The nickel is getting close or may already be an exception.
Defining the contemporary money supply is always a controversial problem. Fortunately,
it is not one that needs to be addressed in order to analyze the constitutionality of America’smoney. One workable definition is theTrue Money Supply. This is what I have in mind for themoney of the United States that is current and denominated in dollars. Gold and silver are theconstitutional money, but they are not current.Part 8 describes the structure of the FRS. The FRS doesn’t comprise the entire banking
system, but it’s a very important part and the part we are considering.the coins have been less than the nominal values. If a coin has lower market or “intrinsic” value
against the constitutional silver standard than its nominal value, then its legal tender qualityshould be correspondingly reduced. Congress did this in the Coinage Acts of 1853 and 1879,following a pre-Constitutional common-law tradition. The Coinage Act of 1965 departed fromthis principle. Secondly, to be legal tender at all, the Constitution explicitly requires coins to begold or silver. Third, the Treasury does not exchange clad coins for gold or silver. It couldn’twithout losing on such exchanges. This is because Congress has not properly regulated the valuesof the coins as the Constitution instructs it to do.
Unconstitutionality of Federal Reserve Notes (FRNs)
The money we use daily (or that is current or currency) is mostly hand-to-hand printed FederalReserve Notes (FRNs) and bank deposit liabilities such as demand deposits that are convertibleinto FRNs. These may be lumped together for simplicity because they are highly interconvertible.Call them simply FRNs.
FRNs and the slug coins are unconstitutional. Since most of themoney is FRNs, we consider that in depth.
To grasp the reasons for the unconstitutionality of the
and the separate reasons why the
is unconstitutional, we need to consider FRNs by themselves and the bankingsystem by itself. We need to abstract from the workings or structure of the Federal ReserveSystem (FRS), which is the banking system part. An easy way to make that separation is to think
about greenbacks, which were the legal-tender notes that the United States Treasury issued in theCivil War. Then there is no banking system to confuse matters. There is no Federal Reserve.Instead of the term greenbacks, I use their longer name, which is United States Notes. I call theseUSNs. Let us suppose that the United States issues United States Notes (USNs). Assume thatthey have many of the same properties that today’s FRNs possess, including mainly that they are
in precious metal and that they are
. The Treasury prints today’sFRNs and sends them on to the Federal reserve. It could just as easily print USNs and place theminto circulation. The USNs are printing-press money.Most everything we will say about USNs holds for FRNs. The FRNs are, in important respects,the same as USNs, except that they are controlled by the Federal Reserve, whereas the Treasurycontrols USNs. The similarity was recognized by Rep. Hollister in 1935 in a speech to the House