Paper Money

Collectibles and Law: Highest court upholds greenbacks

Americans, north and south, have been commemorating the 150th anniversary of the Civil War, many by marking the passage of 150 years from particular battles, proclamations and other events as those anniversaries occur.

For numismatists, one of the most important Civil War events recently enjoyed its 150th anniversary, probably without much notice at all. I’m talking about the 1863 U.S. Supreme Court decision upholding the use of “greenbacks” — paper money issued under the Legal Tender Act of 1862 — in lieu of gold coin.

The issuance of paper money was itself controversial, both within President Lincoln’s cabinet and later in the press; at least one major newspaper denounced paper money as “repugnant to the Constitution.” Once legal tender notes began to circulate, it was inevitable that some creditor would refuse to accept them, setting up a legal challenge.

So it occurred that one Lewis H. Meyer tendered one of his creditors $8,171 in paper money, that being the entire principal and interest owed on a mortgage.

Refuses to accept notes

The creditor refused to accept the notes in full payment, contending that as of the date of tender the notes were worth 4 percent less than gold coin, thus requiring an additional $326.78 from Meyer to satisfy the debt.

The parties agreed to take their dispute to a New York court, submitting the following question for resolution: “Were the said notes of the United States a legal tender on the part of the plaintiff?”

The court accepted the creditor’s argument that Congress did not have the constitutional authority to issue fiat money, and ordered Meyer to pay the $326.78 difference.

Meyer appealed, and New York’s highest court, the Court of Appeals, reversed and ruled in Meyer’s favor. In the course of its opinion, the Court of Appeals noted that at the hearing the creditor had “relied” on constitutional provisions, including the Fifth Amendment, and “insisted” that Congress could not require him to accept less than what was due him without compensation.

Creditor appeals

The creditor appealed to the U.S. Supreme Court. Meyer took the position that the Supreme Court had no jurisdiction to hear the case. He told the court that the New York Court of Appeals had upheld the validity of a federal statute against the creditor’s argument that Congress did not have authority to issue paper money, and therefore no federal question was presented.

When the creditor argued that the cash discount meant that he was being deprived of property without due process in violation of the Fifth Amendment, Meyer responded that this had not been asserted as a separate claim in the courts below, the creditor having simply “relied” on the Constitution and “insisted” on his right to receive gold coin.

The Supreme Court issued a one-paragraph opinion agreeing with Meyer and dismissing the appeal for lack of jurisdiction. So the U.S. government was able to continue issuing, and the commercial world was required to accept, paper money in payment of debts.

One can imagine the fiscal chaos that might have ensued had the court agreed with Meyer’s creditor while Congress still had a war to finance. It was not until after the war, in 1870, that the Supreme Court reversed itself, considered the constitutionality of the Legal Tender Act, and ruled that Congress had no constitutional authority to issue paper money as legal tender.

So who was Meyer’s creditor anyway? James J. Roosevelt, father of future four-term president Franklin Delano Roosevelt.

What an irony that the son of a man who fought all the way to the Supreme Court for the right to have his debts paid in gold would himself remove gold from all domestic transactions and require everyone to use paper.

Armen R. Vartian is
an attorney and author of

A Legal Guide to Buying and Selling Art and Collectibles. Contact him

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