Democratizing Money: A Political Theory of Policymaking

Abstract

Political theorists have long wrestled with the appropriate role for experts in democracy. Several recent popular movements have sought to reject expert rule by promising to “take back control” or “topple neoliberal elites.” If we accept both that expertise is essential for modern governance and that democracy requires that the people, via their elected officials, determine the policies they live under, the question becomes, how can a democratic society employ expertise without being ruled by experts? This is the question that lies at the heart of my dissertation. I answer it by way of an in-depth exploration of a particularly important case: monetary policy. The creation and allocation of money is, alongside the use of coercive force, the state’s most potent form of power. It is also an especially overt example of policymaking driven and controlled by elites. By wrestling with what it would actually look like to democratize monetary policy, my dissertation both develops a detailed democratic theory of monetary policy and advances a more general account of the political theory of policymaking. I begin with the simple observation that democracy requires that elected officials steer public policy, and yet modern democracies often lack concrete institutional structures that achieve this aim. Nowhere is this clearer than in the case of monetary policy. Conventionally, legislatures delegate monetary policymaking to independent central banks that are insulated from, and empowered to act independently of, the legislature within a set of pre-defined guardrails. I argue that over time, governing monetary policy by appeal to pre-existing guardrails alone weakens the chain of delegated political power from the people, through their elected officials, to the administrative state. The consequence is a state of affairs in which monetary policymakers shape the possibilities of modern politics: what legislatures can do and what they can imagine doing. This constitutes a threat to the health of democracy, making it difficult for the legislature to guide policy, and as such, for the people, as sovereign, to effectively steer the ship of government. Thinking clearly about how modern democracies should mitigate this threat requires new innovations in democratic theory. I argue that for the legislature to employ expertise through delegation without abdicating its effective power or attendant responsibilities, legislatures must know and regularly show their power over the administrative state—a process I call iterative governance. I consider the implications of this idea for monetary policy, focusing on the relationship between the U.S. Congress and the Federal Reserve System. I argue that Congress has failed to know and regularly show its power over the Federal Reserve System (the Fed), thereby enabling the Fed to develop policymaking autonomy aimed at preserving the contemporary macroeconomy. The Fed has come to do whatever it can to sustain the existing financial state of affairs—price stability, financial stability, and output at potential—and in so doing, enabled Congress to eschew its monetary policy powers and its responsibility to make political decisions about how those powers should be exercised. This is detrimental to the health and sustainability of American democracy. In the dissertation’s final chapters, I offer a detailed account of how the legislature could address this failure by implementing iterative governance over monetary policy in the context of a global economy. I argue for two innovative reforms: first, for regularly re-chartering the U.S. monetary infrastructure, including the Federal Reserve System, and second, for establishing annual congressional credit guidance. Like the annual appropriations process, annual credit guidance would enable Congress to steer the creation and allocation of credit. Implementing both annual credit guidance and regular re-chartering would move the U.S. toward a monetary policy governance regime that empowered, and even required, elected officials to make intentional political decisions about how to steer the macroeconomy.