Two cases, decided by the Supreme Court
in 1871, upheld the constitutionality of paper money issued by
the U.S. Treasury. The Legal Tender Acts of 1862 and 1863 made
paper money a legal substitute for gold and silver, including
for the payment of preexisting debts.
In 1870, Chief Justice Salmon P. Chase,
who as Treasury secretary during the Civil War sponsored the
legal tender program, had written the opinion of the Court in Hepburn
v. Griswold, which divided, 5-3, in finding the acts
unconstitutional. In Hepburn, Chase had written that
such laws were inconsistent with the spirit of the
Constitution, which prohibited the states from passing
"any ... law impairing the obligation of contracts."
Further, an act compelling holders of contracts that called
for payment in gold or silver to accept as legal tender
"mere promises to pay dollars" was unconstitutional
because it deprived "such persons of property without due
process of law" under the Fifth Amendment. The Court
until this time had rarely found an act of Congress
unconstitutional. This decision also interpreted "due
process of law" to apply to the substance or effect
of a law, not just to the procedure followed in adopting it.
In 1871, the Court, with two new
justices on the bench, reversed itself with the legal tender
cases, Knox v. Lee and Parker v. Davis,
and declared the Legal Tender Acts constitutional. It said
Congress had the power "to coin money and regulate its
value" with the objects of self-preservation and the
achievement of a more perfect union. As to the argument that
the acts indirectly impaired the obligation of contracts, the
Court said that "no obligation of a contract can extend
to the defeat of legitimate government authority." Since
the acts were within the spirit of the Constitution, Congress
had not exceeded its authority.
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