Is the Federal Reserve Constitutional? An Originalist Argument for Independent Agencies
48 Pages Posted: 2 Oct 2019 Last revised: 9 Jan 2020
Date Written: September 22, 2019
Leading originalists have argued that the Federal Reserve’s independent monetary policy decisions violate the Constitution. The Federal Reserve’s Federal Open Market Committee executes critical statutory mandates when it buys or sells U.S. securities in order to adjust the money supply, and yet the President cannot control the Committee’s monetary policy decisions. The President lacks power to remove Committee members at will and cannot appoint at least five of the Committee’s twelve members. Originalists have condemned the independence stemming from the Committee’s multi-member structure, protections from removal, and limited appointment opportunities as novelties of the twentieth century. They argue that such independence cannot be reconciled with the broader executive power established by the original meaning of the Constitution and early historical practice.
This Article demonstrates that independent monetary policy has an impeccable originalist provenance. Existing originalist accounts do not explain the independent structure of an obscure agency — known as the Sinking Fund Commission — that was proposed by the first Secretary of Treasury, Alexander Hamilton, passed by the First Congress, and signed into law by the first President, George Washington. Like the Federal Open Market Committee, the Sinking Fund Commission conducted open market purchases of U.S. securities pursuant to a statutory mandate. Hamilton, Washington, and the First Congress all approved an independent structure for the Sinking Fund Commission. Their decisions to create an independent Commission with multiple members to check one another — and to include the Vice President and Chief Justice as Commissioners who could not be replaced or removed by the President — belie the notion that such independence violated the newly minted Constitution. The Sinking Fund Commission shows that the independence stemming from the Open Market Committee’s multi-member structure, protections from removal, and limited appointment opportunities dates back to the founding of our Republic.
Keywords: Federal Reserve, unitary executive, removal power, independent agencies, appointments, Alexander Hamilton, originalism, First Congress, Sinking Fund Commission
JEL Classification: G18, G28, H11
Suggested Citation: Suggested Citation