The Parable of the Praefectus
In the transition from Republic to Empire, Rome suffered from a familiar ailment: uncertainty.
The harvests were not especially bad, but rumors traveled faster than wagons. A ship delayed in Ostia became a story of famine by the time it reached the Forum. Bread prices flickered like nervous birds. The people did not starve, but they worried that they might.
The Praefectus Annonae was a real Roman office formalized under Augustus.
Its mandate covered grain imports (primarily from Egypt and North Africa), storage,
price stabilization, and distribution to Rome’s urban population.
Failure of the annona was not an economic issue—it was a regime-threatening event.
But as politics grew louder, the people noticed that the granaries mattered more than the Senate.
It was then that a new kind of Keeper was appointed. Let us call him Severus.
Severus was not a demagogue. He was a man of the establishment—wealthy, educated, and fluent in the ledgers of the merchant class. But unlike his predecessors, who viewed the granary as a math problem, Severus viewed it as an instrument of statecraft.
He agreed with what everyone whispered: the grain supply had become too critical to be left to blind arithmetic.
“Severus” is not a single historical figure but a composite of late-Republic and early-Imperial administrators
who blurred the boundary between technical offices and imperial discretion.
The parable tracks a real transition: logistics becoming an instrument of statecraft.
Merchants began to watch the palace more closely than the weather. Bakers adjusted prices not based on supply, but on rumors of the Emperor’s mood.
The grain still moved. The bread still baked. No famine came.
Yet the old magic was gone. Where once the people believed grain arrived because the system worked, they now believed it arrived because a powerful man willed it so. The “risk premium” of politics had entered the price of bread.
The Two Legitimatics
The parable is not really about grain. It is about the Federal Reserve, and specifically, the structural shift represented by the potential appointment of Kevin Warsh.
To understand the stakes, we must distinguish between the two ways an institution claims the right to exist.
- Type I Legitimacy (The High Priesthood): Legitimacy derived from esoteric process. “We have the right to decide because we possess a technical expertise you cannot understand, bound by rules you cannot manipulate.” This is the legitimacy of the nuclear physicist or the neurosurgeon. It relies on the “Black Box.”
- Type II Legitimacy (The Courtier): Legitimacy derived from alignment and outcome. “We have the right to decide because we are responsive to the needs of the nation and its elected leaders.” This is the legitimacy of the wartime general or the cabinet secretary. It relies on the “Open Door.”
This distinction loosely maps to Max Weber’s contrast between legal-rational authority (rule-bound, impersonal) and charismatic or patrimonial authority (personal, situational).
Central bank independence is a modern attempt to preserve the former under democratic pressure.
Under Chairs like Bernanke and Yellen, the Fed presented monetary policy as a physics problem. They spoke in “Fedspeak”—a Delphic dialect designed to sound like mathematical inevitability.
This was a “Strategy of the Crown.” By claiming their decisions were the output of DSGE models rather than human choices, they absolved themselves of political blame. The Senate cannot yell at an equation.
But the audience has grown bored. The models failed to predict the inflation of 2021. The “transitory” narrative collapsed. The Black Box has cracked.
The Anti-Accord
Enter Kevin Warsh.
It is factually incorrect to paint Warsh as an outsider barbarian. He is a Stanford-educated lawyer, a former Fed Governor, and a fixture of the Hoover Institution. He is not anti-technocrat. But he represents a distinct break from the academic priesthood.
Warsh is the Courtier. He speaks the language of markets and power, not the dialect of the faculty lounge. And his central proposition—the “Severus Moment”—is his call for a new relationship between the Fed and the Treasury.
Warsh has argued for a “new Treasury-Fed Accord.” To the casual observer, this sounds technical. To the historian, it is an ironic inversion.
The original Treasury-Fed Accord of 1951 was a divorce decree. It liberated the Fed from the Truman administration’s demand to keep interest rates low to fund war debt. It established the modern, independent central bank.
Warsh’s proposal is a wedding vow.
He argues that in an era of massive government debt, the Fed can no longer pretend to be single. He suggests the Fed and Treasury must coordinate on the plumbing of debt issuance and balance sheet management. He frames this as “sound government.”
But structurally, this moves the Fed from Type I (Independent Rules) to Type II (Coordinated Discretion).
The Mechanism of the “Inflation Premium”
Why does this matter? Why shouldn’t the two economic arms of the government talk to each other?
Here we must leave the metaphor and look at the math. The economic case for Type I independence rests on the Time Inconsistency Problem, famously formalized by Kydland and Prescott.
The problem is simple: Politicians always have an incentive to print money today to boost growth, promising to be responsible tomorrow. Because the market knows the politician has this incentive, the market discounts the promise. They expect inflation, so they raise prices immediately. You get the inflation without the growth.
An independent Fed solves this by functioning as a “commitment device.” It is Ulysses tying himself to the mast. Because the market believes the Fed is a robot that doesn’t care about elections, the market doesn’t price in “political risk.”
If Warsh implements a “coordinated” Fed, he unties Ulysses.
If the bond market believes the Fed Chair is coordinating with the White House to “optimize debt issuance” or “support growth,” the Term Premium on long-term bonds will rise.
The yield on a 10-year Treasury bond is roughly:
Estimates of the term premium are model-dependent, but it is highly sensitive to
inflation credibility and institutional trust.
When policy discretion increases—even rhetorically—long-duration assets reprice quickly.
The irony is that a “helpful” Fed might actually drive up borrowing costs. By trying to keep rates low for the President, the Courtier convinces the market that the currency is unsafe, causing long-term rates to spike.
The Priesthood is Dead
And yet, we must be fair to the Courtier. There is a strong argument that the Priesthood is already dead, and we are just waiting for the funeral.
We live in an era of Fiscal Dominance. US Debt-to-GDP is over 120%. Interest payments on the debt are becoming a massive line item in the federal budget.
In this environment, the idea that the Fed can ignore the Treasury is a fantasy. If the Fed raises rates too high, it could technically bankrupt the government. Therefore, the Fed is already constrained.
Warsh’s argument is that we should stop pretending. If the Fed refuses to coordinate, it risks a chaotic collision where Congress strips its independence entirely. The Courtier argues: “Better to coordinate voluntarily and influence the King, than to be beheaded by him later.”
By formalizing coordination, Warsh might argue he is actually saving the system from a worse fate: total politization by a populist Congress.
The Price of Clarity
The transition from a Priesthood to a Courtier is a shift from a System of Rules to a System of Men.
Kevin Warsh may be a man of immense virtue. He may intend to use his influence to enforce discipline. But institutions survive on the assumption that personnel doesn’t matter.
If the “New Accord” is signed, the “old magic” of the 1951 divorce vanishes. The grain will still arrive. The bread will still bake. We will not see hyperinflation overnight.
But everyone will know, with cynical clarity, that the price of money is set not by a neutral model, but by the needs of the State. And once the market learns that stability is a political choice rather than a structural guarantee, the cost of that stability goes up forever.