Alexander Hamilton and Independent Monetary Policy

Many thanks to Howard and PrawfsBlawg for the opportunity to post. I’ll start with my latest paper, Is the Federal Reserve Constitutional? An Originalist Argument for Independent Agencies. The discussion should be of interest to anyone concerned with executive power, finance, originalism, the longstanding constitutional debate over independent agencies, or Alexander Hamilton. (Although you will have to check out Tuan Samahon’s interesting post for Hamilton’s views on impeachment.)

The Federal Reserve’s independent monetary policy decisions have greatly vexed President Trump. The President’s complaints happen to align with leading originalists’ arguments that the Federal Reserve and other independent agencies are unconstitutional novelties of the twentieth century. My paper demonstrates that the Fed’s independent monetary policy has an impeccable originalist provenance in the Sinking Fund Commission. The Commission was an obscure agency proposed by Alexander Hamilton, passed by the First Congress, and signed into law by President George Washington in 1790. Like the Federal Reserve, 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 five members to check one another — and to include the Vice President and Chief Justice as ex officio Commissioners who could not be replaced or removed by the President — belie the notion that such independence violated the newly minted Constitution.

In its “Act Making Provision for the Reduction of Public Debt,” Congress delegated purchases of debt, in the form of U.S. securities, to an independent, multi-member body comprised of “the President of the Senate[and Vice President], the Chief Justice, the Secretary of State, the Secretary of the Treasury, and the Attorney General . . . .” ch. 47, 1 Stat. 186 § 2 (1790). Thus, five founders who occupied key principal offices became ex officio members of the Sinking Fund Commission: Vice President John Adams, Chief Justice John Jay, Secretary of State Thomas Jefferson, Secretary of Treasury Alexander Hamilton, and Attorney General Edmund Randolph. The Act provided for purchases “under the direction of” these Commissioners, “who, or any three of whom, with the approbation of the President of the United States, shall cause the said purchases to be made . . .” Id. Congress directed the Commission to make purchases “best calculated to fulfill the intent of [the] act,” which was designed to both “reduc[e] the amount of public debt” and benefit the creditors of the United States “by raising the price of their stock” in U.S. securities. Id. at §§ 1-2.

The Commission’s multi-member structure, appointments, and tenure provisions insulated the Commissioners from presidential control. Congress gave the President no say in appointing members of the Commission when it specified ex officio Commissioners. Although the President had already appointed the Attorney General and Secretaries of Treasury and State to ostensibly related executive offices, the President never appointed the Chief Justice or Vice President to executive posts. Nor did the President have any power to remove the Vice President and Chief Justice. This structure left the President no recourse if the Vice President or Chief Justice refused to perform their basic duties as Commissioners. Such neglect of duty actually occurred when Chief Justice Jay refused to set aside his judicial work for a crucial Commission vote in 1792.

The Act further checked the President by requiring at least three Commissioners to approve any purchases the President may have desired under the Act. The Vice President and Chief Justice did not answer to the President, and the three remaining executive officers on the Commission (Hamilton, Jefferson, and Randolph) openly voted against one another rather than following a singular executive directive. The Commission’s multi-member structure trumped any opportunity for executive direction and facilitated independent decisionmaking.

The Sinking Fund Commission provides a founding-era precedent for the Federal Reserve. Like the Sinking Fund Commission, the Federal Reserve’s Federal Open Market Committee is free to decline presidential requests to purchase U.S. securities or take other action designed to lower interest rates. The Sinking Fund Commission shows that independent monetary policy decisions date all the way back to the founding of our Republic.