The Boundaries of Fiscal and Monetary Policy
The main purpose that the framers had in their minds was to establish a limited representative government in the newly joined former colonies. The various elements of the Constitution must be viewed as instruments that perform all of the purposes they were designed to serve.
Popular sovereignty, as well as rules of law federalism, representation of the political checks and balances, and the separation of power between the executive, legislative, and judiciary branches, were thought of by the authors of the Constitution as the perfect structure to serve as a guarantor for the self-evident truths proclaimed a couple of years prior in the Declaration of Independence.
Two of the parts of the American constitutional order I’d like to explore here, monetary and fiscal policies, are currently among the most misunderstood elements of this order. If it’s true that during the time of the Constitution’s founding, the limits between these two prerogatives for the State were clear, but over time, the line between them has become more unclear. This is the reason why now, it’s acceptable that a lot of policymakers, as well as some academics, no longer know the boundary between these two areas of state intervention.
In the early days of the Republic, The “power of the purse” that was ascribed to Congress was that no funds could be taken out of the pockets of the Federal government without express and frequent approval from the legislative branch. The law was soon formalized into authorization and appropriation legislation by which Congress could define the nature and extent of the activities that the executive branch was able to engage in. This is a reapplication of the legal principle, which is the law of the land that states that a private person is not able to perform a task in the event that it is forbidden by law; any public official is only legally authorized to act anything if established by the law. The decision of any decision made by the federal government is designed to be made in the annual budget procedure.
From this point of view, it is clear that the entire range of “mandatory” and “back-door” spending constitutes a breach of popular sovereignty as well as a violation of rules of law. Suppose a dollar goes out of the Treasury’s coffers Treasury, regardless of the reason, in accordance with the Constitutional arrangement that we live in. In that case, the money should first be approved and then every year. The repayment of our federal debt, as well as the payments of pensions to veterans of the military, as well as the transfer of loans or the grant of subsidies to any sector of society, is considered by the current Congress. These expenditures must also be assessed in relation to other possible uses for public funds prior to Congress giving the executive authority to spend even a cent from those funds.
Take a look at how you can see how the Federal Reserve and the CFPB (Consumer Financial Protection Bureau) are funded. The costs are paid out of the earnings of the Fed’s operations. Congress doesn’t make them an appropriated expense. If they did, as many will argue, they would lose their authority to run the policy of monetary and financial stability as well as to provide supervision of the relations between financial firms and their customers. The judiciary is funded by appropriations each year. Are you prepared to say that due to that, the court isn’t completely independent within the United States?
Consider the operations of FFB (Federal Finance Bank). They enable numerous federal agencies to borrow money on the open market, and the Treasury, which the Fed supports, is required by law to provide funds for its activities. Through these funds, subsidized loans for agriculture real estate development, infrastructure, and exports, as well as a variety of other programs, are financed off-budget.
The number of ways Congress is able to exercise its constitutional power of the purse is not respected in spirit, and intention continues to grow. For clarity, Congress is left out of the loop on what programs are financed by the executive department and their agencies. The policies are also implemented without requiring prior authorization or annual appropriations from Congressional representatives. The majority of voters are dissatisfied with a majority of the decisions from government officials in the Federal government. It’s no wonder that our elected representatives don’t take up more than 85 percent of the funds disbursed by our government.
The current policy on money is quite different from the one originally envisioned in the mind of Alexander Hamilton. The modern structure of American financial institutions was built on solid and well-tested bases. But before we get into the original foundations and what we are today first, let’s begin by looking back at the idealized version. While it is not a historical model, this one is based on the exact British arrangement that inspired Hamilton along with the other Founding Fathers.