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The Power to Borrow Money


"All the perplexities, confusion and distresses in America arise not from defects in the constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation." [1]


The Constitution

Modern day society considers dollar bills to be money. Most of us refer to this paper money as cash, which comes in various multiples of the one dollar bill. The Uniform Commercial Code and the U.S. Code were cited in the first chapter as current references on money and currency.

But what about the Constitution, what does it say about money and the dollar? Do the Constitution, the Uniform Commercial Code, and the United States Code have the same definition of money? If any of these documents differ from one another, which one is correct, and do any of them take precedent over the others?

Article VI of the Constitution states:

"This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding." [2]

The Supreme Court has ruled that all laws must be in pursuance of the Constitution, or they are null and void, as if they had never been passed. They have no binding or lawful authority.

"An unconstitutional act is not a law; it confers no rights; it imposes no duties; it affords no protection; it creates no office; it is in legal contemplation as inoperative as though it had never been passed." [3]

Consequently, all laws concerning money must be in pursuance of the Constitution or they are null and void. In other words, the Constitution takes precedent over the laws of the United States:

"In declaring what shall be the supreme law of the land, the Constitution itself is first mentioned; and not the laws of the United States generally, but those only which shall be made in pursuance of the Constitution, have that rank." [4]

Thus the Constitution has precedent over the laws of the United States, the Congress that makes them, the President who enforces them, and the Supreme Court that renders decisions on them.

"Judicial power, as contradistinguished from the power of the laws, has no existence. Courts are the mere instruments of the law, and can will nothing." [5]


The First Monetary Clause

The quote at the top of the page by John Adams was quite prescient, as not only did it sum up the then current state of monetary affairs, but it is just as applicable today, two hundred plus years later.

Monetary theory and practice has not progressed since pre-Colonial times. If anything, U.S. monetary policy has regressed from a sound system of gold and silver coin, to today's paper money that is drowning the world in an ocean of credit and debt.

To throw some light on the nature of coin, credit, and circulation, we turn to the one true authority on such issues - the U.S. Constitution.

The first clause in the Constitution that directly addresses money is Article I, Section 8, Clause 2:

"The Congress shall have Power... to borrow Money on the credit of the United States." [6]

For ease of discussion as to what the clause says, the following sub-divisions are offered:

  • The power to borrow money

  • On the credit of the United States

  • The prohibition to levy forced loans

  • The form of the money to be borrowed and repaid


The Power To Borrow Money

The power to borrow money means that the government can take out loans. The loans are debt obligations and must be repaid. An example of the government's power to borrow is the sale of U.S. Treasury Bonds.

The power to borrow money is not the same as the power to issue money, to create money, or to loan money. All that is meant is what is written: the power to borrow. The clause is limited to the single act of borrowing.


On The Credit of the United States

The offer and acceptance of a loan on the credit of the United States sounds simple enough. There are, however, subtle issues involved.

When credit is extended, both parties trust that the other side will uphold their end of the bargain. The word credit comes from credere, which means to believe in or to have faith.

When one loans money to another, one has faith the other party will pay the loan back, as agreed upon, according to the terms of the agreement. The transaction is a contract between the lender and the borrower, entered into voluntarilybased on faith and credit.


The Prohibition to Levy Forced Loans

Congress was granted the power to borrow money on the credit of the United States. The loan that extends credit must be voluntary. The creditor cannot be forced into extending credit.

If a loan is not voluntary, it has not been borrowed on the credit of the U.S. Instead, it has been had by coercion. If force is used, it means the U.S. doesn't have any credit; otherwise coercive action would not be needed.

Free men are not forced into any type of behavior. The government's purpose is to serve the people - not to force them into debt servitude.

"We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America." [7]

The Constitution grants certain powers to the government in order to fulfill the purposes outlined in the pre-amble above. We the People ordained and established the Constitution.

We The People created the government and established it through the Declaration of Independence and the United States Constitution. The people are sovereign. All power flows from the people: for the people, by the people - and of the people.


Form of Money Borrowed

Congress was granted the power to borrow money that must be repaid. The question naturally arises: what exactly does the word money refer to or mean?

Since the power to borrow money is granted by the Constitution, the same document should be used as the authority for the definition, form, and function of money.

The following two clauses state what constitutes money. Article I, Section 8, Clause 5, and in Article I, Section 10, Clause 1.

  • "Article I, Section 8, Clause 5: The Congress shall have Power... to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures." [8]

  • "Article I, Section 10, Clause 1: No State shall... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt." [9]

In the above two clauses, the Constitution states that Congress was granted the power to coin money, and that only gold and silver coins are acceptable, as tender in payment of debt.

These clauses will be discussed in detail in upcoming chapters. Suffice it to say that constitutional money is gold and silver coin. Thus any loans taken out by the government must be paid back in gold and silver coin - the only form of money the Constitution allows.

Furthermore, powers not granted by the Constitution are as important as the powers granted. If a power is not granted, it is retained by the States and by We The People.

The Bill of Rights was very precise on this issue:

  • "IX - Rule of Construction of Constitution: The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people." [10]

  • "X - Rights of the States under Constitution: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." [11]


Delegation of Powers

Powers granted by the Constitution can not change without a constitutional amendment. Powers not granted to Congress are reserved for the States respectively, or to We The People.

Congress was granted the power to borrow money on the credit of the United States, and all contractual obligations between a creditor and a borrower must be entered into voluntarily by both parties.

Congress was granted the power to coin gold and silver as money, and no bills of credit are to be accepted in payment of debt between the state and other parties. This is in stark contrast to today's use of paper money known as Federal Reserve Notes, which are bills of credit not authorized by the Constitution.

A creditable argument can thus be made that Federal Reserve Notes are not in pursuance of the Constitution, and are therefore unconstitutional and unlawful.

Further to the above, if Congress was granted the power to create and issue money, why would it need the power to borrow money, as stipulated in Article I, Section 8, Clause 2?

Why borrow money and pay interest on it, if you can create all the money you want? It doesn't make sense does it? Both Congress and the Federal Reserve should be taken to task to answer this question.


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Notes:
1. Chapter Heading John Adams in a letter to Thomas Jefferson
2. Article VI of the Constitution (in part):
3. U.S. Supreme Court Norton v. Shelby County, 118 U.S. 425 (1886)
4. U.S. Marbury versus Madison (1803).
5. Osborn vs. Bank of the U.S. 22 U.S. (9 Wheaton) (1824)
6. U.S. Constitution - "Article I, Section 8, Clause 2.
7. Pre-amble of the U.S. Constitution:
8. U.S. Constitution - Article I, Section 8, Clause 5
9. U.S. Constitution - Article I, Section 10, Clause 1
10. Bill of Rights - IX - Rule of Construction of Constitution
11. Bill of Rights - X - Rights of the States under Constitution

 

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