With this decision the bank as a political issue came to an end. There will doubtless be bank issues in the future, but they will be based on economic policy rather than on constitutional principle. The bank controversy had the effect of furnishing the subject-matter from which the judiciary has planted deeply the doctrine of implied powers, as well as of stimulating thought out of which there has evolved a financial system of wonderful efficiency. Time has proved that in spite of an occasional abuse of power the fears of its opponents that it would result in a monopolistic money power have proved groundless. It is the universal opinion of the leaders of all political parties that the banks, as they are organized today, are among the greatest agencies in the upbuilding of the nation.

CHAPTER VII

THEORY OF LEGAL TENDER

ONE

NE of the earliest problems that confronted the colonists was that of providing a stable medium of exchange to meet the demands of an expanding trade. There was not a sufficient amount of gold and silver to pay for the commodities brought over from England. The largest amount of specie came from the West Indies and other southern Spanish colonies, which was received from the sale of lumber, salt fish, etc., but this trade did not bring in sufficient coin to supply the demand for a medium of exchange. Mints were established in several colonies, but even this did not solve the difficulty. It was necessary, even then, to use many staple articles such as tobacco, corn, etc., as a medium to facilitate trade. But it is probable that the first substitute for coin to be used was the Indian "wampum," which was a shell that passed as money among the Indians, and which was made use of by the colonists in their trade with the Indian tribes. We learn from Hutchinson's History of Massachusetts that bills of credit were first emitted in that colony in 1690.

Soon after this we find most of the colonies issuing bills of credit, but in evidence of unsatisfactory results, laws were soon passed to prevent the further issue of such bills.'

The right of the colonies to issue bills of credit was never seriously questioned by England, but such bills were denied circulation as legal tender by that country in payment for English commodities. But upon the breaking out of the Revolutionary War, some of the colonies, notably Massachusetts, ignored the prohibition of Parliament, and endowed their bills with the power of legal tender. With the deathblow to English supremacy in America, the colonies inherited full power to make their bills of credit legal tender within their own jurisdiction. In the meantime the colonies had delegated to the Continental Congress power to issue bills of credit in the following words: "The United States, in Congress assembled, shall have authority to borrow money or emit bills on the credit of the United States, transmitting every half year to the respective States an account of the sums of money so borrowed or emitted. And Article XII. of this document says: "All bills of credit emitted, moneys borrowed, and debts contracted by or under the authority of Congress shall be a charge against the United States"; but the power to make these bills a legal tender was nowhere expressly given to Congress, and it is,

* See Coman's Industrial History of the United States, p. 83. 2 Articles of Confederation, Article IX.

ΤΟ

therefore, assumed that this power was reserved to the colonies.

The historical development of the legal tender theory was carefully traced in a learned opinion by Mr. Justice Bradley in Knox v. Lee and Parker v. Davis.1

"In this country, the habit had prevailed from the beginning of the eighteenth century, of using bills of credit; and the Revolution of Independence had just been achieved in great degree by the means of similar bills issued by the Continental Congress. These bills were generally made a legal tender for the payment of all debts, public and private, until, by the influence of the English merchants at home, Parliament prohibited the issue of bills with that quality. This prohibition was first exercised in 1751, against the New England colonies; and subsequently, in 1763, against all the colonies. It was one of the causes of discontent which finally culminated in the Revolution. Dr. Franklin endeavored to obtain a repeal of the prohibitory acts, but only succeeded in obtaining from Parliament, in 1773, an act authorizing the colonies to make their bills receivable for taxes and debts due to the colony that issued them. At the breaking out of the war, the Continental Congress commenced the issue of bills of credit, and the war was carried on without other resources for three or four years. It may be said with truth, that we owe our National Independence to the use of this fiscal agency. Dr. Franklin, in a letter dated from Paris, in April, 1779, after deploring the depreciation which the continental currency had undergone, said: "The only conso1 12 Wallace, 315.

lation under the evil is, that the public debt is proportionately diminished by the depreciation; and this by a kind of imperceptible tax, every one having paid a part of it in the fall of value that took place between the receiving and paying such sums as passed through his hands." He adds: 'This effect of paper currency is not understood on this side of the water. And, indeed, the whole is a mystery even to the politicians, how we have been able to continue a war four years without money, and how we could pay with paper, that had no previously fixed fund appropriated especially to redeem it. This currency, as we manage it, is a wonderful machine. It performs its office when we issue it; it pays and clothes troops, and provides victuals and ammunition.' The continental bills were not made legal tender at first, but in January, 1777, the Congress passed resolutions declaring that they ought to pass current in all payments, and be deemed in value equal to the same nominal sums in Spanish dollars, and that any one refusing so to receive them ought to be deemed an enemy to the liberties of the United States; and recommending to the legislatures of the several States to pass laws to that effect. Congress seems to have clearly recognized the exclusive power of the colonies to make bills of credit legal tender.'

The Court, continuing, said:

"Massachusetts and other colonies, on the breaking out of the war, disregarded the prohibitions of Parliament and again conferred upon their bills

Franklin's Works, vol. viii., p. 329.

2 Journal of Congress, volume iii., pp. 19 and 20. Pitkin's History, volume ii., p. 155.