Public policy is not self-generating; it emerges from institutions. Foremost among the institutions charged with monetary and credit policy formation—an area, like fiscal policy, that has not received from political scientists the attention accorded to micro-economic regulation of particular firms or industries—is the Federal Reserve System. The purpose of this paper is to examine the "fit" of the System's formal structure to (1) the policy functions and the informal policy-forming mechanisms of the "Fed," and (2) the pattern of interests and values affected by monetary policy. Its thesis is that a substantial gap has developed between these elements.
A brief sketch of the formal structure of authority and the historical development of System functions is needed to begin with; this is followed by analysis of the formal and the effective roles of each component of the System along with the internalized interest representation at each level. Then the linkage between the Federal Reserve System and general economic policy is explored. Finally, the conclusion summarizes the findings and suggests briefly how formal structure and policy functions might be brought into closer, more effective alignment.