Legal tender cases

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The Legal Tender Cases directly sprung from the American civil war because in order to pay for the war money was required and the treasury was empty. So, in 1862 and '63 Congress enacted the legal tender laws that decreed paper money legal tender for all debts public and private. This allowed the national government to issue paper currency and compel its circulation amongst the general population.

The Early Effect of Legal Tender

The amount of paper currency began flooding the market and the notes started losing their value. In July of 1864 the notes hit a low of $2.85 for one dollar in gold coin. This caused debtors to pay their obligations in paper currency and creditors to demand payment in gold and silver coin. As such, litigation soon ensued.

The Legal Tender Cases

There are three major legal tender cases that were decided by the U.S. Supreme court. The first was Hepburn v. Griswold,[1] the second Knox v. Lee and Parker v. Davis,[2] and the last was Julliard v. Greenman.[3]

Hepburn v. Griswold

This case was handed down by a divided court, 5-3. The Chief Justice delivered the opinion of the Court where it was held that there is no constitutional power providing the national government with the authority to decree paper money legal tender. The Chief Justice also said that it violates the spirit of the constitution. The dissent thought that the legal tender laws were probably constitutional under the power to carry on war.

Knox v. Lee and Parker v. Davis

This case was decided a year later and there is speculation that President Grant Ulysses stuffed the Court so Hepburn v. Griswold would be overruled. The outcome of this case was different, as the Court found that the war power provided Congress with the authority to declare paper money legal tender.

Julliard v. Greenman

Thirteen years later there was peace, so a question arose as to the constitutionality of the legal tender laws during times of peace. The Court ruled 8-1 that during times of peace or war, the legal tender laws were constitutional. The court found that the power to decree paper money legal tender was authorized through the combination of the borrowing power and the coining power.

In his closing dissent, Justice Field wrote:

"From the decision of the court I see only evil likely to follow.”

If congress has the power to make the notes a legal tender and to pass as money or its equivalent, why should not a sufficient amount be issued to pay the bonds of the United States as they nature? Why pay interest on the millions of dollars of bonds now due when congress can in one day make the money to pay the principal? And why should there be any restraint upon unlimited appropriations by the government for all imaginary schemes of public improvement, if the printing-press can furnish the money that is needed for them?