The Closet Moderate: Currency rebels

Monday, July 13, 2009

Currency rebels

Matthew Yglesias's blog brought this news item to my attention:

SACRAMENTO, Calif. (AP) — State vendors and contractors could use their government-issued IOUs to pay state taxes, fees and liens under a bill approved by an Assembly committee.

The Business and Professions Committee unanimously passed the bill by Assemblyman Joel Anderson during its first legislative hearing Tuesday. The bill requires the state to accept its own IOUs as payment for money owed to the government.

Anderson, a Republican from La Mesa, says the measure would help businesses and others being paid with IOUs. The state began issuing the warrants last week as lawmakers struggle to close a $26.3 billion deficit.

As a professional lawyer and amateur hard-money enthusiast, my mind immediately went to this provision of our federal Constitution:
No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts....
So, unless those IOUs are redeemable in specie, this law is clearly unconstitutional. The only things California can take as payment for taxes are U.S. dollars, gold, or silver. By passing this bill, the California legislators will violate their oath of office.

To emit a bill of credit, according to our Supreme Court in Craig v. Missouri, "conveys to the mind the idea of issuing paper intended to circulate through the community for its ordinary purposes, as money, which paper is redeemable at a future day." That is, for the state to write an IOU, allow it to circulate, and accept it as payment.

You can see why this is a part of the constitution. Imagine every state having its own money. Not only would it add ridiculous hassle to interstate commerce, but it would allow any state in a tight spot to inflate its own currency and degrade the wealth of its citizens. It's like if Italy stayed in the EU, but kept printing lira. Madness!

I once told one of my fellow bloggards that California would eventually have to be crushed by the rest of the Union, but I never imagined that its treason would begin with something as mundane as a dispute over legal tender.

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