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what ends its policies are aimed at and then takes whatever actions it sees fit to reach those ends”.3314 Thus, the private, “independent” nature of the FRS has a vitally important policy consequence: the inability or unwillingness of the national government’s constitutional Branches to supervise the System’s operations, whatever the effect of those operations on the nation’s economy.
The appalling aspect of this situation is how not one of those three Branches—neither the Judiciary, nor Congress, nor the President—has ever shown the least inclination to face up to the constitutional and practical political and economic issues arising out of the Federal Reserve System’s “independence”, let alone to do anything about it.
a. THE ABDICATION OF THE COURTS
1) Early on, in Raichle v. Federal Reserve Bank of New York,3315 Raichle complained that certain actions of a regional bank—including “‘wrongfully * * * restrict[ing] the supply of credit available for investment purposes’”, “‘engag[ing] in an open market operation * * * for the sole purpose of taking money out of the market’”, raising the rediscount rate so as to make “interest rates * * * unreasonable”, and “‘coercing [member banks] to call collateral loans’”—were torts. Affirming dismissal of Raichle’s bill, the court denied the existence of any
basis for the contention that it is a tort for a Federal Reserve Bank to sell its securities in the open market, to fix discount rates which are unreasonably high, or to refuse to discount eligible paper, even though its policy may be mistaken and its judgment bad. The remedy sought would make the courts, rather than the Federal Reserve Board, the supervisors of the Federal Reserve System * * * .3316
Raichle involved no constitutional question,3317 the court concerning itself only with the practical problem that
[i]t would be an unthinkable burden upon any banking system if its open market sales and discount rates were to be subject to judicial review. Indeed, the correction of discount rates by judicial decree seems almost grotesque, when we remember that conditions in the money market often
3314 Id. at 2.
3315 34 F.2d 910 (2nd Cir. 1929).
3316 Id. at 911, 915.
3317 Id. at 914 (“[i]t is not contended [by Raichle] that the provision for fixing rates of discount is unconstitutional”).