In its upcoming ruling in the case Trump v. Cook, the U.S. Supreme Court has an opportunity to decide whether the Federal Reserve, the central bank of the United States, will remain independent from presidential control.
While recent rulings on the separation of powers reflect a trend of limiting administrative discretion, the potential ramifications of ceding control of the Fed to the president have prompted speculation over a key question: “Is the Fed different?”
Leo Gottlieb Professor of Law Christine Desan believes the lines defining the separation of powers between the nation’s three branches of government are blurrier than most people might expect. According to Desan, the Fed’s power to make money, and the long history of Congress’ exclusive control over that power, indicate that the “legislative prerogative” protects the Fed from executive intervention.
“The existence of money is just so basic that we lose sight of it, we take it for granted. But the framers emphatically did not,” she says. “They knew that the legislative struggle for democratic sovereignty was hard-fought. The most primal and basic legislative accomplishment was probably gaining the authority to make money.”
Desan spoke with Harvard Law Today to discuss her recent paper “Democratic Sovereignty and the Prerogative to Make Money: The Case of the Federal Reserve” and explain the importance of preserving the Fed’s independence.
Harvard Law Today: In your opinion, what is missing from the debate over the independence of the Federal Reserve?
Christine Desan: I think what’s missing from the conversation is a recognition that the Fed’s authority is ultimately an authority to make money. All of the Fed’s expansive capacities — to conduct monetary policy, to act as lender of last resort, to purchase assets, to support the commercial banks — are rooted in its ability to create the monetary base, the medium we call “high-powered money.” That authority comes directly from Congress — the power to create money anchors legislative power. If Congress is going to maintain its control over law-making, it has to control who makes money and how. Otherwise, whoever controlled the money supply would direct resources as they wished, not as Congress determined. When we see that the Fed’s powers ultimately derive from those powers, then we see its powers ultimately derive from the legislature and to the legislative prerogative.
HLT: While there has been willingness, even among some proponents of the unitary executive theory, to treat the Fed as “different,” there doesn’t seem to be a single, cohesive argument for that view. Why is that?
Desan: The unitary executive theory starts from the wrong place. It starts from an abstraction about executive power, legislative power, and judicial power and imagines that our government adheres to that abstraction. It assumes we have these three separate, sanitized, different spheres. There’s no doubt that the framers were theorizing judicial, legislative, and executive power, but they weren’t theorizing judicial, legislative, and executive power in the abstract. They were operating against a baseline of centuries of struggle to define the separation of powers. They’re particularly sensitive to the struggle for legislative authority against a monarch. Having just fought a revolution against the king, they’re very aware that parliamentary and then colonial assembly power had been won when those legislatures asserted the authority to make money. National banking, which developed into central banking, came out of the same drive. Lawmakers structured national banking to empower themselves and cut out the executive.
We are used to thinking that legislatures gained power when they gained the power of the purse. Then we think about the power of the purse, to spend and tax — but we don’t ask, “So, what’s in the purse?” Where does the money come from? It doesn’t just appear, it doesn’t grow on trees, as they say. Rather, legislatures make money through an engineering project that pre-dates spending and taxing. They literally start spending in little pieces of public credit and then taking back those pieces of credit in taxes, fees, and other payments. In that way, they make a medium that people can use. But by the same brilliant move, the legislatures have relocated authority that once belonged to a monarch or an imperial authority in their own hands.
The existence of money is just so basic that we lose sight of it, we take it for granted. But the framers emphatically did not. They knew that the legislative struggle for democratic sovereignty was hard-fought. The most primal and basic legislative accomplishment was probably gaining the authority to make money. That alone allowed Congress to control resources, and obligate people to support that control of resources by spending and taxing.
HLT: If we say that the Federal Reserve is different, does that mean that other administrative agencies are not?
Desan: Among defenders of the Fed, there may have been a reluctance to point out how important the legislative prerogative of money-making is for fear that, by identifying the Fed as different, it will leave other administrative agencies to fall under the ax of the unitary executive theory. The worry is that if we show that the Fed is special, then we give up on the rest of the other agencies, and that seems wrong. In fact, I was quiet for a long time out of concern that identifying how primal the legislative prerogative to make money is could cast other administrative agencies as somehow less protected, less covered. But I no longer think that is the right concern.
To the contrary, once we recognize that certain legislative prerogatives operate indispensably to protect law-making authority, we can understand the separation of powers in a new light. It is the result of real and ongoing struggle, a process of give-and-take that means the powers asserted by these two branches of government are really very interwoven. Recognizing the importance of legislative prerogatives will lead us to protect other operations within administrative agencies from executive interference. And there are also instances where legislative authority has to cede to purely executive prerogatives in certain respects.
HLT: Where does the idea of legislative prerogatives come from? Are they different than enumerated powers?
Desan: Early Americans were steeped in the struggle for governing authority that I just mentioned. As the framers wrote, they worked to capture the legislative prerogatives that they believed were essential. The enumerated powers of Article I, Section 8 reflect that work. For example, the Constitution does not identify the power to make money in so many words — but it covers that territory in Section 8, where we find the power to tax, the power to borrow, the power to pay the public debts and to provide for the defense and general welfare of the United States, to coin money, to control commerce. All of those powers are the ingredients that express and protect the power of Congress to make money.
At the same time, sometimes protecting a prerogative feels more improvised. Take Congress’ authority to resolve claims against the government for example. It followed a long tradition, one the colonial assemblies fought hard to perpetuate. They asserted and protected their power over the purse by insisting that only they could decide when the government owed someone money — they used sovereign immunity from suit to protect that prerogative. But that tradition goes unremarked in the Constitution until the Bill of Rights is added, identifying the right to petition for the people. Congress had to respond to petitions, most particularly petitions for money from constituents. If you think about it, that legislative prerogative again related to the power of the purse. Congress had control over the money supply and didn’t want to delegate that to anybody — the judiciary, in this case — so, it retained the authority to resolve claims for money against the government. By the way, the 11th Amendment was a backlash in favor of state legislatures, which also claimed the prerogative to determine all claims for money from their treasuries.
In any case, Congress set up a committee on claims at the very start of its operations and, for 60 years, only Congress resolved all claims against the government for money damages. But resolving those claims was a lot of work, so, in 1855, Congress set up the Court of Claims, creating a specialized administrative institution to resolve claims against the government. Congress retained control by putting a ceiling on how much the Court of Claims could pay out. As in the case of the national bank or, eventually, the central bank, Congress worked out ways to retain control. It’s setting the parameters, but inviting the help, structuring the help, and assigning some of the work to another actor out of necessity. It can’t do it all itself. We can’t expect a very finite group of people to take care of all of these operations in an expanding, complicated, and modernizing society.
“We can’t expect a very finite group of people to take care of all of these operations in an expanding, complicated, and modernizing society.”
HLT: Is there any early precedent recognizing a legislative prerogative over the Fed’s money-making power?
Desan: If we look at the jurisprudence here, it recognizes legislative prerogatives in many ways. There is a string of important cases about money, which also happen to be the cases that most robustly articulate Congress’ Article I power. These important money cases include McCulloch v. Maryland, which asserts sweeping authority in Congress, given its Article I, Section 8 powers and the Necessary and Proper Clause. Then, there are the legal tender cases — Knox v. Lee and Parker v. Davis — and Juilliard [v. Greenman] after the Civil War. Those cases emphatically claim, for Congress, authority over making and forming the public credit in ways that will circulate and act as money. In fact, the legal tender cases clearly articulate the creation story of money. I quote: “The power to borrow money on the credit of the United States is the power to raise money for public use on a pledge of the public credit and […] Congress has authority to issue these obligations in a form adapted to circulation from hand to hand in the ordinary transactions of commerce and business. In order to [do that], to adapt them to use as currency, and to make them more current in the market, it may provide for their redemption in coin or bonds, and may make them receivable in payment of debts to the government.” The justices are not monetary theorists, but they figure it out and theorize that Congress has the power to make money out of circulating sovereign IOUs by spending them and taxing them back.
HLT: Is there any modern precedent recognizing a legislative prerogative over the Fed’s money-making power?
Desan: The next, most striking cases recognizing Congress’ power over money are the gold clause cases, which happen out of the devastation of the Great Depression. Once again, it’s crisis that brings the Court’s attention back to money. In the gold clause cases, the Court recognizes the authority of Congress to devalue the gold dollar by changing the amount of gold in the dollar. Congress delegates authority to FDR to do the devaluation, but only after it has authorized that action. Congress also sweeps out of the way contractual guarantees of certain gold content that most public and private contracts carried — something like $100 billion of debt. Nullifying the gold clauses meant saving debtors the extent of the devaluation, 69% or about $69 billion, this at time when the nominal GDP was less than $75 billion. In the gold clause cases, the Court basically says that Congress can do that because it has the authority to determine the medium that we all use to make our economy — money makes the market. According to the justices, if Congress has demonetized gold, then there is no economy left in gold coin and that disables anyone from claiming damages in gold coin.
It’s an astonishing set of decisions in which we see the Court determine that the market is made by a medium, and that Congress has the authority to make that medium. The gold clause cases also go back to that aggregate of powers in Article I, Section 8 — taxes, debt, revenue, coin, commerce — that are in located in Congress and confirm Congress’ authority. One could hardly have a more ringing endorsement of Congress’ prerogative to make our money.
HLT: Are there other legislative prerogatives that could justify treating entities created by Congress differently from standard administrative agencies subject to executive control?
Desan: Apart from money-making, another example that I found intriguing and started to explore in the paper is that Congress has the authority, and must have the latitude, to harvest information from the rest of government, including the executive branch. Congress must be able to rely on that information being produced according to current norms of professional output. It must be able to assume that the executive branch is using, for example, current modes of data collection, economic models, scientific standards, etc., with protocols designed to ensure that information is accurate.
While working with DOGE [Department of Government Efficiency], the Trump administration issued an executive order that asserted the authority to collapse certain offices of government and remove those information-gathering-and-analyzing offices. It appears that some of those interventions might actually destroy professional protocols of information. If that’s the case, then that operation would be a violation of Congress’ prerogative, the legislative prerogative, to collect information. Some scholars have analyzed that threat to congressional information gathering as a violation of congressional prerogative.
HLT: In your paper, you write that “exceptions carved out for the Federal Reserve, as currently offered, undermine constitutional principle.” What’s the problem with the Court just saying, “The Fed is different?”
Desan: In Trump v. Wilcox, the Court included a footnote stating: “The Fed is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”
There are many problems with that statement. One is that it throws down this exception without saying what binds the First and Second Banks the United States to the Fed. The First and Second Banks the United States did all sorts of things. The Fed does all sorts of things. We don’t know which features of the First and Second Bank the United States are relevant, or which features of the Fed are relevant. We really don’t know what the Court means to point out.
Another thing that’s odd about the statement is that it analogizes the Fed to the First and Second Banks of the United States, but also says that the Fed is a uniquely structured institution. That’s entirely inconsistent, right? If it’s uniquely structured, then it’s not like the First and Second Banks of the United States. In any case, we need to know what’s unique about the Fed and why that matters.
Finally, nothing about the footnote identifies a substantive rationale for understanding the Fed’s special status, or its legislative status, or the reason it should be impervious to the executive. So, at the at the end, we’re left with this feeling that the exception is arbitrary and that the reason the Court’s not messing with the Fed is that it’s afraid that messing with the Fed might bring calamity. I agree that it’s best to back off if you are about to bring calamity. But we don’t know why it’s backing off. If it realizes it’s gone too far, the Court needs to face that problem and reconsider the constitutional jurisprudence it has been creating.
HLT: How do you think the Supreme Court will rule on the independence of the Federal Reserve? Do you think that there is an opportunity here for the legislative prerogative to be realized?
Desan: Part of why I love this interview is [that we’re entertaining] the possibility that the history and arguments we are discussing might have an impact. The Court might restore a jurisprudence that recognizes the importance of the legislative prerogative, that considers how the separation of powers emerged from the reality of constitutional conflict, and that takes steps to preserve the checks and balances worked out in grind. But will the Court do that here? I fear that it’s more likely that the Court will find a way to duck the issue of the Federal Reserve, at least for as long as it can. Of course, that would be better than blessing executive influence over it. Much commentary understates the danger of that prospect. Yes, it would allow the president to adopt looser monetary policy and that could produce inflation. But the Fed also determines how to spend an enormous amount of government money because it’s buying assets and making loans to particular parties. If people without political principle controlled the Fed, they could basically direct that government action as they wished, reshaping the market in ways that upended our society. They would fundamentally undermine democracy by controlling the power of the purse at that moment. It would be truly disastrous.
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