Chabot on the Constitution and the Sinking Fund Commission

Christine Kexel Chabot, Loyola University Chicago School of Law, has posted Is the Federal Reserve Constitutional? An Originalist Argument for Independent Agencies:

The President’s inability to control the Federal Reserve’s monetary policy decisions raises significant constitutional concerns. The Federal Reserve’s Federal Open Market Committee executes critical statutory mandates when it buys or sells U.S. securities in order to expand or contract the money supply, and yet the Committee’s twelve voting members check one another instead of answering directly to the President. The President cannot remove Committee members who refuse to carry out his monetary policy directives. Seven of the Committee’s twelve voting members are Federal Reserve governors who enjoy for-cause protections from removal by the President. Congress delegated power to supervise and remove the remaining five voting members, who are presidents of regional Federal Reserve banks, to the governors rather than the President. Further, the President has no say in the appointment of regional bank presidents to the Committee. While the Committee’s independence and appointments process would likely pass muster under current precedent, a growing chorus of originalists have argued that the Constitution requires greater executive control and a more expansive application of Article II’s Appointments Clause requirements.

This paper demonstrates that existing originalist accounts are incomplete. They do not account for the structural independence of an obscure agency known as the Sinking Fund Commission. This Commission was proposed by Alexander Hamilton, passed into law by the First Congress, and signed into law by President George Washington. One would expect all of these actors to have a clear grasp on the original public meaning of the Constitution, as well as a strong dedication to the structural commitments established therein. Their decisions to form a Sinking Fund Commission with multiple members to check one another — and to include the Vice President and Chief Justice as Commissioners who cannot be replaced or removed by the President — belie the notion that an independent agency structure violates the newly minted Constitution. The Sinking Fund Commission directed open market purchases of U.S. securities pursuant to a statutory mandate. It provides a direct historical analogue to the Federal Open Market Committee’s independent purchases of U.S. securities pursuant to a statutory mandate. This analysis shows that the structure of the Open Market Committee is not a novel invention of the twentieth century. Rather, the independence stemming from the Committee’s multi-headed structure and protections from removal has an impeccable originalist provenance which dates all the way back to Alexander Hamilton and First Congress.

--Dan Ernst