By George Warren, Columnist
Today we return to my essay series which will outline my humble opinions on the major decisions made by our multiple government branches that have denigrated our great republic through the years.
I want to discuss paper money, more specifically “fiat money.”
Fiat is the Latin phrase for “it shall be,” meaning paper is money simply because the Federal government says it is.
The Supreme Court case which ruined our money system is termed: Hepburn vs Griswold.
In 1860, Susan P. Hepburn borrowed $1,000 from Henry A. Griswold and signed a promissory note for two years. In 1861, the “War of Northern Aggression” began and President Abraham Lincoln persuaded Congress to pass the “Legal Tender Act” on February 25, 1862.
The reasoning was the Union needed to pay for the War promptly, but had no assets. The Legal Tender Act of 1862 gave the US government the authority to print $150 million in green promissory notes; and further declare that any citizen must accept them in full payment of any debt, thus making it money.
A later Act of 1863 allowed a total of nearly one-half billion dollars in such notes to be issued. The first Act was passed five days before Ms. Hepburn’s debt became due, and she attempted to use $1,000 of US paper dollars to repay her debt.
Wise persons had reservations against this scheme to the point that they would only allow 50 percent of the face as acceptable value. Thus, Ms. Hepburn was realistically trying to repay a $1,000 debt with $500 of value.
Mr. Griswold refused her tender and sued her for repayment in “specie”, gold or silver. If you think about it, the same thing happens today. If you borrow money and pay it back five years later with dollars, you have cheated your creditor out of value, because of inflation.
The nine member Supreme Court had two vacancies at the time, but issued a wise 4-3 majority decision that the US government had only the powers granted to it by the Constitution, and had no authority to issue paper money with no specie backing, or to enact legal tender laws declaring that citizens must accept it as repayment.
Chief Justice Salmon P Chase, who had been the Treasury Secretary under Lincoln when the Legal Tender Act passed, wrote the majority opinion which declared that the congressional authorization of greenbacks as legal tender violated Fifth Amendment guarantees against deprivation of property without due process of law.
In other words, it was unconstitutional. On the day the court decision was announced, a disapproving President Ulysses S Grant appointed two new replacement justices to the high court: Joseph P Bradley and William Strong.
In one of our most shameful acts in Supreme Court history, in the next session, the two new justices sided with the previous minority of three to render a 5-4 decision in Knox vs Lee, that the Federal government had authority to issue paper money and enact legal tender laws, no matter how destructive of contractual obligations.
Justice Stephen J. Field was the most eloquent of the dissenters. He stated, and I concur: “The power to commit violence, perpetrate injustice, take private property by force without compensation to the owner, and compel the receipt of promises to pay in place of money, may be exercised, as it often has been, by irresponsible authority, but it cannot be considered as belonging to a government founded upon law….from the decision of the court I see only evil likely to occur.” Well said, Justice Field.