Whose Dollar Is It? The Republic and the Reserve
Saturday Morning Civics: Episode 6
It has been a month since I have written a Saturday Morning Civics article, and it’s high time I return to this overdue task. May your coffee be strong and your Saturday morning relaxing. Tip: Turn off the news.
I have many personal opinions formed by researching the history of the powerful people behind the creation of the Fed and the chokehold on President Wilson. These opinions carry real weight with my opposition that the creation of the Fed violated our Constitution, however, my oath in this series is to always only publish the facts and so, that is what I have pulled together here. Let’s dive in.
In the autumn of 1907, the United States economy nearly collapsed. Not because of a war or a drought, because of a rumor.
A failed attempt to corner the copper market had spooked depositors, and word spread that the Knickerbocker Trust Company in New York was going under. Within hours, thousands of people were lined up on the sidewalk to pull their money out. The panic spread to other banks. Credit froze. The stock market lurched. The most industrially powerful nation on earth was hemorrhaging.
The federal government had no mechanism to stop it.
The man who stepped into that vacuum was not a senator or a treasury secretary. He was a private banker named J.P. Morgan. He convened the most powerful financiers in New York in his personal library on Madison Avenue, locked the doors, and refused to let anyone leave until they had agreed to pool enough money to stabilize the system. According to historical accounts, he kept them there through the night. By morning, they had a plan. The panic subsided.
Congress looked at that episode and asked an uncomfortable question: what happens next time, when J.P. Morgan is not there, or not willing?
The Problem the Fed Was Built to Solve
Before 1913, the United States had no central bank. The First Bank of the United States had been allowed to expire in 1811, and the Second Bank followed in 1836 after President Andrew Jackson declared war on it as a symbol of concentrated financial power. What remained was a banking system held together with good intentions and seasonal luck. It was, at its core, pure red white and blue American.
The core vulnerability was what economists called an inelastic currency. When farmers needed credit at harvest time, or when a factory town had a bad quarter, the money supply could not flex to meet the need. Reserves were concentrated in New York. When New York sneezed, the rest of the country caught pneumonia.
The panics came with grim regularity: 1873, 1884, 1893, 1896, and then the Panic of 1907 that finally forced the issue.
Congress passed the Aldrich-Vreeland Act in 1908, creating a National Monetary Commission to study how other countries handled this problem. Senators and bankers traveled to Europe and looked closely at institutions like the Bank of England. What they found was that most stable economies had a central authority capable of acting as a lender of last resort, a place banks could turn to for emergency liquidity rather than turning on each other.
The debate that followed was one of the genuinely great political arguments in American history.
The Fight Over What to Build
Nobody agreed on what the solution should look like, and that disagreement reflected something real about American political identity.
Bankers wanted a powerful central institution, privately managed, with the expertise to act quickly and the independence to act wisely. Critics, especially the Populist and Progressive voices of the era, were deeply suspicious of that vision. Senator Robert La Follette and others warned that putting monetary power in private hands was simply handing the economy over to Wall Street. William Jennings Bryan, who had spent decades fighting for farmers and workers against concentrated financial interests, refused to support any plan that looked like a bankers’ bank.
President Woodrow Wilson threaded the needle. The Federal Reserve Act, signed into law on December 23, 1913, created something that had no precise precedent: twelve regional Federal Reserve Banks scattered across the country, each serving its own district, overseen by a central Federal Reserve Board in Washington appointed by the president.
It was a deliberate compromise. The regional structure was a concession to those who feared centralized power. The federal oversight board was a concession to those who feared private control. Neither side got exactly what it wanted. The act passed anyway.
The original stated purposes were concrete and specific: furnish an elastic currency that could expand and contract with economic conditions; provide a place where banks could rediscount commercial paper in times of stress; establish more effective supervision of banking; and improve the flow of money and credit across the country.
What it was not, at its founding, was a tool for managing the broader economy. The dual mandate that Americans hear about today, requiring the Fed to pursue both maximum employment and stable prices, came much later, shaped by the Depression, the postwar economy, and legislative amendments in the 1970s.
The Constitutional Question
Whether the Federal Reserve is constitutional is a question that has generated serious legal scholarship for over a century. The honest answer, the one that holds up to scrutiny, is that courts have never struck it down, but the debate isn’t settled and the questions aren’t trivial.
The most frequently raised concerns cluster around a few constitutional provisions.
Article I gives Congress the power to coin money and regulate its value. Critics have long argued that delegating broad monetary authority to an independent body, one that sets interest rates and conducts open market operations largely outside direct congressional control, stretches that provision beyond its meaning. This is the non-delegation argument: that Congress cannot simply hand its constitutional responsibilities to another institution and walk away.
Courts have not agreed, at least not yet. Since the 1930s, the non-delegation doctrine has been nearly dormant. Congress can delegate broad authority as long as it provides what courts call an intelligible principle, some guiding standard for how the power is to be used. The Fed’s mandate qualifies, courts have concluded, and no challenge on these grounds has succeeded.
A second set of questions concerns the Appointments Clause of Article II, which governs how officers of the United States are selected. The Federal Open Market Committee, which sets monetary policy, includes the presidents of regional Federal Reserve Banks. Those presidents are not appointed by the president of the United States and confirmed by the Senate. They are selected through a process that involves the boards of regional banks, boards that include representatives chosen by private member banks. Critics argue this is a constitutional problem: significant government power exercised by officers who were not appointed through the constitutional process.
This argument has reached the courts. In the 1980s, Senator John Melcher challenged the FOMC’s composition directly. The case was dismissed on procedural grounds and the Supreme Court declined to hear it. The constitutional merits were never resolved.
More recently, the Supreme Court has been actively rethinking the limits of for-cause removal protections for agency heads. In cases like Seila Law and Collins, the Court placed new limits on Congress’s ability to insulate executive officers from presidential removal. The Federal Reserve Board governors have such protections. Whether those protections survive the Court’s evolving doctrine is genuinely uncertain.
What is telling is how the Court has signaled it views the Fed’s unusual status. In 2025 procedural orders, the Court distinguished the Fed as a quasi-private entity with a unique historical pedigree, language that suggests the justices are aware that invalidating the Fed’s structure would carry consequences unlike striking down any other agency.
That awareness is quite important. When courts evaluate structural challenges to institutions, they do not operate in a vacuum. The Federal Reserve sits at the center of the global financial system. Whether that practical reality should shape constitutional interpretation is itself a contested question, one that goes to the heart of what judicial review is for.
The originalist side of the debate offers its own counterpoint. Supporters of the Fed’s constitutional legitimacy point to the Necessary and Proper Clause, which gives Congress latitude to create institutions needed to carry out its enumerated powers, and to early historical precedents like Hamilton’s Sinking Fund Commission, an independent body with monetary functions established by the very first Congress and approved by George Washington. If the founding generation created independent monetary mechanisms, the argument goes, the Constitution cannot be read to forbid them.
No court has ever found that the Federal Reserve or its actions violate the Constitution. That is the current state of the law. But no court has definitively resolved the structural questions either.
What This Means for a Republic
The Federal Reserve now controls the interest rate that determines what you pay for a mortgage, what your savings earn, and how much it costs businesses in your community to borrow money. It can purchase trillions of dollars in financial assets to stimulate a sluggish economy. It acts as the lender of last resort for the global banking system. It was created by statute, and it can be reformed or abolished by statute. Congress has amended the Federal Reserve Act before. It can do so again.
The founding question has never really gone away: in a self-governing republic, who should control the money supply?
The men who created the Fed in 1913 argued about it fiercely. What they ultimately built was a compromise, an institution designed to be expert enough to act effectively and independent enough to act without daily political interference, while remaining legally accountable to Congress and theoretically subject to democratic reform.
Whether that balance has held, whether it was ever the right balance to strike, and whether the institution that emerged from a single man’s library on a panicked autumn night remains fit for the republic it was built to serve: those are questions every citizen of this republic is entitled to ask.
Sources for this column include the Federal Reserve’s own historical archives, the Federal Reserve Bank of New York, the Federal Reserve Bank of St. Louis, and published legal scholarship on the constitutional structure of the Federal Reserve System.