Congress should end the Platonic Guardian-like Federal Reserve, an independent executive agency governed by a seven-member Board of Governors appointed by the President to serve 14-year terms. All Fed functions should be transferred to the Department of Treasury subject to customary transparency and accountability to Congress.
From 1789-1913, the United States economy grew from a tiny acorn into a towering oak without the Fed. The progression was not a straight line. There were periodic contractions caused by healthy and necessary risk-taking and trial and error in all commercial endeavors. But the species is easily beguiled by demagogues promising elixirs for every unpleasantness known to mankind. Think of Brook Farm or Henry George's single tax.
The Fed was born of the same utopian stuff in the Federal Reserve Act of 1913. It was the brainchild of President Woodrow Wilson, former President of Princeton University.
He derided Congress and the Constitution's separation of powers as obstacles to enlightened government by omniscient Platonic Guardians recruited from the best and the brightest. His fervor and narcissism blinded him to the truth that while he spoke like Jesus Christ, he governed in the cynical manner of British Prime Minister Lloyd George. During his 1916 reelection campaign, for instance, President Wilson's marquee slogan was, "He kept us out of war." But within one month of his second inaugural, the United States entered World War I to purge every nook and cranny of the planet of non-democratic systems or peoples.
President Wilson's supreme arrogance and contempt for Congress define the modern day Fed. Exemplary is an October 28, 2016 article by Princeton University economics professor Alan S. Blinder, former vice chairman of the Board of Governors and advisor to Democratic presidential nominee Hillary Clinton. It was published in The Washington Post under the banner, "Message to the candidates: Hand off the Federal Reserve."
The owlish Princeton professor scolds Congress for contemplating legislation that would subject the Fed to the annual appropriations process that the Constitution stipulates, even for the White House and the United States Supreme Court. Article I, section 9, clause 7 provides that, "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law...." Thus, James Madison, father of the Constitution , elaborated in Federalist 58: "This power over the purse may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure."
Mr. Blinder rejects the congressional power of the purse because it could compromise the ability of the Fed to act independently as Platonic Guardians to architect the nation's monetary policy. But if the appropriations process works for the White House and Supreme Court without impairing checks and balances, it can work for the Fed. As war is too important to be left to the generals, monetary policy is too important to be left to economists.
The Princeton professor disagrees. Decades ago, Congress delegated to the Fed a dual, contradictory monetary policy mandate to achieve both low inflation and high employment, like a directive to be parsimonious and prodigal simultaneously. Congress is contemplating ending that contradiction (which gives the Fed a free hand to do anything) by repealing the unemployment mandate. Mr. Blinder strongly opposes the repeal with condescending effrontery, "The dual mandate seems about right to me...I think most Americans would agree."
Blinder also deplores legislation that would require the Fed to promulgate and explain deviations from a quantitative formula for monetary policy to enhance transparency and accountability. While acknowledging differences of opinion within academia, he makes the fact-free and content-free pronouncement that the legislation is a "bad idea" and would have caused a frightening free fall in the economy in 2009.
Finally, Blinder is appalled by the idea that the Fed would be subject to greater transparency and congressional oversight under Audit the Fed legislation. He shares the Platonic Guardian-like sentiments of former Federal Reserve Board Chairman Ben Bernanke: "The principal effect of the bill would be to make meeting-by-meeting monetary policy decisions [of the Fed] subject to Congressional review" and that too much transparency would allow for "political interventions in monetary policy decisions [that] would not lead to better results." So much for the time-honored truth that sunshine is the best disinfectant.
The Department of Treasury administers the internal revenue laws subject to political influences expected in any democratic dispensation. Fiscal sanity prevails. The same would be true for monetary policy if Congress transferred the powers of the Fed to the Department. It should not tarry. Respect for the letter and spirit of self-government and the Constitution demands no less.