Ratification of the Constitution: “The True Springs of Public Prosperity”


James Madison on the $5000 Dollar Federal Reserve Note


Once the framers had written and approved the draft Constitution it had to be ratified, of course, by the States to take effect. The ratification process was contentious. It was crucial to receive the endorsement of the big states of Virginia and New York (other key states, such as Pennsylvania and Massachusetts having promptly ratified).

Three leading public intellectuals of the era wrote and published the most famous, and authoritative, arguments for ratification, known as, and compiled under the name of, the Federalist Papers. The authors? James Madison, chief draftsman of the Constitution (and destined to become fourth president of the United States; Alexander Hamilton, destined, as President Washington’s secretary of the treasury, to lay the foundations of America’s monetary and financial institutions; and John Jay, destined to become first chief justice of the United States Supreme Court.

Madison, in Federalist No. 44, celebrates the prohibition of the power to issue paper money to the States, in the process alluding to the fact that this power had been denied to the federal government:

The extension of the prohibition to bills of credit [inconvertible paper money] must give pleasure to every citizen, in proportion to his love of justice and his knowledge of the true springs of public prosperity. The loss which America has sustained since the peace, from the pestilent effects of paper money on the necessary confidence between man and man, on the necessary confidence in the public councils, on the industry and morals of the people, and on the character of republican government, constitutes an enormous debt against the States chargeable with this unadvised measure, which must long remain unsatisfied; or rather an accumulation of guilt, which can be expiated no otherwise than by a voluntary sacrifice on the altar of justice, of the power which has been the instrument of it.

It is notable that Madison invokes both the moral hazards, "the pestilent effects of paper money on ... the industry and morals of the people," as well as referencing the utilitarian benefits, "the true springs of public prosperity."

There is an abundance of significant other artifacts of the prevailing popular (and delegate) horror of paper money in the ratification debates and discussions:

From the South Carolina Ratification debate {306}:

With regard to Mr. Lowndes's question

[Ed. Note: {289} Paper money, too, was another article of restraint, and a popular point with many; but what evils had we ever experienced by issuing a little paper money to relieve ourselves from any exigency that pressed us? We had now a circulating medium which every body took. We used formerly to issue paper bills every year, and recall them every five, with great convenience and advantage. Had not paper money carried us triumphantly through the war, exricated (sic) us from difficulties generally supposed to be insurmountable, and fully established us in our independence?,

"What harm had paper money done?" General Pinckney answered, that he wondered that gentleman should ask such a question, as he had told the house that he had lost fifteen thousand guineas by depreciation; but he would tell the gentleman what further injuries it had done — it had corrupted the morals of the people; it had diverted them from the paths of honest industry to the ways of ruinous speculation; it had destroyed both public and private credit, and had brought total ruin on numberless widows and orphans.

Henry Lee’s Reply to Patrick Henry’s Attacks on the Constitution, June 9, 1788 (Virginia):

“Permit me to ask, if there be an evil which can visit mankind, so injurious and oppressive in its consequence and operation, as a tender law? If Pandora’s box were on one side of me, and a tender law on the other, I would rather submit to the box than to the tender law. The principle, evil as it is, is not so base and pernicious as the application. It breaks down the moral character of your people—robs the widow of her maintenance, and defrauds the offspring of his food. The widow and orphans are reduced to misery, by receiving in a depreciated value, money which the husband and father had lent out of friendship. This reverses the natural course of things. It robs the industrious of the fruits of their labor, and often enables the idle and rapacious to live in ease and comfort at the expense of the better part of the community. Was there not another evil but the possibility of continuing such palpable injustice, I would object to the present system. … The man [that is, the military creditor] who, by the vices of your system, is urged to part with his money for a trivial consideration—the poor man who has the paper in his pocket for which he can receive little or nothing. … These unfortunate men are compelled to receive paper instead of gold—paper, which nominally represents something, but which in reality represents almost nothing. …”

From the Massachusetts ratifying convention, a statement by the Hon. Mr. Turner:

“I think that the operation of paper money, and the practice of privateering, have produced a gradual decay of morals—introduced pride—ambition—envy—lust of power—produced a decay of patriotism, and the love of commutative justice; and I am apprehensive of these are the invariable concomitants of the luxury, in which we are unblessedly involved, almost to our total destruction.”

The late Dr. Clarence Carson argued in The Constitution and Paper Money (The Freeman, 1983) observes:

One of the prime reasons for restraining the state governments was to prevent their flooding the country with unbacked paper money. James Madison, one of the leaders at the convention, declared, in an introduction to his notes on the deliberations there, that one of the defects they were assembled to remedy was that “In the internal administration of the States, a violation of contracts had become familiar, in the form of depreciated paper made a legal tender . . .” Edmund Randolph, in the introductory remarks preceding the presentation of the Virginia Plan to the convention, declared that when the Articles of Confederation had been drawn “the havoc of paper-money had not been foreseen.”

Indeed, as the convention held its sessions, or in the months preceding it, state legislatures were under pressure to issue paper money. Several had already yielded, or taken the initiative, in issuing the unbacked paper. The situation was out of control in Rhode Island, and had been for some time. Rhode Island refused to send delegates to the convention, and the state’s reputation was so bad that the delegates there were apparently satisfied to be spared the counsels of her citizens. …

The ill repute of Rhode Island derived mainly from that state’s unrestrained experiments with paper money. Rhode Island not only issued paper money freely but also used harsh methods to try to make it circulate. The “legislature passed an act declaring that anyone refusing to take the money at face value would be fined £100 for a first offense and would have to pay a similar fine and lose his rights as a citizen for a second.” When the act was challenged, a court declared that it was unconstitutional. Whereupon, the legislature called the judges before it, interrogated them, and dismissed several from office. The legislature was determined to have its paper circulate.

The combination of abundant paper money and Draconian measures to enforce its acceptance brought trade virtually to a halt in Rhode Island. Americans had experienced or observed the carnage that inconvertible paper money could wreak. The discourse surrounding the ratification of the Constitution, reflecting the discourse within the Constitutional Convention, was overwhelmingly opposed to giving any government a power to emit “bills of credit” — paper money inconvertible to precious metals.

There is no legitimate room for doubt that America in adopting the Constitution believed that it was prohibiting the use of inconvertible paper money in all but the most exigent circumstances (such as, and arguably limited to, war). Those who honor the Constitution — and those who have undertaken an oath to preserve, protect, and defend the Constitution, have a conscientious duty to restore constitutional money: a dollar convertible to gold at a precisely, invariant, defined weight.

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