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A Constitution Scholar for the Fed
When they used the word 'dollar,' the Founders had in mind a specified weight of silver.
By SETH LIPSKY
'Last October, I won the Nobel Prize in economics for my work on unemployment and the labor market," Peter Diamond, an economics professor at MIT, wrote in the New York Times on Sunday. "But I am unqualified to serve on the board of the Federal Reserve—at least according to the Republican senators who have blocked my nomination. How can this be?"
Not a bad question for the Republicans to be thinking about in the wake of Mr. Diamond's decision to withdraw his name from consideration for the Fed. Announcing his decision in the Times, Mr. Diamond warned of what he called "a failure to recognize that analysis of unemployment is crucial to conducting monetary policy."
Is another Ph.D. in economics really what is needed at the Federal Reserve? Prof. Diamond's leading opponent, Sen. Richard Shelby of Alabama, wants someone who has more experience in crafting monetary policy. Yet the Fed has plenty of experts in monetary policy.
I'd suggest what the board of the Fed really needs is a sage of the Constitution. The Constitution is the only place where our government gets its monetary powers and disabilities. And the more the Fed flounders during the course of this monetary crisis—in which the value of a dollar has plunged to less than a 1,500th of an ounce of gold—the more glaring is the blitheness of its attitude toward America's foundational law. And, for that matter, toward how the Founders of America thought about money.
This became clear within moments of Ben Bernanke being sworn in as the Fed's chairman in 2006. President Bush had gone over to the Federal Reserve for the occasion, and after the constitutionally required oath was sworn, Mr. Bernanke went over to a microphone to offer thanks to the president and his colleagues. Then he made an odd statement.
"The Federal Reserve," he said, "was created by Congress in 1913, and it was entrusted with the power, granted originally to the Congress by the U.S. Constitution, to coin money and regulate the value thereof."
Yet the Federal Reserve Act that Congress passed in 1913 didn't contain a single reference to the coinage power. On the contrary, as scholar Edwin Vieira Jr., has written, "one can search the Act until his eyes fall out without finding a delegation of the '"power to coin money.'"
The Supreme Court case that vouchsafed the power of the Congress to set up a national bank—McCulloch v. Maryland (1819), one of the most famous decisions ever handed down by the court—didn't mention the coinage power either, though it did allude to the taxing and spending power and the war powers.
By claiming power under the coinage clause, Mr. Bernanke was behaving a bit like Secretary of State Alexander Haig when, after President Ronald Reagan was shot, he suggested, albeit fleetingly, that he had the constitutional authority of the president. The fact is that not long after the Constitution was ratified, Congress exercised its coinage power not by creating the Fed but, in the Coinage Act of 1792, the United States Mint.
Even if, somewhere in the mists, the Fed can trace its authority to the coinage power, who on the Fed board is going to look out for these kinds of issues? Or more basic ones—like what a dollar really is, and what is its purpose?
Back in March, when Chairman Bernanke testified before the House Financial Services Committee, Congressman Ron Paul asked him for his definition of the dollar. Mr. Bernanke made no mention of the Constitution or any law passed by Congress. Instead he replied that his definition of a dollar was what it will buy.
That isn't how the Founders thought about the dollar. They thought about it as a measure of value. They gave Congress the coinage power in the same sentence in which they also gave it the power to fix the standard of weights and measures. When they twice used the word "dollars" in the Constitution, they had something specific in mind—371¼ grains of silver. They made reference not only to silver but to gold.
My guess is that the Founders would agree with Mr. Diamond when he writes that "[w]e need to preserve the independence of the Fed from efforts to politicize monetary policy." This is why they defined money in terms of silver and gold, the latter in particular being the measure of value that is hardest to politicize. Wouldn't it be nice to have among the governors of the Fed someone who thinks about money not in terms of theories but in the constitutional terms in which the Founders thought?
Mr. Lipsky is editor of the New York Sun. An anthology of its editorials on the gold standard, "It Shines for All," has just been published by New York Sun Books.
- OPINION
- JUNE 8, 2011
A Constitution Scholar for the Fed
When they used the word 'dollar,' the Founders had in mind a specified weight of silver.
By SETH LIPSKY
'Last October, I won the Nobel Prize in economics for my work on unemployment and the labor market," Peter Diamond, an economics professor at MIT, wrote in the New York Times on Sunday. "But I am unqualified to serve on the board of the Federal Reserve—at least according to the Republican senators who have blocked my nomination. How can this be?"
Not a bad question for the Republicans to be thinking about in the wake of Mr. Diamond's decision to withdraw his name from consideration for the Fed. Announcing his decision in the Times, Mr. Diamond warned of what he called "a failure to recognize that analysis of unemployment is crucial to conducting monetary policy."
Is another Ph.D. in economics really what is needed at the Federal Reserve? Prof. Diamond's leading opponent, Sen. Richard Shelby of Alabama, wants someone who has more experience in crafting monetary policy. Yet the Fed has plenty of experts in monetary policy.
I'd suggest what the board of the Fed really needs is a sage of the Constitution. The Constitution is the only place where our government gets its monetary powers and disabilities. And the more the Fed flounders during the course of this monetary crisis—in which the value of a dollar has plunged to less than a 1,500th of an ounce of gold—the more glaring is the blitheness of its attitude toward America's foundational law. And, for that matter, toward how the Founders of America thought about money.
This became clear within moments of Ben Bernanke being sworn in as the Fed's chairman in 2006. President Bush had gone over to the Federal Reserve for the occasion, and after the constitutionally required oath was sworn, Mr. Bernanke went over to a microphone to offer thanks to the president and his colleagues. Then he made an odd statement.
"The Federal Reserve," he said, "was created by Congress in 1913, and it was entrusted with the power, granted originally to the Congress by the U.S. Constitution, to coin money and regulate the value thereof."
Yet the Federal Reserve Act that Congress passed in 1913 didn't contain a single reference to the coinage power. On the contrary, as scholar Edwin Vieira Jr., has written, "one can search the Act until his eyes fall out without finding a delegation of the '"power to coin money.'"
The Supreme Court case that vouchsafed the power of the Congress to set up a national bank—McCulloch v. Maryland (1819), one of the most famous decisions ever handed down by the court—didn't mention the coinage power either, though it did allude to the taxing and spending power and the war powers.
By claiming power under the coinage clause, Mr. Bernanke was behaving a bit like Secretary of State Alexander Haig when, after President Ronald Reagan was shot, he suggested, albeit fleetingly, that he had the constitutional authority of the president. The fact is that not long after the Constitution was ratified, Congress exercised its coinage power not by creating the Fed but, in the Coinage Act of 1792, the United States Mint.
Even if, somewhere in the mists, the Fed can trace its authority to the coinage power, who on the Fed board is going to look out for these kinds of issues? Or more basic ones—like what a dollar really is, and what is its purpose?
Back in March, when Chairman Bernanke testified before the House Financial Services Committee, Congressman Ron Paul asked him for his definition of the dollar. Mr. Bernanke made no mention of the Constitution or any law passed by Congress. Instead he replied that his definition of a dollar was what it will buy.
That isn't how the Founders thought about the dollar. They thought about it as a measure of value. They gave Congress the coinage power in the same sentence in which they also gave it the power to fix the standard of weights and measures. When they twice used the word "dollars" in the Constitution, they had something specific in mind—371¼ grains of silver. They made reference not only to silver but to gold.
My guess is that the Founders would agree with Mr. Diamond when he writes that "[w]e need to preserve the independence of the Fed from efforts to politicize monetary policy." This is why they defined money in terms of silver and gold, the latter in particular being the measure of value that is hardest to politicize. Wouldn't it be nice to have among the governors of the Fed someone who thinks about money not in terms of theories but in the constitutional terms in which the Founders thought?
Mr. Lipsky is editor of the New York Sun. An anthology of its editorials on the gold standard, "It Shines for All," has just been published by New York Sun Books.