Viewpoints

Eagles and Dollars: A Case of Monetary Apostasy

by Steven Montgomery (Utah)

It may seem odd to Americans approaching the twenty-first century that in the United States Constitution, a foreign coin is referred to as the Money-unit of our Nation, but that is exactly what the Constitution established. The term "Dollar" is referred to twice in the Constitution, but, in 1787-1789, the only "Dollar" in existence was the Spanish milled dollar. The word "Dollar" is not defined in the Constitution but no definition was necessary: Everyone familiar with economic affairs knew that the word meant the "silver Spanish milled dollar."

Beginning as early as 1704 the "piezo de ocho" or piece of eight, as the silver Spanish milled dollar was known, became, for all practical purposes, the money-unit of the American people. In 1704, Queen Anne issued a proclamation binding upon the American Colonies that declared that all foreign silver coins were to be "regulated, according to their weight and fineness" and compared to the standard of "the pieces of eight." Similarly in 1776, a committee of the Continental Congress declared that the Spanish milled dollar had become by default "the Money-Unit or common measure" in use throughout the Colonies. In 1784 Congress used the "Spanish piece of eight reals, or, as the Americans called it, the dollar, as the unit of currency". Further, in 1785, Congress proposed the Spanish milled dollar as "the money unit" arguing that the "Dollar . . . has long been in general use" and "accords with the natural modes of keeping accounts" and in 1786, Congress established the Spanish Dollar as the "money unit for computation. . . without a negative vote". Finally, after the adoption of the Constitution, Congress in 1792, under their authority to "coin Money", legislated that any new "Dollars" coined were to be "of the value of a Spanish milled dollar" but allowed the Spanish milled dollar to continue to circulate and to be accepted (when of full weight and not worn or clipped) "in the public offices" and "proceedings in the courts" (as well as the new "Dollars") as the "Money of Account of the United States". This early use of a foreign coin as our "Money of Account" is not the only strange aspect--to us modern Americans--of our monetary system: Consider the peculiar power of Congress to regulate the value of "foreign coin" or the power to punish counterfeiters of not only United States coins but foreign coins (such as the Spanish Piece of Eight) which were made "current" in the United States?

Altogether There are six major provisions in the Constitution (including the Bill of Rights) that deal with or refer to money. Each of these provisions must be considered and related to each other to thoroughly and properly understand the Founders intentions. Such a thorough consideration is beyond the scope of this paper however. Instead, This paper will hone in on one narrow aspect of these monetary powers and disabilities--an attempt to show--what the Founders meant by the power to "regulate value" and how this power was considered inseparable and related to the power to fix a "Standard". Furthermore, that Congress--as a whole--understood and followed the founders intentions concerning these powers as manifest in the debates in congress and every coinage act up to 1857.

Both the powers to "regulate value" and fixing a "standard" have an extensive English common-law history. As mentioned earlier, the Spanish milled dollar had become, by Queen Anne's Proclamation of 1704 at least, the "common measure", or standard by which all other coins (both gold and silver) were to be measured in the colonies. In other words samplings could be taken of various foreign (or domestic) silver coins and assayed to determine the fine silver content and then compared against the amount of fine silver contained in the Standard--the Dollar. Thus, technically speaking we were on a silver standard. Gold coins could be likewise assayed for fine gold content and then the free market ratio between gold and silver, used to determine its value. Any coin, whether Gold or Silver, was to be compared with the standard and valued proportionately. Blackstone, in his Commentaries, noted that the king by proclamation could "legitimate foreign coin", and declare "at what value it shall be taken in payments" but that this power "ought to be by comparison with the standard" which standard was fixed by the king and was to be of a "given weight. . . of a given fineness" which would then be a "true standard". Thus we see that the Common law of England, as applied in the Colonies, understood the power to "regulate value" as part and parcel of the power to fix a "standard".

At least two of the American Colonies understood this aspect of English common law. During the period of "benign neglect" of the Colonies by England, Both Connecticut and Massachusetts, until prohibited by Parliament in 1707, "regulated" the value of certain foreign coins during the late 1600's.

Later, after the split with England, the Coinage policy of the Continental Congress paralleled this traditional common-law approach. A committee of the Continental Congress in 1776 prepared a table of values of various silver and gold coins relative to the Spanish milled dollar which were "estimated. . . according to the quantity of fine silver they contain[ed]" in the case of silver coins and in the case of gold coins "the value of fine gold they contain[ed] and the proportion. . . which fine gold bears to that of fine silver in the marketplace". In 1786, a congressional Board of treasury stated that it was the intention of Congress to adopt as the "Money-Unit" the "common dollars (or Spanish milled dollars)" and further determined that any new Units or Dollars coined were to contain "three hundred and seventy five grains and sixty four hundredths of a Grain of fine silver" (effectively setting a standard). The Board also stated that "the difference that Custom has established between coined gold and silver, in the United States" should be a basis for establishing the relative value of such gold and silver coins.

Under the newly formed Constitution for the United States, Congress in 1792, established a mint and authorized the minting of both silver and gold coins. The "Standard" was established by making the "Dollar" as the "money of Account of the United States" which all public offices and courts were bound to accept and defining the "Dollar" as 371.25 grains of pure silver which was the average weight then of the Spanish Piece of Eight. Gold coins in the form of "Eagles", "Half Eagles", and "Quarter Eagles" were also authorized. The ratio between gold and silver (as then deemed accurate by the free market) was established as 15:1. The Eagle was to be "of the value of ten dollars or units" so its weight was defined as 270.5 grains of pure gold (each "dollars" worth of value being 24.75 grains of gold or 1/15 of 371.25 thus keeping in line with the ratio of 15:1). Lesser Gold and Silver coins were also authorized and their respective "weights" and "values" were also determined by the standard--371.25 grains of silver. Thus Congress "fixed" the standard of value as 371.25 grains of pure silver, called this weight of silver a "Dollar", and "regulated" the value of other gold and silver coins (both the newly minted coins whether gold or silver and the Spanish milled Dollar) according to this standard. It is important to note that gold coins, taking the Eagle as an example, was not denominated in terms of "dollars" but was simply called an "Eagle" which had an intrinsic free market worth "of the value of ten dollars".

Thus under English common law and that law as applied by the Colonists, the Continental Congress and finally under the Government of the United States Constitution a fixed weight of silver was recognized as the standard by which to measure all other coins both gold and silver. Adam Smith notes how the general public largely understood the concepts of "fixing" a standard and "regulating" the value of coinage:

as people become gradually more familiar with the use of different metals in coin, and consequently better acquainted with the proportion between their respective values, it has in most countries. . . been found convenient to ascertain this proportion, and to declare by a public law, that a guinea (of gold), for example, of such a weight and fineness, should exchange for one and twenty shillings (of silver) or be a legal tender for a debt of that amount. In this state of things, and during the continuation of any one regulated proportion of this kind, the distinction between the metal which is the standard, and that which is not the standard, becomes little more than a nominal distinction.

Vierra notes how the founders used precise linguistic wording in their use of the phrases "fix the standard" and "regulate. . . value" and subtly diverge in meaning:

The phrase "fix the standard" empowers Congress to define the basic units of "Weights and Measures"; whereas, the phrase "regulate the Value" empowers Congress only to apply the basic unit of "Value", which the constitution elsewhere explicitly identifies as the "dollar", a known, historically fixed weight of silver. Moreover, whereas the verb "fix" as applied to "Weights and Measures" implies "stability and confirmation", the verb "regulate" as applied to coinage implies continuous adjustment. . . the Framers. . . in one phrase selecting the verb that connotes the establishment of permanent "Standards", without which a system of "Weights and Measures" could not serve its purpose; and, in the other, choosing the synonym that connotes a process of inter-comparisons among changing forms of coinage, according to a set "Money-Unit", without which a monetary system involving both gold and silver could not achieve its end.

Congress remained faithful to this particular monetary understanding through the six significant coinage acts up till 1857. In the coinage act of 1793 Congress recognized the need to make "current" various foreign coins by enacting a statute regulating their value and declaring that these "foreign gold and silver coins shall pass current as money within the United States. . . at [specified] rates". At the same time however, Congress anticipated an adequate supply of United States coin by providing that "all foreign coins except Spanish milled dollars shall cease to be a legal tender" (Congress thus once again endorsing the Spanish milled dollar as the basic unit of the country).

By 1834 two major problems began to appear: First, the free market valued gold at a rate closer to a 16:1 ration than the 15:1 ratio determined by the Coinage Act of 1792; Second, Banks proliferated--and began an over-issuance of paper currency. Because the free market value of gold was higher than the ratio established by Congress, due to the actions of Greshams law, gold began to disappear from currency. The Coinage Act of 1834 addressed these two interrelated problems: First, by fixing the ratio between gold and silver at 16:1, and consequently because of this ratio change, authorized the Coining of new Eagles, Half Eagles, and Quarter Eagles of reduced weights (because of the new ratio), each to be of the value of ten dollars, five dollars and two Dollars and fifty cents respectively; Second, by changing to a higher ratio between silver and gold an attempt was made to "strike a fatal blow at the ability of banks to sustain a circulation of small-denomination currencies."

In relation to the Act of 1834, First, the Select Committee on Coins again stressed that the thing to be desired "in the monetary system is a standard of uniform value" and that this standard should be silver "the ancient currency of the United States, the metal in which the money unit is exhibited". Second, Congress set the "Value" of the (gold) Eagle by referring to the (silver) dollar, at the newly accepted market exchange ratio, just as it had done in 1792. Third, Congress declared that gold coins minted before the effective date of the act should be valued thereafter at their intrinsic values according to the revised exchange ratio. Finally, just as in 1792, Congress made the new "gold coins . . . receivable in all payments, when of full weight, according to their respective values; and when of less than of full weight, at less values, proportioned to their respective actual weights" showing once again its understanding that "To . . . regulate the Value" of a coin means to state its intrinsic value (in weight of precious metal) as against the standard, and to make it "current" or legal tender for that "Value" only.

The United States Supreme Court in 1870 (as well as all later decisions of the Court), grossly misunderstood the Coinage Act of 1834. Characterizing it as a debasement of the "gold standard, a devaluation of the dollar, an expropriation of creditors, an impairment of the obligation of contracts, or an exercise of some supposedly unlimited legislative power to transmute the denominations of coins without reference to their intrinsic values!" Vierra, explains in refutation of this misunderstanding by the Supreme Court that:

First, on the face of the act, nothing "was taken from the weight of each dollar". The act changed the intrinsic values (in weight and fineness) of gold coins, to be sure--but, neither in 1834 nor at any previous time was there or had there been a "gold dollar", from which any "weight" could be "taken". The act made no change in--indeed, said nothing about--the silver dollar. Instead, the act sub silentio retained the dollar, unchanged, as Congress had defined it in 1792, and once again used the dollar as the standard by which to "regulate" the new gold coinage.

Second, on the face of the act, no "creditors were subjected to a corresponding loss" through any "debasement" of the gold coinage. Again, the act changed the intrinsic values (in weight and finess) of gold coins in order properly to "regulate the Value" of those coins as against the immutable silver standard. But this was nether a "debasement" of the coinage nor an "expropriation" of creditors in any constitutional sense of those terms.

In 1837 Congress enacted a "supplement" to the Coinage Act of 1792. This act retained the amounts of pure silver and pure gold in the various silver and gold coins but merely adjusted the alloy content of both silver and gold coins. In the case of the "Dollar" the amount of pure silver remained at 371.25 grains and for the "Eagle" came as close as possible or within 0.086% of its weight as constitutionally regulated in 1834. Thus the Coinage act continued the principles first laid down in 1792.

The Coinage act of 1849 authorized the coinage of a small gold coin "each to be of the value of one dollar or unit" which was one-tenth the weight of an Eagle as defined by the Coinage Act of 1837. Congress was careful however, to refer to this new gold coin not "as a dollar, or the dollar, but as 'being of the value of one dollar" thus referring to this coin in terms of "regulating its Value as against the original (silver) standard [371.25 grains of silver], not in terms of defining a new, or competing standard."

When Congress reset the ratio between gold and silver at 16:1 in 1834 everyone expected gold to continue to appreciate in value against silver. Instead, due to the discovery of huge gold deposits in California and Australia, the opposite situation occurred. The Free Market first began to value gold at around a 15.7:1 ratio at which point, again due to Greshams Law, Silver Coins ceased to circulate (just as the gold coins had stopped circulating when gold was valued higher in the free market than at the legal ratio). When the ratio diminished to a 15.5:1 ratio, it became possible to melt and export silver coins at a profit. Congress failed to readjust a proper free market ratio between gold and silver at this time but did act To remedy an inadequate supply of silver coinage, by reducing the weight of the half dollar so that the amount of pure silver in two half dollars only amounted to 93.1% of the amount in the Constitutional Dollar. Congress however, limited the legal tender ability of these coins to payment of debts. . . not exceeding five dollars. Although these coins met the old common law standard of "not [being] upon the same footing with the other [Constitutional Coins]" the wisdom of Congress in not properly regulating a proper ratio between silver and gold is suspect.

By 1857, Congress apparently thinking that the United States had enough of their own coinage, repealed "all former acts authorizing the currency of foreign gold or silver coins, and declaring the same a legal tender in payment of debts". So, for the first time since Queen Anne's Proclamation of 1704, the actual Spanish dollar ceased to be the "money of account" in the United States, being replaced by the United States Silver Dollar first authorized in 1792.

From 1792 through 1857, Congress consistently interpreted Art. I, Sec. 8, Cl. 5 both English and pre-constitutional history support. For over sixty years from ratification of the Constitution till just before the Civil War did Congress ever: 1. Coin any metal as "Money" other than gold, silver or copper; 2. change or vary from the constitutional standard of value, the dollar as defined as 371.25 grains of pure silver; 3. regulate the value of any nonsubsidiary coin at other than what Congress determined in good faith was its intrinsic value in relation to the dollar; 4. declare any non-subsidiary coin a legal tender for more than its intrinsic value; 5. claim that it had any power whatsoever to do otherwise in any of these particulars.

As modern Americans we might do well to remember our monetary roots, our common law heritage, or even this admonition from Isaiah, "Thy silver is become dross, thy wine mixed with water". Of course Isaiah here is talking about Israel's collective apostasy but it is interesting that Isaiah would talk about it in terms of their monetary system. As is the case with much of Isaiah--there is a multiple meaning at work here and he meant their monetary apostasy as well. Perhaps modern America would do well to repent from this apostasy so that the Lord can "purge away [our paper money] dross, and take away [our monetized debt] tin".