Money in United States

Money Definition

A representative of value, established by law, and made a legal tender in the payment of debts. 65 N. C. 415. In a strict sense, gold and silver coin. Const. U. S. art. 1, §§ 8, 10. See 44 Tex. 622. In a broader sense, the common medium of exchange in a civilized nation. (…) The term is used to designate the whole volume of the medium of exchange, recognized by law or the custom of merchants. 34 Fed. 681. It is generally held to include banknotes. (…). As used in wills, it has been construed as synonymous with personalty, to effect the intent of the testator. [1]

Money, History of Banking and the Constitution

The ability of banks to issue money raises some interesting questions about the nature of money and about the legal aspects of its issuance in the United States. On these topics I will now briefly digress. Money is nothing more than a common numeraire which reduces the search costs associated with conducting beneficial trades. Money is also a psychological abstraction. Literally anything can serve in this capacity as long as people are willing to accept it as a medium of exchange, if it maintains its purchasing power reasonably over time, and if it can serve as a convenient unit of measure. An official government edict is not necessary to create money.

The Constitution contains only two sections dealing with monetary issues. Section 8 permits Congress to coin money and to regulate its value. Section 10 denies states the right to coin or to print their own money. The framers clearly intended a national monetary system based on coin and for the power to regulate that system to rest only with the federal government. The delegates at the Constitutional convention rejected a clause that would have given Congress the authority to issue paper money. They also rejected a measure that would have specifically denied that ability to the federal government (Hammond, 92). Although the Constitution does not state that the federal government has the power to print paper currency, the Supreme Court in McCulloch vs Maryland (1819) ruled unanimously that the Second Bank of the United States and the banknotes it issued on behalf of the federal government were Constitutional.

If the federal government only is permitted to issue money, coin or paper, then how could state banks issue money? State banks did not coin money, nor did they print any “official” national currency. However, state banks could print bills of credit in exchange for specie deposits. These notes would bear the issuing bank’s name and entitle the bearer to the note’s face value in gold or silver upon presentation to the bank. State bank notes were a form of representative money; they were not gold or silver, but they represented it. The notes were more convenient for conducting large transactions than their specie counterparts, and, more importantly for the extension of credit, could be produced easily whereas the gold and silver stock of the nation was relatively small and for the most part declining (Hixson, 12-13). The Supreme Court ruled in 1837 in Briscoe vs Bank of Kentucky that state banks and the notes they issued were also constitutional.

One potential problem with such a system is that banks may issue notes far in excess of their specie deposits. Customers appeared from time to time wanting to exchange their banknotes for specie. The banks, of course, made allowances for this by keeping some of the specie on hand at all times. If the specie/banknote ratio was too low, even a small unexpected increase in the withdrawal rate could force the bank into insolvency. Remaining depositors who had not withdrawn their specie would be left with worthless banknotes.

The public accounted for this risk of non-redemption by discounting the notes of banks that were considered risky. For example, a $20 banknote issued by a bank with a reputation of redemption problems might carry a 5 percent discount off its face value. In other words, a local merchant might only give a customer $19 worth of goods for a $20 note with the difference compensating the merchant for the risk of accepting the banknote. Discounts on notes among functioning banks ranged from about 95 percent for the riskiest banks to zero for banks with a high degree of public confidence. On the advent of the free banking era, there were 712 state banks in operation in the United States, each with its own currency (Kidwell, 59). Imagine the difficulty for a local merchant in tracking the riskiness and value of perhaps dozens of different banknotes in addition to the other concerns of his business. [2]

European Currency Unit (ecu) in the International Business Landscape

Definition of European Currency Unit (ecu) in the context of U.S. international business and public trade policy: Weighted “basket” of EU currencies used for accounting purposes within the EU.

Time Value of Money in the context of Real Estate

Money in Foreign Legal Encyclopedias

For starting research in the law of a foreign country:

Link Description
Money Money in the World Legal Encyclopedia.
Money Money in the European Legal Encyclopedia.
Money Money in the Asian Legal Encyclopedia.
Money Money in the UK Legal Encyclopedia.
Money Money in the Australian Legal Encyclopedia.

Back to Top

Earnest Money in the context of Real Estate

Finding the law: Money in the U.S. Code

A collection of general and permanent laws relating to money, passed by the United States Congress, are organized by subject matter arrangements in the United States Code (U.S.C.; this label examines money topics), to make them easy to use (usually, organized by legal areas into Titles, Chapters and Sections). The platform provides introductory material to the U.S. Code, and cross references to case law. View the U.S. Code’s table of contents here.


In Legislation

Money in the U.S. Code: Title 31, Subtitle IV

The current, permanent, in-force federal laws regulating money are compiled in the United States Code under Title 31, Subtitle IV. It constitutes “prima facie” evidence of statutes relating to Finance (including money) of the United States. The reader can further narrow his/her legal research of the general topic (in this case, Money of the US Code, including money) by chapter and subchapter.



1. This definition of Money is based on The Cyclopedic Law Dictionary
2. Edward Flaherty, A Brief History of Central Banking in the United States.

Further Reading

  • Galbraith, John K., A Short History of Financial Euphoria, New York: Penguin Books, 1990.
  • Greider, William, Secrets of the Temple, New York: Simon & Schuster, 1987.
  • Hammond, Bray, Banks and Politics in America, Princeton University Press, 1957.
  • Hixson, William F., Triumph of the Bankers: Money and Banking in the Eighteenth
    and Nineteenth Centuries
    , London: Praeger, 1993.
  • Kidwell, David S. and Richard Peterson, Financial Institutions, Markets, and Money,
    5th edition, 1993.
  • Information about Money in the Gale Encyclopedia of American Law.
  • Knox, John J., A History of Banking in the United States, New York: Bradford Rhodes, 1903.
  • Nussbaum, Arthur, A History of the Dollar, New York: Columbia University Press, 1957.
  • Phalle, Thibaut de Saint, The Federal Reserve: An Intentional Mystery, New York: Praeger, 1985.
  • Rolnick, Arthur J. and Warren E. Weber, The free banking era…
    Federal Reserve Bank of Minneapolis, Staff Report 80, May 1982.
  • Selgin, George A., The Theory of Free Banking: Money Supply Under Competitive
    Note Issue
    , Totowa, New Jersey: Rowman and Littlefield, 1988.
  • Sechrest, Larry J., Free Banking: Theory, History, and a Laissez-Faire Model,
    London: Quorum Books, 1993.

See Also

  • Deposit (1)


See Also

  • Present Value Of $1