An independent Fed protects the nation from political risk

The Supreme Court will soon decide in Trump v. Cook whether President Donald Trump has the legal authority to remove Lisa Cook, a governor on the Federal Reserve Board, notwithstanding a federal statute that limits removal to situations where there is good cause for firing. For justices who consider themselves originalists, the history is clear that Congress can limit the ability of the president to remove members of the Federal Reserve Board.

It is possible that the conservative justices will view this case, as they do another case pending on the docket, Trump v. Slaughter, which involves President Trump's firing of a commissioner on the Federal Trade Commission.  In that case, the oral arguments gave a strong sense that a majority of the justices embrace the unitary executive theory, where the president can fire anyone in the executive branch of government. It appears that there are six justices ready to overrule Humphrey's Executor v. United States, a 1935 decision holding that Congress can limit presidential removal of agency heads to situations where there is good cause.

But a focus on the unitary executive theory and New Deal-era precedent obscures an older and deeper set of constitutional principles that the Court should not ignore. When the founders debated Alexander Hamilton's proposal for the First Bank of the United States (Bank), the nation's first central bank, they confronted the question now before the Court: Does the Constitution permit a powerful institution, created by Congress, to exercise executive functions yet be insulated from direct presidential control? Their answer was a resounding yes.

To be sure, opponents of the Bank questioned whether it was constitutional. James Madison attacked it on the House floor in 1791. Thomas Jefferson called it a "monster" of consolidated power. But not one critic of the Bank suggested that it could not be insulated from presidential control.

The independence of the Bank was not an accident of drafting, but instead an integral part of its design. Hamilton's Defense of the Constitutionality of the Bank (1791), on which Chief Justice Marshall later relied in upholding the constitutionality of the Second Bank in McCulloch v. Maryland (1819), envisioned a public entity under private stewardship. Hamilton insisted that the Bank's purpose was public at its core. "Such a Bank is not a mere matter of private property, but a political machine of the greatest importance to the State." 

Yet Hamilton rejected the idea of executive control over the Bank. Instead, its architecture reflected Hamilton's conviction that public money and credit should not become "the instrument of party." Eighty percent of the Bank's shares were privately held, while only 20% were owned by the federal government. Directors were elected solely by private shareholders, with staggered terms to prevent domination by "party views" or "any particular set of men." The Secretary of the Treasury, Hamilton, was given only the power to inspect the Bank's books subject to protection for the privacy of individual account holders. Hamilton feared both political capture by an irresponsible administration and private capture by powerful financiers. His solution was a hybrid governance structure combining public purpose, private motives and political independence.

Hamilton explained his hostility to government control of the Bank with characteristic bluntness. "It would indeed be little less than a miracle," he warned, "should the credit of the Bank be at the disposal of the Government, if in a long series of time, there was not experienced a calamitous abuse of it" because "what nation was ever blessed with a constant succession of upright and wise Administrators."

Yet no founder, including the Bank's fiercest constitutional critics, claimed that this lack of executive control was unconstitutional. Madison, despite opposing the Bank on constitutional grounds, conceded that its proposed governance was a question of "policy, not powers." Jefferson also attacked the Bank as lacking a constitutional basis but never suggested that its independence from the President posed a constitutional defect. Even the Anti-Federalists did not argue that the Bank's structure violated Article II or the separation of powers.

The Court should heed this silence. The First Bank was arguably the most important institution created by the first Congress. It managed the Treasury's deposits, acted as the federal government's fiscal agent, stabilized the federal debt, established a national currency, and influenced the supply of money and credit. These were core executive functions--a distinction important in the judicial doctrine of removal power--that the Federal Reserve exercises today. Nevertheless, the founders took for granted that the First Bank could operate independently of the President. 

As the Supreme Court noted in Trump v. Wilcox, the constitutional history of the First Bank is highly relevant to deciding the President's authority over the Federal Reserve. The Fed is not the First Bank, but the broader constitutional question--whether a bank created by Congress to serve the federal government can nevertheless be insulated from presidential control--received an uncontroversial answer from the nation's founders in 1791.

As the Supreme Court considers Trump v. Cook it must be hoped that it will focus on this history and reject the President's claim that he alone determines if there is cause to remove a Governor of the Federal Reserve Board and that no court can review his choice.  The economy needs an independent Fed, not one that follows the whims of the president.