The discussion in most of this book assumes that there is general agreement about the need for a governmental agency to perform the functions of the Federal Reserve. However, this has not always been the case. There is a rich history of efforts to address the questions identified in Chapter 1 as central to monetary politics: Who should be the Federal Reserve's superior? Is the Federal Reserve's policy correct? This chapter provides a selective overview of the history of the System prior to the 1960s, including the development of the idea of the Federal Reserve and how it was countered.

The Federal Reserve System was designed in response to the inadequacies of the American financial structure in the late nineteenth century. These inadequacies repeatedly threatened the smooth functioning of the emerging mature capitalist order. Although the precise institutional structure of the Federal Reserve System was influenced by many short-term political factors, it is valuable in studying the contemporary System to recognize that the origins of the Federal Reserve lie in the failures of a maturing capitalist financial order and in the efforts of important groups to reform and stabilize that system.

Following those successful reform efforts, there were conflicts about the internal organization of the Federal Reserve System and important alterations in its relationship to the president.