Thursday, July 16, 2009

Are California's IOU's Constitutional?

You'd think so. States issue debt all the time. But I came across this rather interesting article yesterday and I thought I'd share.

Basically the author is concerned about Article I Section 10 of the U.S. Constitution which states:

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.

He equates "emitting bills of credit" with the California IOU's. I'm skeptical given that IOU's have been used at least twice before in California's history. I suspect the key is that acceptance of the California IOU's has always been voluntary. Indeed, I'm of the opinion that as long as creditors are willing to go along, the state can pay with anything it wants.

Think about it for a second. If I owe you $5000.00 and in lieu cash I offer you my car as payment, you can if like, accept payment in that for and the debit is satisfied.

It seems clear to me that what Article I Section 10 is trying to prevent is forcing creditors to accept non-monetary compensation for legitimate debts-something that you do see in a lot of economically dysfunctional countries.

Actually as long as we're here, the very next clause is rather interesting too:

make anything but gold and silver coin a tender in payment of debts,

Does this mean I can demand that my state tax refund be paid to me in gold? I mean this isn't some kind of phony baloney "constitutional right like abortion or gay marriage that supporters insist is implied...despite the fact that there's no evidence for any such thing. This is an actual express provision of the U.S. constitution. It says it right there in black and white. It hasn't been repealed ergo it's valid law.

Well maybe, but my guess is that somewhere along the way there was a court case where it was found that what the founders meant was "the state has to pay you with real money" and the closest thing we have to real money these days is that green stuff the fed keeps churning out to pay Obama's bills.

This is just the sort of thing that makes Ron Paul supporters crazy...ok more crazy. Anyway it's an interesting little constitutional quirk.

No comments: