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Wednesday, May 03, 2023

American Default

This is the title of an excellent book about the devaluation of the dollar in the 1930s. The logic of the title goes something like this: When the United States went off the gold standard (at least domestically) in 1933, the value of our currency fell by one-quarter or one-third. This was a partial default on Treasury bonds, in the the sense that the bondholders were getting significantly less than promised. Nobody used the word "default" to describe what occurred, but that was the reality.

When the bondholders challenged the devaluation as unconstitutional, the Supreme Court (in a plurality opinion) said that Section Four of the Fourteenth Amendment applied. But the plurality in Perry v. United States also concluded that the bondholders were not entitled to a remedy. The result was a legal fiction. A default was unconstitutional but could go ahead anyway. In a law review article that I wrote on Perry, I drew an analogy to Marbury.

This fiction was so effective that people still say that America has never defaulted on its debts. 

UPDATE: In another post, I'll try to explain how the 1930s precedent can be harmonized with the text of Section Four. 


Posted by Gerard Magliocca on May 3, 2023 at 09:58 AM | Permalink


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