May 2, 2023

The end of the semester is always rough and I’ve had too many long nights, so tonight I am going to offer just one explanation about the debt clause in the Fourteenth Amendment: 

The debt ceiling crisis continues to dominate the news, with some speculation now that White House officials are wondering whether the Fourteenth Amendment to the Constitution might require the government to continue to pay its bills whether Congress actually raises the debt ceiling or not.

The fourth section of the Fourteenth Amendment reads: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

This statement was a response to a very specific threat. 

During the Civil War, the U.S. Treasury issued more than $2.5 billion in bonds to pay for the war effort. To make those bonds attractive to investors, Congress had made most of them payable in gold, along with their interest. That gold backing made them highly valuable in an economy plagued by inflation. 

In contrast, most working Americans used the nation’s first national currency, the greenbacks, introduced by Congress in 1862 and so called because they were printed with green ink on the back and black ink on the front—as our money still is; check out a dollar bill. Because greenbacks were backed only by the government’s ability to pay, their value tended to fluctuate. As Congress pumped more and more of them into the economy to pay expenses, inflation made their value decrease. 

National taxes funded the bonds, which meant that workers whose salary was paid in the depreciating greenbacks paid taxes to the government, which in turn paid interest to bondholders in rock-solid gold. After the war, workers noted that inflation meant their real wages had fallen during the war, while war contracts had poured money into the pockets of industrialists. 

Workers couldn’t do much about the war years and still faced years of paying off the wartime bonds. They began to call for repaying war bonds not in gold but in depreciated currency, insisting that taxpayers should not be bled dry for rich bondholders. Democrats, furious at wartime policies that had enriched industrialists and favored bankers, promised voters that if voters put them in control of Congress, they would put this policy into law.

Republican legislators who had created the bonds in the first place were horrified at the idea that Democrats were claiming the right to change the terms under which the debt had been sold. This, they said, was “repudiation” and would turn those who had invested in the United States against it. 

Bonds were about far more than just money. When the war broke out, the Treasury had turned to bankers to underwrite the war. But the bankers were notably reluctant to bet against the cotton-rich South and refused to provide the amount of help necessary. To keep the government afloat, Treasury officers had been forced to turn to ordinary Americans, who for four years had shouldered the financial burden of supporting their government. 

“It is your war,” Treasury Secretary William Pitt Fessenden wrote to the public in 1864. “Much effort has been made to shake public faith in our national credit, both at home and abroad…yet we have asked no foreign aid. Calm and self-reliant, our own means thus far have proved adequate to our wants. They are yet ample to meet those of the present and the future.” 

On April 3, 1865, the day the Confederate capital of Richmond, Virginia, fell, bond salesman Jay Cooke hung from his office window a sign that featured the nicknames of the two most popular bond issues, along with an even larger banner that read:

“The Bravery of our Army

The Valor of our Navy

Sustained by our Treasury

Upon the Faith and 

Substance of

A Patriotic People.”

The debt was a symbol of a newly powerful national government that represented ordinary Americans rather than the elite enslavers who had controlled it before the war. “There has never been a national debt so generously distributed among and held by the masses of the people as all the obligations of the United States,” wrote an Indianapolis newspaper in 1865. “This shows at once the strength of popular institutions, and the confidence the people have in their perpetuity.” 

Undermining the value of U.S. bonds was an attack not just on the value of investments, but on the nation itself. When Republican lawmakers wrote the Fourteenth Amendment in 1866, they recognized that a refusal to meet the nation’s financial obligations would dismantle the government, and they defended the sanctity of the commitments the government had made. When voters ratified that amendment in 1868, they added to the Constitution, our fundamental law, the principle that the obligations of the country “shall not be questioned.”

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Notes:

https://www.nytimes.com/2023/05/02/us/politics/debt-limit-us-constitution.html