Most discussions, and especially justifications, of central bank independence are expressed entirely in the language of economics. I wrote Unelected Power partly because I think that is not remotely sufficient for finding a proper place for these institutions in healthy constitutional democracies.1 At a high level, this goes to a methodological feature of economics, which proceeds by identifying a social welfare problem of some kind and works out how a benign social planner would cure the problem efficiently. All government functions are in the hands of the benign social planner, subject only to whether delegation can help to overcome any problems in credibly committing to the socially optimal plan.2 By contrast, the starting point for much political and constitutional theory is that the greatest threat to the people’s well‐being is the possibility of arbitrary or oppressive government by an all‐powerful unitary sovereign. The values of the rule of law and of constitutionalism, including in particular the separation of powers, are directed at keeping those problems at bay. In summary, one discipline, economics, positing a benign sovereign, sets out to achieve a flourishing society in which well‐being is maximized (by the lights of its particular social welfare function), while the other, political and constitutional theory, alert to the possibility of a malign sovereign, aims to avoid tyranny. This tension bears on central banking to the extent that its powers and mandate risk creating an overmighty citizen beyond the checks and balances inherent in a decent constitutional order.
This point has not been entirely lost on economists. As Chicago’s Henry Simons put it in the 1930s: “[Delegation] to administrative authorities with substantial discretionary power … must be invoked sparingly … if democratic institutions are to be preserved; and it is utterly inappropriate in the money field” (Simons 1936: 2–3). As it happens, I am going to depart somewhat from Simons, for reasons that run fairly deep, but he certainly raised serious points about the framing and constraining of a polity’s monetary power. This is about legitimacy.
The legitimacy of institutions matters greatly because it is what holds things together when, inevitably in any field, public policy occasionally fails badly. While performance matters hugely, because welfare matters, it would be foolhardy to rely solely on continuously satisfactory outturns underpinning legitimacy. To be accepted as legitimate, a government institution’s design and operation (in their broadest senses) must comport with a political society’s deepest political values. For constitutional democracies, those include the values of democracy, constitutionalism (including, importantly, the separation of powers), and of the rule of law. Although this article will focus on the third of those, I will consider constitutionalism and democracy as well.3