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Current formal theories of the general policy-making process are utilized to construct an explanatory framework that identifies the mechanisms through which congressional and executive influence is exercised. The theoretical framework presented in the text also helps to explain the political dynamics of several of the most significant policy decisions of the Federal Reserve during the last half-century. In addition, this book provides a unique perspective on the manner in which Fed policymakers attempt to shield themselves from unwelcome political influence.
While the main focus of Congress, the President, and the Federal Reserve is monetary policy-making, it also speaks to the political nature of policy-making in a more general sense and provides a guide for the future study of the political dynamics in a wide variety of substantive policy areas. Thus it will interest not only political scientists and economists interested in monetary policy-making specifically but also those interested in the nature of public policy-making more generally.
Irwin L. Morris is Assistant Professor of Political Science, University of Maryland.
The Federal Reserve System is perhaps the most controversial nonelected element of the government of the United States. Journalists and voters vilify it, Congress and the President seek to dominate it, and scholars argue about it. (Munger and Roberts 1990, 83)Among federal bureaucracies, the Federal Reserve (or Fed) is at least first among equals. Though it is neither the oldest nor the largest federal agency, it has a greater impact on the course of everyday economic life than does any other bureaucracy or regulatory agency. Although the Fed has a number of important duties--acting as a clearinghouse for commercial banks, regulating certain banking activities, and printing and issuing currency--the Fed's most important responsibility is the conduct of monetary policy (the manipulation of the quantity of money in circulation). This responsibility also provides the Fed with the power to influence the national and international economy. As Newton wrote, "In America one institution, more than any other, controls the movement of money, prices, and the economy. That institution is America's central bank, the Federal Reserve" (1983, 10). In reality, "No one can afford to ignore the Fed" (Beckner 1997, ix).
The Fed thus occupies a unique place in American government: a public board supervising quasi-private reserve banks, a board free from congressional appropriations and Presidential oversight, a board composed of officials exercising Congress's monetary powers yet possessing great autonomy and broad flexibility. (1986, 4)According to one of the Fed's most virulent opponents, Wright Patman, former chair of the House Banking Committee, "A slight acquaintance with American constitutional theory and practice demonstrates that . . . the Federal Reserve is a pretty queer duck" (Greider 1987, 49-50). In short, it is widely considered the most politically independent federal agency.
Because of the importance of the Fed in shaping monetary and overall economic policy, it is a powerful weapon. If political actors could gain control of it and learn how to use it effectively, there is little question that the executive, the Congress, and the other external actors could better their own lot by providing useful service to grateful constituents. (1990, 83)Over the past 20 years, the study of the politics of monetary policy-making has become increasingly popular. Without exaggeration one can say that scholars have written hundreds of articles and books on the subject, and nearly all of this research focuses on the following general questions: First, what does the Fed do and why? And, given the answer to the first, should the design of institutions for making monetary policy be changed, and if so, how? (Alt 1991).
Excerpted from Congress, the President, and the Federal Reserve: the Politics of American Monetary Policy-Making by Irwin L. Morris Copyright © 2000 by Irwin L. Morris. Excerpted by permission.
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