The Constitutional Money Problem

We consider three aspects of the constitutional status of the U.S. Federal Reserve in this Article. Under the Supreme Court’s contemporary approach to constitutional meaning, there is a surprising degree of doubt about whether key aspects of the Federal Reserve (or the Fed)—its independence from Congress and the President, and even its power to create money—are constitutional. We suggest this is reason to believe the Court’s dominant interpretive approaches generate implausible results, but identify a previously overlooked source of constitutional grounding for the Fed that better supports its authority and structure. We further sketch the potential limits, costs, and benefits of our suggestion. In particular, we propose that the structure and monetary authority of the Fed can be justified by the Article I, § 8 borrowing power and by the Public Debt Clause of the Fourteenth Amendment. In 1935, eight members of the Court agreed that these provisions require credible commitments: to meaningfully exercise the borrowing power, Congress must be able to promise creditors it will not undermine the value of its debts. We argue that judicial enforcement of sovereign promises is unlikely to fulfill this goal. Instead, the exercise of monetary authority by independent central banks is the most promising current solution to the credible-sovereign borrower problem. Nonetheless, we also argue that judges likely have a key role to play, both as a constitutional and normative matter, in central banking. Key monetary-policy decisions should proceed under standard administrative law procedures, including opportunities for judicial review. Review would likely enhance bank independence from political actors, while potentially mitigating excess influence from private banks, who currently enjoy disproportionate weight in the Fed’s decision-making.