One of the points these columns have been pressing is that our country’s politics are in such extremes right now that we are getting down to the bedrock of the Constitution. For an example of what we mean by that, feature the email that came in, out of the blue, from one of the smartest politicians in the country. He writes about the prospect that California will be issuing more IOUs to pay its obligations and asks how it all squares with Section 10 of Article One of the Constitution.

What he’s asking about is the section of the Constitution that lays restrictions on the States. Article One grants, or with-holds, various powers in three successive sections. Section 8 enumerates what the United States Congress can do, such as, among others, laying and collecting taxes and declaring war. Section 9 prohibits the Congress from doing certain things — granting a title of nobility, say, or suspending the writ of habeas corpus. Then Section 10 lists the things the states are prohibited from doing, such as making a treaty or entering into a confederation, say, or coining money, or emitting bills of credit.

The prohibition on emitting bills of credit blocks states from issuing a bill that is designed to circulate as money on the credit of the state. Justice Story, in his commentary on this part of the constitution, wrote of the “evils attendant upon the issue of paper money by the states.” He wrote of the events after what he called “the peace of 1783” that ended the Revolutionary War. Public as well as private credit was “utterly prostrated” and the “fortunes of many individuals were destroyed” and the fortunes of all persons “were greatly impaired by the rapid and unparalleled depreciation of the paper currency.”

Story wrote of how, as far back as 1775, Congress directed what he called an “emission” of paper money that had a declaration right on the front that the bearer was entitled to receive a specified number of Spanish milled dollars “or the value thereof in gold or silver.” The scrip depreciated because Congress was without funds to redeem them, he noted. So Congress “endeavoured to give them additional credit by declaring, that they ought to be a tender in payment of all private and public debts; and that a refusal to receive the tender ought to be an extinguishment of the debt, and recommending the states to pass such tender laws.”

Congress went even further, Story relates, declaring that “whoever should refuse to receive this paper in exchange for any property, as gold and silver, should be deemed ‘an enemy to the liberties of these United States.’” Story called this a “course of violence and terror” that “so far from aiding the circulation of the paper, led on to still farther depreciation.” By 1779, the whole “emission” was more than $160 million. Congress declared that it would not exceed $200 million and, in Story’s words, “still held out to the public the delusive hope of an ultimate redemption of the whole at par.”

Various schemes were tried, with Story summing up this way: “At last the continental bills became of so little value, that they ceased to circulate; and in the course of the year 1780, they quietly died in the hands of their possessors. Thus were redeemed the solemn pledges of the national government! Thus, was a paper currency, which was declared to be equal to gold and silver, suffered to perish in the hands of persons compelled to take it; and the very enormity of the wrong made the ground of an abandonment of every attempt to redress it!”*

We offer that as a bit of background to underscore the emotion that  paper money ignited in our sages. They just detested it. They did not forbid the states from going into debt. The question was emitting bills of credit designed to circulate as money. Here’s how Story put the debt question “… as it might become necessary for the states to borrow money, the prohibition could not be intended to prevent such an exercise of power, on giving to the lender a certificate of the amount borrowed, and a promise to repay it.”

So the real question about the California IOUs is whether they are designed to circulate as money. If so, they are forbidden. If not, they are not forbidden. How does one know whether they are designed to circulate as money? One clue would be whether they were in small denominations. Another would be whether the IOUs are redeemable by the bearer. If they’re designed to serve as money, they’re just not permitted. And under no circumstances can California require anyone to accept one of its IOUs as tender in satisfaction of a debt. In actuality, the California IOUslook more like a check. But mark the point. Because the scrip loosed between the Revolutionary War and the Constitutional Convention engendered what Story called “the most enormous evils,” “grievances,” “oppressions,” and “chicanery,” the one thing California, or any other state, absolutely cannot do is require someone to accept in tender of a debt something other than gold or silver coins.

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*The manual of style of The New York Sun prohibits the quotation of material containing slammers (exclamation points), but an exception is made here for Justice Story, who, after all, cannot, at this stage, defend himself and was, clearly, carried away with emotion.