Source: http://constitutionalmoney.org/gold-clause-cases-mr-justice-mcreynolds-dissenting
Timestamp: 2019-04-22 12:24:15+00:00

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JUSTICE VAN DEVANTER, MR. JUSTICE SUTHERLAND, MR. JUSTICE BUTLER, and I conclude that, if given effect, the enactments here challenged will bring about confiscation of property rights and repudiation of national obligations. Acquiescence in the decisions just announced is impossible; the circumstances demand statement of our views.
By the so-called gold clause — promise to pay in “United States gold coin of the present standard of value,” or “of or equal to the present standard of weight and fineness” — found in very many private and public obligations, the creditor agrees to accept and the debtor undertakes to return the thing loaned or its equivalent. Thereby each secures protection, one against decrease in value of the currency, the other against an increase.
The clause is not new or obscure or discolored by any sinister purpose. For more than 100 years, our citizens have employed a like agreement. During the War Between the States, its equivalent “payable in coin” aided in surmounting financial difficulties. From the housetop men proclaimed its merits while bonds for billions were sold to support the World War. The Treaty of Versailles recognized it as appropriate and just. It appears in the obligations which have rendered possible our great undertakings — public works, railroads, buildings.
In Feist v. Societe Intercommunale Belge d’Electricite (1934), A.C. 161, the House of Lords expressed like views.
Earlier cases — Bronson v. Rodes, 7 Wall. 229; Butler v. Horwitz, 7 Wall. 258; Dewing v. Sears, 11 Wall. 379; Trebilcock v. Wilson, 12 Wall. 687; Thompson v. Butler, 95 U. S. 694 — while important, need not be dissected. Gregory v. Morris is in harmony with them, and the opinion there definitely and finally stated the doctrine which we should apply.
Furthermore, they furnish means for computing the sum payable in currency if gold should become unobtainable. The borrower agrees to repay in gold coin containing 25.8 grains to the dollar, and if this cannot be secured, the promise is to discharge the obligation by paying for each dollar loaned the currency value of that number of grains. Thus the purpose of the parties will be carried out. Irrespective of any change in currency, the thing loaned or an equivalent will be returned — nothing more, nothing less. The present currency consists of promises to pay dollars of 15 5/21 grains; the government procures gold bullion on that basis. The calculation to determine the damages for failure to pay in gold would not be difficult. Gregory v. Morris points the way.
In view of the statutory direction that gold coin for which certificates are issued shall be held for their payment on demand “and used for no other purpose,” it seems idle to argue (as counsel for the United States did) that other use is permissible under the ancient Act of March 3, 1863.
Heavy penalties were provided for failure to comply.
That the holder of one of these certificates was owner of an express promise by the United States to deliver gold coin of the weight and fineness established by statute when the certificate issued, or if such demand was not honored to pay the holder the value in the currency then in use, seems clear enough. This was the obvious design of the contract.
See U.S.C., Title 31, §§ 314, 429.
By Executive Orders, Nos. 6102, 6111, April 5, and April 20, 1933, the President undertook to require owners of gold coin, gold bullion, and gold certificates, to deliver them on or before May 1st to a Federal Reserve Bank, and to prohibit the exportation of gold coin, gold bullion, or gold certificates. As a consequence, the United States were off the gold standard, and their paper money began a rapid decline in the markets of the world. Gold coin, gold certificates, and gold bullion were no longer obtainable. “Gold is not now paid, nor is it available for payment, upon public or private debts” was declared in Treasury statement of May 27, 1933, and this is still true. All gold coins have been melted into bars.
The Gold Reserve Act of January 30, 1934, 48 Stat. c. 6, pp. 337, 342 undertook to ratify preceding Presidential orders and proclamations requiring surrender of gold, but prohibited him from establishing the weight of the gold dollar “at more than 60 percentum of its present weight.” By proclamation, January 31, 1934, he directed that thereafter the standard should contain 15 5/21 grains of gold, nine-tenths fine. (The weight had been 25.8 grains since 1837.) No such dollar has been coined at any time.
Four causes are here for decision. Two of them arise out of corporate obligations containing gold clauses — railroad bonds. One is based on a United States Fourth Liberty Loan bond of 1918, called for payment April 15, 1934, containing a promise to pay “in United States gold coin of the present standard of value” with interest in like gold coin. Another involves gold certificates, series 1928, amounting to $106,300.
As to the corporate bonds the defense is that the gold clause was destroyed by the Joint Resolution of June 5, 1933, and this view is sustained by the majority of the Court.
There is no challenge here of the power of Congress to adopt such proper “Monetary Policy” as it may deem necessary in order to provide for national obligations and furnish an adequate medium of exchange for public use. The plan under review in the Legal Tender cases was declared within the limits of the Constitution, but not without a strong dissent. The conclusions there announced are not now questioned, and any abstract discussion of congressional power over money would only tend to befog the real issue.
The fundamental problem now presented is whether recent statutes passed by Congress in respect of money and credits were designed to attain a legitimate end. Or whether, under the guise of pursuing a monetary policy, Congress really has inaugurated a plan primarily designed to destroy private obligations, repudiate national debts, and drive into the Treasury all gold within the country is exchange for inconvertible promises to pay, of much less value.
What has been already said will suffice to indicate the nature of these causes, and something of our general views concerning the intricate problems presented. A detailed consideration of them would require much time and elaboration; would greatly extend this opinion. Considering also the importance of the result to legitimate commerce, it seems desirable that the Court’s decision should be announced at this time. Accordingly, we will only undertake in what follows to outline with brevity our replies to the conclusions reached by the majority and to suggest some of the reasons which lend support to our position.
From 1792 to 1873, both the gold and silver dollar were standard and legal tender, coinage was free and unlimited. Persistent efforts were made to keep both in circulation. Because the harmony with exchange values, the gold coin disappeared, and did not in fact freely circulate in this country for 30 years prior to 1834. During that time, business transactions were based on silver. In 1834, desiring to restore parity and bring gold back into circulation, Congress reduced somewhat (6%) the weight of the gold coin, and thus equalized the coinage and the exchange values. The silver dollar was not changed. The purpose was to restore the use of gold as currency, not to force up prices or destroy obligations. There was no apparent profit for the books of the Treasury. No injury was done to creditors; none was intended. The legislation is without special significance here. See Hepburn on Currency.
The moneys under consideration in the Legal Tender Cases, decided May 1, 1871, 79 U. S. 12 Wall. 457, and 110 U. S. 110 U.S. 421, were promises to pay dollars, “bills of credit.” They were “a pledge of the national credit,” promises “by the government to pay dollars” “the standard of value is not changed.” The expectation, ultimately realized, was that, in due time, they would be redeemed in standard coin. The Court was careful to show that they were issued to meet a great emergency in time of war, when the overthrow of the government was threatened and specie payments had been suspended. Both the end in view and the means employed the Court held were lawful. The thing actually done was the issuance of bills endowed with the quality of legal tender in order to carry on until the United States could find it possible to meet their obligations in standard coin. This they accomplished in 1879. The purpose was to meet honorable obligations, not to repudiate them.
What was said in those causes, of course, must be read in the light of all the circumstances. The opinion gives no support to what has been attempted here.
This Court has not heretofore ruled that Congress may require the holder of an obligation to accept payment in subsequently devalued coins, or promises by the government to pay in such coins. The legislation before us attempts this very thing. If this is permissible then a gold dollar containing one grain of gold may become the standard, all contract rights fall, and huge profits appear on the Treasury books. Instead of $2,800,000,000 as recently reported, perhaps $20,000,000,000, maybe enough to cancel the public debt, maybe more!
The power to issue bills and “regulate values” of coin cannot be so enlarged as to authorize arbitrary action, whose immediate purpose and necessary effect is destruction of individual rights. [Footnote 2/2] As this Court has said, a “power to regulate is not a power to destroy.” Reagan v. Farmers’ Loan & Trust Co., 154 U. S. 362, 154 U. S. 398. The Fifth Amendment limits all governmental powers. We are dealing here with a debased standard, adopted with the definite purpose to destroy obligations. Such arbitrary and oppressive action is not within any congressional power heretofore recognized.
The authority of Congress to create legal tender obligations in times of peace is derived from the power to borrow money; this cannot be extended to embrace the destruction of all credits.
There was no coin — specie — in general circulation in the United States between 1862 and 1879. Both gold and silver were treated in business as commodities. The Legal Tender cases arose during that period.
The gold clauses in these bonds were valid, and in entire harmony with public policy when executed. They are property. Lynch v. United States, 292 U. S. 571, 292 U. S. 579. To destroy a validly acquired right is the taking of property. Osborn v. Nicholson, 13 Wall. 654, 80 U. S. 662. They established a measure of value and supply a basis for recovery if broken. Their policy and purpose were stamped with affirmative approval by the government when inserted in its bonds.
The clear intent of the parties was that, in case the standard of 1900 should be withdrawn, and a new and less valuable one set up, the debtor could be required to pay the value of the contents of the old standard in terms of the new currency, whether coin or paper. If gold measured by prevailing currency had declined, the debtor would have received the benefit. The Agricultural Adjustment Act of May 12th discloses a fixed purpose to raise the nominal value of farm products by depleting the standard dollar. It authorized the President to reduce the gold in the standard, and further provided that all forms of currency shall be legal tender. The result expected to follow was increase in nominal values of commodities and depreciation of contractual obligations. The purpose of § 43, incorporated by the Senate as an amendment to the House Bill, was clearly stated by the Senator who presented it. [Footnote 2/3] It was the destruction of lawfully acquired rights.
In the circumstances existing just after the Act of May 12th, depreciation of the standard dollar by the presidential proclamation would not have decreased the amount required to meet obligations containing gold clauses. As to them, the depreciation of the standard would have caused an increase in the number of dollars of depreciated currency. General reduction of all debts could only be secured by first destroying the contracts evidenced by the gold clauses, and this the resolution of June 5th undertook to accomplish. It was aimed directly at those contracts, and had no definite relation to the power to issue bills or to coin or regulate the value of money.
To carry out the plan indicated as above shown in the Senate, the Gold Reserve Act followed — January 30, 1934. This inhibited the President from fixing the weight of the standard gold dollar above 60% of its then existing weight. (Authority had been given for 50% reduction by the Act of May 12th.) On January 31st, he directed that the standard should contain 15 5/21 grains of gold. If this reduction of 40% of all debts was within the power of Congress, and if, as a necessary means to accomplish that end, Congress had power by resolution to destroy the gold clauses, the holders of these corporate bonds are without remedy. But we must not forget that, if this power exists, Congress may readily destroy other obligations which present obstruction to the desired effect of further depletion. The destruction of all obligations by reducing the standard gold dollar to one grain of gold, or brass or nickel or copper or lead, will become an easy possibility. Thus, we reach the fundamental question which must control the result of the controversy in respect of corporate bonds. Apparently, in the opinion of the majority, the gold clause in the Liberty bond withstood the June 5th Resolution notwithstanding the definite purpose to destroy them. We think that, in the circumstances, Congress had no power to destroy the obligations of the gold clauses in private obligations. The attempt to do this was plain usurpation, arbitrary, and oppressive.
The end or objective of the Joint Resolution was not “legitimate.” The real purpose was not “to assure uniform value to the coins and currencies of the United States,” but to destroy certain valuable contract rights. The recitals do not harmonize with circumstances then existing. The Act of 1900 which prescribed a standard dollar of 25.8 grains remained in force, but its command that “all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard” was not being obeyed. Our currency was passing at a material discount; all gold had been sequestrated; none was attainable. The resolution made no provision for restoring parity with the old standard; it established no new one.
This resolution was not appropriate for carrying into effect any power entrusted to Congress. The gold clauses in no substantial way interfered with the power of coining money or regulating its value or providing a uniform currency. Their existence, as with many other circumstances, might have circumscribed the effect of the intended depreciation and disclosed the unwisdom of it. But they did not prevent the exercise of any granted power. They were not inconsistent with any policy theretofore declared. To assert the contrary is not enough. The Court must be able to see the appropriateness of the thing done before it can be permitted to destroy lawful agreements. The purpose of a statute is not determined by mere recitals — certainly they are not conclusive evidence of the facts stated.
Again, if effective, the direct, primary, and intended result of the resolution will be the destruction of valid rights lawfully acquired. There is no question here of the indirect effect of lawful exercise of power. And citations of opinions which upheld such indirect effects are beside the mark. This statute does not “work harm and loss to individuals indirectly,” it destroys directly. Such interference violates the Fifth Amendment; there is no provision for compensation. If the destruction is said to be for the public benefit, proper compensation is essential; if for private benefit, the due process clause bars the way.
Congress has power to coin money, but this cannot be exercised without the possession of metal. Can Congress authorize appropriation without compensation of the necessary gold? Congress has power to regulate commerce, to establish post roads, etc. Some approved plan may involve the use or destruction of A’s land or a private way. May Congress authorize the appropriation or destruction of these things without adequate payment? Of course not. The limitations prescribed by the Constitution restrict the exercise of all power.
Congress may coin money; also it may borrow money. Neither power may be exercised so as to destroy the other; the two clauses must be so construed as to give effect to each. Valid contracts to repay money borrowed cannot be destroyed by exercising power under the coinage provision. The majority seem to hold that the Resolution of June 5th did not affect the gold clauses in bonds of the United States. Nevertheless, we are told that no damage resulted to the holder now before us through the refusal to pay one of them in gold coin of the kind designated or its equivalent. This amounts to a declaration that the government may give with one hand and take away with the other. Default is thus made both easy and safe.
Congress brought about the conditions in respect of gold which existed when the obligation matured. Having made payment in this metal impossible, the government cannot defend by saying that, if the obligation had been met, the creditor could not have retained the gold; consequently he suffered no damage because of the nondelivery. Obligations cannot be legally avoided by prohibiting the creditor from receiving the thing promised. The promise was to pay in gold, standard of 1900, otherwise to discharge the debt by paying the value of the thing promised in currency. One of these things was not prohibited. The government may not escape the obligation of making good the loss incident to repudiation by prohibiting the holding of gold. Payment by fiat of any kind is beyond its recognized power. There would be no serious difficulty in estimating the value of 25.8 grains of gold in the currency now in circulation.
These bonds are held by men and women in many parts of the world; they have relied upon our honor. Thousands of our own citizens of every degree, not doubting the good faith of their sovereign, have purchased them. It will not be easy for this multitude to appraise the form of words which establishes that they have suffered no appreciable damage, but perhaps no more difficult for them than for us. And their difficulty will not be assuaged when they reflect that ready calculation of the exact loss suffered by the Philippine government moved Congress to satisfy it by appropriating, in June 1934, $23,862,750.78 to be paid out of the Treasury of the United States. [Footnote 2/4] And see Act May 30, 1934, 48 Stat. 817, appropriating $7,438,000 to meet losses sustained by officers and employees in foreign countries due to appreciation of foreign currencies in their relation to the American dollar.
These were contracts to return gold left on deposit, otherwise to pay its value in the currency. Here, the gold was not returned; there arose the obligation of the government to pay its value. The Court of Claims has jurisdiction over such contracts. Congress made it impossible for the holder to receive and retain the gold promised him; the statute prohibited delivery to him. The contract being broken, the obligation was to pay in currency the value of 25.8 grains of gold for each dollar called for by the certificate. For the government to say we have violated our contract, but have escaped the consequences through our own statute, would be monstrous. In matters of contractual obligation the government cannot legislate so as to excuse itself.
Can the government, obliged as though a private person to observe the terms of its contracts, destroy them by legislative changes in the currency and by statutes forbidding one to hold the thing which it has agreed to deliver? If an individual should undertake to annul or lessen his obligation by secreting or manipulating his assets with the intent to place them beyond the reach of creditors, the attempt would be denounced as fraudulent, wholly ineffective.
Counsel for the government and railway companies asserted with emphasis that incalculable financial disaster would follow refusal to uphold, as authorized by the Constitution, impairment and repudiation of private obligations and public debts. Their forecast is discredited by manifest exaggeration. But, whatever may be the situation now confronting us, it is the outcome of attempts to destroy lawful undertakings by legislative action, and this we think the Court should disapprove in no uncertain terms.
Under the challenged statutes, it is said the United States have realized profits amounting to $2,800,000,000. [Footnote 2/5] But this assumes that gain may be generated by legislative fiat. To such counterfeit profits there would be no limit; with each new debasement of the dollar they would expand. Two billions might be ballooned indefinitely to twenty, thirty, or what you will.
In his letter with the Annual Report, for 1933, 375, he showed that, on June 30, 1933, $1,230,717,109 was held in trust against gold certificates and Treasury notes of 1890. The Treasury notes of 1890 then outstanding did not exceed about $1,350,000. Tr. Rep. 1926, 80.
Chief Justice Marshall in Fletcher v. Peck, 6 Cranch. 87, 10 U. S. 135.
Cong. Record, April, 1933, pp. 2004, 2216, 2217, 2219.

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