At the time of the founding of the United States of America, and at various times thereafter, there was much heated debate over whether the new nation should have a central or national bank. The founders had seen what havoc was wrought by the Bank of England, a central bank, and the detrimental effects it had on that nation and its empire by a devaluation of its currency which enabled the never-ending stream of wars in which it was involved. The founders also had a vivid memory of what happened when the government run colonial bank created rampant inflation by printing an infinite amount of paper money. Inflation is a hidden tax which robs people of the value of their money by devaluing the currency. This is used to pay for the government’s debts. Accordingly, there is no provision in the constitution for the creation of a central/national bank. Therefore, the Federal Reserve (the Fed) system of banking in the United States of America is unconstitutional because of its ability to print unlimited amounts of fiat currency, or paper money, thereby robbing people of the value of their dollar.
In determining the constitutionality of a central bank, with the ability to create unlimited amounts of paper currency, we can look to the constitution, our founding document, itself: “Article I Section 8 says that, The Congress shall have the power ... To coin money, regulate the value thereof ... and fix the Standard of Weights and Measures…To borrow Money on the credit of the United States.”1 In Pieces of Eight, Edwin Vieira explains in detail why the founders used such explicit language when writing this part of the constitution:
“To borrow Money on the credit of the United States” is linguistically precise and unequivocal. It authorizes Congress to borrow money, not to “emit”, “issue”, “make”, “create”, or “declare what shall be” money. Moreover, distinguishable from the power “To coin”, the Constitution annexes to the power “To borrow” no ancillary power “To…regulate…Value”. Thus, on its face, the power “To borrow Money” permits Congress to obtain money from willing lenders, but not itself to create money, or to change the value of money, in the course of “borrowing” or otherwise. Or, by implication, Article I, section 8, clause 2 disables Congress form (a) issuing paper currency of any kind, or (b) levying forced loans, as a means of “borrowing Money”.2
Regarding the ability of the Federal Reserve’s ability to to print an unending supply of paper money, and its relation to the constitution, Edwin Vieira has this to say, “The chief mechanism of inflation today is the ability of the Federal Reserve System to generate an endless stream of paper currency…the supposed authority of Congress, under the Constitution, itself to issue irredeemable, legal-tender paper currency, or to delegate such a power to the Federal Reserve System, finds no basis in…the Constitution.”3
Vieira is not alone in his interpretation of the constitution prohibiting the printing of paper money. Another student of the constitution was George Bancroft, and he was quite clear what the constitution said regarding paper money:
Our federal constitution was designed to end forever the emission of bills of credit as legal tender in payment of debts, alike by the individual states and the United States… The refusal of the convention to confer on the legislature of the United States the power to emit bills of credit or irredeemable paper money in any form is so complete that…it should not be treated as questionable.4
From the inception of the United States many of the founding fathers believed that a central bank, or a national bank, was unconstitutional. Of note was Thomas Jefferson who felt so strongly against the new nation having a national bank that he wrote an opinion on it:
I consider the foundation of the Constitution as laid on this ground that all powers not delegated to the U.S. by the Constitution, not prohibited by it to the states, are reserved to the states or to the people [XIIth. Amendment]. To take a single step beyond the boundaries thus specially drawn around the powers of Congress, is to take possession of a boundless field of power, no longer susceptible of any definition. The incorporation of a bank, and other powers assumed by this bill have not, in my opinion, been delegated to the U.S. by the Constitution.5
Jefferson was very much opposed to a central bank and in a personal letter to Albert Gallatin regarding the opening of a branch bank of the United States he outlines his concerns:
This institution is one of the most deadly hostility existing against the principles & form of our constitution…an institution like this penetrating by its branches every part of the Union, acting by command & in phalanx may in a critical moment upset the government. I deem no government safe which is under the vassalage of half-constituted authorities, or any other authority than that of the nation or its regular functionaries. What an obstruction could not this bank of the U.S. with all its branch banks be in time of war? It might dictate to us the peace we should accept, or withdraw it aids…6
Part of the reason why Jefferson, as well as other founding fathers and United States presidents loathed the very idea of a central bank was that they had just experienced one of its negative effects—inflation by the printing of paper money (fiat currency). To finance the revolution, the first bank of the United States printed so much paper money that it devalued the currency to a point where in effect it was worthless. The unit of paper currency used during this period was called a “Continental.” And it was also during this period when the saying “not worth a Continental" had its origin.7 The founding fathers had seen what had happened during the colonial period as well as the revolutionary war with the unending printing of paper money and the rampant inflation it caused. Founding father, and president, Thomas Jefferson had such a distaste for paper money which can be seen in a letter he wrote to John Wales Eppes:
Every paper dollar emitted banishes a silver one form circulation, a nation therefore making its purchases and payments with bills fitted for circulation thrusts an equal sum of coin out of circulation…It is from Great Britain we copy the idea of giving paper in exchange for discounted bills: and while we have derived from that country some good principles of government and legislation; we unfortunately run into the most servile imitation of all her practices, ruinous as they prove to her…the unlimited emission of bank paper has banished all her specie, and is now…hurrying her rapidly to bankruptcy, as it did France, as it did us, and will do us again, and every country permitting paper to be circulated.8
It was not just Jefferson who decried the printing of paper money. Our nation's first president George Washington also loathed paper money and wrote as much in several letters. In a letter from Washington to Jefferson he wrote, “Some other States are, in my opinion, falling into very foolish & wicked plans of emitting paper money.”9
In numerous letters to contemporaries George Washington wrote about his negative feelings regarding paper money. Washington wrote to:
Theodorick Bland, “I can only repeat what I have formerly told my countrymen in a very serious manner that honesty will be found, on every experiment, the best policy. How far arguments deduced from this topic, and from the present alarming troubles in Rhode Island, can with pertinence & force be made use of against any attempts to procure a paper currency in the State, I leave to your judgement to decide.”10; James Bowen, “Paper money has had the effect in your State that it ever will have, to ruin commerce—oppress the honest, and open a door to every species of fraud and injustice.”11; Richard Henry Lee, “I never have, and I hope never shall hear, any serious mention of a paper emission in this State—yet such a thing may be in agitation—ignorance and design are productive of much mischief—the first, is the tool of the latter, and are often set to work as suddenly as unexpectedly—those with whom I have conversed on this subject, in this part of the state, reprobate the idea exceedingly”12; and Thomas Stone; “If I had a voice in your legislature, it would have been given decidedly against paper emission upon the general principles of its utility as a representative, and the necessity of it as a medium…The wisdom of man…cannot at this time devise a plan by which the credit of paper money would be long supported; consequently depreciation keeps pace with the quantum of the emission; and articles for which it is exchanged rise in greater ratio than the sinking value of the money.”13
Washington and Jefferson were not the only founding fathers who disliked paper money. In a letter from George Mason to George Washington, Mason wrote:
In a Committee of the whole house upon the State of the Commonwealth, to whom was referred sundry Petitions, some praying for an Emission of Paper Money…a Tender in Discharge of Debts, I moved and carried the Resolutions…During the discussion of the subject, after treating the petitions as founded upon Fraud & Knavery, I called upon any of the members of the House, who were advocates of such measures…to come boldly forward & explain their real motives; but they declined entering into the debate, and the resolution passed unanimously—I hope they have given this iniquitous measure a mortal stab, and that we shall not again be troubled with it.14
Although founding father Alexander Hamilton was a federalist and believed in the centralization of power, he too had seen the horrible effects of paper money upon the colonies before and during the revolutionary war. Although he later pushed for a central/national bank, at the time of the constitutional convention, even he had negative things to say regarding paper money (bills of credit):
The extension of the prohibition to bills of credit 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.15
The founding fathers were decidedly against paper money, and we can see from their writings that they knew it was bad for the foundling nation. Central banks, which create an endless stream of paper money, were bad for the country at its founding and it is still detrimental to us today. Former congressman Dr. Ron Paul describes the very way in which the printing of paper money, or fiat currency, by a central bank causes the hidden tax called inflation, and is nothing more than theft, in his book End The Fed:
Debasing a currency is counterfeiting. It steals value from every dollar earned or saved. It robs the people and makes them poorer. It is the absolute enemy of the working man. Inflation is the most vicious and regressive of all forms of taxation. It transfers wealth from the middle class to the privileged rich. The economic chaos that results from a policy of central bank inflation inevitably leads to political instability and violence. It’s an ancient tool of all authoritarians.16
Every dollar the Federal Reserve prints lowers the purchasing power of the dollar which in turn makes it seem like prices are going up. This is the hidden tax of inflation that affects everyone. Because it is a hidden tax the average person feels the pinch when they go to make a purchase, but they do not know who to blame for the devaluation of their currency. With this endless supply of cash, financing never ending warfare is easy because the Fed can subsidize risky, or ruinous, enterprises by, “socializing losses while privatizing gains.”17
In one of his speeches, former head of the Federal Reserve Ben Bernanke explains, unabashedly and in detail, just how inflation works:
...the US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost. By increasing the number of US dollars in circulation, or even by credibly threatening to do so, the US government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.18
Even the Bible has something to say about honest money. It considers revamping the character of money a sin. In Leviticus we are told that, “You shall not cheat in measuring length, weight, or quantity. You shall have honest balances, honest weights, an honest ephah, and an honest hin” (Leviticus 19:35-36 New Revised Standard Version). “Differing weights are an abomination to the Lord, and false scales are not good” (Proverbs 20:23 NRSV). In short “You shall not steal” (Exodus 20:150 NRSV).
If we hold a mirror up to our nation’s past, we see a reflection of ourselves today. The founding generation saw firsthand the deleterious effects a central bank had on society by printing an endless supply of paper money. The founding fathers knew what they were doing when they left the creation of a central bank out of the constitution. Jefferson’s concerns that debt would be intergenerational were well founded as that is the situation Americans find themselves in today. The Fed keeps printing money, which devalues the dollar and causes prices to rise. The situation today is much like the one our forebears faced as inflation robs us of the value of our dollar making it increasingly hard to live, the national debt never gets paid, and it is passed onto future generations. Jefferson’s fears have been realized.
Therefore, the Federal Reserve system of banking in the United States of America is unconstitutional. Its ability to print unlimited amounts of fiat currency, or paper money robs people of the value of their dollar through the hidden tax of inflation.
Footnotes
1The Constitution of the United States of America. Accessed November 11, 2023. https://constitutioncenter.org/media/files/constitution.pdf.
2 Edwin Vieira, Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution: A Study in Constitutional Law. (Sound Dollar Committee, 1983), 70.
4 George Bancroft, A Plea for the Constitution of the U.S. of America: Wounded in the House of Its Guardians. (Harper & Brothers, Publishers, 1886), 1, 43.
5 Thomas Jefferson, Opinion on the Constitutionality of the Bill for Establishing a National Bank. Rotunda gateway. Accessed November 9, 2023. https://rotunda.upress.virginia.edu/founders/FOEA.html.
6 Thomas Jefferson, A Letter from Thomas Jefferson to Mr. Gallatin. The papers of Thomas Jefferson. Accessed November 9, 2023. https://rotunda.upress.virginia.edu/founders/TSJN.
7 G. Edward Griffin, The Creature from Jekyll Island, 5th ed. (Westlake Village, California: American Media, 2010), 328.
8 Thomas Jefferson, To John Wayles Eppes. Edited by J. Jefferson Looney and James P. McClure. The papers of Thomas Jefferson Digital Edition, 2008. https://rotunda.upress.virginia.edu/founders/TSJN.
9 George Washington, Founders Online: From George Washington to Thomas Jefferson, 1 August 1786. National Archives and Records Administration. Accessed November 11, 2023. https://founders.archives.gov/documents/Washington/04-04-02-0174.
10 George Washington, A Letter from George Washington to Theodorick Bland. University of Virginia Press - UVA Press, Rotunda: Digital imprint of the University of Virginia Press, www.upress.virginia.edu/rotunda/. Accessed 11 Nov. 2023.
11 George Washington, Founders Online: From George Washington to Jabez Bowen, 9 January 1787. National Archives and Records Administration, National Archives and Records Administration, https://founders.archives.gov/GEWN-04-04-02-0428. Accessed 10 Nov. 2023.
12 George Washington, Founders Online: From George Washington to Richard Henry Lee, 22 August 1785. National Archives and Records Administration. Accessed November 11, 2023. https://founders.archives.gov/GEWN-04-03-02-0183.
13 George Washington, A Letter from George Washington to Thomas Stone. University of Virginia Press - UVA Press. Accessed November 11, 2023. https://www.upress.virginia.edu/rotunda/.
14 Founders Online: To George Washington from George Mason, 6 November 1787.” National Archives and Records Administration, National Archives and Records Administration, https://founders.archives.gov/documents/Washington/04-05-02-0381. Accessed 10 Nov. 2023.
15 Alexander Hamilton, Founders Online: Continental Congress Unsubmitted Resolution Calling for a Conv ... National Archives and Records Administration. Accessed November 11, 2023. https://founders.archives.gov/documents/Hamilton/01-03-02-0272.
16 Ron Paul, End The Fed (New York, New York: Grand Central Publishing, 2009), 134.
17 Robert L. Hetzel, The Federal Reserve: A New History (Chicago, Illinois: The University of Chicago Press, 2022), 499.
18 Board of Governors of the Federal Reserve System (U.S.), 1935-, and Ben Bernanke. Deflation: Making Sure ‘It’ Doesn’t Happen Here: Remarks before the National Economists Club, Washington, D.C. FRASER, November 21, 2002, Page 10. https://fraser.stlouisfed.org/title/statements-speeches-ben-s-bernanke-453/deflation-making-sure-doesn-t-happen-887
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