No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit
; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
The present Congress can make requisitions to any amount they please, and the States are constitutionally bound to furnish them; they can emit bills of credit
as long as they will pay for the paper; they can borrow, both abroad and at home, as long as a shilling will be lent.
Why, here were old provincial bills of credit
, and treasury notes, and bills of land, banks, and all other bubbles of the sort, from the first issue, above a century and a half ago, down nearly to the Revolution.
The first act cracked down on the New England colonies, allowing the continued payment of public debts (i.e., taxes) in existing paper money (which had come to be called "bills of credit") but prohibited its use for private transactions.
In the meantime, the states, newly emancipated from the perceived restraints of the Currency Acts, were running the printing presses on their own, cranking out bills of credit that competed with Continentals in an inflationary--and eventually, hyperinflationary--race to the bottom.
Attempts to fix prices and compel redemption of bills of credit at par led to shortages and other ills.
This interpretation is supported by additional provisions, in Article I, section 10, prohibiting the states from coining money, emitting bills of credit, or "make[ing] any thing but gold and silver coin a tender in payment of debts." Contrary to the uninformed claims of some modern self-styled sophisticates, the American Founders were well aware of the distinction between coined and printed money, and did not intend for the nation they created to repeat the experiences of the Colonial period and the Revolutionary War with fiat money.
Their evidence includes (1) the instrument's ban on state emission of bills of credit and on certain related actions, (26) (2) the Fifth Amendment Due Process (27) and Takings Clauses (28) (both designed to prevent expropriation of the kind historically associated with paper money), (29) (3) the Founders' general dislike of paper money, (30) and (4) proceedings at the federal Convention where delegates deleted from an earlier draft of the Constitution an enumerated congressional power to emit bills of credit.
On the other hand, those who argue that the original Constitution authorized paper currency observe that the Constitution's specific bans on bills of credit and tender laws apply only to the states, and therefore (expressio unius est exclusio alterius) those prohibitions do not apply to the federal government.
(120) In 1690, Massachusetts issued the first government-sponsored American paper money in the form of 7000 [pounds sterling] in bills of credit. (121) That colony emitted another 33,000 [pounds sterling] the following year, of which 10,000 [pounds sterling] was eventually redeemed and burned.
(153) For example, in 1749, when the British government shipped 183,000 [pounds sterling] in specie to Massachusetts to reimburse the colony for war expenses, Thomas Hutchinson, the conservative Speaker of the colony's House of Representatives, convinced the legislature to dedicate the specie to retire outstanding bills of credit. (154) In 1751, Parliament prohibited the colonies from issuing any further "Paper Bills or Bills of Credit, of any Kind or Denomination whatsoever" other than short-term tax anticipation notes and funding for emergencies.
Massachusetts and Connecticut labeled their new issues "treasury notes" rather than "bills of credit." In Massachusetts, they bore interest and were convertible into specie on demand.