The Public Debt Clause

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.

—Gerard N. Magliocca

Introduction

Section Four of the Fourteenth Amendment was written to address economic issues that arose following the Civil War. The Union incurred an enormous debt in order to wage the war successfully, and the Confederacy incurred an enormous debt while waging war against the Union unsuccessfully. Republicans in Congress were concerned that the former Confederate states would refuse to pay their fair share of this debt upon readmission. Additionally, the abolition of slavery raised the question of whether former slave owners would receive compensation for the loss of their former property. Section Four settled all of these issues. It has been litigated only once but could still be relevant to contemporary fiscal measures that impact the national debt.

Adoption of Section Four

In May 1866, the Joint Committee on Reconstruction proposed a version of what would become Section Four. This provision, however, barred only the repayment of Confederate debt and the compensation of former slave owners.¹ In the Senate, this proposal was amended to add a guarantee of the Union’s war debt.² Senator Benjamin Wade of Ohio explained that this amendment would prevent “open and hostile rebels” from blocking debt payments when they returned to Congress.³

Section Four addressed three primary questions. First, it settled the status of the federal debt incurred to defeat the Confederacy and of the pensions promised to wounded Union soldiers and to the widows and orphans of the dead. Section Four made clear that “[t]he validity of the public debt . . . shall not be questioned” and that this included “debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion.” This guarantee would prevent the Civil War from being refought in the budget process. Representative John Bingham of Ohio explained that Section Four required the ex-rebel states to “pledge themselves, as evidence of their returning loyalty” to “contribute their reasonable proportion to the discharge of this sacred debt, contracted in the suppression of the rebellion and in support of the maimed heroes of the Union.”⁴

Section Four settled a second outstanding issue. It was clear that Union debt would not be questioned, but what about Confederate debt? There were calls in the South for the southern states to pay Confederate bondholders something. In 1866, Robert E. Lee testified before the Joint Committee on Reconstruction that Virginia would do so if it could.⁵ The Joint Committee rejected this possibility, and Section Four ultimately declared Confederate debt “illegal and void.” Neither Congress nor the states were permitted to “assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States.” Senator Jacob Howard of Michigan addressed this point in his speech introducing the Fourteenth Amendment. He denounced the “debt contracted in the prosecution of the most wicked war with which the earth was ever cursed” and said that the issue of repaying those securities should not be left to “political squabbling and party wrangling” in the Capitol or in the state capitals of the former Confederacy.⁶

Finally, Section Four resolved an unintended consequence of the freedom of enslaved people under the Emancipation Proclamation and the Thirteenth Amendment. The Fifth Amendment requires the government to pay “just compensation” for the taking of “private property.” (See Essay No. 173.) Since slaves were considered a form of property, it was widely understood that any government emancipation of slaves would be a taking that required the payment of just compensation. For example, when Congress abolished slavery in the District of Columbia in 1862, the former slave owners were compensated.⁷ Following the Civil War, there were estimates that the compensation required for all emancipated slaves could exceed $1 billion,⁸ which would be more than $20 trillion in present value. In any event, Congress viewed such payments as an immoral reward for slave owners. Section Four made clear that no such compensation was permitted by the United States or by the states. This rule applied even in border states such as Kentucky and Maryland that retained slavery while remaining loyal to the Union.

Judicial Precedent

The U.S. Supreme Court interpreted Section Four for the first and only time during the New Deal. Prior to 1933, Treasury bonds contained a standard clause stating that the bondholder was entitled to payment in dollars that were fixed by the gold standard at the time the bond was issued. These provisions were known as “gold clauses.” In 1933, the United States significantly devalued the dollar with respect to gold. Congress invalidated these “gold clauses” and based debt payments on the new monetary standard. The bondholders claimed that they were not receiving what was promised. They argued in court that “[t]he purpose of the fourth section of the Fourteenth Amendment was definitely to prevent any attempt either to repudiate or to scale down the principal of, or interest on, the public debt.”⁹ The United States countered that Section Four barred only a nullification of debt, not its reduction.¹⁰

The Court resolved this dispute in Perry v. United States (1935).¹¹ Chief Justice Charles Evans Hughes wrote the plurality opinion, which held that invalidating the gold clauses violated Section Four.¹² Section Four was therefore not limited to the national debt incurred during the Civil War. Yet, the Court found that the bondholders were not entitled to a remedy because Congress had withdrawn all gold from circulation. This conclusion was widely criticized because the gold clauses in the bonds guaranteed a certain level of value rather than payment in gold itself. Robert H. Jackson, who would later serve on the Supreme Court, wrote that the opinions in Perry were “a fascinating study in legalistic reasoning.”¹³

On the other hand, a ruling that the bondholders were entitled to relief could have caused significant economic distress and President Franklin D. Roosevelt likely would have disobeyed the decision. Roosevelt had a draft radio address ready explaining why he would not obey Perry if the Court held that the bondholders must be paid in pre-devaluation dollars. He justified such defiance by quoting President Lincoln’s criticism of Dred Scott v. Sandford (1857) in his First Inaugural Address.¹⁴ Thus, Chief Justice Hughes’s plurality opinion is sometimes compared to Marbury v. Madison, in which the Court also found a clever (if highly dubious) way of denying a constitutional remedy to avoid a political crisis.

Open Questions

• In recent years, there have been fiscal standoffs in which Congress refuses to fund the executive branch. Some members of Congress and commentators have argued that the failure to pay off debts would violate Section 4. For example, if the nation hit the “debt ceiling” set by Congress, would that refusal call into question “the validity of the public debt” as construed by Perry? If so, would Section Four confer authority on the President to order unilaterally that debt payments continue notwithstanding his ordinary lack of power to spend money without legal authorization?15 Since Perry was not an opinion of the Court, there are no clear answers to any national debt issue that might arise under Section Four.

1. Cong. Globe, 39th Cong., 1st. Sess. 2545 (1866). ↩︎
2. Id. at 2769. ↩︎
3. Id. ↩︎
4. The Constitutional Amendment: Discussed by Its Author, The Cincinnati Commercial (Aug. 27, 1866), at 1. ↩︎
5. Report of the Joint Committee on Reconstruction, 39th Cong., at 129 (1866). ↩︎
6. Cong. Globe, 39th Cong., 1st Sess. 2768 (1866). ↩︎
7. An Act for the Release of certain Persons held to Service or Labor in the District of Columbia,” ch. 54, 15 Stat. 376 (1862). ↩︎
8. Richard L. Aynes, Unintended Consequences of the Fourteenth Amendment and What They Tell Us About Its Interpretation, 39 Akron L. Rev. 289, 318–19 (2006). ↩︎
9. Brief of Claimant at 18, Perry v. United States, 294 U.S. 330 (1935) (No. 532). ↩︎
10. Brief of the United States at 62–64, Perry, 294 U.S. 330. ↩︎
11. 294 U.S. 330. ↩︎
12. Gerard N. Magliocca, The Gold Clause Cases and Constitutional Necessity, 64 Fl. L. Rev. 1243 (2012). ↩︎
13. Robert H. Jackson, The Struggle for Judicial Supremacy 102 (1941). ↩︎
14. 1 F.D.R.: His Personal Letters, 1928–1945, at 460 (Elliott Roosevelt ed., 1950). ↩︎