The Power to Lend?

The Constitution provides Congress with the power to tax (and presumably to spend), for specified purposes; to borrow money on the credit of the United States; and to dispose of the property of the United States. Question (especially to my originalist friends and to experts in constitutional history): Is there a power to lend? If so, where does it come from?

Congress borrows all the time, and we are more or less aware of the perils. But it also lends all the time—to Solyndra, and students, and small businesses, and big banks. It also backstops private lending , which amounts to the same thing as lending , risk-wise, when the private lending is done on the implicit guarantee of the United States government. What authorizes those measures?

I suppose that the power to lend may be “necessary and proper” to some enumerated power. If so, it reaches as far as the enumerated powers, or maybe as far as the power to spend: if Congress may simply dish out money to its friends, why can’t it do so on the pretense that it will be paid back?

A plausible counterargument is that all this could also be said, mutatis mutandis, of the power to borrow. That, though, is an independent power under the Constitution: why?  The reason, I suspect, is time inconsistency. It’s one thing to say that Congress may tax current taxpayers in support of some enumerated power objective. It’s a different and more dangerous thing to say that it may saddle future taxpayers with the obligations. By parity of reasoning, it’s one thing to subsidize student tuition or home mortgages out of current revenues (assuming, contrary to fact, that we have them); it’s a very different proposition to make or guarantee  loans that can’t and won’t be repaid. Should we say, then, that the power to borrow encompasses the power to lend: in for one risk, in for the commensurate other? Or should we say that the power to borrow excludes the power to lend—exclusio alterius, etc.?

Arguendo: If Congress itself may not lend money, may it set up (or own) private corporations (the Bank of the United States, Fannie Mae, Sallie Mae, Citicorp, the Fed) that just happen to be in the lending business? Or is there a constitutional problem when those outfits lend on the credit of the United States?

We have learned that the power to lend can be as dangerous as the power to borrow. Unlike borrowing, however, lending isn’t a power or danger that the Constitution explicitly adumbrates. So it’s worth asking where the power to put future taxpayers on the hook comes from. Somewhere along in our constitutional history, the question may have been asked and answered, and the answers may well be perfectly respectable; I’m just not aware of them. Any help or insight from whatever quarter greatly appreciated.

Michael S. Greve

Michael S. Greve is a professor at George Mason University School of Law. From 2000 to August, 2012, Professor Greve was the John G. Searle Scholar at the American Enterprise Institute, where he remains a visiting scholar. His most recent book is The Upside-Down Constitution (Harvard University Press, 2012).

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  1. libertarian jerry says

    Michael…The Constitution is a dead letter. Its been a dead letter for decades. Its been so twisted,amended,changed and misinterpreted that it is meaningless. The original intent of the founders has been buried alongside the Constitution in the same coffin. The truth is that the Political Class and the Power Elites regularly ignore the document or if not ignore it twist it to their liking. The Supreme Court is just a rubber stamp for the important issues such as taxes,money,foreign wars,the permanent army and a host of other issues,most of which are relevant to those people wielding power. The Constitution died with the 14th,16th and 17th Amendments,The Federal Reserve Act,The Legal Tender Laws,The New Deal,The Great Society,becoming a member of the United Nations and now the Patriot Act. Your about 100 years too late in your arguments in “obeying” or “finding in” the Constitution. Its a Dead letter that’s been buried and superseded by the card in your back pocket that says Social Security.

  2. Brett Bellmore says

    I think my answer would be, no. There is no federal power to lend. Period, end of story, that’s it. This is inconvenient? Tough noogies, amend the Constitution if you don’t like it.

    Then I’d go on to note that, while I think Jerry exaggerates just a bit, the Constitution is at best comatose. Current practice is so far from anything that can be justified as constitution by reasoning that passes the laugh test, that a return to constitutional government seems extremely unlikely.

    Really, I only care about originalism because it’s necessary to so delegitimize “living constitutionalism” that the NEXT constitution gets honestly interpreted for at least a little while before being subverted.

  3. says

    Since lending affects the money supply and commerce in the same way that circulating coin and currency affects it, the power for Congress to charter lending corporations, and to regulate lending in general, comes from the Commerce Clause.

    So, in effect, money enters the economy in three major Constitutional ways: (1) as coin under the Coinage Clause (I:8:5), (2) as “borrowed coin” (paper and electronic money) under the Borrowing Clause (I:8:2), and (3) as money being lent into the economy under the Commerce Clause (I:8:3)–where money issued via #2 and #3 need to be regulated by income taxation.

  4. libertarian jerry says

    Good point,Rick, about the Income Tax being used to pay the interest on the National Debt. If you look back,in 1913, the Income Tax and The Federal Reserve were created at the same time. Of course the Federal Reserve is neither Federal nor has any reserves,except the ability to create “money” out of thin air. Lets face facts,the bankers,who own the Federal Reserve, call the shots in America. The politicians are bought and paid for. Also I would like to issue a warning. America is bankrupt and about to go down and it will go down with or without the Constitution. The laws are in place,the secret police is in place and the gulags have been built. After the election,no matter who wins, America will become a complete Fascist country.

  5. says

    jerry, it definitely looks like there’s a relationship between the 16th Amendment and the creation of the Federal Reserve Corp., but they’re actually unrelated (in the sense that if the 16th Amendment didn’t exist, the current income tax on wages, which is used to pay the interest on the national debt, would still be Constitutional).

    We try to sort out myths and confusions like this at my Facebook group “Common Wealth Tax,” so feel free to join in if you’re interested:

  6. Brett Bellmore says

    “(in the sense that if the 16th Amendment didn’t exist, the current income tax on wages, which is used to pay the interest on the national debt, would still be Constitutional).”

    Which is to say, in the sense that the courts today would allow Congress to exercise this power contrary to the Constitution, while the 16th amendment was adopted at a time when the courts were not so accommodating, so the Constitution still needed to be amended when Congress wanted to do something contrary to it.

  7. says

    Brett, that’s not quite what I meant. There are 2 classes of income taxes, those derived from property sources vs. those not. The 16th was only needed because taxes on income (rent, interest, dividends, profit from hiring, etc.) derived from property sources (land, labor, capital) were considered to be direct taxes, and if so, this kind of income tax (and only this kind) would be unconstitutional because of the two Direct Tax Clauses.

    The other kind of income tax, the one not affecting property sources, was always constitutional, and generally this kind of income tax is levied on recipients of government privilege, such as those enjoying the corporate privilege or the privilege of using currency substitutes (as though those currencies were real Constitutional coin-based currencies) because of Congress’s legal tender laws. Those are the two biggies under the category of “taxes on income derived from non-property sources.”

    I explained the difference between the two categories a little more here:

  8. Rick DiMare says

    Professor Greve asked the provoking question about where Congress gets the power to lend, which I think leads to an important question about “government sponsored entities” or “GSE’s”:

    Considering Congress’s powers under the Coining and Borrowing Clauses to create money, does Congress really have the power to charter any kind of corporation to lend any kind of currency into existence?

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