Skip to content

Money as a Constitutional Medium


Christine Desan is Leo Gottlieb Professor of Law at Harvard Law School and the co-founder of Harvard’s Program on the Study of Capitalism.

This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

In 2017, the Federal Reserve Bank of New York published a comic book on the origins of money. The story, called “Once Upon a Dime,” unspools sweetly. Far far away, on the planet Novus, a community of good-willed humanoids live together, trading what they have for what they need – mustard for fish, wheels for cakes. In good time, the inconveniences of barter push them to innovate. All agree to give and take artfully carved river stones as money. That eases their trade; they can “Do It More Efficiently” (thus the “dime”) and the little community prospers. People soon warehouse their rocks with a caretaker, who begins allowing customers to transfer rocks from one account to another by check. The caretaker also advances some of the funds he has “stored here at the bank.” Inter-bank loans follow naturally, as does a run on the banks. In the end, the group establishes a central bank to monitor the other banks and lend them money during emergencies.  In short, “first money replaced barter,” then banks developed “as storehouses” and as lenders, then the group appoints a central bank to supervise the banks.

“Once Upon a Dime” does not stray from the conventional story about money. To the contrary, it reinforces the tale, teaching it at a primary level and in living color. That makes the comic all the more arresting: it makes a constitutional argument about the nature of money and its place in society even as it deflects attention by casting the medium as a mechanical fix for a private problem.

Consider, first, the way the comic locates money firmly within the sphere of individual choice as opposed to the political will: money is the product of entrepreneurial initiative (the proposal to use rocks as a medium), adopted by social acclaim (convention as opposed to public authority), and targeted at a technical problem (awkward exchange). Distribution is assumed; the river rocks somehow spread around society. Banks evolve from a storage mechanism, a phenomenon of convenience more than credit. As for credit, it simply shifts resources, rather than creating new value, a service like any other. The central bank is only ambiguously “public,” an institution that will enforce self-evident standards of practice and provide occasional rescue.

Consider, in turn, the way the narrative diverts our attention as lawyers. By locating money as an inert medium and banks as the mechanism that pools and shifts the medium, the story asserts them only and emphatically as technologies of exchange.   Public authority surfaces only as a coordinating mechanism, occasioned to resolve a predictable collision of individual demand. If money operates on earth as it operates on Novus, there is really nothing much for us to see.

That is where the story falls apart.

We use a very different money, one rich in constitutional choice. The dollar, like every other sovereign money, is a public project. That project starts at the center where law creates a unit that holds value. It extends to the periphery where law enforces that unit as the means that will transfer property, pay obligations, and render damages. The dense legal composition of money and its dynamics suggests that its design matters profoundly to the way we distribute wealth, conceptualize “the market,” draw the lines between “public” and “private,” and constitute authority.  Far from river rocks, money is a mode of material governance, a medium in which we work to shape relations at the elemental level of value, to define commodities, to condition exchange, and to configure obligation. Rather than the lesson that follows from the comic book, money demands our attention as an enterprise deeply constitutional.

The enterprise starts with the public determination to package value in a unit: federal law defines dollars, represented in Federal Reserve notes, as circulating units of sovereign debt. 12 U.S.C. §411; see also UCC §1-201. For anyone who owes the United States, holding a piece of its sovereign debt means holding a bit of material value that can be set off against payments due to the government. Taxpayers and those owing fines, dues, or fees would much rather pay in dollars than fork over goods in contribution. (Despite the raging debate over the fiscal policies that the dollar’s identity as debt makes possible, see Wray and Henwood, the identity of dollars as debt is a matter settled by statute.) In turn, the federal government adds value to its dollars by privileging them in private exchange: it pledges to enforce them in its courts, adding a premium to its dollars as a medium for everyday use between individuals. 31 U.S.C. §5103.

The strategy of making money in bits of sovereign debt — entailing value in a unit by agreeing to take it back for value — is widespread. According to the Bank of International Settlements it is the standard practice of its members that “the central bank issues its own liabilities for use as money” (p.1). The strategy is also age-old. Coin differed from bullion exactly in the government’s determination to make it the medium used for public and private obligations, as I have detailed in Making Money (pp. 70-97).   The very prevalence of the strategy suggests another departure from the comic book: sovereign governments make money for reasons that are conspicuously public. Paying people in debt that holds value expands their capacity to govern. They can mobilize for war, pay civil salaries, finance transportation in roads and canals, educate their citizens, and provide for public health. In fact, they can develop legal systems to enforce exchange made in money; here as opposed to on Novus, the private use of money probably followed rather than preceded its deployment for public purposes.

Understanding money as sovereign debt exposes its legal composition. Like any contract, sovereign debt has content and peculiarity; it connects particular parties; it falls to different authorities to interpret; it can be modified, breached, and reconceptualized. Every decision matters to the way material value in the figure of money issues into society, circulates, and accumulates. A handful of highlights suggests the significance of the decisions we make.

Consider a world where sovereign debt carried collateral in every unit; we call it coin. Metal gave security to moneyholders where political authority was frail, but it also handicapped making the medium. People needed capital (the commodity) before they could produce money. The searing scarcities caused by coin shortfalls stratified exchange by income and informed usury prohibitions; they in turn shaped the instruments of credit that developed. European societies competed brutally for silver and gold, shaping political theories and voyages of exploration around that imperative.

A radically different political economy came to characterize early America, when settlers abandoned the commitment to a collateralized money. As they spent paper IOUs into circulation, they “sanctified” the civic obligation to pay taxes (to use Cotton Mather’s term), at once exhilarated and terrified by the transparency of the cash they could deploy, its Keynesian potential to stimulate economic development, and the inflationary specter that displaced the familiar deflationary scourge. Americans revised as well the party in charge of issuing money, cutting executive authorities out of that role and elevating the stature of provincial legislatures by assigning them the new and protean ability to make money. Money and its production became an electoral issue, one that directed settler attention to their political representatives and slowly strangled loyalty to the British metropole.

But the monetary populism of early America triggered its own redesign. According to Woody Holton (p. 35), the Federalists considered putting an end to state legislative money-making to be their most essential act, the very “soul of the Constitution.”  And, in fact, the United States came of age at a moment of monetary transformation. In retrospect, we might call that experiment “the first financialization.” The idea was to drop investors into middle of the monetary contract between the government and its population: the government would borrow bank notes from appointed bankers (nascent central bankers), spend and tax in those notes. The bankers would hold the government’s long-term promises to pay, policing its compliance with the fervor and rights of creditors.

Modern commercial banks mimicked the logic. As central bank authority Walter Bagehot explains (pp. 75-90), they came into existence by issuing private notes (now deposits) that passed into circulation, credit machines for the retail enterprise of individuals rather than storehouses for their saving. The business model of commercial banks leaned from the start on public permission to promise the government’s unit in excess of their holdings, an accommodation carried out by recognizing those banks as the public payments system. (States organized those systems in 19th century America.) Central banks would learn to manage their commercial counterparts, eventually aiming to administer the economy through “monetary policy.”

In short, the modern redesign of money wrote the political economy of capitalism into effect. It is a head-spinning innovation, one that rearranged authority over the money supply, created a powerful industry out of modern banking, anchors investor activity with the safe asset of public debt, and determines the everyday distribution of credit. In fact, the modern redesign does that and more according to economic theory that casts money as a matter outside of legal concern; “Once Upon a Dime” teaches that lesson at the elementary level.

In other words, we have barely begun to understand money as a medium of constitutional decision. It awaits out commitment to make it the medium of a just legal order.

Christine Desan and a number of other scholars will be launching a website,, about law and money’s design in June 2019.