The Wall Street Journal’s lead editorial today is a crystalline explication of the 14th Amendment’s prohibition on repudiating government debt. It marks that if money runs short, President Biden must make debt repayment his priority, even if it means shorting government programs. We’re thrilled to see the Journal cite the last of the Supreme Court’s gold cases, Perry v. U.S., which in 1935 weighed the obligation to honor contracts calling for gold.

While Perry affirmed the federal government’s burden to repay its debts, the case isn’t as ringing a vindication of the 14th as the Sun, back then, had hoped. The thing to remember about the 14th is that those who enacted it intended it to be about gold — meaning, honest money defined in law and certain contracts in terms of gold. Its authors meant to protect the right of such debt holders to be repaid in gold, or the equivalent in paper money. 

If we had hewed to the principles animating the authors of the 14th Amendment and stuck with a gold standard, we wouldn’t be in this debt crisis to begin with. This is the point we marked in these columns last week. The 14th Amendment arose at a time, like today, of intertwined debt and monetary crises. After the Civil War, advocates of inflation eyed a default by repaying federal debts in paper money, which was trading at a discount to gold. 

This was “the great financial problem now before the country,” a GOP congressman, James Garfield, a future president, said on the House floor. The Republican Congress proposed the 14th Amendment to the states to protect against default by inflation. The amendment was ratified in 1868, making the national debt a presidential campaign issue. The winner, General Grant, declared repaying our debts in gold a matter of “national honor.”

Thus the question appeared settled by law and custom. America’s bonds legally required Uncle Sam to repay borrowers “in United States gold coin of the present standard of value.” Such “gold clauses,” which often existed in private contracts, too, protected creditors against price inflation. They meant that if the dollar were ever devalued — making it fetch less in gold — bondholders would be entitled to more dollars to make up the difference. 

The threat of default by inflation became real when FDR and the Congress, in a series of moves that shook America’s constitutional and financial bedrock, devalued the dollar, broke gold clauses, and barred private ownership of the monetary metal. The value of the dollar fell 60 percent to a 35th of an ounce of gold from about a 20th of an ounce. Creditors took to the courts. Many were “small investors,” The New York Sun said in an editorial in 1935.

They had bought Liberty Bonds during World War I, the Sun said, “to help win the war and in the confident belief that if the war was won,” they would be repaid “in the same gold dollars” with which they bought the bonds. One such creditor was  John Perry, who owned a $10,000 Liberty Bond. Perry was owed its value in gold — a little less than 484 ounces, or just below $17,000 in FDR’s devalued paper dollars — on maturity. He was offered but $10,000. 

Chief Justice Hughes agreed with Perry’s suit that Congress could not “disregard the obligations of the government at its discretion,” making its promises “an illusory pledge.” Noted Hughes:  “We do not so read the Constitution.” Yet the majority, by five to four, decided that Perry had not suffered a concrete loss on his bond. The case was a “breach of contract,” and Perry could “recover no more than the loss he has suffered.” He wasn’t “entitled to be enriched.” 

The father of the Fed, Carter Glass, declared that the court saw that breaking the gold clauses “was a cheat and a repudiation” and that “those who had been cheated,” if they sought to “recover what the government agreed to give them, they can go to hell!” Perry offers a caution for the GOP in today’s debt ceiling crisis. Perry’s misreading of the 14th Amendment was a gift from the high court to the president — at the expense of the Constitution.