Monday, July 13, 2009

California IOUs Unconstitutional? 

Dave Schuler at Outside the Beltway poses an interesting question: whether California's infamous IOUs constitute a violation of Article I, Section 10 of the United States Constitution, which reads in pertinent part as follows:
No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything 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.

About a half minute of research on the Internet uncovered the following definition for "bill of credit":
BILL OF CREDIT. It is provided by the Constitution of the United States, art. 1, s. 10, that no state shall " emit bills of credit, or make anything but gold and silver coin a tender in payment or debts." Such bills of credit are declared to mean promissory notes or bills issued exclusively on the credit of the state, and for the payment of which the faith of the state only is pledged. The prohibition, therefore, does not apply to the notes of a state bank, drawn on the credit of a particular fund set apart for the purpose. 2 M'Cord's R. 12; 2 Pet. R. 818; 11 Pet. R. 257. Bills of credit may be defined to be paper issued and intended to circulate through the community for its ordinary purposes, as money redeemable at a future day. 4 Pet. U. S. R. 410; 1 Kent, Com. 407 4 Dall. R. xxiii.; Story, Const. Sec. 1362 to 1364 1 Scam. R. 87, 526. (Emphasis added.)

Hmmm...I wonder what Jerry Brown said when asked about this. Or maybe nobody asked, because they knew they wouldn't like the answer.

I suppose the real question is, what is the practical effect if the IOUs are in fact bills of credit (which by plain reading they are)? Will Attorney General Holder send the FBI in to arrest Schwarzenegger? I doubt it. Will someone sue in Federal court seeking an injunction against the State of California issuing IOUs? I doubt that, too, because the state would be thrown immediately into chaos. On the other hand, it would probably be beneficial if the pols in Sacramento (and other state capitals, for that matter) got the crap scared out of them by someone doing something that would bring this issue before a federal judge, or even SCOTUS. The pols need to relearn the lesson that there's no such thing as a free lunch.

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