was also historically interesting for people who like to know the rest of the story.
The founder of the modern American system of paper money was Salmon P. Chase. He was the Treasury secretary for Abraham Lincoln and the North. He was desperate for money. Like the South, he was forced to issue unbacked paper money called Demand Notes to finance the war.
Chase was nothing if not creative. Not only did he issue Demand Notes, but he figured out a new way of war financing that ran circles around anything ever done by the United States before. He created the National Banking System. Chartered national banks could issue their own paper money, but it had to be backed by federal government bonds. What were these bonds? Why they were debt to finance the war.
The new system worked. The North got the money. The North won the war. But in the meantime, Chase was appointed Chief Justice of the U.S. Supreme Court. During the Grant administration, a imminent court ruling could declare what Chase had done constitutional or unconstitutional.
Perhaps oddly, Chase was on the side of calling it unconstitutional. Grant leaned the other way. A vacancy on the court was filled with a "sound" paper money man and the decision went 5-4 in favor of paper.
We've had it ever since and we've been fighting about it ever since as the booth visitor demonstrates.
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