Lest history be forgotten, it may come around again to bite us when we least expect it.
During the war between the Confederate States and the United States of America, The Legal Tender Act required debtors to accept “greenbacks,” the U.S. Government’s paper currency. The National Bank Act barred state banks from issuing notes, giving the U.S. Government a monopoly on paper currency. Finally, The Internal Revenue Act imposed a federal income tax and other levies. Henry Brands asks, however, whether “greenbacks” fall under the U.S. Constitution’s wording that the federal government can “coin” money. If money was in coin specie when the constitution was written, the meaning could be widened to include new means without necessarily extending the power of that government beyond what was intended.
Brands also asks, “Did the proscription against state bank notes follow from the [interstate] commerce clause, from the elastic clause, or from Treasury secretary Salmon P. Chase’s imagination?” The fact that state banks had been issuing notes even as the U.S. Government was minting silver and gold coins points to, or illustrates, the dual sovereignty element in the American federal system. Ironically, for nearly the first hundred years of the United States (as alliance, confederation and finally a modern federal system), the states had more currency power than do the state governments that use the euro in the E.U.
In terms of the interstate commerce justification of barring state banks from issuing notes, that justification does not reach such notes being used within a state’s borders. In terms of interstate commerce, mandating a common currency can be covered by the clause. As per the example of the E.U., it is possible to have both a common currency and currencies particular to certain states. In fact, it is possible, as per the European case, to have the particular currencies displace the common currency in the state of the particular currency. However, if, for example, the euro cannot be used in Britain, this restriction of the common currency in a state would detract from the common market (i.e., out-of-states would be discriminated against). So while the U.S. commerce clause could be interpreted as allowing for state currencies, any such currencies could not be mutually exclusive with the common currency.
As for the income tax, Brands avers that it “seemed a patent violation of the constitutional ban on ‘direct’ taxes not proportioned to population.” Indeed, a constitutional amendment was deemed necessary for the purpose in the twentieth century. The unlimited potential of the U.S. Government to raise revenue by taxation was not missed on some of the delegates at the constitutional convention in 1787. They worried that that government would crowd out the governments of the states, which would also depend on revenue. These fears were not without foundation. By the twenty-first century, state governments were under popular pressure not to increase taxes in large part because of the taxes already being taken by the federal government.
In general terms, these federal laws enacted during the Civil War can be interpreted as evincing various degrees of encroachment of the U.S. Government. It was such expansion of power that had been in mind when the confederated states seceded from the United States. Even though Lincoln’s 1860 platform affirmed protecting slavery where it existed at the time, southerners feared that the reach of the federal government would continue unabated. The result, they feared, would be the eventual loss of their self-determination and way of life. This concern transcended the issue of slavery. Accordingly, the states would have perhaps been wiser to free the slaves then fire on Fort Sumpter—the underlying issue would have been made more transparent thusly. Even in the twenty-first century, the trajectory of the U.S. Government in going beyond its enumerated powers is an issue even if other issues tend to get first play.
Source: Henry W. Brands, American Colossus: The Triumph of Capitalism 1865-1900 (New York: Doubleday, 2010), p. 13.
