A Question of Honor and the Federal Reserve

President Trump, meet Marriner Eccles. He was the chairman of the Federal Reserve between 1934 and 1948. Such a figure was he in the history of America’s central bank that its headquarters building — without the Italian honeybees — is named for him. It turns out, Grant’s writes, that Eccles “anticipated President Trump in the view that the head of the central bank served at the president’s pleasure and was removable at his discretion.”That gem of a scoop was brought in by James Grant, editor of the famed Interest Rate Observer. The editor featured it as a footnote in his leading article — just as the Supreme Court is due to start fermenting on the very question of whether the President can cashier the chairman of the Fed and its other governors and officers. It’s a question over which the Democrats have come down with the fantods. They’re worried for the Fed’s independence.Let Eccles allay their fears, we say. Grant’s quotes him as testifying, in 1935 before the House Banking and Currency Committee, “that an administration is charged, when it goes into power, with the economic and social problems of the Nation. Politics are nothing more or less than dealing with economic and social problems.” That evinces nothing more than the sensibilities of a practical person well suited to address America’s monetary policy.“It seems to me,” Grant’s quotes Eccles as adding, “that it would be extremely difficult for any administration to be able to succeed and intelligently deal with them” — referring to the economic and social problems — “entirely apart from the money system. There must be a liaison between the administration and the money system — a responsive relationship. That does not necessarily mean political control in the sense that it is often thought of.”Eccles, for the record, had a sense of honor. He thought that no officer or governor of the Fed would remain in office if the president of America didn’t want him. Even if the president lacked power to fire Fed board members, he averred, “no man would stay on the Board if the President of the United States wished to appoint someone else in his place.” He added that it seemed “immaterial whether a Governor has or has not a technical right to stay…”In 1951, an accord was struck between the Treasury and the Fed. It left the Fed free to do what it thinks best without worrying about the Treasury’s needs as it raises money via debt and taxes. Then again, too, no accord can curb powers vested in the president by the Constitution. Similarly, no branch of the government can borrow a nickel on its own. It’s to only Congress that the Constitution grants the power to borrow money on the credit of the United States.Those constitutional niceties were in the background as Eccles spoke on Capitol Hill in 1935. The banker was pushing for greater presidential control of the Fed. This raised the hackles of the solons. “The Eccles proposal,” the Times reported, was seen by some critics as “a scheme to get partisan political control of the nation’s credit, which means its citizens’ money.” Others on the Hill, the Times added, saw Eccles’ ideas as “a concealed pathway to inflation.”A Fed under the president’s thumb, Congress fretted, per the Times, “puts private wealth, now and in the future, at the mercy of whatever dangerous radical or demagogue may be in political power at Washington.” Advocates of a more independent central bank envisioned it as a kind of “Supreme Court of Finance,” the Times said. That led Congress in 1935 to tighten the Federal Reserve Act to clarify that Fed board governors could be fired only for cause.Nine decades later, the tension raised by Eccles is before the Supreme Court as Mr. Trump aims to fire, for cause, a Fed governor. As a statutory matter, Trump v. Cook asks if Mr. Trump has true “cause” to fire Lisa Cook. As a constitutional matter, the question is whether Congress can set up an “independent” agency like the Fed that is unaccountable to presidential oversight. Mr. Trump and Eccles, in our view, have the better argument.

A Question of Honor and the Federal Reserve

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