Banks either are or should be fiduciaries holding the public's funds as a public trust. Those who want to participate in the risk-taking aspects of banking are shareholders (or should be shareholders). If the government is called upon to share the risks of banking, especially the risks of investment banking, then it should be a shareholder. As Edward J. Kane puts it, "For investment banker's risk, there should be investment banker's reward for the taxpayers." And once the government is a shareholder, it owes a public duty to restrain the egregious risk taking and excess executive compensation in which banks seem to have wanted to engage for the last 30 years or so. The resolution of this dilemma is to avoid governmental share ownership of banks by avoiding governmental risk sharing in partnership with the banks (which is a form of classic corporatism that has nothing to do with free-market economics). (1) Holding banks to the standards of fiduciaries, at least with respect to deposit taking and access to the payments system, is the essence of sound constitutional advice about money and banking.
The Monetary Constitution
Article I, Section 10, Clause 1 of the U.S. Constitution provides that "No State shall ... emit Bills of Credit [or] make any Thing but gold and silver Coin a Tender in Payment of Debts." The first part of this quotation means that no State can issue its own currency or have a state-owned bank issue currency notes backed by the full faith and credit of a State, a matter decided, among other places, in Briscoe v. Bank of Commonwealth of Kentucky, 36 U.S. 257 (1837).
On the second part of this quotation, I have written elsewhere as follows:
[T]he states are banned from passing legal tender laws for anything except gold and silver coin; however, bullion is excepted and cannot be made legal tender. This means that state legislatures could proclaim bullion or anything else a form of money lawful for commerce, exchange, and the payment of taxes. But the states cannot require private persons to accept anything other than gold or silver coins. A legal tender law requiring the acceptance of alternative forms of money usually affects property rights negatively by requiring an exchange of things of value (goods and services in commerce) for things of lesser value (e.g., fiat currency) [Todd 2009: 65].
Edwin Vieira Jr. has written extensively on topics related to the powers of States or private citizens to use gold and silver as money. 1 believe that he and I agree that nothing except political blowback from the Established Orders prevents the States from making gold and silver coins at least lawful money and even a legal tender within their boundaries. Treasury objections regarding individual coinage, apparently emanating from coinage and counterfeiting statutes enacted near the end of the Civil War, apparently prohibit individuals from issuing their own gold and silver coins other than as collectible medallions. The States are prohibited from "coining] Money" by that same Article I, Section 10, Clause 1, of the Constitution.
One of the important federal anti-counterfeiting statutes from Title 18 of the United States Code is Section 486, "Uttering Coins of Gold, Silver or Other Metal":
Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title or imprisoned not more than five years, or both. An important point to note, however, is that the Treasury's objections to individual coinage are based on statutes, not the Constitution. Congress probably could not authorize state-issued gold and silver coins. Individually minted coins, however, even coins subject to state regulation, could be authorized if 18 U.S.C. Section 486 were repealed or amended. Under current tax rules, gold and silver coins still would be subject to taxes on capital gains (and state sales tax laws) in the absence of corrective legislation.
Official U.S. coins, however, clearly could be made a legal tender under existing state law, leaving open the question of foreign official gold or silver coins. A good argument could be made that, at a minimum, the official gold and silver coins of our neighbors within the North American Framework Agreement of 1994 (Canada and Mexico) should be made a legal tender within the United States, at least for the duration of that Agreement.
What about the power of Congress to authorize the issuance of legal tender paper money? In 2009, I wrote about this issue as follows, but today I would preface my passage with "Alas":
The Constitution does not prohibit Congress from authorizing legal tender paper money. When this issue was debated in Philadelphia [in 1787], even George Mason agreed that the hands of Congress should not be tied in an emergency on this point [Todd 2009: 65],
About all this, die Constitution merely says in Article I, Section 8, Clause 5, that Congress shall have the power "To coin Money, regulate the Value thereof, and of foreign Coin."
Many writers have argued that the Constitution should be interpreted as prohibiting a legal tender law for other than gold or silver at the federal level in light of the explicit provision applying to the States. Indeed, under the Coinage Act of 1792, a bimetallic standard was made the law of the land, and, over the next century or so, only bank notes redeemable in gold or silver on demand passed as lawful money (receivable for customs duties and taxes). The history of bank notes under the Banks of the United States, the National Banking Act, and the Federal Beserve Act is reserved for discussion another day.
Meanwhile, in Philadelphia in 1787, the question of a prohibition of irredeemable federal paper money was raised several times. One delegate, George Read of Delaware, said that he regarded the absence of a prohibition of such paper money as "alarming as the mark of the Beast in Revelations" [Madison Notes, August 16, 1787]. On the statement that I attributed to Mason, he prefaced it by saying that he doubted that Congress had the power to issue paper money "unless it [the power] were expressed" [Madison Notes, August 16, 1787]. Mason's statement also made it clear that he wanted Congress to limit the issuance of paper money to emergencies. Further, Madison, writing as Publius in The Federalist, No. 10, said that schemes like "a rage for paper money" should be considered together with "other improper or wicked projects]," a phraseology that tends to reinforce the general principle that the Framers did not want irredeemable paper money to have legal tender status in nonemergency events.
At the founding of the...