Desan, Christine The Constitutional Law of Money Fall 2014 course

The Constitutional Law of Money

Prof. Christine Desan

Fall, 2014

Description: Money and credit are public institutions that are created by law. As the financial crisis revealed, the way they are configured matters enormously. The authority of the , for example, apparently includes the ability to make monetary policy decisions that move hundreds of billions of dollars. Similarly, the struggle to make a national money, along with the tax and debt levers used to that end, have shaped “federalism” at a basic level. This 3‐credit course will explore a set of constitutional controversies over the shape of money and credit, and consider what impact the outcomes of those controversies had. Our coverage will include the following and similar controversies. 1) The debate over the constitutionality of the Bank of United States, 2) The changing definition of money – including the litigation over the Greenbacks and the legislation identifying government securities as the basis of high‐powered money today, 3) U.S. v. Perry and the American devaluation of the dollar, 4) The authority of the Federal Reserve as an independent agency.

Course requirements: Insofar as money creates particular ways to move material resources, it is an institution of governance used by both public and private actors. Our knowledge about money as an institution of governance is, however, comparatively small. The course maps that territory with a focus on U.S. development and dynamics. The course also enlists student participation in illuminating the existing territory.

(1) Course reading and class discussion are integral to that goal. Participation is therefore an essential requirement, and comprises 20% of the course grade. We will generally reach the readings for each class only after a lecture session, and will discuss them the following day. Note that, while the readings below include links to online copies of readings, the class materials include edited versions of the readings. You are only responsible for the reading the edited versions.

(2) The balance of the evaluation is by exam or written submissions, at the option of the student (80% of course grade). The exam ‐‐ the default option ‐‐ will be an open‐book, in‐class exam. As an alternative, students can choose instead to make a set of “written submissions” consisting of daily issue sheets (1‐2 pages) on the readings paired with a short research essay and bibliography, crafted for sharing on a class website. The essay may be accompanied by a short class presentation, if a student wishes and the Desan, Christine The Constitutional Law of Money Fall 2014 course 2

material is relevant to class. It will be eligible for publication on‐line, at the student’s option and with approval of the supervisor.

Course information: Professor Christine Desan, G410 Teaching Assistant Nadav Orion Peer Office Hours: Tuesdays 3‐5, and by appointment

For appointments, contact: Amanda Cegielski [email protected]

Desan, Christine The Constitutional Law of Money Fall 2014 course 3

Syllabus: Part I [Final]

I. Money as a Constitutional Project

Class 1: The Disciplinary Divide over Money

Background to Class 1: R. A. Radford, “The Economic Organisation of a P.O.W. Camp,” Economica 12, no. 48 (1945): 189‐201

Christine Desan, “Creation Stories,” excerpt from Making Money: , , and the Coming of Capitalism (Oxford: Oxford Univ. Press, 2014)

Class 2: Money as a Public Resource

Benjamin Franklin, “A Modest Enquiry into the Nature and Necessity of a Paper –Currency” (1929), at URL

"The Guernsey Market House." Machinists Monthly Journal 12, no. 3 (1900): 155‐157

Class 3: The Shape of Modern Money Andrew Jackson and Ben Dyson, “The Current Monetary System,” (Chap. 2) in Modernizing Money (London: Positive Money, 2013), 47‐ 80

C. Desan, A Note on the Federal Reserve’s Power to Power Money

Charles Calomiris, “The Basics of Banking,” in Fragile by Design (Princeton: Princeton University Press, 2014), 27‐38

II. The Great Governance Debates in American History

Class 4: Money as Self‐Determination: The Colonial Experience Cotton Mather. "Some Considerations on the Bills of Credit Now Passing in New‐England." In Colonial Currency Reprints, edited by Andrew McFarland Davis. 189‐196. Boston: John Wilson & Son, 1691. Reprint, 1910, at URL

"Some Additional Considerations," (1691), in Davis, Andrew McFarland. Tracts Relating to the Currency of the Massachusetts Bay, 1682‐1720. Boston, New York: Houghton Mifflin and Company, 1902, at URL

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Anonymous. A Dialogue between Mr. Robert Rich, and Roger Plowman. Philadelphia, PA: Samuel Keimer, 1725, at URL

William Douglass. "Discourse on the of the American Plantations." In Colonial Currency Reprints, edited by Andrew MacFarlane Davis. Boston: Prince Society, 1740, at URL

William Borden. An Address to the Inhabitants of North‐Carolina, Occasioned by the Difficult Circumstances the Government Seems to Labour Under... Williamsburg, VA: William Parks, 1746, at URL Desan, Christine The Constitutional Law of Money Fall 2014 course 5

Class 5: Money, Public Debt, and Nation‐building

Adams, John. "Letter to the Comte De Vergennes." In Papers of John Adams. Boston: Massachusetts Historical Society, 1780, June 22, at URL

Alexander Hamilton, Report on the Public Credit (Jan. 14, 1790), at URL

Debt Debates in the First Federal Congress, Statements of U.S. Representatives James Jackson, James Madison, Thomas Scott – Feb. 9, 11, 16, 1790, in Documentary History of the First Federal Congress of the United States of America: Legislative Histories, vol. 12, (Baltimore: Johns Hopkins Univ. Press, 1986).

Alexander Hamilton to Edward Carrington, May 16, 1792, at Founders Online, National Archives, at URL

Class 6: Debating Money Creation in the New Republic

U.S. Constitution, Art. I, Secs. 8 & 10

Alexander Hamilton, Report on the Subject of a National Bank, 1‐23 (Dec. 13, 1790)

James Madison’s Speech on the Bank Bill 2 February 1791, as reprinted in Lance Banning, ed., Liberty and Order: The First American Party Struggle (Indianapolis: Liberty Fund, 2004), at URL

Fisher Ames, Speech in the U.S. House of Representatives (Feb. 3, 1791), in The Debates and Proceedings in the Congress of the United States, Volume 2

Thomas Jefferson’s Opinion on the Constitutionality of a National Bank 15 February 1791, as reprinted in Lance Banning, Liberty and Order: The First American Party Struggle (Indianapolis: Liberty Fund, 2004), at URL

James Madison to Thomas Jefferson On Speculative Excess, Summer 1791, reprinted in Lance Banning, Liberty and Order: The First American Party Struggle (Liberty Fund, 2004), at URL

McCulloch v. Maryland, 17 U.S. 316 (1819)

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Class 7: Banks, Economic Development, and Politics

Thomas Jefferson to Albert Gallatin, July 12, 1803, from Henry Adams, ed., Albert Gallatin, 1 Writings 129 (Philadelphia 1879)

Terrett v. Taylor, 13 U.S. 43 (1815)

Dartmouth College v. Woodward, 17 U.S. 518 (1819)

People v. Manhattan Company, 9 Wend. 351 (Sup. Ct., NY, 1832)

Class 8: Monetary Federalism: The Struggle over a National Unit of Account

Review: U.S. Constitution, Art. I, Sec. 10

Craig v. Missouri, 29 U.S. 410 (1830)

Briscoe v. Bank of Kentucky, 36 U.S. 257 (1837)

President Andrew Jackson’s Veto Message Regarding the Bank of the United States, July 10, 1832

Class 9: The Attempt at Divorce: The Debate over the Public Funds, the and Free Banking

Hugh Rockoff, “The Free Banking Era: A Reexamination,” 6 J. Money, Credit and Banking, pp. 141‐167 (May, 1974)

Calomiris and Haber, Fragile by Design, supra, 169‐175

Stephen Mihm, A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States (Cambridge: Harvard University Press 2007), 1‐19

Class 10: The Civil War as a Monetary Drama

The Cases Hepburn v. Griswold, 75 U.S. 603 (1870) Knox v. Lee, 79 U.S. 457 (1871) Parker v. Davis, ______

Julliard v. Greenman, 110 U.S. 421 (1884) Desan, Christine The Constitutional Law of Money Fall 2014 course 7

Class 11: Money and the Gilded Age

James G. Cannon, “Clearing Houses.” Chapter XIV: Daily Routine at the New York Clearing House, 148, 190. Washington Government Office (1910). National Monetary Commission, at [URL]

Thomas F. Woodlock, “The Stock Exchange and the Money Market.” 21‐39. In: Edwin Seligman, “The Currency Problem and the present financial situation: a series of addresses delivered at Columbia University, 1907‐8” (1908) at [URL]

Samples of “call loan” agreements:

Sereno S. Pratt, “The Work of Wall Street: an Account of the Functions, Methods and History of the New York Money and Stock Markets.” 281‐283, 287. D. Appelton and Company, New York, London (1930) at [URL]

Clay Herrick, “Trust Companies: Their Organization, Growth and Management”. 299. New York Bankers Publishers Company (1909) at [URL]

For in‐class reference (no need to read beforehand):

National Bank Act of 1864 (ch. 106, 13 Stat. 99; June 3, 1864). §31‐32, §46, at [URL]

III. The Structural Aspects of a Finance‐Based Monetary System

Class 12: The Argument over Credit Allocation

Southern Alliance, St. Louis Convention, Report of the Committee on the Monetary System on the Sub‐Treasury Plan, Dec. 1889, as reprinted in George Brown Tindall, ed., A Populist Reader (Harper Torchbooks, 1966)

Harry Tracey, Supplement on the Sub‐Treasury Plan, as reprinted in James Davis, A Political Revelation, Appendix, i‐303, 305‐306, 310‐ 313, 316‐317, 323‐326 (Advance Publishing Co., 1894)

The Ocala Platform, Report of the Committee on Demands, Dec. 1890, as reprinted in Tindall, ed., supra

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Louis D. Brandeis and Norman Hapgood, Other People’s Money: And How the Bankers Use It, 1‐5, 74‐81, 83‐85, 87‐89 (National Home Library Foundation, 1933)

Class 13: Contract and the Modern Market

Morton Horwitz, The Transformation of American Law, 1780‐1860, 188‐201 (Harvard University Press 1977)

Jonathan Levy, Freaks of Fortune: The Emerging World of Capitalism and Risk in America, 231‐245 (Harvard University Press 2012)

Embrey v. Jemison, 131 U.S. 336 (1889)

Chicago Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236 (1905)

Class 14: Monetary Abundance and Discipline

James Livingston, Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890‐1913, 33‐48 (Cornell University Press, 1986)

Horace White, “The Gold Standard,” in World’s Congress of Bankers (Chicago, 1893)

W. H. Harvey, Coin’s Financial School (Coin Publishing Company, 1894)

William Jennings Bryan, Speech before the Democratic National Convention, 1896

Class 15: Instability – Booms, Busts, and Panics

Niall Ferguson, “Blowing Bubbles: The Emergence of Stock Trading” (BBC Worldwide), at http://digital.films.com/play/6NJKNQ

Hyman Minsky, “The Financial Instability Hypothesis," Working Paper No. 74 (1992)

Jackson & Dyson, Modernizing Money, supra, pp. 115‐139

IV. Modern Money and Money Markets

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A. Crisis and Experimentation

Class 16: The Strange and Unexpected Debate That Gave Birth to the Fed

Glossary for Banking Practice under the Early Fed

Excerpts from the [URL] (kindly read §§13 and 19; the balance is for in‐class and later reference)

The Act from a Democrat’s perspective: Henry Parker Willis, The Federal Reserve Act, The American Economic Review, Vol. 4, No. 1 (Mar., 1914), pp. 1‐24 [URL]

The Act from a country banker’s perspective: Excerpts from the Senate Hearings on the 1913 Fed Act [URL], “Hearings before the Committee on Banking and Currency, United States Senate, Sixty‐third Congress, First Session, on H.R. 7837 (S. 2639), a Bill to Provide for the Establishment of Federal Reserve Banks . . . ”

Statement of Edward B. Weils, of Minneapolis, Minn, Vol. I, [URL]

Statement of Justin E. Varney, Vice President and Cashier Bay State National Bank, Lawrence, Mass, Vol. I, [URL]

Statement of Festus J. Wade, President of the Mercantile Trust Co. St. Louis Mo., Vol.I

Statement of Samuel Untermeyer, New York City, N.Y. (Key Democrat proponent of the bill), Vol. I

The Act from an investment banker’s perspective: Excerpts from the Senate Hearings on the 1913 Fed Act [URL],

Statement of Frank Vanderlip, President of National City Bank New York, N.Y., Vol. III, (excerpts) [URL]

Paul Warburg, American and European Banking Methods and Bank Legislation Compared. 121‐151 (excerpts) in “The Currency Problem and the present financial situation: a series of addresses delivered at Columbia University, 1907‐8” (1908) [URL]

Class 17: The Remaking of the Fed

Tenth Annual Report of the Federal Reserve Board 29‐39 (1924) Desan, Christine The Constitutional Law of Money Fall 2014 course 10

Letter from the Board of the Federal Reserve to the Member Banks (Feb. 2, 1929)

Raichle v. of N.Y., 84 F.2d 910 (2d Cir., 1929)

Memorandum from Adolf Berle, Assistant Secretary of State, to Ronald Ransom, Vice Chairman, Board of Governors, Federal Reserve (April 1, 1938)

Class 18: Sovereign Money and Monetary Policy: the US and shades of Argentina

Norman v. Baltimore & Ohio RR Co., 294 U.S. 240 (1935)

U.S. v. Perry, 294 U.S. 330 (1935)

Nortz v. U.S., 294 U.S. 317 (1935)

Randall S. Kroszner, “Is It Better to Forgive than to Receive? Repudiation of the Gold Indexation Clause in Long‐Term Debt During the Great Depression” (1999)

B. The Neo ‐Liberal Monetary Regime

Class 19: The Invention of a Dealer System

Address of Marriner S. Eccles, Chairman of the Board of Governors of the Federal Reserve System, to the National Tax Association, Oct. 14, 1941

Perry Mehrling, “Re‐Theorizing Liquidity,” in Desan, ed., Inside Money (Philadelphia: University of Pennsylvania Press, forthcoming)

Class 20: The Federal Reserve as an Independent Agency

Peter Conti‐Brown, “The Institutions of Federal Reserve Independence,” Rock Center for Corporate Governance, Working Paper Series No. 139 (2014)

Bernard Shull, “Financial Crisis Resolution and Federal Reserve Governance: Economic Thought and Political Realities,” Levy Economics Institute, Working Paper No. 784 (2014)

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Class 21: Securitization

John D. Martin, “A Primer on the Role of Securitization in the Credit Market Crisis of 2007,” Jan 7, 2009, at URL

Adam B. Ashcroft and Til Schuerman, “Understanding the Securitization of Subprime Mortgage Credit.” Federal Reserve Bank of NY, Staff Report No. 318, March 2008

Class 22: The Financial Crisis

Gary Gorton, Slapped by the Invisible Hand: The Panic of 2007 (Oxford 2010), 1‐10, 13‐28, 31‐33, 38‐57

Eric Rosengren, “Broker‐Dealer Finance and Financial Stability,” Keynote Remarks at the Conference on the Risks of Wholesale Funding, New York, Aug. 13, 2014, at [URL]

Class 23: Central Banks as a Governance Challenge

Paul Tucker, “Independent Agencies in Democracies: Legitimacy and Boundaries for the New Central Banks,” Albert H. Gordon Lecture (2014)

Class 24: Dreams about Money

Class research cameos – to be distributed