The Federal Reserve’s Marbury
I wanted to add one more post about my research on central bank independence before I start writing up the paper. Everyone know that Marbury v. Madison is the cornerstone of judicial review (though you can certainly identify other important precedents in this respect). What is the equivalent for the Federal Reserve?
The answer, though it sounds obscure, is a 1951 Accord (usually called “The Accord”) between the Treasury and the Fed. At the start of World War II, the Fed entered into an agreement with the Treasury to finance our war debt by buying bonds and pegging interest rates at a very low level. When the war ended, the Treasury refused to release the Fed from this deal and continued to insist an on expansionary monetary policy. President Truman took a dim view of central bank independence, with the low point coming during the Korean War when the FOMC held one of its meetings in Truman’s office with Truman present. (Try to imagine a Supreme Court conference under similar conditions.) Not long after that, though, criticism of the Treasury’s position increased in Congress and on Wall Street, which resulted in “The Accord,” where the Fed was essentially released from the Treasury’s grip and the principle of independence established.
Now on to other subjects . . .