what institution is empowered to exercise monetary policy in the u.s.?

Power of the Purse

Historical Highlight

"All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments every bit on other Bills."
— U.S. Constitution, Commodity I, section seven, clause 1

"No Money shall be fatigued from the Treasury, but in Consequence of Appropriations made by Constabulary; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time."
— U.S. Constitution, Article I, section nine, clause vii

/tiles/non-drove/i/i_origins_power_purse_approps_lc.xml Image courtesy of the Library of Congress The House Appropriations Committee in 1918 featuring (from left to right) future Secretary of State James F. Byrnes of Due south Carolina, former Speaker Joseph Cannon of Illinois, Chairman J. Swagar Sherley of Kentucky, time to come Speaker Frederick Gillett of Massachusetts, hereafter Secretarial assistant of War James West. Skillful of Iowa, and future Speaker Joseph Byrns of Tennessee.

Congress—and in item, the House of Representatives—is invested with the "power of the purse," the power to tax and spend public money for the national regime. Massachusetts' Elbridge Gerry said at the Federal Constitutional Convention that the Business firm "was more immediately the representatives of the people, and it was a maxim that the people ought to hold the purse-strings."

Origins

English language history heavily influenced the Constitutional framers. The British House of Commons has the exclusive right to create taxes and spend that revenue, which is considered the ultimate check on royal authority. Indeed, the American colonists' weep of "No taxation without representation!" referred to the injustice of London imposing taxes on them without the benefit of a voice in Parliament.

Constitutional Framing

Debate at the Constitutional Convention centered on 2 bug. The showtime was to ensure that the executive would not spend money without congressional authorization. The 2d concerned the roles the House and Senate would play in setting fiscal policy.

At the Convention, the framers considered the extent to which the Senate—similar the Business firm of Lords—should be limited in its consideration of upkeep bills. The provision was part of a compromise betwixt the large and small states. Smaller states, which would be over-represented in the Senate, would concede the power to originate money bills to the Business firm, where states with larger populations would have greater control. Speaking in favor of the provision, Benjamin Franklin of Pennsylvania said, "It was a maxim that those who feel, tin best judge. This stop would . . . be best attained, if money affairs were to be confined to the firsthand representatives of the people." The provision in the committee'south written report to the Convention was adopted, 5 to iii, with three states divided on the question. The Convention reconsidered the affair over the grade of two months, merely the provision was finally adopted, nine to two, in September 1787.

The ramble provision making Congress the ultimate authority on government spending passed with far less debate. The framers were unanimous that Congress, as the representatives of the people, should be in control of public funds—not the President or executive branch agencies. This strongly-held belief was rooted in the framers' experiences with England, where the king had broad latitude over spending one time the money had been raised.

The Early Appropriations Procedure

The Kickoff Congress (1789–1791) passed the first appropriations deed—a mere thirteen lines long—a few months after it convened. The law funded the authorities, including important pensions for Revolutionary War veterans, with just $639,000—an amount in the tens of millions in real terms. This uncomplicated process was brusk-lived. Over fourth dimension, nine regular appropriation bills emerged and funded such priorities as pensions, harbors, the post office, and the military. These were considered on an annual basis by the late 1850s. The House Committee on Ways and Means, which too had jurisdiction over taxation policy, controlled the appropriations process. But legislation and funding were always kept dissever. Priorities were spelled out in 1 law and money appropriated for those priorities in some other. This has remained the practice, every bit substantive committees design authority acts and the House and Senate Appropriation Committees fund authorized programs later. Indeed, there are laws and parliamentary rules against making new law in appropriation bills, although such rules are periodically waived.

Subsequent Reforms

In 1865, after the Civil War had created a well-nigh $3 billion national debt and spending exceeded a billion dollars a year, Congress reformed its funding procedure to handle the government's new demands. The House separated the Ways and Ways Committee's taxing and spending functions. The Appropriations Commission was established to fund programs, while Ways and Means retained jurisdiction on tax policy. Firm leadership and other committees also tried to influence the appropriations process, and the lack of coordination over the years led to high deficits and the implementation of the federal income tax in 1913. Congress passed the Budget and Bookkeeping Act in 1921 to address some of the coordination problems it faced funding government programs. This constabulary centralized many of the budgeting functions with the President, who nonetheless has considerable agenda-setting power with the federal budget and submits a draft budget to Congress at the beginning of every twelvemonth. The appropriations process has been reformed multiple times since 1921, including notable restructurings with the Congressional Budget and Impoundment Command Act of 1974 and the Gramm–Rudman–Hollings Acts of 1985 and 1987.

For Further Reading

Farrand, Max, ed. The Records of the Federal Convention of 1787. Rev. ed. 4 vols. (New Haven and London: Yale University Press, 1937).

Garfield, James. "National Appropriations and Misappropriations," North American Review, 270: 572–586.

Kiewiet, D. Roderick and Mathew D. McCubbins. The Logic of Delegation: Congressional Parties and the Appropriations Process. (Chicago: The University of Chicago Printing, 1991).

Kimmel, Lewis. Federal Budget and Fiscal Policy, 1789–1958. (Washington, D.C.: Brookings Establishment, 1959).

Leloup, Lance. The Fiscal Congress. (Westport, CT: Greenwood, 1980).

Schick, Allen. Congress and Coin: Budgeting, Spending and Taxing. (Washington, D.C.: The Urban Institute, 1980).

—. The Federal Budget: Politics, Policy, Process. (Washington, D.C.: Brookings Institution, 2000).

Selko, Daniel. The Federal Financial System. (Washington, D.C.: Brookings Institution, 1940).

Stewart, Charles H., III. Budget Reform Politics: The Blueprint of the Appropriations Process in the House of Representatives, 1865–1921. (New York: Cambridge University Press, 1989).

Wildavsky, Aaron B. Budgeting and Governing. (Piscataway, NJ: Transaction Publishers, 2006).

—. The New Politics of the Budgetary Process. fifth ed. (New York: Longman, 2003).

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Source: https://history.house.gov/institution/origins-development/power-of-the-purse/

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