ArtI.S8.C5.1.3 Borrowing Power Versus Fiscal Power

Article I, Section 8, Clause 5:

[The Congress shall have Power . . .] To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; . . .

Usually the aggregate of the fiscal and monetary powers of the National Government – to lay and collect taxes, to borrow money and to coin money and regulate the value thereof – have reinforced each other, and, cemented by the necessary and proper clause, have provided a secure foundation for acts of Congress chartering banks and other financial institutions, 1 or making its treasury notes legal tender in the payment of antecedent debts. 2 But, in 1935, the opposite situation arose – one in which the power to regulate the value of money collided with the obligation incurred in the exercise of the power to borrow money. By a vote of eight-to-one the Supreme Court held that the obligation assumed by the exercise of the latter was paramount, and could not be repudiated to effectuate the monetary policies of Congress. 3 In a concurring opinion, Justice Stone declined to join with the majority in suggesting that the exercise of the sovereign power to borrow money on credit, which does not override the sovereign immunity from suit, may nevertheless preclude or impede the exercise of another sovereign power, to regulate the value of money; or to suggest that although there is and can be no present cause of action upon the repudiated gold clause, its obligation is nevertheless, in some manner and to some extent, not stated, superior to the power to regulate the currency which we now hold to be superior to the obligation of the bonds.4 However, with a view to inducing purchase of savings bonds, the sale of which is essential to successful management of the national debt, Congress is competent to authorize issuance of regulations creating a right of survivorship in such bonds registered in co-ownership form, and such regulations preempt provisions of state law prohibiting married couples from using the survivorship privilege whenever bonds are paid out of community property. 5

Footnotes

  1.  McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 407 (1819); Osborn v. Bank of the United States, 22 U.S. (9 Wheat.) 737, 861 (1824); Farmers' & Mechanics' Nat. Bank v. Dearing, 91 U.S. 29, 33 (1875); Smith v. Kansas City Title Co., 255 U.S. 180, 208 (1921).
  2.  Legal Tender Cases (Knox v. Lee), 79 U.S. (12 Wall.) 457, 540-47 (1871).
  3.  Perry v. United States, 294 U.S. 330, 353 (1935).
  4.  294 U.S. at 361.
  5.  Free v. Bland, 369 U.S. 663 (1962).