Does the 14th Amendment preclude defaulting on the national debt?

Posted by AzBlueMeanie:

You have probably been reading, as I have, discussions on whether Section 4 of the 14th Amendment to the U.S. Constitution precludes defaulting on the national debt. Some authors are referring to this as the "nuclear option," i.e., the U.S. must continue to honor its debts regardless of any action or inaction by the U.S. Congress. Voting to raise the federal debt ceiling is merely a perfunctory act.

What I have found troubling about much of this discussion is that most authors simply cite the language of Section 4 of the 14th Amendment and then draw their conclusion as to its meaning. What has been absent from much of the discussion is any scholarly examination of the Congressional Record of debate on Section 4 of the 14th Amendment — you know, that whole "congressional intent" thing. If you want to discuss the meaning of a constitutional provision, this is the requisite starting point.

Fortunately, Jack Balkin at Balkinization Blog has already done the scholarly research into the Congressional Record. The Legislative History of Section Four of the Fourteenth Amendment:

The recent debate over the debt ceiling has led various commentators, journalists and politicians to consider the relevance of section Four of the Fourteenth Amendment, which provides:

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.

Does Section Four prevent Congress from refusing to raise the debt ceiling? Does it authorize the President to keep paying debts regardless of what Congress does?

This essay does not attempt to answer these questions in detail; I leave that to a future discussion. My goal here is to offer a basic account of the legislative history of Section 4. This discussion, I hope, will be of interest both to originalists and to non-originalists who believe that text, structure and history matter, even if they are not always dispositive of current constitutional questions.

* * *

Section Four has its origins in section 3 of the proposal brought before the Senate by the Joint House-Senate Committee on Reconstruction, the famous "Committee of Fifteen." As presented to the Senate on May 23, 1866, the original version of section 3 provided that:

Neither the United States nor any State shall assume or pay any debt or obligation already incurred, or which may hereafter be incurred, in aid of insurrection or of war against the United States, or any claim for compensation for loss of involuntary service or labor.

Congressional Globe, 39th Cong., 1st session 2764 (May 23, 1866).

In a famous speech introducing the Fourteenth Amendment before the Senate, Senator Jacob Howard, the floor manager of the amendment, argued that the Union had no obligation to pay the Confederate debt, which had been contracted to support a "wicked war" to destroy the Union. . . It is necessary to act, to extinguish this debt, to put it beyond the pale of party controversy, to put it out of sight, and to bury it so deep that it can never again be raised to life in such manner as to become a theme of party discussion." Id. at 2768.

* * *

Unless Confederate obligations were firmly rejected in the Constitution, Howard explained, former rebels, rebel sympathizers, and foreign investors who speculated by betting on the Confederacy would continually press for these debts to be recognized, disrupting American politics for years to come. "I do not believe in paying traitors, nor do I believe in indemnifying men abroad who, with their eyes open and a malignity in their heart beyond all parallel, gave them aid and comfort. Nor do I see the propriety of keeping this question open before the country, and enabling the foreign holders of cotton bonds to keep the political atmosphere of this country in a turmoil for the future with a view ultimately of getting their pay from somebody. It is time for us to put our hands upon this whole thing and to extinguish all hope."

Id. at 2768.

Senator Benjamin Wade of Ohio was a leader of the Radical Republicans and the President pro tempore of the Senate. He agreed with Howard's reasons for why the Confederate debt should be repudiated, but he argued that if the concern was to avoid future disruption of American politics, the current proposal did not go far enough. It was also necessary to guarantee the Union debt, because former rebels or rebel sympathizers who returned to Congress after the war might, out of selfish or malicious motives, seek to prevent Union soliders and their widows from being compensated. Moreover, there was no guarantee of what a later Congress, motivated by different priorities, might do. Shifting majorities in a future Congress might be willing to sacrifice the public debt or the interests of pensioners in the name of political expediency. Thus, it was as important to guarantee the Union debt as it was to repudiate the Confederate debt.

Wade's proposed language, which eventually became the basis of the current section 4, read as follows:

The public debt of the United States, including all debts or obligations which have been or may hereafter be incurred in suppressing the insurrection or in carrying on war in defense of the Union, or for payment of bounties or pensions incident to such war and provided for by law, shall be inviolable. But debts or obligations which have been or may hereafter be incurred in aid of insurrection of of war against the United States, and claims of compensation for loss of involuntary service or labor, shall not be assumed or paid by any State nor by the United States.

Id. at 2768.

Senator Wade's explanation of his proposal is the most extended account of why section 4 protects the federal debt as well as repudating the Confederate debt:

[The proposed amendment] puts the debt incurred in the civil war on our part under the guardianship of the Constitution of the United States, so that a Congress cannot repudiate it. I believe that to do this wil give great confidence to capitalists and will be of incalculable pecuniary benefit to the United States, for I have no doubt that every man who has property in the public funds will feel safer when he sees that the national debt is withdrawn from the power of a Congress to repudiate it and placed under the guardianship of the Constitution than he would feel if it were left at loose ends and subject to the varying majorities which may arise in Congress. I consider that a very benficial proposition, which is not in the original proposition.

This section of my amendment goes further, and secures the pensioners of the country. We ought to do something to protect those wounded patriots who have been stricken down in the cause of their country, and to put the securty of their pensions and their means of support beyond the power of wavering majorities in Congress, who may, at some time, perhaps, be hostile to the soldier. . . . I am anxious to put the pensions of our soldiers and their widows and children under the guardianship of the Constitution of the United States. They ought to be there, along with your public debt. . .

Id. at 2769.

On June 4th, in response to the Wade proposal, Senator Howard offered a new section 4 to accompany then-section 3, which repudiated the Confederate debt: "The obligations of the United States, incurred in suppressing insurrection, or in defense of the Union, or for payment of bounties or pensions incident thereto, shall remain inviolable." Id. at 2938.

* * *

The two sections on Confederate and Union debt were then combined on June 8th, the last day of Senate debate. Senator Clark proposed a substitute which is essentially identical to the current language: "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." Id. at 3040. (I believe that this is Senator Daniel Clark of New Hampshire, who was chairman of the Committee on Claims.)

Clark's formulation protected the public debt generally, and singled out those debts incurred for the defense of the Union as a prominent example. Clark's proposal was thus closer to the spirit of Wade's original proposal. Even so, the Senators did not appear to think that the change from Wade's proposal to Howard's to Clark's made much of a difference. Senator Johnson noted "I do not understand that this changes at all the effect of the fourth and fifth sections. The result is the same." Senator Clark repsonded: "The result is the same." The Senate then adopted the substituted version of section 4. (p. 3040).

* * *

No changes were made to Section 4 in the House of Representatives. Representative Thaddeus Stevens, in introducing the measure to the House, remarked on it only briefly: "The fourth section, which renders inviolable the public debt and repudiates the rebel debt, will secure the approbation of all but traitors." Id. at 3148. The House passed the final version on June 13. Id. at 3149.

What do we learn from this history? If Wade's speech offers the central rationale for Section Four, the goal was to remove threats of default on federal debts from partisan struggle. Reconstruction Republicans feared that [Southern] Democrats, once admitted to Congress would use their majorities to default on obligations they did disliked politically. More generally, as Wade explained, "every man who has property in the public funds will feel safer when he sees that the national debt is withdrawn from the power of a Congress to repudiate it and placed under the guardianship of the Constitution than he would feel if it were left at loose ends and subject to the varying majorities which may arise in Congress."

Like most inquiries into original understanding, this one does not resolve many of the most interesting questions. What it does suggest is an important structural principle. The threat of defaulting on government obligations is a powerful weapon, especially in a complex, interconnected world economy. Devoted partisans can use it to disrupt government, to roil ordinary politics, to undermine policies they do not like, even to seek political revenge. Section Four was placed in the Constitution to remove this weapon from ordinary politics.

Jack Balkin continues this discussion of congressional intent with questions posed to him by others about his post above.

More on the Original Meaning of Section Four of the Fourteenth Amendment. A point of discussion particulalry worth noting:

[Michael] Stern's most important contribution is pointing out that there is a difference between *repudiation* of a debt obligation and *defaulting* on a debt or obligation. (And, I might add, there is also a difference between actually defaulting and threatening to default.) Roughly speaking, to repudiate a debt means that you state that you are not going to pay it and that you don't owe the money. Defaulting on a debt means that you aren't able to perform, but you still acknowledge that you owe the money.

Much of the language in the debates speaks about repudiating the public debt (or obligations). Why should we think that the framers were at all concerned with merely defaulting (or threatening to default) on public debt? As I read Stern, he is saying that merely defaulting on government debt, or merely threatening to default on government debt should not be understood as "questioning" the validity of the public debt as long as the debt is not formally repudiated.

I think that this reading is artificially narrow. It is inconsistent with the political context that produced Section 4, because it would not give the Republicans the sort of assurances they needed. We should interpret section 4 so that it solved the political problems that the Republicans wanted to solve. If our proposed interpretation does not solve those problems, it is very likely that we have picked the wrong reading.

I begin with the assumption that the central purpose of section 4 was to prevent the Democrats, once they regained political power, from repudiating the Union debt — including pensions and bounties. To use my colleague Jed Rubenfeld's language, this was the "paradigm case" of what Section 4 prohibited. But what if the Democrats did not officially repudiate the Union debt but but merely chose (or threatened) not to repay it?

Imagine that the Democrats regained power in 1874 (In fact, they won the House that year and almost won the Presidency in 1876.) The economy had gone into free fall in the Panic of 1873, which was one reason why the Democrats rebounded politically.

Now imagine that the Democrats do not officially repudiate the Union war debt. They agree that these debts are legally valid. Nevertheless, they argue, the economy is in a bad way, and something must be done about the enormous waste and fraud involved in Union pensions, bounties, and defense expenditures, or to use a modern expression– the exploding "entitlements" created by the former tax-and-spend Republican government. Therefore, they deliberately appropriate less than is necessary to pay the debts as they come due, and they prevent the government from issuing new debt to help pay off existing obligations.

The Democrats are careful to stop short of officially repudiating these debts. They do not say that they will never pay them. Instead, they argue that in the middle of a recession, the government simply does not have enough money to pay its debts to Union pensioners and widows, and fiscal prudence counsels against allowing Congress to raise additional monies to do so.

Of course, the Democrats say, they would be willing to consider changing their minds, but only if the Republicans agree to repeal the Civil Rights Acts of 1866, 1870, and 1871 and remove federal troops from the South (the latter actually occurred as a result of the Compromise of 1877, which smoothed over the disputed election of 1876.). The Republicans respond that this is blackmail, and that the ex-rebels are threatening to crash the economy in order to win concessions on civil rights and Reconstruction. The Democrats respond that they are only being fiscally prudent, that the costs of Reconstruction are bankrupting the country, and besides, they have never said they would actually repudiate the federal debt. They are just putting it off for awhile until the country gets on its financial feet, or the Republicans change their minds about Reconstruction.

Under this set of facts, would section 4 be violated? Stern seems to suggest that it would not be, because all the Democrats are doing is threatening default and they are not repudiating federal debt. But I would suggest that this is very sort of thing that the Republicans were worried about. They feared that the Democrats would use a future economic crisis over the debt to wring political concessions. The Republicans believed that the ex-rebels and their sympathizers would someday return to power, and they wanted to prevent them from making payment of the public debt into a weapon of political threat and reprisal. If the practices I have just described would not constitute a violation of section 4, then the section is practically meaningless.

There is much more to say about how to interpret section 4, and whether it is judicially enforceable. But that is a subject for a later post.

Ah, Jack, don't leave me hanging! Stay tuned.