Constitution 101: The Borrowing Clause

When our Founders drafted the Constitution, they envisioned three branches of government with equal strength, balanced by a system of checks and balances. Yet they clearly leaned toward strengthening Congress.

Article I, Section 8, which outlines the powers of Congress, is, by far, the longest and most detailed section of the Constitution. As discussed last month, Congress was given the sole authority to collect taxes and spend public funds. Recently, the Supreme Court relied on this taxing power in overturning President Trump’s tariffs.

The very next provision, Clause 2, appears simple at first glance, as it’s the shortest. But what fun would that be?

Article I, Section 8, Clause 2 reads: “[The Congress shall have Power] To borrow Money on the credit of the United States.”

At face value, this seems straightforward. However, to understand the Borrowing Clause, we must first understand what “money” meant to the Founders.

In colonial America, money meant “hard money,” gold and silver coin. Only hard money was considered truly stable and reliable. Yet emergencies — especially wars — often required more funds than hard currency could provide. During the Revolutionary War, both the Continental Congress and the states printed paper currency to pay soldiers and fund the war effort. This paper currency, often called “soft money,” was not backed by gold or silver. Its primary value came from the fact that it could be used to pay taxes, which gave it legitimacy and allowed it to circulate in commerce.

Typically, once the government collected this paper money through taxes, it was destroyed to remove it from circulation and restore reliance on hard money. The fear then, and now, was increasing the money supply led to depreciation and inflation. After the Revolution, inflation severely weakened our young nation’s economy.

This created a deep divide. Debtors often appreciated inflation because it made loans easier to repay. Creditors, however, strongly opposed paper money. If they loaned hard money but were forced to accept depreciated paper currency at face value, they effectively lost wealth. As a result, paper money became one of the most contentious political issues in the decades following independence.

When it came time to write the Constitution, originally, the Borrowing Clause read: “To borrow money and emit bills on the credit of the United States.”

To “emit bills” meant to issue paper currency. When the clause came before the Constitutional Convention’s Committee of Detail, Gouverneur Morris of New York led the effort to remove the phrase “emit bills.” The opposition to paper money was intense. One delegate reportedly described the phrase as “alarming as the mark of the Beast in Revelation.” Benjamin Rush of Pennsylvania is said to have declared that he would vote for the Constitution if it did nothing more than abolish paper money.

Interestingly, even some delegates who supported retaining the phrase were not advocates of paper currency. They simply believed it might prove necessary in times of emergency. After all, without paper money, the states could not have financed the Revolutionary War, meaning there would be no United States. Nevertheless, the anti–paper money faction prevailed by a vote of 9–2, and the words “and emit bills” were removed. The clause was reduced to its present wording: the power “to borrow Money on the credit of the United States.”

The Convention deliberately preserved the borrowing power. This allowed the new nation to borrow from foreign governments and to issue interest-bearing bonds to finance emergencies. These bonds were not intended to circulate as currency; taxes could not be paid with them. They were instruments of debt, not money.

The issue resurfaced again during the Civil War. In 1862, Congress passed the Legal Tender Acts to help finance the war. The acts authorized paper currency known as “greenbacks,” which were declared legal tender for the payment of debts. Notably, Secretary of the Treasury Salmon P. Chase opposed the measure at the time, fearing its economic consequences. Nevertheless, Congress proceeded, believing the wartime emergency justified the action.

In 1870, the controversy reached the Supreme Court in Hepburn v. Griswold. In that case, Mrs. Hepburn attempted to repay a pre-existing debt using greenbacks. Henry Griswold refused to accept them, arguing that the paper currency was worth less than gold and that Congress lacked constitutional authority to make such notes legal tender for prior debts. Ironically, Chase, now serving as Chief Justice, authored the Court’s opinion. He ruled that making paper notes legal tender for pre-existing debts was unconstitutional. Chase relied heavily on the historical record, particularly the removal of the phrase “and emit bills,” as evidence that the Framers did not intend to grant Congress the power to issue paper money.

Yet the story did not end there. Just one year later, in Knox v. Lee (1871), the Supreme Court reversed itself. After Congress expanded the Court from seven to nine justices, allowing new appointments to shift the balance, the Court upheld the Legal Tender Acts, reasoning that Congress’ powers to borrow money, regulate the value of currency, and enact laws “necessary and proper” to carry out its powers included the authority to issue paper money as legal tender. Thus, what appeared to be the simplest clause in Article I, Section 8, became the foundation for one of the most significant constitutional battles over economic power. The Borrowing Clause, stripped of the words “and emit bills,” did not prevent Congress from eventually exercising that very power — but it took a constitutional crisis, a civil war, and a divided Supreme Court to settle the question.

James Finck is a professor of American history at the University of Science and Arts of Oklahoma. He can be reached at james.finck@swoknews.com. Thanks to the Southwest Ledger and the Lawton Constitution for sharing his column.