The Online Library of Liberty

A project of Liberty Fund, Inc.

• Shorter Works of Lysander Spooner, Volume I
• The Deist’s Immortality, and an Essay On Man’s Accountability For His Belief.
• The Deist’s Immortality.
• An Essay, On Man’s Accountability For His Belief.
• Worcester Republican.—extra.
• The Deist’s Reply.
• Chapter I.: The Early Spread of Christianity.
• Chapter II.: The Nature and Character of Jesus.
• Chapter III.: The Alleged Miracles of Jesus.
• Chapter IV.: The Prophecies.
• Chapter V.: The Resurrection.
• Supreme Court of United States, January Term, 1839. } Spooner Vs. M’connell, Et, Al.
• Constitutional Law.
• Chap. I.: The Unconstitutionality of All State Laws Restraining Private Banking and the Rates of Interest.
• Chap. II.: What Bank Charters Are Unconstitutional.
• Chap. III.: What Bank Charters Are Constitutional.
• Chap. IV.: The Power of Congress Over the Currency.
• Errata.
• Poverty: Its Illegal Causes and Legal Cure. Part First.
• Chapter I.: Illegal Causes of Poverty.
• Chapter II.: Economical Propositions.
• Chapter III.: Economical Results From the Preceding Propositions
• Chapter IV.: Social, Moral, Intellectual, and Political Results From the Preceding Propositions.
• Chapter V.: The Legal Nature of Debt.
• Chapter VI.: The Legal Nature of Debt.—( Continued. )
• Who Caused the Reduction of Postage? Ought He to Be Paid?
• Illegality of the Trial of John W. Webster.
• A New System Paper of Paper Currency.
• Part First
• Note.
• Chapter I.: Outline of the System.
• Chapter II.: Advantages of the System.
• Chapter III.: Security of the System.
• Chapter IV.: Practicability of the System.
• Chapter V.: Legality of the System.
• Part Second.
• Articles of Association of a Mortgage Stock Banking Company.

CHAPTER V.

LEGALITY OF THE SYSTEM.

Admitting, for the sake of the argument—what is not true in fact—that the State governments have constitutional power to forbid private banking, their statutes for that purpose, being contrary to natural right, must be construed to the letter; and the letter of few, if any, of them is such as to prohibit the system here proposed.

Thus Maine prohibits “any drafts, bills, or promissory notes, or other evidences of debt.”

New Hampshire prohibits “bills, notes, checks, drafts, or obligations.”

Massachusetts prohibits “any note, bill, order, or check.”

Rhode Island prohibits “any note, bill, order, or check.”

Connecticut prohibits “any bill of credit, bond, promissory writing, or note, bill of exchange, or order.”

New York prohibits “notes, or other evidences of debt.”

New Jersey prohibits “bills, notes, or other evidences of debt.”

Pennsylvania prohibits “any promissory note, ticket or engagement of credit in the nature of a bank note.”

Ohio prohibits “any note, bill, or other evidence of debt.”

Michigan prohibits “any bills, notes, due bills, drafts, or other evidences of debt.”

Illinois prohibits “any note, or bill.”

Wisconsin prohibits “any bills, or promissory notes, or other evidences of debt.”

Mississippi prohibits “notes, bills, certificates of deposit, or evidences of debt.”

Georgia prohibits “any bills, or promissory notes of private bankers.”

The currency proposed—the Circulating Stock—comes within the letter of none of these prohibitions. It consists neither of “notes,” “promissory notes,” “orders,” “checks,” “drafts,” “bonds,” “certificates of deposit,” “bills of credit,” “bills of exchange,” “due bills,” nor “tickets or engagements of credit in the nature of bank notes.”

Although, if it should come into circulation, it may, very likely, in common parlance, and from motives of convenience, be denominated “bills,” yet it is not “bills,” in any legal sense, in which that word was used at the times these statutes were enacted.

It cannot be called “evidences of debt”—that is, of personal indebtedness—in the sense, in which this description is evidently used in these statutes.

It is not an “obligation,” in the sense, in which that word is legally used. That is to say, it is not a personal “obligation,” in the nature of a debt, as the term debt is now understood.

It is, in law, simply bona fide certificates of bona fide stocks; as really so as are any certificates of railroad stocks, or of any other stocks whatever. It is bona fide certificates of, or evidences of title to, veritable property in land, as really so, as are deeds, mortgages, leases, or any other written instruments for the conveyance of title to, or rights in, real estate. As such, it obviously comes within the letter of none of the preceding prohibitions. The holders of the certificates are the bona fide owners of the stocks, or property represented; and in selling the stocks themselves, they pass the certificates, or evidences of title. And this is the whole matter, in a legal point of view.

The statutes, however, of some of the States are in somewhat different terms from those already cited.

Thus Vermont prohibits “any bill of credit, bond, promissory writing or note, bill of exchange, order, or other paper.”

Whether this prohibition of “any other paper,” as a currency, can, in law, be held to prohibit the sale of bona fide stocks, or property in land, and passing the certificates thereof, or the titles thereto, is, to say the least, very doubtful.

New Jersey, in addition to the preceding prohibition of “bills, notes, or other evidences of debt,” prohibits “any ticket of any denomination whatever, intended to circulate for the payment of debts, dues, or demands, in lieu of, or as a substitute for, bank notes or bills, or other lawful currency of the State.”

What may be the legal meaning of a “ticket,” we will not now undertake to settle; nor whether this prohibition interdicts the sale of bona fide stocks, and the transfer of the paper titles thereto.

Virginia prohibits “any note, or other security, purporting that money or other thing of value is payable by, or on behalf of, such person” (the person issuing).

This statute clearly would not interdict the currency proposed.

The letter of the statutes of Missouri, Kentucky, Tennessee, Alabama, North Carolina, and of the constitution of Texas, is, perhaps, comprehensive enough to prohibit the proposed currency.

In the statutes of Indiana, Iowa, Arkansas, Maryland, and Delaware, I have found nothing, that seemed to me to prohibit the proposed currency.

If this currency should evade the interdict of these statutes against private banking, it would also evade the interdict of the State laws against usury; for the issue of the currency by the banks, in exchange for the promissory notes of individuals, is, in law, a mere sale of bona fide stocks, or property, on credit, like the sale of any other stocks, or property, on credit, and at a price agreed on. And if these stocks should happen to sell for more than their nominal value, that would be a matter of no more legal importance than for railroad shares to sell for more than their par or nominal value.

But, admitting that the language of all the foregoing prohibitions are sufficiently comprehensive to embrace the currency proposed, the statutes themselves, so far as they should be applied to that currency, would nearly all of them be unconstitutional and void, as being in conflict with the “natural right to acquire and dispose of property;” a right, that is either expressly or impliedly recognized and guaranteed by most, or all, of the State constitutions, and bills of rights. This “natural right to acquire and dispose of property,” includes a right to buy and sell, as well as to produce and give away, property. The issuing of the currency proposed, and the passing of it, from hand to hand, as a currency, would, in law, be merely a buying and selling of the property it should represent—that is to say, the buying and selling of bona fide property in land—like any other property. The only difference between it and other property, would be, that it would be bought and sold more frequently than other property.

But not only all these State laws against private banking, but all State laws against usury, and all other laws whatsoever, that assume either to prohibit, invalidate, or impair any contract whatsoever, that is naturally just and obligatory, are unconstitutional and void, as being in conflict with that provision of the constitution of the United States, which declares that “no State shall pass any law impairing the obligation of contracts.”

This provision does not designate what contracts have, and what have not, an “obligation.” It leaves that point to be ascertained, as it necessarily must be, by the judicial tribunals, in the case of each contract that comes before them. But it clearly implies that there are contracts that have an “obligation.” Any State law, therefore, which declares that such contracts shall have no obligation, is plainly in conflict with this provision of the constitution of the United States.

This provision also, by implying that there are contracts, that have an “obligation,” implies that men have a right to enter into them; for if men had no right to enter into the contracts, the contracts themselves would have no obligation.

This provision, then, of the constitution of the United States, not only implies that certain contracts have an obligation, but it also implies that the people have the right to enter into all such contracts, and have the benefit of them. And any State law, conflicting with either of these implications, is necessarily unconstitutional and void.

Furthermore, the language of this provision of the constitution, to wit: “the obligation [singular] of contracts” [plural], implies that there is one and the same “obligation” to all “contracts” whatsoever, that have any legal obligation at all. And there obviously must be some one principle, that gives validity to all contracts alike, that have any validity.

The law, then, of this whole country, as established by the constitution of the United States, is, that all contracts, in which this one principle of validity or “obligation” is found, shall be held valid; and that the States shall impose no restraints upon the people’s entering into all such contracts.

All, therefore, which courts have to do, in order to determine whether any particular contract, or class of contracts, are valid, and whether the people have a right to enter into them, is simply to determine whether the contracts themselves have, or have not, this one principle of validity, or obligation, which the constitution of the United States declares shall not be impaired.

State legislation can obviously have nothing whatever to do with the solution of this question. It can neither create, nor destroy, that “obligation of contracts,” which the constitution forbids it to impair. It can neither give, nor take away, the right to enter into any contract whatever, that has that “obligation.”

But here a formidable difficulty arises. It is no less a one than this, viz.: that neither legislatures, lawyers, nor courts, know, nor even pretend to know, what “the obligation of contracts” is. That is to say, there is no one principle, known or recognized among them, by reference to which the validity or invalidity of all contracts is determined. Consequently it is not known, in the case of any single contract whatever, that is either enforced or annulled, in a court of justice, whether the adjudication has really been in accordance with “the obligation” of the contract, or not. Startling, and almost terrifying, as this statement is, in view of the number and importance of the contracts, in which men’s rights are involved, and which courts are continually annulling or enforcing, the statement is nevertheless true.

The question—what is “the obligation of contracts?” has been several times before the Supreme Court of the United States; but has never received any satisfactory answer. The last time (so far as I know) that it was brought before that court, was in 1827, in the case of Ogden vs. Saunders (12 Wheaton, 213). Several among the most eminent lawyers in the country, to wit: Webster, Wirt, Wheaton, Livingston, Ogden, Jones, and Sampson, were engaged in the cause. But they all failed to enlighten the court.

The court consisted, at that time, of seven judges. Among these seven judges, four different opinions prevailed as to what “the obligation of contracts” was. Three of the judges said it was one thing; two of them said it was another; one said it was another; and one said it was another. No one opinion commanded the assent even of a majority of the court. And thus the court virtually confessed that, as a court, they did not know what “the obligation of contracts” was.

The reasonable presumption is, that no one of these opinions was correct; for if either had been correct, it would have been likely to secure the assent of the whole court, or at least of a majority.

But, although the court could not agree as to what the obligation of contracts was, four of the justices did agree in declaring that the insolvent law of New York did not impair the obligation of any contracts, that were made, in New York, subsequently to the passage of the law. To appreciate the farcical character of this conclusion, we have only to consider that, among these four justices, three different opinions prevailed as to what “the obligation” was, which they said the law did not impair. And from that time until now, this ridiculous opinion of these four justices, who virtually confessed that they knew nothing of the question they assumed to decide, has stood as law throughout the country, and been received, by legislatures and courts, as sufficient authority for the State legislatures to fix, prescribe, alter, nullify, or impair, at their discretion, the obligation of any and all contracts entered into subsequently to the passage of their laws. This fact is sufficient to show that the ignorance of the Supreme Court of the United States, as to the obligation of contracts, is abundantly participated in by the legislatures and courts of the States.

The writer of this will not attempt, at this time—although he may, perhaps, at some future time—to define this constitutional “obligation of contracts,” any further than to say that it must necessarily be the natural obligation. That is, it must be the obligation, which contracts have, on principles of natural law, and natural right, as distinguished from any arbitrary, partial, or conditional obligation, which legislatures may assume to create, and attach to contracts.

This constitutional prohibition upon any law impairing the obligation of contracts, is analogous to those provisions, in both the State and National constitutions, which forbid any laws infringing “the freedom of speech or the press,” “the free exercise of religion,” and “the right to keep and bear arms.”

“The freedom of speech and the press,” which is here forbidden to be infringed, is not any merely arbitrary freedom, which legislatures may assume to create and define by statute. But it is the natural freedom; or that freedom, to which all mankind are entitled of natural right. In other words, it is such as each and every man can exercise, without invading the rights of others, and consistently with an equal freedom on the part of others.

If “the freedom,” here forbidden to be infringed, were only such freedom as legislatures might, in their pleasure or discretion, see fit to institute, the prohibition, instead of protecting any “freedom of speech or the press,” would of itself imply an authority for the entire destruction of all such “freedom.”

The same is true of “the free exercise of religion,” and “the right to keep and bear arms.” If the rights, which, under these names, are constitutionally protected, instead of being the natural rights, which belong to all mankind, were only such rights as legislatures, in their pleasure or discretion, might assume to create, and grant to the people, the prohibitions themselves would impliedly authorize legislatures to destroy those very rights, which they now are commanded to hold sacred.

So, too, “the obligation of contracts,” which the States are forbidden to impair, is the natural obligation; that obligation, which contracts have of natural right, and in conformity with natural justice; and not any merely arbitrary, fantastic, absurd, or unjust obligation, which ignorant, corrupt, or tyrannical legislatures may assume to create, and attach to contracts. Otherwise this very prohibition against “any law impairing the obligation of contracts,” would allow legislatures, in their pleasure or discretion, to destroy the obligation of all contracts whatsoever.

That this constitutional “obligation of contracts” is the natural obligation, is proved by the language of the provision itself, which, as has already been said, implies that “the obligation [singular] of contracts” [plural] is one and the same obligation for all contracts whatsoever, that have any legal obligation at all. This obligation, which is the same in all obligatory contracts, must necessarily be the natural obligation, and not any artificial one prescribed by legislatures; because it would obviously be impossible for legislatures to create any one obligation, different from the natural one, and prescribe it for, or attach it to, all contracts whatsoever. Certainly no such thing was ever attempted, or thought of.

This obligation, which the States are forbidden to impair, is proved to be the natural one, by still another fact, viz.: that it is, and necessarily must be, the same in every State in the Union; forasmuch as the prohibition mentions but one obligation, which the States are forbidden to impair; and the prohibition to impair that one obligation is imposed alike upon all the States. If this “obligation” were an artificial one, to be created by State legislatures, it would be liable to be different in every State, since the constitution does not authorize any one State, nor even Congress, to create any one artificial obligation, and prescribe it as a rule for all the States.

This obligation, which the States are forbidden to impair, must be the natural one, for the still further reason, that otherwise that large class of contracts—by far the largest part of all the contracts, which men enter into, and which courts recognize as valid, but in regard to which no special “obligation” has ever been prescribed by legislation—would, in the view of the constitution, have no validity or obligation at all.

Still further. Inasmuch as the natural obligation is necessarily the only real obligation, which, in the nature of things, contracts can possibly have; and inasmuch as all artificial or unnatural obligations are inevitably spurious, false, and unjust, that paramount rule of legal interpretation, which requires that a meaning favorable to justice, rather than injustice, shall be given to the words of all instruments, that will bear such a meaning, requires that “the obligation,” which the constitution forbids to be impaired, should be held to be the natural and true obligation, rather than any one of those innumerable false obligations, which legislatures are in the habit of prescribing in its stead.

Finally. Inasmuch as the artificial obligations of contracts are innumerable; and inasmuch as this constitutional provision does not particularly describe the obligation it designs to protect, that obligation must be presumed to be the natural one, or else the provision itself, on account of its indefiniteness, must utterly fail of protecting any obligation at all.

The natural obligation of a contract, then, being the only one, which courts are at liberty to regard, their first duty, on this subject, obviously is to ascertain what the natural obligation of contracts is. When they shall have done this, they will have discovered an universal law for all contracts; a law, that must nullify all those State laws—absurd, vexatious, tyrannical, and unjust—with which the statute books of the States are filled, having for their objects to destroy or impair men’s natural right of making obligatory contracts, and to prescribe what obligations, different from the natural and true one, men’s contracts shall have.

Strictly speaking, courts have no rightful authority either to enforce or annul a single contract, of any name or nature whatever, until they shall have ascertained what this constitutional, or natural, obligation of contracts is. But, if they will continue to do so, it is manifestly sheer mendacity, or sheer stupidity, for them to declare that the contracts of private bankers, and contracts now termed usurious—contracts naturally obligatory as any that men ever enter into, or as any that courts ever enforce—have no obligation; or that anybody can be lawfully punished for entering into such contracts.

Furthermore, if the natural obligation of contracts is the only obligation, which courts are at liberty to regard, they are bound to disregard all those State laws, or acts of incorporation, of any and every kind, whether for banking purposes or any other, which attempt to limit the liability of stockholders to any thing less than the natural obligation of their contracts.

In short, the only constitutional power, now existing in this country, to prohibit any contract whatever, that is naturally obligatory, or to impair the natural obligation of any contract whatever, is the single power given to Congress “to establish uniform laws on the subject of bankruptcies, throughout the United States.”*

There is, therefore, no legal obstacle in the way of the immediate adoption of the banking system now proposed; nor any occasion to consult the State legislatures, or ask their permission, in the matter. Nor, in loaning the currency, will there be any occasion to pay any regard to usury laws.

PART SECOND.

[* ] Independently of the injustice of all laws impairing the natural “obligation of contracts,” there was a very weighty reason why the States should have no power to enact bankrupt laws. If they had this power, each State might have the motive to pass such a law for the purpose of liberating her own citizens from their obligations to the citizens of other States; when, if the law were to operate only as between her own citizens, she might not choose to pass the law. This power of passing bankrupt laws was, therefore, confided solely to the general government; and its laws were required to be “uniform throughout the United States.”

In this connection, it may not be impertinent for the writer to say, that, if the natural “obligation of contracts” were known, he apprehends there would be no occasion for any bankrupt or insolvent laws at all. He apprehends there is a natural limit to the obligation of contracts; that, in the case of ordinary credit contracts, time is an essential element of the contracts; that, if there be no other limit to the natural obligation of such contracts, the principle, that the law requires impossibilities of no one, fixes such a limit; and that, therefore, the most that the law can require, in the way of the fulfilment of a time contract, is that the debtor shall exercise due integrity and diligence during the time his contract has to run; and that, if he do this, he can absolve himself from the obligation of his contract, by paying to the extent of his ability, when the contract becomes due.

This writer apprehends, however, that a more precise definitions, even than this, may be given of the obligation of a contract. But this is not the place to attempt it.