Robert Natelson, then Professor of Law, The University of Montana School of Law, published Paper Money and the Original Understanding of the Coinage Clause, 31 Harvard J.L. & Pub. Policy 1017 (2008).
His conclusion that the Constitution's framers believed they were enabling, rather than constraining, the power to abandon precious metals as the definitional currency is, in the American historical context, dubious to the point of untenable. But his erudition is superb. Of extraordinary interest is his recounting of the legal history of coinage and the Throne (pp. 1029 - 1035). It illustrates the long history and supposed prerogative of a sovereign to declare anything of any (or no) intrinsic value, right down to leather, legal tender, irrespective of the injustice manifestly worked.
The royal prerogative was the primary source of commercial regulation, although in practice Parliament enjoyed a significant role as well. In the words of William Blackstone:
WITH us in England, the king's prerogative, so far as it relates to mere domestic commerce, will fall principally under the following articles:
First, the establishment of public marts, or places of buying and selling, such as markets and fairs, with the tolls thereunto belonging
Secondly, the regulation of weights and measures....
Thirdly, as money is the medium of commerce, it is the king's prerogative, as the arbiter of domestic commerce, to give it authority or make it current [that is, to declare it to be legal tender].
The king may also at any time decry, or cry down, any coin of the kingdom, and make it no longer current.
Blackstone's summation was supported by the leading judicial decision on the subject: the Case of Mixed Money.
James I was on the throne when the Privy Council decided the Case of Mixed Money, but the controversy had begun during the reign of Queen Elizabeth. In April 1601, an Irish merchant, Brett of Drogheda, purchased some goods from a London merchant named Gilbert, for which Brett promised to pay £200, half of which was to be remitted at a certain locale in Dublin shortly thereafter, payable in "sterling, current and lawful money of England.” On May 24, 1601, however—before Brett was to tender the first £100—Elizabeth issued for Ireland, then under English control, a coinage made of an alloy of silver and base metal. The Queen ordered that this "mixed money" was to re place the more nearly silver "sterling" coins that before had circulated in Ireland. She further ordered that the new coinage was to be legal tender, for she
expressly commanded that this money should be so used, accepted and reputed by all her subjects and others, using any traffick, or commerce within this kingdom; and that if any person or persons should refuse to receive this mixed money according to the denomination or valuation thereof, viz. shillings for shillings, sixpenny pieces for sixpenny pieces, &c. being tendered for any payment of any wages, fees, stipends, debts, &c they should be punished….
At the appropriate time and place, therefore, Brett offered Gilbert £100 in title new, less valuable currency, which, of course, Gilbert did not want to accept. The question before the Privy Council was whether Brett had made a good tender.
The Council decided that he had. First, it declared that every country needed a common standard of money for purposes of exchange. Citing civil law scholar Jean Bodin, the Council characterized money as a "public measure/' for "[m]oney is the proper medium and measure of the exchange of things." Implicit in this characterization was the idea that the power over money was closely related to the weights and measures power: a relationship acknowledged as uncontroversial fact in eighteenth-century American writings.
Next, the Council ruled that it was the Crown's exclusive prerogative to make or coin money and that "it appertaineth to the King only to put a value upon coin, and make the price of the quantity, and to put a print to it; which being done the coin is current." The Council asserted that "[t]here should be one faith, weight, measure, money." It was custom for the Crown to exercise this power by royal proclamation, although, the Council added, Parliament sometimes adopted acts in aid of royal authority.
Thirdly, the Privy Council ruled "that as the King by his prerogative may make money of what matter and form he pleaseth, and establish the standard of it, so may he change his money in substance and impression, and enhance or debase the value of it, or entirely decry and annul it" and that he could "set the value of money" at his own discretion, without the consent of others. In the Council's view, the power to strike coin and to regulate its value went together as a matter of law: "Monetae aestimationem dat qui cudendi potestatem habet." In other words, the Crown had full right to claim seigniorage, the profit generated from pegging the currency at a legal tender value greater than the sum of the minting and material costs. The Council added that the power of the sovereign to alter the form of money included the power to use any material he or she chose. The sovereign could even fabricate money out of leather if he or she so pleased. (Indeed, later in the century, the deposed James I, then in possession of Ireland, actually did coin leather money.
Finally, the Privy Council ruled that the King's prerogative ex tended to Ireland as well as to England. Notwithstanding the difference in intrinsic value between the older and newer Irish coinage, therefore, Gilbert was bound to accept Bretts tender.
The holding of the Case of Mixed Money was reinforced by other circumstances. Just three years previously, Wade's Case had held that the Crown could proclaim what foreign coin was legal tender and the exchange rate at which one was compelled to accept it. In later years, English sovereigns actively employed the powers recognized in the Case of Mixed Money and in Wade's Case. For instance, in 1672, Charles II coined copper farthings and half-pence as subsidiary coins, and proclaimed them legal tender for payments under the value of sixpence.
His successors, James II (1685-1689) and William and Mary (1689-1702), coined half-pence and farthings in tin. In 1704, Queen Anne extended her prerogative beyond the British Isles by fixing the legal rates for various foreign coins circulating in the colonies.
The sovereign was always free to set the legal tender value well above intrinsic value, as Queen Elizabeth had done for Ireland. Queen Anne's proclamation for the colonies mandated legal tender values higher than intrinsic values for all coins listed. In Britain, gold passed by weight, but the legal tender value of silver or copper coin was set at its "tale," or face amount, which was generally above intrinsic value.
To summarize: The royal prerogative included authority to regulate British domestic commerce, and regulation by prerogative sometimes was extended to the colonies. As the Framers recognized, this commercial authority included governance of weights and measures, of which the medium of payment was considered one branch. The royal power over the medium of payment included authority to strike "coin" of any denomination and from any material, and to regulate the value of that coin and of foreign money. Regulating the value of money encompassed designating what items were legal tender and atwhat rates (and for what debts) they had to be accepted. The Crown took any profit derived from setting legal tender value higher than minting costs.
A belief that the value of money is, rather than intrinsic, a plaything of kings is a fallacy with a very ancient history indeed.