# The meaning of the time · 1787 and 1913

> Most of the leading founders would have opposed the policy; the text they wrote leaves its cure to Congress.

Gavin Robert McGowen · interstellarblends.com. A study of the texts, not legal advice.

Canonical: https://clause5loop.com/meaning/

## The scalpel

- Hamilton: “the uniform preservation of the intrinsic value of the money unit” was of the greatest moment; to degrade it leaves creditors “less than their just dues”.
- 1787: “a favorable moment to shut and bar the door against paper money” (Ellsworth). Washington: paper money opens “a door to every species of fraud and injustice”.
- Against: Mercer “was a friend to paper money”, and Franklin found the depreciation “a gradual Tax” that “has fallen more equally than many other Taxes”.
- So most of the leading founders would have opposed the policy (strong support). The text they wrote leaves its cure to Congress, in a Bill begun in the House.
- 1913: income was “The return in money” (Black’s, 1910), in a dollar fixed in gold, and prices doubled by 1920 all the same.

## In plain words

In 1787 the Convention voted, nine states to two, to drop the words that allowed paper money, but its members disagreed about what that ruled out.

Most of the leading founders wanted a dollar that kept its value, and would have opposed a policy of shrinking it. Many would have called it unfair to tax the gain that the shrinking creates. But the Constitution they wrote leaves the fix to Congress.

In 1913 the dollar was tied to gold, yet prices doubled in seven years, and gains were still counted in dollars.

## The question

**Would the founders have agreed to the tax on inflation?**

Most of the leading founders would have opposed the inflation (strong support), and many would have counted a tax on its nominal gain an added injustice (moderate support). The text they wrote leaves both to Congress: under strict textualism the words govern, and the remedy is a Bill to index basis, begun in the House.

## The study, as written

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. Read together, the founders' words condemn a policy of lowering what the money unit is worth, and the text they wrote leaves the remedy to Congress.

### 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.

### What the founders would have agreed to

The founders' words answer two questions, and the answers differ: what they would have made of the policy, and what the text they wrote allows. No passage in the record speaks of a dollar managed to lose its buying power at a stated rate, or of a tax on gains, so the first answer is an inference. It is set out below step by step, each step graded.

**What they held.** Hamilton: "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." Raising the denomination of the coin was "a measure, which has been disapproved by the wisest men of the nations, in which it has been practised, and condemned by the rest of the world", and its consequence is "to degrade the money unit; obliging creditors to receive less than their just dues—and depreciating property of every kind". The Coinage Act of 1792 made debasement at the Mint "for the purpose of profit or gain, or otherwise with a fraudulent intent" a felony, and the offender "shall suffer death". At the Convention, Ellsworth saw "a favorable moment to shut and bar the door against paper money": "The power may do harm, never good." Read thought the words, if not struck out, "would be as alarming as the mark of the Beast in Revelations", and Langdon "had rather reject the whole plan than retain the three words". Madison set "A rage for paper money" beside "any other improper or wicked project" (The Federalist No. 10), and he counted the loss "from the pestilent effects of paper money" as "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" (No. 44). Washington wrote in January 1787: "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." Franklin called the depreciation of the war's paper a tax: "it has operated as a gradual Tax upon them".

**Who dissented.** The record keeps the other side. Mercer "was a friend to paper money". Mason, for all his "mortal hatred to paper money", "was unwilling to tie the hands of the Legislature", and "observed that the late war could not have been carried on, had such a prohibition existed". Virginia voted to strike the words on Madison's acquiescence, once he was satisfied that striking them "would not disable the Govt. from the use of public notes as far as they could be safe & proper". Franklin found the depreciation a more equal tax than many: "Thus it has proved a Tax on Money, a kind of Property very difficult to be taxed in any other Mode; and it has fallen more equally than many other Taxes, as those People paid most who being richest had most Money passing thro’ their Hands."

**The inference, step by step.**

1. What they condemned was a fall in what the money unit is worth, which leaves creditors "less than their just dues" and depreciates "property of every kind" (stated).
2. The Federal Open Market Committee aims at "inflation at the rate of 2 percent" a year: a fall in what the dollar buys, by design (stated).
3. So most of the leading founders would have opposed the policy that drives the loop (strong support). Against it stand the dissent above and a difference of kind: what they condemned was paper money and the degrading of the coin, and a stated rate that lenders can price in is a policy none of them saw.
4. The text they wrote has no rule for measuring income: the power to tax incomes "from whatever source derived, without apportionment" came in 1913. What they did write ties justice to the unit's worth: Hamilton set its fall against the creditor's "just dues", and Franklin called it "a gradual Tax". A tax on the part of a gain that is only that fall taxes as gain a rise that buys nothing more. So many of them would have counted that tax an added injustice (moderate support). Against it: no passage in the record speaks of a tax on gains, Franklin found the depreciation a more equal tax than many, and the Constitution counts its own sums in dollars.
5. Their remedy for a grievance of this kind is the House's purse, "the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure" (The Federalist No. 58). So, sitting in Congress today, most of the leading founders would move to close the loop by a Bill begun in the House (moderate support, the grade of step 4). Their own answer at the money end, in 1792, was a unit fixed in metal; at the tax end, the cure the words leave is a Bill to index basis.

**What the text they wrote allows.** Their judgment on paper money went into the text as a rule for the States: "No State shall … emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts". They laid no such rule on Congress. They struck the words "and emit bills" and disagreed in the room about what the strike forbade; they gave Congress the power "To coin Money, regulate the Value thereof"; and they wrote no measure of income. The Court later held the exigency for paper money "a political question, to be determined by Congress". Read by its words, the text leaves the management of money and the measure of gain to Congress (K-A7 and K-B2, strong support). A policy the founders would have opposed does not, for that reason, violate the words they wrote. Under strict textualism the words govern, and the founders' judgment, where it goes beyond their words, is a reason for a Bill and not a ground for a ruling.

**The answer.** The founders' principles condemn the inflation half of the loop (strong support), and many of them would have counted the tax on its nominal gain an added injustice (moderate support). Sitting in Congress today, most of the leading founders would move to close the loop (moderate support). The text they ratified leaves both halves to Congress, and the remedy it gives is a Bill to index basis, begun in the House.