Everyone knows that, under the US Constitution, the Federal Government is the only government level that is allowed to coin money.
What happens, or could happen, if a state violates this provision? For example, if California up and passed a law creating “California Bux” as a legal tender currency in California, signed a treaty with Mexico, passed a bill of attainder against my little sister, granted me the noble titles of “Duke of SoCal” and “Earl of Los Angeles”, and issued a letter of marque authorizing your mom to raid Canadian shipping, what sort of penalty/punishment could the US Federal Government inflict on California? Would the US just do nothing and simply fail to recognize the acts (e.g. post offices and IRS agents would not accept “California Bux” as lawful payment but they would otherwise stay out of the matter)?
The US government would immediately cut off all Federal funding to California, that’s what. Just halting Federal Highway Funds is usually enough to get a state back into the fold. Witness Wyoming and speed limits. Or how everybody now has 21 as the legal drinking age. Never underestimate the power of the purse-strings.
There would be no need for such drastic action. A simple court order enjoining the State from taking these actions would be sufficient. If they disobey the federal courts, then you just send in the army.
After the injunction against the state, all sorts of interesting things could happen. The government could tell all federally-chartered banks not to accept the state coins. The Fed could shut down access to the system for banks chartered in that state. Pressure could be put on all other states not to recognize transactions with that state’s banks. Pressure could be put on the credit card clearing system to stop doing business with the state, just as recently been done with Iran.
For the other things you mention, U.S. marshals could enter the state and legally start arresting state governmental officials right and left.
Would they? As usual with silly hypotheticals, the individual circumstances matter. No state would do any of these things unless the federal government was in a state of total or near-total collapse. The ability of the feds to take any actions would be doubtful, but equally the authority of any individual state would be even more questionable. You can’t begin to answer what would happen. What could happen is a thought experiment with possible answers. And those answers are that the federal government has all the power.
There are numerous examples of local governments, even states, issuing scrip. – strictly speaking, you can define a subway token as scrip, as well as those game tokens you get at Dave & Buster’s. The problem is getting someone to accept it. The Consitution says no one but the Feds can make money, and the Feds aren’t going to stand behind anything other than their own money. If the Feds say your California Bux aren’t worth what you (or California) claim they are, you’ll have trouble spending them.
As for the letters of marque and reprisal, I doubt if the Coast Guard will allow you to board ships and take prisoners, whether or not California says it’s okay.
The crucial point is that the scrip is not legal tender. If it’s accepted, and circulates widely, this is a rather abstract distinction as far as the average consumer spending the stuff at local businesses is concerned. It seems to them like the issuing authority is “printing its own money”. Yes, the state of California could issue a scrip for general circulation, though it’s highly unlikely. It would be legal. The IRS would be very interested, however, in making sure that it wasn’t being used to dodge taxes - something community barter and scrip programs have to be very careful about.
Remember that California printed IOUs in 2009 when it ran out of money. There was a lot of uncertainty as to how those would function – how they would be redeemable, whether they were tradeable, etc. The federal regulatory inquiry focused not on whether the IOUs were money but whether they were securities, and the state’s response (ironically) came close to arguing, “no, they’re not securities, they’re just money.” Strange days.
As I noted, though, subway tokens can be thought of as scrip (i.e, issued by a goernment authority and having a legally established value.) and they are, for lack of any better description, “coin.”
The Constitution prohibits states from doing three money-related things: (a) coining money; (b) declaring anything other than gold or silver legal tender; or (c) emitting bills of credit.
Coining money is the least important prohibition. I’ve discussed it here.
Legal tender is pretty clear—states can’t declare anything other than gold or silver as legal tender for payment for debts. If a state tried the action would go something like this:
Jinx the Cat owes me $1,000.
Illinois declares Tootsie Rolls legal tender for debts owed within Illinois, at a ratio of one per dollar.
Jinx pays me 1,000 Tootsie Rolls. I sue him for non-payment of debt.
An Illinois court finds for Jinx, citing the state law that Tootsie Rolls are legal tender.
I appeal to federal court. The federal court strikes down the Illinois law and tells Jinx to pony up the cash.
Finally, we have bills of credit. This is the most problematic of the prohibitions, and the one California comes closest to violating with its warrants. The distinction historically made by federal courts (see Craig v. Missouri) is that
Many times—during the Panic of 1837, Reconstruction, the Great Depression, and more recently in California—states have had to issue warrants because they were broke. Courts have held that those warrants weren’t “bills of credit” because they weren’t intended to circulate as money, even though they will usually be tradable between private individuals in a secondary market.
The closest real world example to what you’re talking about was the Liberty Dollar. You may remember seeing ads for it on TV. In the ads they just said it was a reproduction, and a collectible.
However, the sellers tried to position it as an alternate currency. The company’s creator has been sentenced to 15 years in prison. You can read some about it here, and there’s lots more about it on the web.
Not just states. Some local communities are printing their own money. Or scrip, or whatever you want to call it. Detroit for example. I don’t know how current this article is. Damn, I wish on-line articles would take care to include the date in them! Many don’t.
ISTM I read somewhere (but I can’t find it right now) that the U. S. Treasury takes a very dim view of this, and at the first scent of evidence, sends out the Secret Service storm troopers to search, confiscate, and destroy every shred of such. (Anybody know similarly, or otherwise? Anybody know of a cite?)
ETA: I see postariti ninjaed me on that. Yes, I think it’s those “Liberty Dollars” I’m thinking of.
Apparently there are several states talking about coining their own gold or silver money, or issuing certificates or electronic accounts backed by gold and silver. These attempts seem to be associated with right-wing politics.
See this and this for examples.
Scrip is not legal tender and nobody pretends it to be. Calling the Secret Service, which is in charge of counterfeiting - it’s original raison d’etre long before it started protecting presidents, storm troopers is ludicrous, as is the charge that they hunt down purveyors of scrip. As your your own cite - clearly labeled as updated 4/10/2009
I was thinking of other news stories I’ve read over the last few years, saying that Secret Service has clamped down on these, but I don’t have any cites I can immediately find.
