Politics and the Federal Reserve

US monetary policy, set by the Federal Reserve (Fed) which is directed and staffed by professional economists with almost unlimited access to economic data, has not conformed to the expectations of any of the economists' favored alternatives. Critics assume that the policies of the Fed are responses to its perceptions of the movements of economic supply and demand and designed to maximize well-being of the private economy. This view of the Fed as essentially an economic policy body is in error. An analysis of the Fed and its policies and the results it has achieved leads to a number of reform proposals. However, most reformers do not take into account the political character of money management. Political obstacles to reform are profound. If basic change is to occur in US monetary policy, fundamental questions of politics must first be addressed, for the political arena is the only area from which basic change can emanate. The US must prepare itself to establish a genuine economic money system that will serve the public interest and not be divorced from the character of its politics. The money system cannot be separated from national politics.