The steepness of the federal interest rate curve -- ten-year treasury bonds pay more interest than three-month treasury bills, and the rate for intermediate time intervals slopes gradually from one to the other -- is a function of the Federal Reserve; the slope of this curve concisely describes current Fed policy. The Federal Reserve controls the money supply by raising or lowering short-term rates, which "affects the slope at the short end", and mainly in this way restrains or encourages inflation, or alters the exchange value of American currency. For the most part, long term rates are set by the public bond market. Once in a while, the Federal Reserve does buy or sell long-term treasury bonds to modify long-term rates in the economy. By affecting rates at either end, the result is some kind of change in the slope of the curve.
Because banks make interest payments to depositors near the short-term federal rate, while the same banks charge borrowers at near the public long-term rate, the current slope is the main determinant of bank profits. Banks borrow short and lend long. If Federal Reserve tinkering steepens the curve more than it would be without interference, then bank profits are subsidized. Of course, it works the other way as well; in a banking crisis, yield curves can be steepened to rescue banks from failure, thus potentially sacrificing ideal monetary levels temporarily. For the most part, what is good for the banks is good for the economy; but it remains that bank profits are subsidized much of the time. Artificially widened yield curves either punish savers by lowering interest rates on their savings accounts or else punish borrowers by increasing interest rates on mortgages and other credit. For political reasons, the pain is usually shared among voting blocs. It can be argued this invisible subsidy of banks by the public creates a compensating benefit of economic stability despite occasional bubbles and recessions like the present one. However, the Federal Reserve system has been in operation for almost a century, revealing a long-term bias in favor of inflation, which is a subsidy of debtors by creditors. Present policy deliberately targets a steady rate of 2-3% inflation; the gold market responded to a century of this by raising the price of gold from $17 to $900 an ounce. A 1913 penny has become a dollar (before taxes) you might say. You might also say it took the Federal Reserve less than a century to make the present dollar worth a penny.
If gradual inflation is a consequence, a fair question must arise whether the Federal Reserve is worth its cost. Compared with an inflexible, relentlessly deflationary Gold Standard, yes, it is. Even accepting the monetary crisis as partly created by central banking, the international dominance of the American economy and recent smoothing of banking instability testify to the durable use of the Fed. But another criticism must be faced: In subsidizing depository banks with an artificial yield curve, is the Fed backing the wrong horse for the future? To answer that question, examine two components: With computer technology rapidly advancing, can the Federal Reserve accommodate non-banking competitors to banks? And secondly, international central banking appropriately accommodate globalization? There are, after all, aspects within the 2007-20?? a crisis which suggests -- maybe it can't.
Steady inflation of 1000% per century may well be preferable to 19th Century volatility of 1000% every ten or so years. But a gradual rise of, say, 500% or less each century might be even better. Relentless political pressure on the Federal Reserve has typically been used to explain its slow retreat from truly stable prices, and this defense takes the form of mentioning its dual mission of minimizing unemployment while holding prices as steady as possible. In recent years, European political rhetoric goes further, aspiring to add the right to employment to their fifty-page Bill of Rights; similar utopianism has crept into our own news media. Governments for thousands of years have cheapened their currencies. But while the drift is clear, our own pace is set by the amount of subsidy required to maintain a steep yield curve. As retail banks have struggled to compete with the wholesale investment banks, their increasingly uncompetitive costs require a greater subsidy from the yield curve. It is always going to be more expensive to aggregate deposits for lending purposes than to raise large sums by floating a bond issue. Securitization is here to stay because retail banks have consolidated and savings banks have gone out of business by the thousands; the mortgage industry can no longer survive without substantial amounts of mortgage-backed securities. Nor should it; securitization is a sensible route for importing capital from nations with a trade surplus. Depository banks long ago lost the borrowing business of corporations large enough to float their own bonds; securitization provides a means for smaller borrowers to share the same efficiency. After it has tried everything else, Congress will eventually devise a reasonable regulatory system for derivatives. Except for smoothing the transition to whatever proportion of market share the investment banks can justify, perhaps all of it, the subsidized yield curve impairs efficiency. It would be a mistake to allow some foreign nation to exploit such an opening before we do. The technical problem for all central banks is to devise a suitable alternative method of controlling the currency, other than by targeting inflation with adjustments in interbank lending rates.
Observers led by Martin Wolfe the economist for the Financial Times feel the 2007-20?? financial crisis can be adequately explained by Chinese pegging their currency too low, and could be rectified by persuading the Chinese to float their currency. Regardless of this extreme view, globalization is clearly both a good thing and an inevitable one. Thus some form of discipline must be devised to prevent central banks from destabilizing it for their own advantage. Wolfe proposes the use of a strengthened International Monetary Fund, which is unfortunately apt to project international politics into a process which could be harmed by it. An alternative to be examined might be to pool sovereign wealth funds as a pooled currency reserve, although this system probably could not withstand present extremes between surplus and debtor nations, so getting world acceptance could be protracted. Ultimately, everyone realizes that the real backing for an international finance system is the net worth of the whole world. But the example of Lloyd's of London is a haunting one; no one relishes putting absolutely everything at risk, down to the last shoe button. In the event of a disaster, everyone wishes to hold back some nest egg to use for recovery. Because of the same line of thinking, almost no one would trust foreigners to control more than a limited share of their future.
The future of international monetary relations is thus quite murky, but current pressures would seem to be driving something fundamental to change. When it does, regulating artificially manipulated yield curves had better be kept in mind.
There are certainly a lot of Ingersolls in Philadelphia. A lot of Jared Ingersolls, a lot of Charles Ingersolls, and even a lot of Charles Jared Ingersolls. At a dinner party, a lady whose maiden name is Ingersoll was asked about Charles Ingersoll, and was forced to say, "Just how old would you say he is?"
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Jared Ingersoll, Jr.,
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The one we are talking about here is Jared Ingersoll, Jr., the son of a Tory who had once been tarred and feathered by Revolutionaries in New Haven. Young Jared was in England at the Inns of Court when the Declaration was signed, became a fervent Revolutionary, and represented Pennsylvania at the Constitutional Convention. It was thus difficult to predict where his sympathies would lie in the settling of debts and grievances associated with the Revolutionary War; in fact, he might be as impartial as any lawyer to be found at the time. At their best, all lawyers reach for the peaceful settlement of grievances, serving their clients best by finding a solution that puts an end to reprisals. Furthermore, he had excellent legal training, something which could not be said of most apprentice-trained lawyers of that time, and had faithfully attended every single session of the Continental Congress, while commenting very little about his own views. The first ten amendments are the Bill of Rights which had been promised during the ratification process, so the Eleventh became the first real amendment, in the sense that it specifically reverses some feature of the original design. To present observers it may not be easy to surmise just what the purpose might have been to outlaw the method which had been established for an injured citizen to sue a state. To be blunt about this point, the colonists wanted to welch on paying debts to Loyalists and Englishmen, those hated enemies, without admitting this was their motive. The spin they put on this shabby attitude was that states were now sovereign entities without a king, and since historically a British king could not be sued without his consent, therefore neither could the states. Probably the best that can be said for this cloud of words is the point that suing the government should not be made too easy, for fear of overwhelming the court system with endless clamor. The historical episode surrounding the Eleventh Amendment is an important one in our national struggle to balance the accusations of hypocrisy and chiseling, with the opposite tendency of slavish adherence to procedure, or "due process".
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Alexander Chisholm
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Ingersoll had attended the Constitutional Convention as part of the most influential state delegation of insiders and was set up to practice law in the capital city of Philadelphia just a few blocks from the heart of government. A case came up. The estate of Captain Robert Farquhar, an Englishman, was owed $169,613.33 for "goods" sold in 1777 to agents of the embattled State of Georgia during the Revolution. The executor of Farquhar's estate, a resident of South Carolina named Alexander Chisholm, then sued the state of Georgia after the war was over for that state's extinguishing the debt by a statute passed after the contract. This had been the rather common treatment of Loyalist debts by other colonies and thus enlisted their sympathies to Georgia in this case. Furthermore, it was the sort of uncivil behavior that had enraged John Jay and George Washington, leading them to press for the Constitutional Convention. On the other hand, the new state governments were hard-pressed for cash and had to contend with highly combative citizens who resented even the suggestion that they play fair with people who had so recently been trying to kill them. Furthermore, it was entirely realistic for them to fear a flood of lawsuits from people they mercilessly pursued under what "everyone" considered the rebellion's accepted rules of engagement. It was thus clever for Georgia to seek the help of Ingersoll in appealing to the Supreme Court, and the previous tarring and feathering of his Loyalist father was not entirely irrelevant. Ingersoll, unfortunately, lost his case of Chisholm v Georgia when the Supreme Court (John Jay, CJ) declared that Chisholm was indeed entitled to sue the State of Georgia. It is hard to see how Ingersoll (and his colleague Alexander Dallas) could have won this case when the Constitution which he helped write plainly provided the rules for citizens of one state suing another state; it seems remotely possible that the officials of Georgia were attempting to shift the blame of an inevitable loss of the suit:
Article III - Section 2 -The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority; to all Cases affecting Ambassadors, other public Ministers and Consuls; to all Cases of admiralty and maritime Jurisdiction; to Controversies to which the United States shall be a Party; to Controversies between two or more States; between a State and Citizens of another State; between Citizens of different States; between Citizens of the same State claiming Lands under Grants of different States, and between a State, or the Citizens thereof, and foreign States, Citizens or Subjects.
John Jay ultimately revealed the depth of his dismay at dishonoring debts when he negotiated Jay's Treaty during the Adams administration, providing for adjustment of such debts. Adams, in turn, was to reveal where his own sympathies lay by refusing to announce -- for three years -- the reversal of this position by the Eleventh Amendment, stirred up in his own state. Adams' rather flagrant abuse of a technicality might well have led to another constitutional amendment, except for the Supreme Court later ruling that official enactment of amendments did not require Presidential announcement, but took effect upon ratification by the required number of states.
Adams, in turn, had ample political problems in his home state of Massachusetts. John Hancock, then Governor, called a special session of the Massachusetts legislature to propose an amendment to reverse the Constitutional language on which the Supreme Court's decision had relied: It soon became clear, or perhaps Ingersoll was determined to make it seem clear, that Georgia had been smart to employ this political insider. Congress soon enacted, and the necessary states soon ratified the Eleventh Amendment. It stated that a citizen of another state may not sue a State government in Federal Court:
Amendment XI. The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.
Later decisions included citizens of the same state, so in effect, this amendment stated that no one may sue a State Government unless the state agrees to be sued. That's essentially what is true of the federal government; the states were given the same sovereignty with all of its features, as the federal government and that was an intentional slap in the Federalist faces.
It sounds as though Jared Ingersoll might have been a states-righter, although nothing in his past or future behavior suggests that he was anything but an ardent Federalist. He was even proposed as vice presidential candidate for the Federalist Party. No one called him wishy-washy, or a traitor or a covert anti-federalist, and he never acted like one. He was just a lawyer with a client.
Amendment III
No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.
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The Third Amendment
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The Third Amendment to the Constitution received a few moments of attention during the War of 1812, and the Civil War, but has only been litigated once during a strike of prison guards in New York state. It is, however, the somewhat fanciful basis for the right of privacy, devised for Roe v. Wade, and related this to the controversy over abortion rights.
It would appear that requisitioning the homes of private citizens was largely an expense-saving feature of the peacetime standing armies of European nobility, and thus agitated the opponents of aristocracy and feudalism. Its expense-sparing feature was a source of discontent during the French and Indian War, with its long wilderness border making housing difficult to find. The memories of people living near the frontier were long, however, and Charles Pinckney introduced to the Constitutional Convention one of a great many ill-considered motions which were defeated by that body, opposing the quartering of troops in peacetime. This action was taken up in demagogic style by the Anti-federalist faction, and during the ratification process, quite an issue was made of woeful inadequacy of a Constitution which failed to protect a nation's defenseless households, etc., etc. Matters reached a point where Madison was afraid not to include the matter in the Bill of Rights.
The matter may come up again, however, not merely in abortion controversies, but related to the increasing tendency to wage undeclared wars. Apparently, it was Madison's intent to throw the issue into the Executive Branch in the case of "time of war". No declaration of war was made in the Civil War, or in several other conflicts so that the issue which remains unresolved is what to do about undeclared wars, wars against terrorism, and other conditions which are not exactly either peace or war.
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Chief Justice John Marshall
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John Marshall, taking sixteen years to do it, transformed the Constitution internally into the cornerstone of the Rule of Law, making the legal profession its guardian. Nine respected justices now essentially hold lifetime appointments as bodyguards of the structure Marshall designed, with all lawyers acting as lesser officers. Nevertheless, four personal things are important to remember. Marshall had been a Revolutionary soldier, he wrote a five-volume biography of George Washington, he positively hated his first cousin Thomas Jefferson. And his thirty-five-year tenure as the third Chief Justice of the U.S. Supreme Court coincided with some of the dirtiest national politics the nation has ever seen. Marshall's enthronement of Chief Justice control of the federal courts was tolerated because it promoted them both to national power. And when this tough politician had earned the loyalty of both the court system and the legal profession to himself, he transformed the image of the Constitution from a contract between the states into an American Bible for the Rule of Law. Incidentally, he could beat anyone at horseshoes, a game requiring a winner to be both strong and precise. Much of his achievement grows out of three pivotal Supreme Court cases, which today might just as well be regarded as amendments to the Constitution.
In all Cases affecting Ambassadors, other public Ministers and Consuls, and those in which a State shall be Party, the Supreme Court shall have original Jurisdiction. In all the other Cases before mentioned, the Supreme Court shall have appellate Jurisdiction
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Article 3, Section 2.3
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Marbury v Madison (1803). The first of Marshall's three cornerstone cases involved the Chief Justice himself. After being defeated for reelection to the Presidency in 1800 by Thomas Jefferson, President John Adams hastened to fill up remaining judicial vacancies before Jefferson his successor could be inaugurated, in a maneuver described as "appointing midnight judges". In a sense, Marshall's appointment as Chief Justice had also been in anticipation of the coming eviction of Federalist office holders, so he was himself more or less a midnight judge, destined to become by many years the last Federalist to survive in office. In any event, he was Adams' Secretary of State, soon to be replaced by James Madison, who would then assume the duty to deliver judicial appointment papers to new judges. Marshall was an impassioned Federalist, bitter about the defeat of his party, nursing personal hatred for Jefferson after years of family differences. To say he had a conflict of interest is not only to brush hurriedly by the issue but also to dramatize what loose judicial standards prevailed at the beginning of his three-decade tenure as Chief Justice.
Appointment papers for the midnight judges were completed and lying on the desk of the Secretary of State when the Presidency changed hands from Adams to Jefferson. Had he known what was coming, Secretary of State Marshall would surely have hastened to deliver the papers, but he had not done so. His successor as Secretary of State, James Madison, on the orders from Jefferson, refused to do it, so Marbury sued for a writ of mandamus, or order from a court to deliver the documents. By this time, Marshall was in a new role of presiding over the Supreme Court, fearful to attack Jefferson head on, but nevertheless eager to command the most humiliating obedience from him. Using the technicality (actually, the plain language of the Constitution) that the request was made to the wrong court, mandamus was rejected by Marshall. However, he went on to say in a judicial aside (obiter dictum) that if the right request had come to the U.S. Supreme Court properly , the Court would have approved it. Thus, in one dazzling maneuver at the beginning of his term, Marshall simultaneously asserted the Court's right to review Presidential and Legislative actions, reproved Jefferson for his ignorant conduct, and boxed him into submission by seemingly letting him win a minor case, but one he could be sure would soon have been followed by major ones if the President somehow evaded this decision. Furthermore, he dazzled the legal profession with this tap-dance, guaranteeing their applause by greatly enhancing the status of judges within the Republic, especially compared with the President. And, it should be mentioned, he suppressed public outcry by performing this set of actions in full public view, cloaked within incomprehensible legal garments. The public could see he had done something important, which only lawyers would completely understand. Marshall plainly began his term by demonstrating the full meaning of the rule of law, and his own position astride that law. The main point was that when ordinary judges include offhand commentary in a decision, it might be ignored. But when the Chief Justice of the United States speaking for the majority of his court, makes a legal observation, it would be a brave lawyer indeed who would bring an action in conflict with it. And as for the President and Legislature, Marbury v Madison had also just brushed them aside. It was all done properly, using civil language but deadly logic.
Martin v Hunter's Lessee (1816). This case might be a little more understandable if retitled as "The Heirs of Lord Fairfax v Fairfax County, Virginia". A Virginia law permitting the seizure of Tory property, written decades before the Constitution, asserted its precedence to Federal Law, and therefore its precedence over Federal Law. (To this day, Virginia never quite forgets it was once the largest, richest state, founded nearly two centuries before the Constitution.) Like Marbury v Madison, the case is clouded by Marshall's personal involvement since the Chief Justice had signed a contract with Martin to buy the land himself. This impairment to the case's claim to legal cornerstone status is not entirely annulled by Marshall recusing himself, turning authorship of the opinion over to his faithful disciple Justice Story. Furthermore, the judicial establishment of the principle that an international Treaty (in this case, the Jay Treaty) takes precedence over an Act of Congress is one the nation may still someday come to regret, if movements for "International human rights" and "universal international law" continue to gain popular traction. Such movements are numerous, including international law for the conduct of wars, and the universal Law of the Sea.
The United Nations might now be more of a force if they had not stumbled over the franchise of hundreds of nations, each given an equal vote. To expect the major nations of the Security Council to obey the single-vote mandates of dozens of small African nations is to agree in advance that the UN must be disregarded. Nevertheless, Martin v Hunter's Lessee did eliminate an escape route from Supreme Court domestic domination which might have proved troublesome in Civil War nullification disputes, or in legal cases for which national uniformity is important. On appeal, the Supreme Court finally declared its absolute supremacy over State courts as a general matter, clarifying a number of legal loose threads which had been keeping the precedence issue alive.
McCullough v Maryland 1819) The facts of this case seem considerably simpler than Marshall's long and thundering opinion of them. Indeed, the opinion sounds more like an oration on the meaning of the Constitution, or an enraged obiter dictum , than a terse opinion that the State of Maryland's legislature had passed an unconstitutional law. His remarks are indeed an exposition on the general thrust of the Constitution, foreshadowing many disputes leading up to the Civil War. In effect, it began to make it clear to the slave states that their states-rights viewpoints might conceivably be upheld on a battlefield, but never in a Courtroom. It is thus an opinion which every law student should read several times, and every citizen would profit from reading at least once. At Gettysburg Abraham Lincoln was to restate the principles in concise, even poetic, language. But long before that, Marshall had stood upon a legal mountain, declaiming them in thundering detail.
The Congress shall have power---To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.
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Article 1, Section 8, clause 18
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The United States Congress had chartered the Second Bank of the United States in 1816, which then established a Baltimore branch in 1818. There was a national financial panic in 1818, which probably hastened local bank lobbyists to the Maryland Legislature, looking for relief from the unwanted federal competition. Maryland passed a law imposing a fairly high state tax on the operations of the new federal bank. McCullough, the cashier of the federal branch bank, refused to pay the tax. On appeal, McCullough maintained the tax was unconstitutional, and the U.S. Supreme Court upheld him, ordering the opinions of the Maryland courts to be reversed. John Marshall wrote the opinion and took the occasion to set forth his views on constitutionality. Point by point, my point.
What it meant, the old Federalist in a sense intoned, was the states had lost power at the Constitutional Convention and were not going to get it back. The founding fathers and George Washington, in particular, had been uneasy about accusations they had gone beyond their mandate in even calling the Philadelphia Convention. The Articles of Confederation had declared its own provisions to be "perpetual", and the states had previously bound themselves to that. True, the Confederation Congress had authorized a study of how to improve the Articles, but it had never gone so far as to suggest the Philadelphia Convention toss them out.
When the Philadelphia Convention was finishing up its work, Gouverneur Morris had written a preamble beginning with "We the People" in order to assert that its authorization came from the people and not from the governments directly confederated under the Articles, which was true. The ratification process was carefully steered into the language which asked for ratification by the people, acting by states, and from which elected state officers were excluded. The state ratification conventions heard considerable concern about legitimacy voiced by those who probably really disapproved of one feature or another. But overall it was more importantly true that the people at the ratification conventions gradually grew intrigued by the mechanics of self-rule and appreciative of the depth of thought they could see the founders had displayed. By the time the necessary number of states had ratified, public enthusiasm was genuine, while the opposition was squelched into silence or else indirection of speech. Legitimate opposition was acknowledged by specifying that ratification was conditional upon the adoption of a Bill of Rights. Finally, after the new government was subsequently tested by wars and near-wars, pratfalls and triumphs interspersed, the opposition was not only widely judged to have had its say, but its own chance to stumble. After nearly three decades of this, Marshall seems to have decided it was time to lay down the law. All of that is behind us, he said in effect state governments have knuckled under, and the Constitution is indeed triumphant. It was time to snuff out the grumbling and the scheming, and to declare invalid any future attempts at evasion.
The constitutional compromise had confined federal power to a few defined activities and whatever else was proper and necessary within those powers. It did not limit Congress to "absolutely" necessary and "absolutely" proper actions which might heedlessly confine such limited powers to awkward and inefficient behavior. Rather, the Constitution identified areas of power where the two types of government were best suited, expecting them to do their best without hampering each other with turf battles. If Congress decided that banks, or chartered corporations, were desirable means of promoting commerce which had been left unspecified in the Constitution, states could not for that reason alone interfere with federal use of them. States could charter any corporations and banks they pleased, and the federal government could do the same, but only if necessary and proper. There were many other features left unspecified, proper enough for the states to do, but which the federal government might also do -- when necessary and proper to implement its enumerated powers. It was, in short, improper for states to interfere with what was desirable for the national government to do unless the Constitution prohibited it. And the U.S. Supreme Court would be there to decide close cases.
In particular, the states were not to undermine the federal government in the legitimate pursuit of its enumerated powers. Of the strategies available, taxation was particularly vexing, since the difference between a fair tax and a burdensome one can be a matter of opinion. Ultimately, the power to tax is the power to destroy, and it would be better not to have the states taxing the national government in its operations, like issuing currency. The exception might be made for traditional state activities like taxing the bank's real estate. But if the states can tax currency operations, they can set any price, taxing anything if they set about to undermine legitimate Federal activities; such hampering was not contemplated at the Philadelphia Convention, and it will not be tolerated by the courts. Legislatures whose sovereignty ends at their state borders have no right to tax the entire nation which extends beyond those borders. And since state courts must follow state interests and state constitutions, their rulings are subordinate to those of the federal courts, as well.
With the one possible exception of international treaties, all government entities which might challenge the Supreme Court had by now had their noses rubbed in subordination to it. John Marshall went a step further. He even invented a new way to fashion laws which no one at all could challenge: as long as he spoke for the majority, the asides and comments of the Chief Justice in his obiter dicta had become a sort of supreme law.
Originally the "lower counties" of Pennsylvania, and thus one of three Quaker colonies founded by William Penn, Delaware has developed its own set of traditions and history.
Start in Philadelphia, take two days to tour around Delaware Bay. Down the New Jersey side to Cape May, ferry over to Lewes, tour up to Dover and New Castle, visit Winterthur, Longwood Gardens, Brandywine Battlefield and art museum, then back to Philadelphia. Try it!
Millions of eye patients have been asked to read the passage from Franklin's autobiography, "I walked up Market Street, etc." which is commonly printed on eye-test cards. Here's your chance to do it.
In 1751, the Pennsylvania Hospital at 8th and Spruce was 'way out in the country. Now it is in the center of a city, but the area still remains dominated by medical institutions.
Grievances provoking the American Revolutionary War left many Philadelphians unprovoked. Loyalists often fled to Canada, especially Kingston, Ontario. Decades later the flow of dissidents reversed, Canadian anti-royalists taking refuge south of the border.