Legal tender is any form of payment that, according to law, a creditor must accept if offered as payment of a debt. A creditor may, of course, accept anything that he can persuade a debtor to offer him. But if the debtor has sufficient legal tender, the creditor must accept it and cannot insist on any other form of payment.
Since the redevelopment of civilization after the Great Flood, gold and silver and, where applicable, copper and other metals have served for legal tender. The Roman Empire was the first empire to debase its currency by minting adulterated coins. History has been inflationary, but only because gold and silver are still available through mining.
United States dollars
The first United States currency was the Continental. It was supposed to be silver-backed, but the Second Continental Congress could not back its currency, and everyone knew it. "Not worth a Continental" became a common epithet. (Supporters of the Spanish general and future Viceroy Bernardo de Galvez insist that Galvez offered to back the Continental in addition to his military exploits in British West Florida. This, they say, is further evidence that Galvez and his men deserve recognition as Revolutionary War patriots by the Sons and Daughters of the American Revolution.)
After the war, and under the new Constitution, the United States dollar was one ounce of silver, or one-twentieth of an ounce of gold. (The name dollar meant "a twentieth of an ounce.") That the gold:silver ratio was fixed at 1:20, one may infer from the circulation of silver dollars, and the language of the Sixth Amendment of the Constitution, that calls for jury trials in civil cases "where the value in question shall exceed twenty dollars."
In 1962, President Abraham Lincoln authorized the printing of the first greenbacks, paper currency intended to pay for the Civil War. After the war, greenbacks continued to circulate, but were worth much less than gold-standard dollars. The Supreme Court of the United States, in Hepburn v. Griswold (1870), held that the greenback enabling legislation was unconstitutional, in that by making greenbacks legal tender, the government was "depriv[ing] [men] of...property without due process of law," in violation of the Fifth Amendment But when President Ulysses S. Grant made two more Court appointments, the Court reversed itself. In Knox v. Lee (1871), the Court held that Congress had an "implied power" to make paper currency legal tender.
States, however, may not make anything other than gold and silver coin legal tender. Whether the federal government wants States to do even that much is open to question. Utah recently (May, 2011) made gold and silver coins legal tender in the State, with a valuation from the weight of the metal, not merely the face value of the coin.
This was the first instance on record of the "packing" of the Supreme Court. It would not be the last.