Gold and silver: The states' new currency?

Why are so many state legislators beginning to call for issuance of a form of gold money?

The Constitution prohibits states from coining money but allows them to make “gold and silver Coin a Tender in Payment of Debts.” By prohibiting everything except “gold and silver Coin” the Constitution clearly considers gold and silver coinage to be legitimate, no matter who issues it.

States haven’t issued currency in any form for more than a hundred years. So why now? Disgust is probably the answer. Various state legislators are disgusted by the federal government’s promiscuous dollar-printing. Accordingly, legislators in a dozen states are contemplating legislation to issue gold or silver-based currencies, including Utah, South Carolina, Virginia and New Hampshire.

The transcript of the debates in the original Constitutional Convention shows that the attitude of the Founders toward paper money was one of contempt. One delegate, Roger Sherman, called for the insertion of an absolute prohibition against states issuing their own paper money.

Sherman’s argument prevailed, as the Founder’s decided that the states would not possess the power to “emit bills of credit, nor make any thing but gold and silver coin a tender in payment of debts” making these prohibitions absolute…

As for the federal government, the earliest drafts of the Constitution included language permitting the federal government to issue unbacked paper money. But this language would not survive the final draft.

Many of the Founders objected strongly to this power. The objections were summed up by delegate Oliver Ellsworth, who sought to “shut and bar the door against paper money.”

“Paper money can in no case be necessary,” Ellsworth argued, “The power [to issue it] may do harm, never good.”

Since most of the Founders agreed, the federal government was also denied the power to issue non-convertible paper money. The federal government mostly operated within these constraints – the main exception being the Civil War, when saving the Union took precedence over all other considerations.

But for most of American history, dollars have been convertible into gold or silver. It is a 20th century innovation to have non-convertible currency. In 1932, FDR denied US citizens the right to convert their dollars into gold by US citizens. Then, in 1971, Richard Nixon denied foreign central banks the right to convert their dollars into gold.

On August 15, 1971, Nixon declared:

I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold… Now, what is this action – which is very technical – what does it mean for you?

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