Omar Bennett
The US Constitution grants Congress the power to borrow money on the credit of the United States. This power, known as the borrowing clause, is derived from Article I, Section 8, Clause 2 of the Constitution, which states that Congress shall have Power... [t]o borrow Money on the credit of the United States. This power is often referred to as an implied power, as it is not expressly listed in Article I of the Constitution but is deemed necessary and proper for Congress to carry out its enumerated powers effectively. The borrowing clause grants Congress the broad authority to borrow money for the general welfare of the United States, and it creates a binding obligation for the US government to repay its debts as stipulated.
Characteristics of the implied powers of borrowing money
| Characteristics | Values |
|---|---|
| Article | I |
| Section | 8 |
| Clause | 2 |
| Power | To borrow money on the credit of the United States |
| Obligation | To pay the debt as stipulated |
| Authority | To issue treasury notes and make them legal tender |
| Spending Clause | Authorizes Congress to spend money based on other enumerated powers |
| Necessary and Proper Clause | Congress can pass any laws considered "necessary and proper" for effectively exercising its "enumerated" powers |
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What You'll Learn
The implied powers of the US Congress
The US Constitution grants Congress a specific set of powers known as "expressed" or "enumerated" powers. However, the framers of the Constitution understood that the expressed powers would not be enough to address all the issues and situations that Congress would need to deal with over the years. As a result, the concept of implied powers came into existence, which refers to powers that Congress exercises despite not being expressly granted them by Article I, Section 8 of the Constitution. These implied powers are derived from the Constitution's "Elastic Clause" (also known as the "Necessary and Proper Clause"), which authorises Congress to pass any laws deemed "necessary and proper" for effectively exercising its enumerated powers.
One example of Congress' implied powers is the creation of banks, which the court affirmed was related to Congress' enumerated powers to collect taxes, borrow money, and regulate interstate commerce. Another example is the enactment of gun control laws, which Congress may not seem to have the constitutional power to pass, but it does under its implied powers. Similarly, the military draft law, which is always controversial, falls under Congress' implied power to "provide for the common Defence and general Welfare of the United States."
The implied powers of Congress also extend to its spending and borrowing capabilities. Article I, Section 8, Clause 1, also known as the "`taxing and spending` clause," and Clause 2, the "borrowing clause", grant Congress broad authority to borrow and spend money for the general welfare of the United States. This power has been used to create programs such as Social Security and Medicaid. When Congress borrows money "on the credit of the United States," it creates a binding obligation to repay the debt as agreed upon and cannot subsequently alter the terms.
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The taxing and spending clause
The clause states that Congress has the power:
> "To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States."
This means that Congress can raise revenue through various means, such as taxes, duties, and excises, and use this revenue to pay off debts, fund defence initiatives, and promote the general welfare of the country. The taxing power of Congress is broad and not limited to any specific type of tax, leaving open the possibility of various taxation methods.
The spending clause has been a source of debate since the inception of the federal government, with differing interpretations of the extent of Congress's spending power. Alexander Hamilton, representing the Federalist Party, argued that Congress had a robust power to tax and spend to advance the general welfare of the people. On the other hand, James Madison, representing the Democratic Republican Party, contended that Congress's spending power was limited to the specific grants of authority listed in Article I, Section 8.
The Supreme Court has generally embraced a broader interpretation of the spending clause, known as the Hamiltonian perspective. In Helvering v. Davis, the Court interpreted the clause expansively, giving Congress plenary power to impose taxes and spend money for the general welfare with minimal judicial review. However, in NFIB v. Sebelius (2012), the Court clarified that Congress's spending power is not unlimited, and conditioning the receipt of federal funds on certain state actions could be unconstitutionally coercive.
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Congress's power to borrow money
The "borrowing clause" grants Congress the ability to raise funds by borrowing, which is closely linked to its power to raise revenue through taxation. This power is essential for the federal government to function effectively, particularly during times of war or economic hardship. By borrowing money, Congress can avoid resorting to more extreme measures such as imposing excessive taxes or relying on lotteries and other oppressive means to generate revenue.
The power to borrow money carries a corresponding obligation to repay the debt as stipulated. When Congress borrows money on the credit of the United States, it enters into a binding agreement with the lender. This means that Congress cannot unilaterally change the terms of repayment after the fact. This aspect of Congress's borrowing power was affirmed in cases such as Perry v. United States (1935) and Lynch v. United States (1934).
The interpretation and application of the "borrowing clause" have been subject to debate and legal precedent. During the drafting of the Constitution, there was a spirited discussion about the inclusion of this clause. Initially, the clause allowed Congress to "emit bills on the credit of the United States", but after a vote, the words "emit bills" were removed. Despite this, in 1870, the Court relied on this clause to affirm Congress's authority to issue treasury notes and make them legal tender.
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The creation of banks
The history of banking dates back to ancient times, with the merchants of Assyria, India, and Sumer providing grain loans to farmers and traders around 2000 BCE. In ancient Greece and during the Roman Empire, lenders based in temples provided loans, accepted deposits, and performed money exchanges. The earliest forms of storage used were money-boxes, and later, wealthy merchants began lending coins with interest. The Romans further formalized banking within distinct buildings, and by the time of Julius Caesar, bankers could confiscate land in place of loan payments.
The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing branches across Europe. The Medici Bank, founded in 1397, became the most famous Italian bank. In 1796, the Banque de France was founded and later played a crucial role in resolving the financial crisis of 1848, emerging as a powerful central bank. In 1812, James Mayer Rothschild established the influential "De Rothschild Frères" bank in Paris, which funded Napoleon's return from Elba.
In the United States, the Federal Reserve Bank (the Fed) was established in 1913, shifting some power away from private bankers. World War I marked a significant shift, as the United States became a global lender, overtaking London as the financial centre of the world. The U.S. government's insistence on debtor nations repaying their war loans slowed world trade and caused tensions with other countries.
The creation and evolution of banks have been influenced by various factors, including wars, economic crises, and shifts in global power dynamics. The development of central banks and the concentration of financial power have had significant implications for the international financial system.
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The Necessary and Proper Clause
Article I, Section 8, Clause 2 of the U.S. Constitution is known as the "borrowing clause", empowering Congress to borrow money and spend it for the general welfare of the United States. The Necessary and Proper Clause, or the "elastic clause", is a part of the implied powers granted to Congress under Article I, Section 8, Clause 18 of the U.S. Constitution. It gives Congress the authority to pass legislation necessary for executing its enumerated powers, providing flexibility in achieving its responsibilities.
The Supreme Court has interpreted the Necessary and Proper Clause as an extension of the federal government's powers, particularly those enumerated in Article I. This interpretation has given Congress broad authority over money and currency, allowing it to establish a national bank, regulate interstate commerce, and exert control over the national economy. The Necessary and Proper Clause has been pivotal in cases such as McCulloch v. Maryland, where the Court upheld Congress's power to establish a national bank, and Juilliard v. Greenman, which addressed the legal tender status of paper notes.
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Frequently asked questions
The implied power of borrowing money is the power of Congress to borrow money and emit bills on the credit of the United States.
Borrowing money on the credit of the United States means that Congress creates a binding obligation to pay the debt as stipulated and cannot thereafter vary the terms of its agreement.
The implied power of borrowing money does not include the power to emit bills or make them legal tender.
In 1870, the Court held that Congress had the authority to issue treasury notes and make them legal tender in satisfaction of antecedent debts. In McCulloch v. Maryland (1819), the Supreme Court ruled that under the Necessary and Proper Clause, Congress had the power to establish a national bank to carry out its powers to collect taxes, pay debts, and borrow money.
