In its first run, the Federal Reserve was actually two distinct parts. There were the twelve bank branches scattered throughout the country, each headed by almost always a banker of local character. Often opposed to them was the Board in DC.

In those early days the policy establishment in Washington had little active role. Monetary policy was itself a product of the branches, the Discount Rate, for example, often being different in each and every one. The intent of the Board was to coordinate rather than dictate.

It all changed in 1935 with the Banking Act. Somehow the Fed after making massive monetary mistakes for more than just the crash was given more authority. Politics is a powerful force, even for the otherwise “independent.” The Act formalized the Board’s role in centralizing monetary policy consistent with government consolidation everywhere else in the wake of the Great Depression.

Before then, there were seven members of the Federal Reserve Board with five appointed by the President and confirmed by the Senate. The other two were ex officiomembers, the Secretary of the Treasury and the Comptroller of the Currency.

On February 1, 1936, the Treasury Secretary’s and Comptroller’s roles in what was now called the Board of Governors of the Federal Reserve System simply expired. They were replaced by two additional Governors appointed by the President and confirmed by the Senate, each given a term of 14 years. The Banking Act also carved out the specific roles of Chairman and Vice Chairman, both for a four year term.

No Board member who completes a full 14 years may be re-appointed; only those who are brought in to fill an unexpired term may be. The Banking Act contemplated a central bank structure more like that of the judiciary, at least more so in independence and free from politics national as well as local. One of the main contemporary criticisms of the Federal Reserve in its branch affiliations was that it was too close to the banks.

It was this latter structure that over time turned away from banking and toward Economists. Arthur Burns was added to the Board as Chairman on January 31, 1970, remaining in that post until 1978 during the worst of the Great Inflation. Burns was an Economist trained where else but in the Ivy League (Columbia). He replaced the long serving (1951-1970) William McChesney Martin who before his term had made a career in bank examination (at the Fed, no less) and brokerage (at AG Edwards he became that firm’s rep at the NYSE).