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Monday, January 09, 2012

Constitutionally Unconstitutional

So I've heard from Ron Paul supporters in various fora that we should ignore all the "distractions" of his positions on race, sexuality, gender, etc, in large part because of his singular truth: the Federal Reserve is the source of most, if not all, evil.  The primary issue is the Fed's...what else..."unconstitutionality."

I'll leave most of the cherished Paulista myths to be dealt with by other folks.  You know me: I'm interested in the history, constitutional issues, and legislative process behind all of this.

First, the Deceiver's assertions germane to this discussion:

Snuck through Congress on Christmas Eve in 1913, the Federal Reserve Act established the Fed as America’s central bank...Ultimately, [Paul] will lead the charge to end the dishonest, immoral, and unconstitutional Federal Reserve System...

Far be it from me to point out a trivial error, but unless Christmas Eve has moved in the last century, the Federal Reserve Act was signed into law by President Wilson on December 23th at 602pm.  So Paul certainly isn't starting from a position of credibility.  But I guess it sounds more nefarious if you suggest everybody had visions of sugar plums dancing in their heads while the only thing stirring was a naughty Congress forcing fiat money down America's chimneys.

Regardless, it's not like the act was conceived, debated, passed by the House, passed by the Senate, and signed in secret all in one day. Indeed, the process was as ugly and complicated and drawn out as sausage making generally is.

Turns out, the Panic of 1907 spurred several years of studies on how to best to reform our rickety banking system.  Then the Republicans proposed a solution, which the Democratic platform of 1912 specifically opposed while calling for reform--the former was handily rejected as the latter was swept into office, taking the House, Senate and White House.  In short, the People had ample chance to examine the issue and provided an electoral mandate.

There were competing versions of bills discussed throughout the summer of 1913, with the eventual Act being introduced at the end of August.  The House passed it 287-85 in mid-September.  Like, well before the Christmas shopping season.

The Senate held hearings throughout September and October--including a good deal of talk about constitutionality--with a lot of committee wrangling in November.  Passage, with amendment, actually occurred on December 18th, 54-34.  But the House then rejected that version so the thing had to go to conference to work out the differences, as usually happens.

The House overwhelmingly passed the final version, 298-60, on December 22nd, with the Senate agreeing the next day, 43-25.  In all cases, a quorum was present, and all proceedings were public.  Hard to sneak this elephant into a party.

But that's just process-oriented wanking.  What about this whole bit about the Fed being unconstitutional (yeah, I'm skipping the "dishonest" and "immoral" charges right now)?

It will shock you to know that I have a teensy disagreement with that.

As is often the case, a significant part of the problem anti-Fed folks have is that the Constitution, of course, does not literally enumerate a specific power letting Congress create a central bank with words like "Congress has the power to create a central bank."  I understand the appeal of this simple argument, since the construction is supposed to be such that Congress can't just do anything it wants and is supposed to be limited to spelled-out functions.

However, that's a bit overly simplistic and literal, and not in keeping with the overall intent of framing our government, not to mention missing a few other important clauses in the document.

In 1791 there was a hot debate about the constitutionality of the (First) Bank of the United States.  James Madison, Father of the Constitution, was down on the idea because he held there was no enumerated power for Congress create such a thing, and Federalist Fisher Ames argued with him in the House:

[Mr Ames] had no desire to extend the powers granted by the Constitution beyond the limits prescribed by them. But in cases where there was doubt as to its meaning and intention, he thought it his duty to consult his conscience and judgment to solve them; and even if doubts did still remain on two different interpretations of it, he would constantly embrace that the least involved in doubt.

This was compelling enough that Madison stepped back a bit:

In the Constitution, the great ends of government were particularly enumerated; but all the means were not, nor could they all be, pointed out, without making the Constitution a complete code of laws: some discretionary power, and reasonable latitude, must be left to the judgment of the legislature.

Ultimately the Bank was established and operated unchallenged in the courts until its charter expired in 1811.  The Second Bank was charted in 1816 for another 20 year term, and it did run into some difficulties with President Jackson over corruption and such, but we'll set that aside for a moment.

How could the Bank be constitutional without any mention of it in the Constitution?  There's that niggling little detail of this clause at the end of Article I, Section 8: [Congress shall have the power to] make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

Odd how often that gets missed.  And you really can't ignore it, as Marshall observed in Marbury v Madison:

It cannot be presumed that any clause in the Constitution is intended to be without effect...

Indeed, if this clause had no import, it would just be a garnish.  So even Madison recognized that something was required to allow Congress the means to achieve the ends of its enumerated powers.

Anyway, the N&P Clause was at the heart of the Second Bank's case before SCOTUS in 1819.  What's more, we read in McCulloch v Maryland:

The principle now contested was introduced at a very early period of our history, has been recognised by many successive legislatures, and has been acted upon by the Judicial Department, in cases of peculiar delicacy, as a law of undoubted obligation.

It will not be denied that a bold and daring usurpation might be resisted after an acquiescence still longer and more complete than this. But it is conceived that a doubtful question, one on which human reason may pause and the human judgment be suspended, in the decision of which the great principles of liberty are not concerned, but the respective powers of those who are equally the representatives of the people, are to be adjusted, if not put at rest by the practice of the Government, ought to receive a considerable impression from that practice. An exposition of the Constitution, deliberately established by legislative acts, on the faith of which an immense property has been advanced, ought not to be lightly disregarded.

The power now contested was exercised by the first Congress elected under the present Constitution.

The bill for incorporating the Bank of the United States did not steal upon an unsuspecting legislature and pass unobserved. Its principle was completely understood, and was opposed with equal zeal and ability. After being resisted first in the fair and open field of debate, and afterwards in the executive cabinet, with as much persevering talent as any measure has ever experienced, and being supported by arguments which convinced minds as pure and as intelligent as this country can boast, it became a law.

The original act was permitted to expire, but a short experience of the embarrassments to which the refusal to revive it exposed the Government convinced those who were most prejudiced against the measure of its necessity, and induced the passage of the present law. It would require no ordinary share of intrepidity to assert that a measure adopted under these circumstances was a bold and plain usurpation to which the Constitution gave no countenance. These observations belong to the cause; but they are not made under the impression that, were the question entirely new, the law would be found irreconcilable with the Constitution.

There's an allusion to Stuart v Laird in there (which was decided a couple weeks after Marbury in 1803):

[I]t is sufficient to observe, that practice, and acquiescence under it, for a period of several years...affords an irresistible answer, and has indeed fixed the construction. It is a contemporary interpretation of the most forcible nature. This practical exposition is too strong and obstinate to be shaken or controlled. Of course, the question is at rest, and ought not now to be disturbed.

Even a couple centuries later, Scalia has made similar arguments.  McIntyre v Ohio Elections Commission:

But there is other indication, of the most weighty sort: the widespread and longstanding traditions of our people. Principles of liberty fundamental enough to have been embodied within constitutional guarantees are not readily erased from the Nation's consciousness. A governmental practice that has become general throughout the United States, and particularly one that has the validation of long, accepted usage, bears a strong presumption of constitutionality. 

Obviously such things can be abused.  N&P could be used to justify real overreaches, and the weight of history to justify evils such as slavery.  That's why we have a system wherein different levels and departments--and the People--can make corrections to our course.  Yet we cannot ignore clauses and previous experience glibly.  So from that perspective, since the FRA didn't just sneak up on us--it followed precedent, was debated, and saw myriad elections pass in almost a century--it's clearly constitutional.

One other more meaty objection, however, can be summed up thus: the Federal Reserve is "the poster child of unconstitutional private delegation."

Certainly nondelegation doctrine generally prohibits the Legislature from giving away its powers to somebody else.  However, in the United States it has been interpreted for quite some time that, much like N&P, Congress has some latitude in the means it can use to achieve its ends.  We don't expect Congressmembers to go out and actually build post offices and post roads (although, maybe we should).  We don't expect them to actually coin our money by turning cranks at the mint.  And so on.

So Congress can delegate some functions so long as it provides specific guidance to whomever is charged with a particular task.  The problem arises if that entity is private as opposed to a public agency.

Fortunately, the Fed is not a private entity.  Private banks are part of its organization, but they don't determine policy, the folks in charge of the Fed are duly appointed by the President and confirmed by the Senate, and the agency is subject to Congressional oversight and GAO audits.  One can certainly argue for more transparency and criticize the Fed for some pretty piss poor monetary policy of late, and I welcome discussion about proper reforms, but one cannot really back up any claim that it is an unconstitutionally delegated entity.

I guess the bottom-line is that Paul is full of shit.  But then that would've just made for a tweet and not a blog post that nobody will read.


PS--Interesting difference between two articles in Bankers Magazine from the era: one written in October, 1913, and the other in January, 1915.  Apropos of nothing...

January 9, 2012 | Permalink


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Ron may be wrong about gold-standard. Watch this excellent documentary to understand the history of money systems. Very informative.

Posted by: gaelan | Jan 10, 2012 10:01:20 AM

I've had right-wingers tell me that the military is "the one function that the government can't constitutionally outsource". (along the lines of the "nondelegation doctrine" you mention)

Except that the military is one area where there's an explicit power to delegate: Letters of Marque and Reprisal. Stupid conservitards never bother to actually *read* the constitution, but just want to use it as a rhetorical club.

And yes, your takedown of Paul was about 99x longer than he deserves. That's because he's part of the 1%.

Posted by: Snarki, child of Loki | Jan 10, 2012 5:04:00 PM

No state shall make anything but gold and silver coin a tender in payment of debts.

“It is no coincidence that the century of total war coincided with the century of central banking.”
― Ron Paul, End the Fed

Posted by: hboo | Jan 11, 2012 1:34:59 AM

h I wis

Posted by: NTodd | Jan 11, 2012 8:20:33 AM

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