What Is a Dollar?

Don't Ask the Fed

By SETH LIPSKY

When the House committee on financial services met in March to hear testimony from the chairman of the Federal Reserve Board, all eyes were on Congressman Ron Paul of Texas. After Republicans won control of the House last year, Paul acceded to the chairmanship of the subcommittee on monetary policy, which has direct oversight of the Fed. A physician by trade and a libertarian by conviction, Paul had emerged over a long career in Congress as the leading proponent of sound money; for more than 30 years, he had been waiting to play a central role in the nation's monetary debate. So eager was Paul to open up the topic that it took him some 670 words to get his question out.

The congressman noted the Fed's legal responsibility to strive for stable prices and full employment, and offered a review that illuminated the instability on both fronts since the early 1970s. He discoursed on the symbiotic relationship through which the Fed and the Congress have been facilitating government spending. He spoke about the importance of a "measurement of value," and asserted that the value of the stocks in the Dow Jones Industrial Average had plunged to eight ounces of gold from 44 in 2000. He reported that he was unable to find a definition of the dollar in the United States Code and wondered how the Fed could manage its task without a definition of the national unit of account. He therefore concluded his remarks with a simple question: "[W]hat is your definition of a dollar?"

The Fed chairman, Ben Bernanke, sat through Paul's verbal torrent with a look of professorial politeness — resting his chin in his hand and extending two fingers to his left ear. When it was time for him to reply, he said that the congressman had raised "important points," and answered Paul's question with a familiar tautology: "My definition of the dollar is what it can buy." Consumers, Bernanke argued, "don't want to buy gold" but rather "want to buy food and gasoline and clothes and all the other things that are in the consumer basket."

Bernanke's answer may have represented the prevailing view of the United States government regarding the definition of its currency. But it also made Congressman Paul's point. For the answer indicated that the central bank that issues Federal Reserve notes has no definition of a dollar that lasts longer than the instant it takes prices to change or that makes any reference to the Constitution (or any other law, for that matter).

The view in Washington is that Americans will accept this state of affairs — in which our currency is defined purely in terms of purchasing power, which can be readily and frequently manipulated by the Federal Reserve through its control of the money supply — as an intrinsic facet of our complex global economic system. But it has not always been so, and in recent years, as the value of a dollar has collapsed to below a 1,500^th of an ounce of gold, a growing chorus has begun to wonder if it always should be.

Monetary-reform ideas floated in the wake of the Great Recession have covered a wide range — from the introduction of a formal gold standard, to the restoration of a role for gold in the international monetary system (proposed in an op-ed in the Financial Times last year by World Bank president Robert Zoellick), to the elimination of the Fed's mandate to pursue full employment as a policy goal, to the adoption of a formal "price rule" by which the Federal Reserve would use the price of gold as a marker in setting interest rates. Some states are even considering making gold and silver coins legal tender along with the dollar, and Utah has recently enacted a law to do so.

These proposals, motivated by the financial crisis and the fallen dollar, may seem startling or eccentric. They certainly tend to be treated that way by many mainstream economists. But they actually draw on a profound and long-running American debate about precisely the question that Congressman Paul asked of Chairman Bernanke — a debate rooted in the Constitution itself, shaped by revolutionary experience and two centuries of economic-policy judgments and Supreme Court decisions, and worthy of fresh reconsideration in our time.

THE POWER TO COIN

Article I, Section 8, of the U.S. Constitution plainly grants Congress the power to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures." That the power to coin was granted together with the power to fix the standard of weights and measures reflects the fact that the framers understood money as a measurement of value.

The dollar itself, however, was created by neither the Constitution nor the Congress. Although the framers used the word "dollars" twice in the Constitution — in permitting a tax on the slave trade in Article I, and in securing the right to trial by jury in the Seventh Amendment (which applies in cases where at least $20 are at issue) — the document itself contains no definition of the dollar. That fact suggests that the meaning was so widely understood that the framers felt no need to define it in the Constitution itself.

When the Second Congress of the United States — to which a number of the authors of the Constitution belonged — did define the dollar, it did so not by creating a new unit but by adopting the already existing one, to which it is clear that the Constitution's framers were referring when they used the word in the first place. Namely, it adopted as the national unit of account one of the most widely used coins in the world, the Spanish milled dollar, in which the notes that financed the American Revolution had been denominated.

The Congress did this in Section 9 of the Coinage Act of 1792, which created the United States Mint and required that there should be from time to time "struck and coined" at the mint "coins of gold, silver, and copper." The law established several denominations. In the case of dollars, each was "to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver." The law went on to fix the relative value of gold by weight at 15 times that of silver. For debasing a dollar, the pain the law established was death.

This definition of the dollar lasted until 1834, when both the gold and silver content of American coins was lowered and the ratio of silver to gold was changed to 16-to-1 by legislation. The Coinage Act of 1857 then took foreign coins out of circulation, requiring that they be melted down at the United States Mint and re-coined as American money. Once that was accomplished, gold emerged as the standard of money in America. As Arthur Nussbaum put it in a 1937 article, "The Law of the Dollar": "Only American gold coin remained unlimited legal tender."

 The period during which dollars were backed by gold or silver was interrupted by the Civil War. By December 1861, Abraham Lincoln's administration was unable to repay specie (that is, gold or silver) for the paper money America had already issued. But Lincoln and the Congress concluded that the Union's cause was worth risking all. On February 25, 1862 — in what the Supreme Court later called "an exigent crisis of the nation in which the government was engaged in putting down an armed rebellion of vast magnitude" — Congress passed the Legal Tender Act. The legislation authorized the issuance of $150 million in paper notes and established that, with some exceptions (mainly for foreign trade), the notes "should be receivable in payment of all taxes, internal duties, excises, debts, and demands of every kind due to the United States...and should also be lawful money and a legal tender in payment of all debts, public and private, within the United States."

It was Lincoln's Treasury secretary, Salmon Chase, who helped design and introduce the notes, which came to be called "greenbacks" for their faded green coloring. Chase, however, had a fractious relationship with Lincoln, who eventually accepted his resignation from the cabinet and nominated him to be chief justice of the United States. A few years after Chase landed on the Court, he found himself having to rule on the validity of the very paper money he had put into use.

The case involved a man named Henry Griswold, who had lent money to a woman the Supreme Court called a "certain Mrs. Hepburn." On June 20, 1860, Mrs. Hepburn, as the Court described it, had "promised to pay to Henry Griswold on the 20^th of February, 1862, eleven thousand two hundred and fifty ‘dollars.'" Note the quotation marks the Court put around the word "dollars." The Court observed that, because the note came due five days before Congress authorized the issuance of those $150 million in paper money, there was throughout the term of the loan "confessedly no lawful money of the United States, or money which could lawfully be tendered in payment of private debts, but gold and silver coin." But Mrs. Hepburn did not pay her loan on time; when she tried, two years later, to finally repay her debt, she did so in greenbacks.

Griswold gruffly refused to accept the notes, and the two of them ended up before the high bench in 1867. The Court was forced to confront the question of the government's authority to make paper notes the equivalent of gold and silver by fiat. Mrs. Hepburn lost her case in a 4-3 decision handed down in 1870, and it was Chief Justice Chase himself who laid out the salient points, writing:

It is not doubted that the power to establish a standard of value by which all other values may be measured — or in other words, to determine what shall be lawful money and a legal tender — is in its nature, and of necessity, a governmental power. It is in all countries exercised by the government. In the United States, so far as it relates to the precious metals, it is vested in Congress by the grant of the power to coin money. But can a power to impart these qualities to notes, or promises to pay money, when offered in discharge of preexisting debts, be derived from the coinage power, or from any other power expressly given?

It is certainly not the same power as the power to coin money. Nor is it in any reasonable or satisfactory sense an appropriate or plainly adapted means to the exercise of that power. Nor is there more reason for saying that it is implied in, or incidental to, the power to regulate the value of coined money of the United States, or of foreign coins. This power of regulation is a power to determine the weight, purity, form, impression, and denomination of the several coins and their relation to each other, and the relations of foreign coins to the monetary unit of the United States.

The Court went on to mark the point that "the power to make notes a legal tender" was not the same as "the power to issue notes to be used as currency." Chase noted that the Articles of Confederation, unlike the Constitution, gave the national government the power to emit bills of credit, which, the Court said, "are in fact notes for circulation as currency." The Supreme Court, he argued, had already reckoned that the U.S. Congress had the same power. But the Court's precedent "concluded nothing" on the question of legal tender. "Indeed," Chase wrote,

we are not aware that it has ever been claimed that the power to issue bills or notes has any identity with the power to make them a legal tender. On the contrary, the whole history of the country refutes that notion. The states have always been held to possess the power to authorize and regulate the issue of bills for circulation by banks or individuals, subject, as has been lately determined, to the control of Congress, for the purpose of establishing and securing a national currency; and yet the states are expressly prohibited by the Constitution from making anything but gold and silver coin a legal tender. This seems decisive on the point that the power to issue notes and the power to make them a legal tender are not the same power, and that they have no necessary connection with each other.

Thus the Court insisted that the government did not have the power to simply declare the greenback legal tender. In order to be grounded in the Constitution, the value of a dollar needed to somehow be grounded in specie. This decision in Griswold stands as the last time a majority of the Supreme Court came down on the side of so-called constitutional money. From then on, based on an evolving series of arguments, the judiciary empowered the Congress to build a regime of paper notes that had to be accepted in payment of debts.

EMERGENCY POWERS

The first prominent judicial argument in favor of making greenbacks legal tender can be found in Griswold itself, in a powerfully written dissent by Justice Samuel Miller. Justice Miller made much of the fact that the Constitution does not place on the federal government the same prohibition it places on the states against emitting bills of credit or making anything other than gold and silver coins legal tender. He reasoned that, since the federal government is not prohibited from taking such actions, it has the power to undertake them pursuant to the "necessary and proper" clause.

But for the carrying out of what enumerated power could the Court deem it necessary and proper to make the greenback legal tender? Miller's answer was the power to declare war and suppress insurrection. He noted that Congress had already used all of its enumerated powers to try to win the Civil War, but "with the spirit of the rebellion unbroken, with large armies in the field unpaid, with a current expenditure of over a million of dollars per day, the credit of the government nearly exhausted, and the resources of taxation inadequate to pay even the interest on the public debt, Congress was called on to devise some new means of borrowing money on the credit of the nation, for the result of the war was conceded by all thoughtful men to depend on the capacity of the government to raise money in amounts previously unknown." He went on:

The banks had already loaned their means to the Treasury. They had been compelled to suspend the payment of specie on their own notes. The coin in the country, if it could all have been placed within the control of the Secretary of the Treasury, would not have made a circulation sufficient to answer army purchases and army payments, to say nothing of the ordinary business of the country. A general collapse of credit, of payment, and of business seemed inevitable, in which faith in the ability of the government would have been destroyed, the rebellion would have triumphed, the states would have been left divided, and the people impoverished. The national government would have perished, and with it the Constitution which we are now called upon to construe with such nice and critical accuracy.

That the legal tender act prevented these disastrous results, and that the tender clause was necessary to prevent them, I entertain no doubt.

It is hard to deny the force of the war argument. It has always been the case that war trumps property, a point Lincoln himself made when, in claiming authority to enunciate the Emancipation Proclamation, he cited only the commander-in-chief clause. Certainly the war in which he led the United States was a just war, and certainly he had felt that the Legal Tender Act was essential to victory. Still, insofar as the act had fulfilled its important purpose, it had done so long before the Court reviewed the law. Griswold was, after all, decided five years after the war had ended. So although Miller's argument may have been right during wartime, perhaps Chase's logic — and the Court decision that rested on it — could have endured throughout peacetime.

In the event, this was not to be. Few precedents have lasted a shorter time than Griswold. The same day that the Court handed down its decision denying Mrs. Hepburn the right to use greenbacks to repay her debt, Lincoln's erstwhile general, Ulysses S. Grant, by that time serving as president, nominated two new justices to the high bench. Within a matter of months, the question of legal tender came yet again before the Court, and it soon became evident that the Court's reasoning in Griswold would not hold.

The two cases that raised the issue, Knox v. Lee and Parker v. Davis, came to be known as the Legal Tender cases. Knox was the clearer of the two, and so was the focus of the Court's reasoning and ruling in the case. Mrs. Lee was a Pennsylvanian, loyal to the Union, who owned a flock of 608 sheep in Texas. During the war, her flock was seized by the Confederate Army (which considered her an "alien enemy") and eventually sold to Mr. Knox. When, after the war, Mrs. Lee demanded restitution, Knox offered to pay her in greenbacks, and the matter landed in court. The lower court, as the Supreme Court later put it, "excluded all evidence as to the difference in value between specie and legal tender notes of the United States, and no evidence was allowed to go to the jury on this point."

The issue in contention on appeal, therefore, was the lower court's jury instruction, which, as the Supreme Court characterized it, went as follows: "In assessing damages, the jury will recollect that whatever amount they may give by their verdict can be discharged by the payment of such amount in legal tender notes of the United States." Mr. Knox alleged that this had led the jury, as the Supreme Court put it, "improperly to increase the damages" because of the jurors' sense that greenbacks were not worth as much as gold.

If the main issue had been whether a jury could adjust damages in a case based on its own sense of the shoddy nature of the paper currency, one could see how the Court might have stuck with the precedent laid down in Griswold. After all, what simpler way to exclude the vagaries of estimation by juries than to measure transactions in specie? This was the argument Chief Justice Chase made in his dissent in Knox. But for the justice who wrote the 5-4 majority opinion, William Strong, the issue turned out not to be how to measure the value of the sheep — or even the question of whether Mr. Knox had been overcharged or Mrs. Lee shortchanged — but rather one of making sure that Congress had the power to avert economic and political disaster.

"It would be difficult," Strong wrote, "to overestimate the consequences which must follow our decision. They will affect the entire business of the country, and take hold of the possible continued existence of the government. If it be held by this court that Congress has no constitutional power, under any circumstances, or in any emergency, to make treasury notes a legal tender for the payment of all debts (a power confessedly possessed by every independent sovereignty other than the United States), the government is without those means of self-preservation which, all must admit, may, in certain contingencies, become indispensable, even if they were not when the acts of Congress now called in question were enacted."

This is the way the greenback was first ratified by the Supreme Court. Several years after the Civil War, the justification for paper money was still articulated in the context of war, where not only property but life itself could be taken by the government in its campaign for victory. Because the Congress had acted in the midst of a grave emergency, the Court could not subsequently rule the Legal Tender Act unconstitutional without denying Congress the power to similarly take unavoidable emergency steps in a future war or other calamity. The phrase "under any circumstances, or in any emergency" suggests that the desire to empower Congress to act in a crisis must govern the Court's actions in a time of peace as well. Even the great honest-money advocate Edwin Vieira, writing in his seminal work Pieces of Eight, reckons that Justice Strong's "emphasis on the ‘salvation of government' [was]...perhaps understandable, in the historical context." One does not want, after all, an instinct for sound money to lead to national paralysis in the face of treason.

FIAT MONEY

The emergency justification for the greenback remained the governing precedent for just over a decade. But in 1884, the Court adopted a far broader justification for paper legal tender and, at least in principle, began pointing toward the era of fiat money. The case involved a New York cotton dealer named Juilliard, who went to court to gain payment of $5,100 for 100 bales of cotton that he had sold to a Connecticut man, Greenman, for $5,122.90. The buyer had paid him $22.90 in gold and silver coins, but had tried to foist off on Juilliard federal legal-tender notes of $5,000 and $100 for the rest. Juilliard had refused them.

Two decades after the end of the Civil War, the Court could no longer simply rest on emergency powers. Its 8-1 decision inJuilliard v. Greenman focused instead on the necessary and proper clause. Although the Constitution does not specifically grant Congress the power to emit bills of credit and make them legal tender, the power is implied, the Court reasoned. And it was not implied by the power to wage war but by the power to borrow money on the credit of the United States.

The lone dissenter was Justice Stephen Field. In 1848, Field had left his brother's law practice in New York City; soon after, he joined the rush for gold in California, where he became not a miner but, eventually, a justice of the California Supreme Court before being elevated by President Lincoln to the high bench. Field's dissent in Juilliard was a classic defense of the importance in monetary matters of the specie for which they had all rushed to the West. He reviewed the unhappy experience of the founding fathers with paper money in revolutionary times, described how the notes "depreciated until they became valueless in the hands of their possessors," and then offered his famous formulation: "So it always will be; legislative declaration cannot make the promise of a thing the equivalent of the thing itself."

His colleagues disagreed, and Juilliard firmly established the principle that, as the opening words of the Court's decision boldly proclaim, "Congress has the constitutional power to make the Treasury notes of the United States a legal tender in payment of private debts, in time of peace as well as in time of war."

By that time, however, Congress had already begun to comprehend the problem with a dollar that was not convertible to precious metal. In 1875, it passed the Specie Payment Resumption Act, which began a return to sound — or sounder — money in America. For the next century, despite the Court's authorization of paper money, American dollars were (to varying degrees) redeemable in gold. Following the Specie Payment Resumption Act, the administration of President Rutherford Hayes built up the nation's gold holdings, only to discover that once people believed dollars were convertible they stopped trying to convert them.

The principle of convertibility into gold held until 1933. The financial panic of the beginning of that year resulted in a run on banks; customers, fearful that the dollar would soon lose its value, demanded to receive the contents of their accounts in gold. As a result, both the Fed's gold reserves and the future of the dollar were seriously threatened. President Franklin Roosevelt responded with an extraordinary step: Executive Order 6102, issued on April 5, 1933, required all Americans to turn their private gold holdings in to the Federal Reserve in exchange for dollars (at the rate of $20.67 an ounce of gold), with just a few exceptions for small amounts of gold used by jewelers and artists. The convertibility of the dollar to gold was retained, but ordinary citizens could no longer treat them as truly interchangeable in practice. The private economy would have to function using paper money backed only implicitly by specie.

Congress then followed up with a law voiding the gold clauses in all private contracts — essentially making it illegal to demand or offer payment in gold — on the argument that such clauses interfered with the constitutional authority of the Congress to regulate the currency. Both of these moves were then reaffirmed in the Gold Reserve Act of 1934, and given a seal of approval by the Supreme Court in a series of "gold-clause cases" decided jointly, in a 5-4 vote, in February of 1935. The end result was that gold could no longer be used as a unit of currency or exchange in America. The prohibition on Americans' owning gold remained in effect until 1974.

The dollar did remain convertible to gold for several decades after the "gold-clause cases" — at least in principle, and for the purpose of foreign exchange. The Bretton Woods financial system, established by the major powers after World War II to help stabilize global markets, relied upon a stable value of the dollar in gold. The system required participating nations to peg the values of their currencies to the U.S. dollar (thus relying on the dollar to serve as a reserve currency, essentially playing the role that gold had played in the global economy until then), and the United States in turn agreed to link the dollar to gold at a rate of $35 per ounce and to convert dollars to gold upon the request of foreign governments. This way, the dollar was "good as gold," and the global monetary system still in essence relied on the strength of a gold exchange standard.

By the late 1960s, however, as the administration of Lyndon Johnson pursued the policy of guns in Vietnam and butter at home, the dollar was under pressure. Johnson withdrew from the London Gold Pool in 1968. The Bretton Woods system limped on until the early 1970s, when inflation in the United States caused some European nations to flee the system rather than devalue their own currencies in order to keep them pegged to the dollar. After France and Switzerland demanded to redeem more than $200 million in gold from the Federal Reserve, the Nixon administration decided the Bretton Woods arrangement was no longer viable, and declared that it would cease to make dollars convertible to gold.

By 1976, all the developed nations had floating currencies, and the age of true fiat money was inaugurated. The abrogation of Bretton Woods left nothing by way of a definition of the dollar, either in treaty or in law — a fact that was put in plain English by Federal Reserve chairman Alan Greenspan in 2001, a few years before he was succeeded by Bernanke. "In today's world of government-issued monies, the unit of currency is not, and need not be, defined," Greenspan said in Washington to the Euro50 Group Roundtable. "It circulates as legal tender under government fiat. Its value can be inferred only from the values of the present and future goods and services it can command." The transformation of the dollar's definition — from constitutionally fixed amount of specie to unmoored tautology — was complete.

THE UNAVOIDABLE QUESTION

Greenspan may have been right that today's dollar is not defined, as his successor's answer to Congressman Paul made clear. But was he also right to claim that it need not be?

The key problem with the floating fiat dollar is not, as both Greenspan's and Bernanke's comments suggested, that its value is defined by its purchasing power. The value of food and other goods and of services can rise and fall in terms of specie as well. Rather, what is different about a fiat currency is that its value can be easily manipulated by the central bank that controls the money supply. By printing more or less currency, the Fed can manage the purchasing power of each dollar. This can allow the Fed to respond to short-term economic conditions or to shocks to the system. But it is also a license to inflate and an enabler of reckless fiscal policy.

This is why, as we approach the double jubilee of the founding of the Fed, it increasingly seems that an institution created in 1913 — before the era of fiat money had been launched, or even widely imagined — has become in our time a means of promoting neither stable prices nor full employment, but rather of financing a level of federal spending that cannot be gained legislatively. And as the dollar has collapsed to a value in gold that millions of people who hold their savings in dollars would just a decade ago have thought impossible, many have also begun to think about the Fed's broad default as not only a policy failure, but a moral one.

Such alarm exists not only in America. There is also a school of thought that reckons that, if our currency is not placed on firmer footing, the role of the dollar as a reserve currency will be revoked by foreigners — like the communist Chinese regime, or even the Europeans. But it is hard to imagine either one of them stepping in to replace America. None of their currencies is a credible competitor. The European social democracies have been abject failures at managing their own currencies. Communist China, meanwhile, faces a reckoning over its enslavement of its own labor force that dwarfs the economic troubles faced by the capitalist countries as a result of their monetary errors. No other world power seems capable of challenging our economic dominance.

The problem, then, is not that our currency might be supplanted, but that America's potential for growth and prosperity might be sapped — that in feeding the endless hunger for more dollars to spend in Washington, we will leave our money ever more debased and our economy unstable and weak. Thus come signs from all over the country that people are seeking a competitor to the fiat dollar. Indeed, more than a dozen states are starting, if only that, to look at legislation aimed at making gold and silver coins legal tender.

States are prohibited by Article I, Section 10, of the Constitution from coining money of their own. They are also forbidden to make anything but gold and silver coin a tender in payment of debts. But a growing number of states — inspirited by a group called the American Principles Project — are using that sliver of daylight to explore the practicality of making gold and silver coins legal tender. One state, Utah, just enacted in March a law to do precisely that — declaring gold and silver coins legal tender in the state and exempting from the capital-gains tax any appreciation in value that might occur while persons are holding such coins in Utah. This means that if the value of the dollar drops further — that is, if there is a rise in the number of dollars that gold and silver coins will fetch — the holders of such coins will not be taxed in Utah on the gain. Instead, the coins will be regarded as money and, at least insofar as Utah is concerned, will provide a shelter from the ravages of monetary inflation. Though Utah's law may be dismissed as mere symbolism by its critics, it is an unambiguous vote of no confidence in our system of fiat money.

Utah's is not the only example of Americans' turning to seemingly obscure provisions of the Constitution to protect themselves as the dollar's value slips. Another recent instance directs our attention back to the courts, where the question of the value of the dollar was for so long fought out. It involves the Constitution's prohibition on lowering the pay of federal judges while they are in office; this prohibition was a response to one of the grievances against the British crown that were enumerated in the Declaration of Independence — that George III had made "Judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries."

Since federal judges serve for life, many remain on the bench for decades. Consequently, even though the dollar amount of their pay cannot be reduced, its purchasing power can be cut dramatically as the dollar's value declines. This problem grew so serious over time that Congress, in 1989, instituted an automatic cost-of-living adjustment for judges. But then Congress, being Congress, rescinded the adjustment — preventing it from taking effect in the budgets enacted for 1996, '97, '99, 2007, and 2010. Last year, in an astonishing move, a group of the most distinguished judges on the federal bench appealed to the Supreme Court in pursuit of back pay and restitution, as well as a declaration that the suspension of previously enacted cost-of-living adjustments amounted to an unconstitutional diminution of judicial compensation.

The case, Beer v. United States, inevitably raises the question of the value of judicial salaries, and therefore of the dollars in which they are paid. By my calculation, the pay of a federal appeals-court judge whose term is similar to that of one of the plaintiffs in Beer — Judge Laurence Silberman of the United States Court of Appeals for the District of Columbia Circuit — has been diminished to the equivalent of 120 ounces of gold a year, from the 255 ounces that was the value of the salary for a typical federal appeals-court judge who began serving when Silberman did in the mid-1980s. This reduction in purchasing power has occurred even as the nominal pay of such a judge soared over the same period, from $83,200 to $184,500 a year.

It happens that the judges suing in Beer are not asking the Supreme Court to overturn the Legal Tender cases. They are asking it merely to prohibit the Congress from rescinding a previously enacted cost-of-living adjustment. But if the case is carried to its logical conclusion, it is hard to see how the larger question — whether legal tender is constitutional — can be avoided. Or, to get back to the beginning, what, exactly, is a dollar?

RECOVERING SOUND MONEY

The history of the American debate over this question — the definition of the dollar — offers rich soil in which to plant a campaign for sound money. Reformers have looked at all kinds of ways to limit the freedom of action of our central bankers, from tying the dollar to a basket of goods (with specie merely one among them), to narrowing the Fed's legislated mandate to battling inflation rather than increasing employment, to moving to a system of private money, to moving toward a classical gold standard. It is hard, in any event, to think of a moment when the logic of reform has been more clear.

It is possible, of course, that the dollar will be rescued without the courts or the states entering the fray, and without a profound reconsideration of the role of our central bank. This is what happened in the wake of the inflation that erupted in the 1970s, after President Nixon brought the era of Bretton Woods to an end. President Jimmy Carter appointed Paul Volcker to chair the Federal Reserve Board, and Volcker turned out to be a chairman with the vision and mettle to stick to the kind of tight-money policy that the crisis required. The American people, meanwhile, handed up, in President Ronald Reagan, a politician with the experience and principles from which to craft complementary pro-growth fiscal and regulatory reforms. The result was that a generation of growth was begun and value began flowing back into the dollar.

At first blush, it is hard to imagine such a convergence of personalities today. But the 2012 presidential election season is young, and in recent months the monetary question has been raised in the Republican presidential scrum by several of the potential or announced contenders. A bipartisan majority in the Congress is seeking an audit of the Federal Reserve, and the courts and the states are wrestling with the question. It's hard to recall a moment that seemed more ripe for a reform that would address the question of the dollar's definition in terms of the principles of honest currency that seemed so obvious to our nation's founders.