Each of the five books discussed in this essay deals with what Jeanna Smialek calls the “modern era” of American central banking, wherein the Federal Reserve became the country’s preeminent macroeconomic policy institution, charged by law with working to maintain “maximum employment but also slow and stable inflation” as Smialek puts it. More precisely, in the language of the 1978 Humphrey-Hawkins Act: “full employment… balanced growth… and reasonable price stability.”

Only one of the five is by a participant in the forging of the Fed’s modern era, and that is a brief treatment in a personal memoir by Jane D’Arista. D’Arista describes the long campaign for central bank accountability – “Patman’s chess game,” his staff called it – waged by Rep. Wright Patman (D-TX), chair of the House Banking and Currency Committee, and his successor from 1975 to 1980, Rep. Henry Reuss (D-WI). Reuss capitalized on reformist sentiment following the 1974 Watergate election to advance House Concurrent Resolution 133, requiring quarterly appearances by the Chair of the Federal Reserve Board – Arthur Burns at the time – before the Banking Committees of the House and Senate, and specifying (more-or-less) precise questions for that testimony to address. It was from the practice of these hearings, refined over several years, that the statutory language of section 108 of the Humphrey-Hawkins Act, dealing with monetary policy, emerged.

In their important 2017 book, Sarah Binder and Mark Spindel give the best account I’ve seen of the history of congressional oversight of the Federal Reserve. They make the indisputable point that under the Constitution, Congress carries the ultimate burden of specifying monetary policy and thus authority over the central bank. This legal reality stems from the fact that the Federal Reserve is a creation (and a “creature”) of Congress, a statutory body as the executive and judiciary are not. The design of the Federal Reserve, with its twelve regional banks spread across the country according to the developmental patterns of the Railroad Age, was a congressional confection. It was intended, as Robert Hockett shows in his massive inquiry into original purposes, as a bulwark of decentralized industrial and commercial finance for economic development and common prosperity. Thus the Federal Reserve has been “under Congress” from the beginning, and Congress has shaped and reshaped the Federal Reserve periodically since 1913. The Fed depends on Congress in a way that (say) the European Central Bank does not depend on the European Parliament.

But this reality elides a parallel reality, which is that the Federal Reserve’s leadership has only sometimes acknowledged the constitutional and legal position. Before 1975 Burns and his predecessors largely disdained Congress (and enjoyed important congressional support in so doing). After the early 1980s, the Fed’s leadership under Alan Greenspan turned “congressional oversight” to their advantage, making the regular hearings into a stage set for monetary dicta. As Leah Downey relates, in the 2000s, under Ben Bernanke, the Fed set out to rewrite the congressional mandate by elastic use of language, to suit the macro-theoretic fashions of that moment. Congressional oversight requires overseers with confidence and competence, and these are historically exceptional. Hence the Patman-Reuss era takes on a special significance, all the more so in view of the fact that the institutional framework they put in place has now endured for fifty years.

Before H.Con.Res. 133 the Federal Reserve had few fixed duties to Congress. It fell only loosely under the Employment Act of 1945, and had been freed of direct obligation to support the price of Treasury bonds by the “Accord” of 1951, which had (as Binder and Spindel report) the strong back-channel backing of the Senate’s then-leading (and perhaps only) economist, Senator Paul Douglas (D-IL), chair of the Joint Economic Committee and a man whose name still haunts students via the infamous “Cobb-Douglas production function.” Practically the only bearing of Congress on Fed operations was through the appointment power, restricted to the Senate and applying only to the seven governors of the Federal Reserve Board, not to the twelve Presidents of the regional Fed banks. Once confirmed, Fed officers needed have little further contact with Congress unless they wanted new legislation (or to oppose some congressional initiative), and apart from that, the House had no leverage to speak of. For this reason, Patman had resolutely pursued his goals of making the Fed subject to audit and placing it under the budget, but without success. H.Con. Res.133, and its inauguration of regular hearings to evaluate specified macro- and monetary objectives, was therefore a substantial step in the right direction.

James K. Galbraith, The Origins of the Modern Era of the Federal Reserve, Institute for New Economic Thinking (Jan. 13, 2025), available here.