Legislative Branch Pressures on Monetary Policy: 1914–1991

Abstract

The history of Congressional involvement with monetary policy in this century has two distinct aspects. The first is Congress’ concern with the structure of the central bank, particularly whether it would be controlled by political appointees or by representatives of the financial sector, specifically the banking industry. The second aspect is the legislative branch’s concern with the management of monetary policy. While there is overlap between the two concerns,¹ Congressional focus on each is concentrated in two distinct time periods. Involvement with private sector versus political control occupied the Congressional consciousness for the first third of the century interrupted by Congressional dabblings in monetary policy management in 1921, 1926, 1928 and 1933. The control issue was resolved in favor of political appointees by the Banking Act of 1935. For the second half of the century, Congressional concern shifted to the management of monetary policy. This concern came into prominence with the emancipation of Federal Reserve monetary policy from Treasury control in the Accord of 1951, an event in which Congress played a pivotal role.

Congress built this system. The members of the Federal Reserve System did not build it. We placed these powers in your hands. Certainly we made a mistake when we did not direct your use of them.

— Representative James G. Strong of Kansas in 1932 U.S. House hearings.

Congress has committed certain business to the exclusive jurisdiction of that Board (of Governors) and this business it must perform under the responsibility of its trust and not by the direction of the President.

— Jurist Lucius Wilmerding in 1952 testimony before the Patman Committee.