tl;dr: the trendlines on the ‘power of the purse’ are disturbing. Yet, they follow a pattern.
There was an opinion piece in the Wall Street Journal on August 13th by Greg Ip called “Presidency’s Fiscal Power Keeps Growing.”
It had a different title and a more anti-Trump leaning in the online edition vs. the paper edition, but the point was the same. The “checks and balances” of the US government, as enunciated in Congress’ “Power of the Purse,” is eroding as Presidents assume more and more control over budget allocation.
Mind you, this isn’t just a Trump thing. Obama did the same thing. Trump has just accelerated it. So, I don’t want to get political and I’m not going to.
The major point is that the power to decide where money from the US Treasury goes is centralizing. Ip writes:
“Article 1, Section 9 of the U.S. Constitution:
“No money shall be drawn from the Treasury but in consequence of appropriations made by law.” In the Federalist Papers, James Madison described the “power over the purse…as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people.”
Yet over the succeeding centuries, Congress had little choice but to cede some control to the president.
The article then goes on to explain exactly how this has occurred, with a growing administrative state that is accountable to the President.
It was a bit ironic for me as I’ve been in a mini binge on the West Wing and just watched the episode “Shutdown,” which attacks the same issue.
Power of the Purse
About 10 years ago, I took my kids out to Montpelier, the Virginia plantation/estate that Madison owned and, during the winter of 1786-87, he locked himself in a room to write the Constitution.
Standing in that room, I felt a profound sense of history and appreciation. The US Constitution is one of the great documents of all time and I was in the “room where it happened.”
So, with a nod to Madison for his genius (and despite the fact that he owned slaves), I’ll say that this line of his was the one that really resonated:
“the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people.”
When you think about it, it makes sense, as it’s a play on the Golden Rule.
“He who has the gold, makes the rules.”
In some respects, this type of gravitational pull toward the center is not really suprising. After all, it has happened hundreds of times before throughout history.
“As deeply as any contemporary John Law both recognized and demonstrated that money didn’t have to be real. . . . Gold or silver did not possess some unique property that gave them significance—value—beyond what the market said it had.”
Because people are, well, people, and emotional, it’s difficult to resist pressures to cede control or take control when there are alternating power structures. It’s also difficult to resist the urge to create money out of thin air.
“As there was no check on the expansion of new money, Law issued it by the job lot”
Protecting the Power of the Purse
By further decentralizing the power of the purse away to the actual members of the community (imagine every American having the right to vote on a budget issue), the technology and voting rules, as well as the value of the core asset, helps to protect asset owners from these centralizing trends and hence, debasement of the money, as well as authority over where money should be spent (less pork, as it were).
Today, DAOs are really small, but they are growing
One of the key components of the value proposition for DAOs is protection against the erosion of the power of the purse from representatives to centralized actors.
The key difference is that in DAOs, it’s scalable, anonymous, and, if you ever don’t like what is going on, you can opt out, taking your money with you.
This last part, the ability to cash in your chips, is the final check/balance in crypto-economies.
If you don’t like what Trump or Congress are doing, there’s not much you can do to opt out (save leaving the country and giving up on USD entirely).
In crypto, that’s not the case.
Ultimately, the fact that “crypto Congresses” are less likely to cede their power of the purse combined with the ability to opt out at any time means that the value of the asset is likely to hold for longer periods of time.
Consequently, investors and entrepreneurs will gravitate towards economies that afford this protection.
By offering better assurances that the Power of the Purse stays with the citizens, decentralized communities, owned, operated, and managed by token holders, will attract more capital and growth.
While the Power of the Purse may go to the President, eventually, the Purse will just get smaller. More money may get printed, but the purchasing power of that purse will dwindle.
The image is exaggerated, but not by much.