The meaning of the time

The evidence of 1787 shows that “regulate the Value” of coin meant setting its metal and its rating, and that Congress used the power to change both. It shows the Convention striking the express power to emit paper bills while leaving the meaning of the strike in dispute. The evidence of 1909–13 shows “income” as a gain counted in money: “The return in money”, in a dollar fixed in gold whose purchasing power then halved in seven years.

1787 · The money power, paper money and the purse

The Articles of Confederation (1781). Congress held “the sole and exclusive right and power of regulating the alloy and value of coin struck by their own authority, or by that of the respective States”, and the power “to borrow money, or emit bills on the credit of the United States”. To regulate the value of coin was to fix the alloy in it and the value at which it passed.

The Convention, August 16, 1787. Gouverneur Morris “moved to strike out ”and emit bills on the credit of the U. States“-If the United States had credit such bills would be unnecessary: if they had not, unjust & useless.” The debate that followed:

• Ellsworth: “Mr. ELSEWORTH thought this a favorable moment to shut and bar the door against paper money. … Paper money can in no case be necessary. Give the Government credit, and other resources will offer. The power may do harm, never good.”
• Read: “Mr. READ, thought the words, if not struck out, would be as alarming as the mark of the Beast in Revelations.”
• Langdon: “Mr. LANGDON had rather reject the whole plan than retain the three words ”(and emit bills“)”
• Mercer: “Mr. MERCER was a friend to paper money, though in the present state & temper of America, he should neither propose nor approve of such a measure.”
• Mason: “Though he had a mortal hatred to paper money, yet as he could not foresee all emergences, he was unwilling to tie the hands of the Legislature.”

The words were struck: “New Hampshire, Massachusetts, Connecticut, Pennsylvania, Delaware, Virginia, North Carolina, South Carolina, Georgia, aye-9; New Jersey, Maryland, no-2.” Madison recorded why Virginia voted aye: “This vote in the affirmative by Virga. was occasioned by the acquiescence of Mr. Madison who became satisfied that striking out the words would not disable the Govt. from the use of public notes as far as they could be safe & proper; & would only cut off the pretext for a paper currency, and particularly for making the bills a tender either for public or private debts.” The strike is stated. What it was understood to forbid was disputed in the room: a door shut for Ellsworth, a pretext cut off for Madison, and the Legislature’s hands left untied for Mason.

The Convention on money bills, August 8 and September 8, 1787. On August 8 a motion to strike the section giving the House the origination of money bills argued that it gave “no peculiar advantage to the House of Representatives” and clogged the government. Mason answered for the House: “The purse strings should never be put into its hands.” The section was struck that day. On September 8 the clause returned, with the Massachusetts words: “but the Senate may propose or concur with amendments as in other bills”. It passed: “N. H. ay. Mas. ay. Ct. ay. N. J. ay Pa. ay. Del. no. Md. no. Va. ay. N. C. ay. S. C. ay. Geo. ay.” What the Convention settled was where money bills begin.

The Federalist.

• No. 30 (Hamilton): “Money is, with propriety, considered as the vital principle of the body politic”. Without an adequate power to tax, “either the people must be subjected to continual plunder, as a substitute for a more eligible mode of supplying the public wants, or the government must sink into a fatal atrophy, and, in a short course of time, perish.”
• No. 42 (Madison): “All that need be remarked on the power to coin money, regulate the value thereof, and of foreign coin, is, that by providing for this last case, the Constitution has supplied a material omission in the articles of Confederation.” The aim he names is “the proposed uniformity in the VALUE of the current coin”.
• No. 44 (Madison): “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”. He wrote it of the States: “The power to make any thing but gold and silver a tender in payment of debts, is withdrawn from the States, on the same principle with that of issuing a paper currency.”
• No. 58 (Madison): “The House of Representatives cannot only refuse, but they alone can propose, the supplies requisite for the support of government.” The power over the purse is “the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people”.

Hamilton’s Report on the Mint (1791). “What ought to be the nature of the money unit of the United States?” His answer was a unit fixed in metal: “the unit in the coins of the United States ought to correspond with 24 Grains and ¾ of a Grain of a pure Gold and with 371. Grains and ¼ of a Grain of pure silver, each answering to a dollar in the money of account.” On its keeping he wrote: “There is scarcely any point, in the œconomy of national affairs of greater moment, than the uniform preservation of the intrinsic value of the money unit. On this the security and steady value of property essentially depend.” He rejected paying for the coinage out of the metal: “The first method appears to the Secretary inadmissible.” To degrade the unit, he wrote, is “obliging creditors to receive less than their just dues—and depreciating property of every kind”. A charge for coinage he called “a duty or imposition”.

The Coinage Act of 1792. The dollar was to contain “three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver”, and the eagle, “each to be of the value of ten dollars or units, and to contain two hundred and forty-seven grains and four eighths of a grain of pure, or two hundred and seventy grains” of standard gold. Debasement at the Mint “for the purpose of profit or gain, or otherwise with a fraudulent intent” was a felony: the offender “shall suffer death”. And “the money of account of the United States shall be expressed in dollars or units”.

The Act of 1834. “An Act concerning the gold coins of the United States”: “each eagle shall contain two hundred and thirty-two grains of pure gold”. Forty-two years after 1792, Congress used its power to regulate the Value to lower the gold in its own coin.

The words in 1828. Webster’s American Dictionary, the first American dictionary:

• Regulate: “To adjust by rule, method or established mode”; “To put in good order”; “To subject to rules or restrictions”.
• Value: “Price; the rate of worth set upon a commodity, or the amount for which a thing is sold.”
• Tax: “A rate or sum of money assessed on the person or property of a citizen by government, for the use of the nation or state.” Also: “a term of general import, including almost every species of imposition on persons or property for supplying the public treasury, as tolls, tribute, subsidy, excise, impost, or customs.”
• Revenue: “The annual produce of taxes, excise, customs, duties, rents, etc. which a nation or state collects and receives into the treasury for public use.”
• Gain: “Profit; interest; something obtained as an advantage.” Also: “Overplus in computation; any thing opposed to loss.”

1913 · Income, gain and the gold dollar

The dollar. The Gold Standard Act of 1900 was “An Act To define and fix the standard of value”. It made “the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine” “the standard unit of value”, and “all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard”.

The Amendment. Congress proposed it in 1909 in the words “from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” The National Archives dates it: “Passed by Congress July 2, 1909. Ratified February 3, 1913.”

The word “income” in the ratifying years.

• Black’s Law Dictionary (2d ed., 1910): “The return in money from one’s business, labor or capital invested; gains, profit or private revenue.” And: “”Income,“ when applied to the affairs of individuals, expresses the same idea that ”revenue“ does when applied to the affairs of a state or nation.” The income tax: “A tax on the yearly profits arising from property, professions, trades, and offices.”
• Webster’s Revised Unabridged (1913): “That gain which proceeds from labor, business, property, or capital of any kind, as the produce of a farm, the rent of houses, the proceeds of professional business, the profits of commerce or of occupation, or the interest of money or stock in funds, etc.; revenue; receipts; salary; especially, the annual receipts of a private person, or a corporation, from property”.

In both, income is a gain or profit drawn from capital, labor or business. In Black’s it is counted as a “return in money”. Neither counts it in goods or in purchasing power.

The first income tax under the Amendment. H.R. 3321 became the Act of October 3, 1913: “An Act To reduce tariff duties and to provide revenue for the Government, and for other purposes.” It laid “upon the entire net income arising or accruing from all sources in the preceding calendar year to every citizen of the United States” “a tax of 1 per centum per annum upon such income”. That net income included “gains, profits, and income derived from salaries, wages, or compensation for personal service”, “the transaction of any lawful business carried on for gain or profit, or gains or profits and income derived from any source whatever”. The same Congress passed the Federal Reserve Act, H.R. 7837, “to furnish an elastic currency”, eleven weeks later.

Prices under the gold dollar. While the dollar stayed fixed at 25.8 grains of gold nine-tenths fine, the consumer price index (1982–84 = 100) went from 9.9 in 1913 to 20.0 in 1920, and back to 16.8 in 1922 (BLS, historical CPI-U). A dollar fixed in gold was not a dollar fixed in purchasing power. The ratifiers’ unit was fixed in metal, and income counted in it was counted in money.