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Honest Money Part IV: Treasury Notes

This commentary was originally posted at www.financialsense.com on 1st November 2004.


Article I, Section 8, Clause 2 of the Constitution grants Congress the power "to borrow money". During several occasions in the 1800s, Congress used the power to borrow money by issuing Treasury Notes, which were paper claims of public indebtedness.

In keeping with the constitutional mandate against "emitting bills of credit", all but one series of Treasury Notes, until the Civil War, were issued accordingly: without creating any type of paper currency with legal tender authorization.

The Civil War changed, however, what had been up until that time, a faithful record of Congress in regards to the power to "borrow money". This change left the door open for the moneychangers to enter into the temple, and disgrace the hallowed halls.

The elite collectivists had their paws all over private banking, but now they were after bigger game: the control of the government's note issue as well, as this would give them even more leverage to perpetuate the servitude of the People, using the chains of national bonded debt.

But they are a most patient group; decades are insignificant in their quest for power, extending their dominion and rule over nations and continents for centuries to come. They respect no bounds and accept few rules - such are the masters of the universe, at least as perceived within the limited confines of their own minds.


The War of 1812 gave cause for the first issue of Treasury Notes, at least the first significant amount. From 1812 to 1814 Congress emitted four series of notes, basically all with the same stipulations.

The Treasury Notes were designed not to circulate as currency. The following short synopsis of the basic provisions illustrates this point most clearly:

  • The notes could be issued only to persons who " may choose" to receive them.
  • The notes paid interest (which makes them almost impossible to circulate as currency).
  • The notes were not payable to bearer, but had to be transferred by endorsement only.
  • The notes could not be reissued.

This was all in keeping with the Constitution. Further proof that to do otherwise would be straying from the Constitution, is a resolution placed before the House in 1814, which stated: "the Treasury notes which may be issued... shall be a legal tender in all debts due". The resolution was voted down 95 to 42. It seems that some Congressmen understood the Constitution.


Congress parted from the path of the Constitution with the note issue of 1815, which included the provision that certain denominations of notes (less than $100) were payable to the bearer; transferable by mere delivery; paid no interest; and could be reissued. The question of the notes constitutionality was never raised, although a later series in 1844, based on the same provisions, was ruled to be unconstitutional.


The provisions of the resolution of 1816 provides clear evidence that Congress was fully aware of the difference between bills of credit and legal currency; and that it did not consider that Treasury Notes were legal currency - let alone a constitutional form of money. As stated in the Resolution:

"...that the Secretary of the Treasury be required and directed to adopt measures to cause all duties, taxes, debts, or sums of money, accruing or becoming payable to the United States, to be collected and paid in the legal currency of the United States, or treasury notes, or notes of the bank of the United States, or in notes of the bank of the United States, or in notes of banks which are payable and paid on demand in the said legal currency of the United States."

Clearly evident from the above wording, legal currency was distinctly set off from treasury notes by the use of the word "or". Also included as distinct from legal currency by the self-same use of the word "or", were notes of the bank of the United States, and "in" notes of the bank of the United States.

So what was the legal currency of the United States referenced in the resolution? According to the detailed listing of the several non-legal forms of currency, by process of elimination - silver and gold coin were the only candidates left standing as legal currency: a most clandestine declaration and testimony to Honest Money.

In 1817, Congress decided to repeal all authority to issue Treasury Notes. The rights of individuals that held pre-existing notes were kept intact. The next issue would not occur for twenty years.


The various note issues of this period were very similar to the earlier ones, in regards to their adherence to the Constitutional power to "borrow money", as distinct from the express prohibition not to emit bills of credit that could circulate as legal tender currency. One slight exception was that some of the bills could be reissued under limited circumstances.

Providing more proof that Congress was very aware that only silver and gold were legal tender, as opposed to any type of paper money, was the following wording in the general appropriations acts of 1834 and 1835:

"Nothing herein contained shall be construed to make any thing but gold and silver a tender in payment, of any debt due from the United States to individuals."


The Treasury Notes of 1843-1844 were the most significant of all. Congress declared that certain new notes, that were to be issued to redeem outstanding notes, that were presently paying interest above the then current market rate of interest, were "payable in coin at par on presentation."

The House of Representatives rightly questioned the constitutionality of these Notes. The Ways and Means Committee investigated the issue, including questioning and receiving the written opinion of the Secretary of the Treasury, on his reasoning behind the provision under review.

After a very thorough investigation, the committee clearly expressed that the power to borrow was distinct from any possible or supposed power to emit bills of credit. The committee also correctly established, that although bills of credit were unconstitutional, this prohibition did not prevent Congress from issuing "paper" (i.e. constitutional treasury notes), if the "paper" issued was only written evidence of the loan - not a medium of exchange intended to circulate as legal tender currency.

The above ruling was one of the more enlightened and clear-headed moments of our elected officials. Today's monetary officials would do well to emulate such financial understanding and patriotic valor.


The last three series of Treasury Notes prior to the Civil War were in accordance with the standard constitutional format, including the various provisions that precluded them from circulating as a legal tender medium of exchange or paper currency.


As we have seen, in all of the many issuances of Treasury Notes from 1812 through 1860, Congress faithfully followed the letter of the Constitution in regards to the power to borrow money per Article I, Section 8, Clause 2 on all but two occasions: the first being the 1815 issue and the second being the 1844 series.

However, the rejection in 1844 by the House of Representatives of the provision "payable to bearer", including a House Resolution stating that such legislation was unconstitutional, and beyond the authorized power to "borrow money" - illustrated that Congress was clearly aware that the power to coin silver and gold as money, was explicitly distinct from the power to borrow money. And furthermore, that the power to borrow money did not include the power to emit bills of credit.


The devastation of the Civil War had the dreaded affect of changing Congress' tradition of following the hard-money standard of our constitutional heritage: by issuing paper currency, although originally purported to be redeemable in specie, redemption in gold and silver was suspended until 1879.

The seeds were sown for the future plague of paper fiat and fractional reserve lending, evil twins that gave birth to a pestilence of wealth transference, by monetizing government debt and circulating it as legal tender currency. Such is the scourge of present day monetary policy.

In 1861, Congress tried to raise a 10 million dollar loan by issuing interest paying Treasury Notes to pay the costs of war. In its basic premises, these Notes were not constitutionally much different from preceding issues.

However, soon there followed Treasury Notes that were not only interest bearing; but notes that did not pay interest, and were payable on demand. These Notes were no different than the Treasury Notes of 1844 that Congress refused to accept for being unconstitutional. Precedent had now been set for the Greenbacks to come, and come they did.

The Secretary of the Treasury, Salmon Chase, attempted the first large funding for the war in 1861, by floating a $150 million dollar bond issue to the nation's leading banks. The bonds were supposed to be backed by specie, but the banks did not have the gold and silver on deposit. Once again, the banks suspended redemption in specie. The Treasury quickly followed suit on its Notes.

The allowance of irredeemable currency provided the excuse for the Legal Tender Act of 1862: authorizing Congress to issue $150 million in new Treasury Notes - called Greenbacks. The Greenbacks were made legal tender for all debts, both public and private. The one "redeeming" quality was that the interest on the notes was to be paid in specie.

Originally the Treasury said that this would be a one time occurrence; however, later that year another $150 million were issued and another $100 million the following year. The Act of 3 March 1863 was for $450 million. By the end of 1863, Congress had authorized the printing of $850 million worth of Greenbacks.

Over the course of the War, the money supply increased from $45 million to $1.77 billion - an increase of almost 140%. Needless to say, prices of goods skyrocketed - prices at the end of the war were up over 110%. Unfortunately, inflation was alive and well, while the People suffered the burden.

Senator Sherman was a strong supporter of the Greenbacks, always reminding Congress: "The men who have loaned you money (bankers) are the very men who now beg you for this measure of financial aid". The Senator was making a sales pitch for his favorite special interest group - the bankers.

Recall that redemption of bank notes in gold and silver had been suspended. With the passage of the Legal Tender Act, the banks could use the Greenbacks to redeem their own bank notes. Even better, they could use the Greenbacks as bank reserves, against which they could then issue their own paper bank notes and demand deposits.

The government was bailing out the banks, siphoning wealth from the People by the deceit of paper money; all built upon an inverted pyramid of debt. The Resumption of Specie Act was not passed until 1875, and was not put into effect until 1879.

During hearings on the passage of the legal tender bill, Representative Conkling summed things up quite well when he stated, "this bill is a legislative declaration of national bankruptcy." Now why would Representative Conkling say this? As he further explained:

"No precedent can be urged in its favor; no suggestion of the existence of such a power can be found in the legislative history of the country; and this amounts to affirmative authority of the highest kind against it. Had such a power lurked in the Constitution, as construed by those who ordained and administered it, or at least referring to it, has repeatedly arisen; and had such a power existed, it would have been recognized and acted upon. The uniform and universal judgment of statesmen, jurists, and lawyers has denied the constitutional right of Congress to make paper a legal tender for debts to any extent whatever."


In 1867 the issue of the Greenback's constitutionality as legal tender finally reached the Supreme Court in the case of Hepburn v. Griswold. The Court ruled the Legal Tender Acts invalid. Chief Justice Salmon Chase wrote the final decision, admitting that his actions as Secretary of the Treasury to pass the Legal Tender Acts was wrong, and he apologized for his "different views, never before entertained by American statesman or jurists."

Needless to say, the powers that be were not ecstatic over the decision. President Grant (he was the guy that passed the Act of 1869 to Restore The Public Credit) came to their rescue by appointing two new Supreme Court Justices. Both were lawyers for the major railroads who were one of the powers not happy with the ruling.

The Legal Tender Acts were revisited in the case of Knox v. Lee, resulting in a five to four majority reversal of the Hepburn v. Griswold case. President Grant proved to be a powerful ally to the elite international collectivists.

This was a damaging and bitter defeat. The moneyed powers were gaining strength from the usurpation of the common man's constitutional rights of Honest Money. Their new world order was beginning to be placed above The Supreme Law of the Land.

The Knox ruling essentially gave Congress the leeway to do whatever it thinks prudent to "preserve the government" - even if such actions include trampling over and undermining the Constitution. It was a sad moment in the affairs of man that would have grave consequences for decades to come.

Unfortunately, further progress down the ever-winding road of monetary debasement had taken place: the long desired precedent was finally in place. The creatures were breeding, the gates wide open; the writing on the wall: Charon knows not the foolish want that accepts the unacceptable; betwixt his teeth he tests the mettle of the coin; for the ferry so guided to the other shore.

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