Jonah Patel
The US Constitution contains few articles directly related to economics, but it does address money in Article 1, which outlines the structure and powers of Congress. Article 1, Section 8 assigns Congress the power to tax and borrow money, as well as to coin money and regulate its value, effectively giving the federal government its own monetary authority. Section 10 prohibits states from issuing paper money, while also protecting private property rights. The economic interests of the Founding Fathers have been the subject of much debate, with some arguing that certain clauses were included to benefit commercial and financial interests.
| Characteristics | Values |
|---|---|
| Mentions of Money | Article 1, Section 8 assigns Congress the power "to lay and collect taxes, duties, imposts and excises", giving the federal government its own taxing authority for the first time. |
| Article 1, Section 8 also authorises Congress "to borrow money on the credit of the United States" and "to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures". | |
| Article 1, Section 10 prohibits the states from coining money, issuing bills of credit, making anything but gold and silver coin a tender in payment of debts, or passing any law impairing the obligation of contracts. | |
| Constitutional Protections of Economic Activity | The prevailing opinion at the beginning of the 20th century was that the Constitution permitted little governmental interference with the free market. |
| The Great Depression shifted the perception, leading to increased regulation in industries such as minimum wages and maximum hours, workplace safety, collective bargaining, product safety, and trade practices. | |
| More recently, the trend has shifted back towards less governmental involvement in the economy. | |
| Economic Liberties | The Constitution's protections of basic liberties have been interpreted to include economic freedoms, such as the freedom to spend one's time as they choose. |
| Copyright Law | Copyright law enables artists to keep property rights over their works for a certain period, incentivising innovation. |
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What You'll Learn
The Constitution's economic interpretation
The Constitution of the United States makes only a passing mention of money and the economy. Article 1, Section 8 assigns Congress the power "to lay and collect taxes, duties, imposts and excises", giving the federal government its own taxing authority for the first time. This section also authorises Congress "to borrow money on the credit of the United States", and "to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures". Article 1, Section 10 prohibits the states from coining money, issuing bills of credit, making anything but gold and silver coin a tender in payment of debts, or passing any law impairing the obligation of contracts.
Despite the lack of explicit economic references in the Constitution, some historians have proposed an economic interpretation of the document. Charles A. Beard, in his 1913 book "An Economic Interpretation of the Constitution of the United States", argued that the Constitution was shaped by class conflict and the economic interests of those who drafted it. Beard pointed out that George Washington, the wealthiest landowner in the country, had provided significant funding towards the American Revolution. He traced the Constitutional guarantee that the newly formed nation would repay its debts to Washington's desire to have his costs refunded. Other historians supported Beard's interpretation, noting that the states confiscated large landholdings from Loyalists and distributed them to ordinary farmers.
However, Beard's interpretation has been contested by other scholars. Forrest McDonald, in "We The People: The Economic Origins of the Constitution" (1958), argued that Beard had misinterpreted the economic interests involved in writing the Constitution. By the early 1960s, it was generally accepted within the historical profession that Beard's Progressive interpretation had been refuted. American historians came to see the framers of the Constitution as motivated by concerns for political unity, national economic development, and diplomatic security.
The economic interpretation of the Constitution continues to be a subject of debate among historians and scholars, with some modifying and critiquing both Beard's and McDonald's interpretations.
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The Founding Fathers' intent
The Founding Fathers of the United States are those who wrote and signed the United States Declaration of Independence, the Articles of Confederation, and the Constitution of the United States. The 55 delegates who attended the Constitutional Convention in Philadelphia in 1787 are referred to as framers, and of these, 39 signed the document. The Founding Fathers crafted the Constitution as a practical blueprint for a functional government.
The Founding Fathers had differing beliefs and opinions about what the future United States should look like. They argued over federal intervention in the economy and foreign policy, and fought bitterly over how much authority rested with the executive branch. They established strong national institutions, including the presidency, Congress, and the judiciary, with careful design choices aimed at ensuring stability and continuity. They also established a division of power between the people and the government, branches of government, federal and state authorities, and government entities and individual rights.
The Founding Fathers were motivated by creating a government that upheld democratic values and protected individual liberties. This perspective is supported by documents like The Federalist Papers and the Declaration of Independence. However, some argue that the Founding Fathers were more interested in safeguarding their own socioeconomic status. For example, Alexander Hamilton, who rose from obscurity to become a towering force in the founding of the American republic, envisioned a nation fortified by unity, order, and economic strength. As the first secretary of the treasury, he swiftly moved to stabilize the young economy with an ambitious plan: federal assumption of state debts, the creation of a national bank, and protective tariffs to nurture American industry.
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Monetary policy
The U.S. Constitution mentions money and monetary policy only in Article 1, which outlines the structure and powers of Congress. Article 1, Section 8 assigns Congress the power "to lay and collect taxes, duties, imposts and excises," effectively giving the federal government its own taxing authority for the first time. Section 8 also authorises Congress "to borrow money on the credit of the United States," and "to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures." This was a reaction to the Articles of Confederation, which had reserved this authority exclusively to the states.
The Constitution's Article 1, Section 10 prohibits the states from coining money, issuing bills of credit, making anything but gold and silver coin a tender in payment of debts, or passing any law impairing the obligation of contracts. The power to coin money also means the authority to maintain such coinage as a medium of exchange at home and abroad.
Congress's principal influence on the value of the dollar today comes from implementing fiscal policy through appropriations and tax legislation, though this influence is very indirect and operates with a significant time lag. The Federal Reserve, the central bank of the United States, is responsible for providing the nation with a safe, flexible, and stable monetary and financial system. The Federal Reserve pursues economic goals as instructed by Congress, including promoting maximum employment, stable prices, and moderate long-term interest rates.
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State vs federal power
The United States employs a system of federalism, which divides powers between national and regional governments. Federalism has evolved through four distinct phases in US history: post-Founding, post-Civil War, post-New Deal, and from the Rehnquist Court to the present. The country's founding documents, the Articles of Confederation, were replaced by the Constitution in 1787, shifting from a treaty among sovereign states to a document ratified by the people. This new Constitution established a federalist system with a more balanced distribution of state and federal powers, though the power struggle between the two levels of government has persisted throughout the country's history.
The Tenth Amendment to the Constitution, part of the Bill of Rights, protects state power by limiting the federal government's ability to act. It states that "the powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people." This amendment was added to address concerns about the expanded powers of the new national government during the Constitution's ratification.
The Constitution grants Congress the power to "make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution." This "Necessary and Proper Clause" gives the federal government certain implied powers, as ruled by the Supreme Court in McCulloch v. Maryland. The Supreme Court plays a crucial role in defining these powers by testing the constitutionality of federal laws.
The Commerce Clause, found in Article I, Section 8, grants Congress the power to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." This broad power has become one of the most significant tools for the federal government to assert its authority.
In recent years, immigration has emerged as a contentious issue between state and federal powers. While the Constitution gives the federal government the power to make and enforce naturalization rules, regulate foreign commerce, and declare war on foreign nations, some states attempt to exert their own control over immigration and border control. Healthcare and public health are also areas of tension, with states challenging federal mandates in the Affordable Care Act as an overreach of federal power. During the COVID-19 pandemic, conflicts arose between federal authority over critical nationwide issues and state authority over public safety, schools, and businesses within their borders.
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The Federal Reserve System
The twelve regional Federal Reserve Banks are located across the nation and regulate privately owned commercial banks. Nationally chartered commercial banks are required to hold stock in their regional Federal Reserve Bank and can elect some of its board members. The Federal Reserve System also conducts research into the economy and publishes reports, such as the Beige Book and the FRED database.
In addition to stabilizing the financial system, the Federal Reserve has expanded its duties over time. It plays a role in operating the nation's payments system and facilitating the exchange of payments between regions. The Federal Reserve also supports responsible fintech innovation and works to strengthen the U.S. standing in the world economy.
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Frequently asked questions
The US Constitution mentions money in Article 1, which outlines the structure and powers of Congress.
Article 1, Section 8 assigns Congress the power "to lay and collect taxes, duties, imposts and excises", giving the federal government its own taxing authority. It also authorises Congress "to borrow money on the credit of the United States", "to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures".
Article 1, Section 10 prohibits the states from coining money, issuing bills of credit, making anything but gold and silver coin a tender in payment of debts, or passing any law impairing the obligation of contracts.
The Constitution's protection of economic activity and individual freedom has evolved over time. In the early 20th century, it was interpreted as permitting little governmental interference with the free market. However, following the Great Depression, the perception shifted towards the necessity of governmental intervention in the economy. Today, the trend is moving back towards less governmental involvement.
