Econintersect: Lawyers, journalists and bloggers are having a field day discussing the proposal that the U.S. Treasury should engage in seigniorage as authorized by the literal reading of 31 USC § 5136 and 31 § 5134. A review of the discussions has been posted by Joe Firestone at New Economic Perspectives and reposted simultaneously with this News story at GEI Opinion. One of the most frequent detractors for the idea is John Carney of CNBC who has said: "Sorry Folks, The $1 Trillion Coin Is Unconstitutional." Yesterday GEI News covered some of the chatter on this topic. The discussion devolves to one regarding the constitutionality of the debt ceiling law as a counterpoint to the position that John Carney (and others) have espoused, and then ultimately to the question of constitutionality of the nation's money system itself.
The originator of the discussion about the trillion dollar platinum coin is attorney Carlos Mucha, who blogs under the nom de plum of "beowulf." His most recent essay on the legal issues was posted at Monetary Realism 04 January 2013:
“The path to salvation is narrow and as difficult to walk as a razor’s edge.”
Katha-Upanishad, 500 BC
John Carney, whose work ethic is admirable, has three (!!!) new CNBC columns out today about the trillion dollar coin and the debt ceiling (uno, dos, tres). John asserts that the trillion dollar coin would be unconstitutional and that even if the debt ceiling were eliminated, Congress could just as easily screw things up by refusing to authorize debt service payments. Leaving aside the folly of anticipating the next stupid thing Congress does while the current stupid thing has yet to be dealt with, debt service is actually one of the few unlimited, permanent appropriations in the US Code (31 USC 1305), its been on the books since 1874 so it would be a hard slog for Congress to remove that permanent appropriation (Wall Street lobbyists would not be pleased) AND then get it past a presidential veto. So in reality, to paraphrase Arthur Miller, interest must be paid!
But I digress. John’s main argument is that using the platinum coin statute to sidestep the debt ceiling is unconstitutional because its too vast a delegation of power by Congress to the Secretary of the Treasury.
“The statute authorizing the Treasury Secretary to mint platinum coins is very different. Here’s what the relevant section says:
The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities,denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.
There’s no intelligible principle here at all. Nothing to guide the Secretary of the Treasury about how to exercise this authority, no goal at which his discretionary decisions are aimed. This is just too broad to fit into our constitutional framework.”
I disagree, because, Congress has, in fact, left the Secretary walking on a razor’s edge with many burdens, and little discretion. His path is almost too narrow to fit into our constitutional framework, almost. But first, we must look to other sections of Title 31 to find the Secretary’s duties and powers.
The Secretary of the Treasury shall—
(2) carry out services related to finances that the Secretary is required to perform; *
(3) issue warrants for money drawn on the Treasury consistent with appropriations;
(4) mint coins, engrave and print currency and security documents [i.e. Treasury bonds], and refine and assay bullion, and may strike medals;**
(6) collect receipts…31 USC 321
*“The Secretary of the Treasury may borrow on the credit of the United States Government amounts necessary for expenditures authorized by law…” [subject to debt ceiling] 331 USC 3101 & 3104,
**“The Secretary of the Treasury… shall mint and issue coins described in section 5112 of this title in amounts the Secretary decides are necessary to meet the needs of the United States…” 31 USC 5111(a)(1)
Now here’s where John is wrong, the Secretary has no legal discretion in this matter whatsoever. His path is laid out by Congress like he’s the mechanical rabbit at a dog race.
1. Congress tells the Secretary (as supervisor of the IRS) how much to collect in tax receipts and (with somewhat less effort) in miscellaneous receipts.
2. Congress tells the Secretary as signatory of every single appropriation warrant how much money to transfer to federal agency sub-accounts (called “appropriation symbols” for some obscure reason).
3. Congress tells the Secretary he MAY borrow on the credit of the United State to fund expenditures but not for one penny more than the debt ceiling.
4. Congress tells the Secretary he SHALL mint coins such coins as he decides are necessary to meet the needs of the United States.
When Congress orders the Secretary to spend appropriations in excess of the receipts they’ve ordered him to collect, the unavoidable budget deficit must be filled by the combination of the Secretary’s powers to borrow (debt limit-constrained) money and to mint (debt-free) money. If Congress refuses to increase receipts or cut appropriations or extend the debt limit, the Secretary has only one and only one path to comply with all of his legal duties. Maybe I’m naive, but I’m confident the path to salvation will never be ruled unconstitutional by any United States Court.
The idea of debt-free money is not new. Benjamin Franklin was a proponent of continental script money in the colonies..
Titans of American industry who were not bankers championed the idea. See, for example, The New York Times, 06 December 1921. In an article on that day it is reported that Henry Ford of Henry Ford's proposal for him to be the private developer of the Muscle Shoals power project on the Tennessee River financed by government issued currency rather than bank issued credit. The NYT article suggests that the $30 million project would cost less than $33 million including Ford's mangement fee compared to $66 million if financed by bonds. Here is the summary of that by Thomas Edison:
Edison goes on to pose a question that has been asked by Econintersect editor John Lounsbury: If the dollar is the currency of the United States why should the United States pay interest to use it for public purpose? Isn't any such arrangement that requires that citizens pay taxes to provide income for private banks a modern form of feudalism where land of the former era (Middle Ages) is simply replaced by credit in the present time? Hasn't debt merely replaced land as the mechanism to impose serfdom on the populace?
Here is more from Edison in the NYT:
- Trillion Dollar Coin: Posts on Legality and Constitutionality (Joe Firestone, GEI Opinion, 06 January 2013)
- The Razor's Edge, John Carney and The trillion Dollar Coin (beowulf, Monetary Realism, 04 January 2013)
- Platinum Coin Seigniorage Goes Mainstream (GEI News, 05 January 2012)
- Sorry Folks, The $1 Trillion Coin Is Unconstitutional (John Carney, CNBC, 04 January 2013)
- If The $1 Trillion Coin Is Illegal, Isn't The Fed Illegal Too? (John Carney, CNBC, 04 January 2013)
- The Debt Ceiling Is Constitutionally Required (John Carney, CNBC, 04 January 2013)
- Coin Seigniorage and the Irrelevance of the Debt Limit (beowulf, 03 January 2011, FireDogLake)
- Thomas Edison on Government Created Debt-Free Money (Prosperity, September 2000)
- Ford Sees Wealth in Muscle Shoals (The New York Times, 06 December 1921)