Interpretation of the Public Debt Clause

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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. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

Though the Fourteenth Amendment won ratification in 1868, justices of the Supreme Court have only once construed the Public Debt Clause in a plurality opinion, and never in a majority opinion.1 In the 1935 decision Perry v. United States,2 a Liberty Bond holder challenged a 1933 joint resolution that affected how the federal government would pay the bond.3 The bond carried a “gold clause” entitling its holder to payment in gold coin, or its equivalent, at the standard of value the coin carried in 1918 when the bond issued.4 In place of this payment, the joint resolution directed payment of the bond’s $10,000 face amount, dollar for dollar, in whatever coin or currency was legal tender at the time of payment.5 Then, in 1934, President Franklin Roosevelt exercised separate statutory authority to devalue the gold dollar.6 Thus, payment under the joint resolution would be worth much less than what was promised in 1918.7

In his opinion, Chief Justice Hughes first described the obligation that the federal government undertook when it issued the bond with a gold clause. By stipulating payment in gold coin “of the present standard of value,” the United States had assured those who lent it funds that they would not suffer loss through depreciation.8 The Chief Justice then considered the joint resolution in light of this obligation, asking whether Congress could use its constitutional power to regulate the value of money to invalidate the terms of existing obligations issued under its separate power to borrow money on the credit of the United States.9 If Congress had the power under the Coinage Clause to modify contract terms, then it would “inevitably follow[]” that Congress could repudiate its obligation to repay any sums.10 Refusing to construe the Constitution to grant Congress such power,11 Chief Justice Hughes stated that when the United States “with constitutional authority, makes contracts,” “it has rights and incurs responsibilities similar to those of individuals who are parties” to contracts, except that the federal government may be sued only with its consent.12 The Chief Justice refused to read the Constitution as conferring on Congress the power to borrow money on the credit of the United States while simultaneously allowing Congress the power to “alter or destroy” commitments made in the course of such borrowing.13

Chief Justice Hughes then discussed the Public Debt Clause, providing the only interpretation of the Clause that has appeared in a controlling opinion of the Court:

The Fourteenth Amendment, in its fourth section, explicitly declares: “The validity of the public debt of the United States, authorized by law, . . . shall not be questioned.” While this provision was undoubtedly inspired by the desire to put beyond question the obligations of the government issued during the Civil War, its language indicates a broader connotation. We regard it as confirmatory of a fundamental principle which applies as well to the government bonds in question, and to others duly authorized by the Congress, as to those issued before the amendment was adopted. Nor can we perceive any reason for not considering the expression “the validity of the public debt” as embracing whatever concerns the integrity of the public obligations.14

Chief Justice Hughes thus concluded that the joint resolution exceeded Congress’s authority.15

The Court nonetheless denied Perry relief.16 Perry’s suit demanded either the gold coin promised in 1918 or its equivalent in currency.17 To obtain either form of relief, the Court explained that Perry had to demonstrate actual damages resulting from the government’s refusal to perform under the gold clause.18 Damages “could not be assessed without regard to the internal economy of the country at the time the alleged breach occurred.” 19

Judged by this standard, Perry failed to support either of his requests for relief with a valid damages theory. When Perry sought payment in May 1934, because of congressional action beyond the challenged joint resolution a “free domestic market for gold was nonexistent.” 20 Moreover, Perry calculated the currency equivalent as equal to roughly $16,9000—more than the $10,000 face amount of the bond, given devaluation in 1934.21 The Court concluded that payment of this amount of currency “would appear to constitute, not a recoupment of loss in any proper sense, but an unjustified enrichment.” 22

Since 1935, no majority opinion has endorsed, repudiated, or otherwise examined the view, articulated in Perry’s plurality opinion, that the Public Debt Clause protects the public debt of the United States, no matter when issued, against “whatever” might “concern[]” its “integrity.” 23

1: In a concurrence to Perry v. United States, 294 U.S. 330 (1995), then-Justice Harlan F. Stone expressly declined to join the portions of Chief Justice Charles Evans Hughes’ opinion that held the joint resolution exceeded Congress’s authority. See id. at 359–61 (Stone, J., concurring).). Four other justices dissented, relying on a dissent written by Justice James McReynolds in a companion case, Norman v. Baltimore & O.R. Co., 294 U.S. 240 (1935), which did not address the Public Debt Clause. See Perry, 294 U.S. at 361 (noting Justices McReynolds, Van Devanter, Sutherland, and Butler’s dissent); see also Norman, 294 U.S. at 426 (McReynolds, J., dissenting) ( “Valid contracts to repay money borrowed cannot be destroyed by exercising power under the [Constitution’s] coinage provision.” ). Given Justice Stone’s separate writing, scholars have characterized portions of Chief Justice Hughes’ opinion as representing the views of less than a majority of the Court. See, e.g., Gerard Magliocca, The Gold Clause Cases and Constitutional Necessity, 64 Fla. L. Rev. 1243, 1269 (2012) (stating that Chief Justice Hughes’ opinion reflected only a “plurality” view insofar as it declared the joint resolution unconstitutional); Neil H. Buchanan & Michael C. Dorf, How to Choose the Least Unconstitutional Option: Lessons for the President (and Others) from the Debt Ceiling Standoff, 112 Colum. L. Rev. 1175, 1190–91 (2012) (arguing that Perry’s discussion of the Public Debt Clause, “though appearing in the controlling opinion of the case, was not endorsed by a majority of the Justices of the Court” and adding that the discussion is “arguably dicta” that the Court has not “definitively endorsed” in a “legally binding fashion” (footnote omitted)); Henry M. Hart, Jr., The Gold Clause in United States Bonds, 48 Harv. L. Rev. 1057, 1099 n.1 (1935) (describing Justice Stone’s separate writing as a special concurrence).
2: 294 U.S. 330 (1935).
3: Pub. Res. No. 73-10, 48 Stat. 112, 113 (1933).
4: Perry, 294 U.S. at 348–49.
5: 48 Stat. at 113.
6: Proclamation No. 2072, reprinted in 3 Pub. Papers and Addresses of Franklin D. Roosevelt 67-69 (1938).
7: Perry argued that devaluation resulted in an approximately 41 percent reduction in the value of the gold dollar from its 1918 worth, and thus a corresponding decrease in the value of his bond if the gold clause was not honored. See Perry, 294 U.S. at 355.
8: Id. at 348–49.
9: id. at 350; see also U.S. Const. art. I, § 8, cl. 2 ( “The Congress shall have Power” to “borrow Money on the credit of the United States.” ); U.S. Const. art. I, § 8, cl. 3 ( “The Congress shall have Power” to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.” ).
10: Perry, 294 U.S. at 350.
11: Id.
12: id. at 352 (citing United States v. Bank of Metropolis, 40 U.S. 377, 392 (1841)).
13: Id.
14: id. at 354 (ellipsis in original).
15: id. ( “We conclude that the Joint Resolution of June 5, 1933, in so far as it attempted to override the obligation created by the bond in suit, went beyond the congressional power.” ).
16: See id. at 358. Unlike the portions of Chief Justice Hughes’ opinion that concluded the joint resolution exceeded Congress’s legislative powers, it appears that the opinion’s discussion of Perry’s inability to prove damages resulting from the joint resolution represents the views of a majority of the Court. See, e.g., id. at 359 (Stone, J., concurring) (stating “I cannot escape the conclusion, announced for the Court, that in the situation now presented, the government, through the exercise of its sovereign power to regulate the value of money, has rendered itself immune from liability for its action” ).
17: id. at 347.
18: Id. at 354–55.
19: id. at 357.
20: id. 355, 357 (noting that “gold coin had been withdrawn from circulation” prior to devaluation in 1934 and that “Congress had authorized the prohibition of the exportation of gold coin and the placing of restrictions upon transactions in foreign exchange” ).
21: Id.
22: Id.; see also id. at 355 ( “[T]he change in the weight of the gold dollar did not necessarily cause loss to the plaintiff of the amount claimed.” ).
23: id. at 354.