The Supreme Court said more than they needed to in Trump v. Cook. Their narrow task was to decide whether Lisa Cook should be allowed to remain on the Federal Reserve Board while the litigation over Trump’s attempted removal of her continues. The 5-4 decision was that she should remain in office for the time being.
Why, then, is the document 83 pages long? The reason for the length is because it stands in direct conflict with the court’s opinion in Trump v. Slaughter (released on the same day!), which was that the president has pretty much unilateral authority to fire executive officials, even those in “independent” agencies like the FTC.
Roberts wrote the majority opinion, which starts with a history of America’s experience with central banks and government control of money, going all the way back to the collapse of the Continental currency during American Revolution. He traces through the lessons learned from the Bank of the United States and the Second Bank of the United States. Like me, you might be wondering why any of this would be relevant to the matter at hand: whether Lisa Cook should keep her job while her firing is litigated.
The reason is that Roberts is trying to make the Fed special. The majority needs a Fed exception to their Trump v. Slaughter decision. Roberts therefore portrays these earlier banks as institutional ancestors of the Federal Reserve, and then uses that alleged lineage to interpret the Federal Reserve Act.
The ambiguity is in this little sentence in the Act: “Each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President.” What does “for cause” mean? How is it established? What does the process look like?
Roberts, arguing that Cook should keep her job during litigation, appeals to a wandering history of central banking in the U.S. to claim that the Fed’s independence is central to its purpose. The reason for the (bad) history lesson, then, is that the law never explicitly describes the Federal Reserve as “independent.” Roberts must stretch beyond the law to raise the bar for the president to be able to fire a Fed official.
So, we get eye rollers like this:
Without an independent central bank, there was no way to contain the damage whenever a major institution fell—no lender of last resort that could allow sound banks with good but temporarily illiquid assets to access cash, no elastic currency that could expand to meet demand, and no mechanism to ensure that small banks issued loans only within their means in the first place.
All in service of protecting not just Lisa Cook, but the entire Federal Reserve, from their own Trump v. Slaughter decision. There are independent agencies and there are independent agencies. The latter, apparently, is a set exclusively comprised of the Federal Reserve.
Thomas’s dissent is a pleasure to read, however.
He answers Roberts’s history with a counter-history: the Federal Reserve is not simply the latest version of the First and Second Banks of the United States. Those earlier institutions were federally chartered corporations that provided banking services to the government. Roberts made it sound like the authors of the Federal Reserve Act intended to just make some tweaks to the First and Second Banks of the United States.
Per Thomas:
When President Wilson signed the Federal Reserve Act in 1913, few would have described it as following in a “long tradition.”
[…]
Paul Warburg, the architect of the Federal Reserve Act and himself a German citizen at the time, began advocating in 1907 for this country to follow the model of the German Reichsbank, which he described as “the most perfect organization of its kind.”
[…]
The champion of the Federal Reserve Act in Congress shared this understanding. Senator Nelson Aldrich, “the most influential figure in Congress on financial matters,” joined forces with Warburg to enact banking legislation. Aldrich too “envisioned a European-type central bank for the United States.” Aldrich, like Warburg, wanted “to transplant the system of one of the great European banks . . . bodily to America.”
[…]
Newly elected President Woodrow Wilson agreed with much of the Aldrich Plan, but “insist[ed] upon” an executive agency that would exercise “governmental control” over the banking economy. Wilson, in this respect, was also departing from tradition. He had long believed that “bureaucrats might more effectively govern the country than the American people.” Wilson’s ideal system of government was not the tripartite and limited one enshrined in our Constitution, but the German Empire’s system of unified administrative power, which he, echoing Warburg, saw as “nearly perfected.” Wilson disliked the American system of government because it ultimately depended on the will of the people, whom Wilson believed were “selfish, ignorant, timid, stubborn,” and “foolish.” America, Wilson said, did “too much by vote” and too little by expert administrative bodies (or, in his words, “executive expertness”). So, when Wilson learned of the Aldrich Plan, he asked for it to include a novel executive agency to govern the banking economy.
Thus was born the Federal Reserve Board.
Someone has been reading Rothbard. I know this to be true not just because this history is so Rothbardian, but because Thomas cited Rothbard in a decision released last week.
Thomas’s point is that the Fed is not like the other U.S. central banks; the Supreme Court should look to the law as written. The “lessons” from the First and Second Bank of the United States are irrelevant.
Thomas then provides a dizzying list of the powers held by the Federal Reserve Board of Governors, making the compelling case that it holds executive governmental authority. It is no private corporation, even if its district banks are legally private. What private corporation, for example, can “issue fines of $1 million per day on banks that violate Board reporting requirements” or “authorize persons to act as law enforcement officers”?
Thomas concludes that “obvious rationale for the Court’s interpretation today is not any principle of law, but instead the Court’s view of ‘the Federal Reserve’s unique historical status and role.’”
And on the Fed’s historical role, Thomas disagrees with the majority:
As the Court tells it, the Board of Governors of the Federal Reserve System has for the past century served to provide the American people with “‘stable prices,’” “‘maximum employment,’” no “ruinous financial panics,” and a banking system free from “‘suspicion.’” The Court credits this century of supposed success to the Board’s “independence” from the President, and, in turn, the voters— the “‘common people’” who play the antagonist in the Court’s account of the 19th century.
Many do not share the Court’s rosy appraisal of the past century.
Neither did Rothbard.
