Money and the Rule of Law
Generality and Predictability in Monetary Institutions

A novel argument that shows how rules work better than discretion when implementing monetary policy.

Peter J. Boettke (Author), Alexander William Salter (Author), Daniel J. Smith (Author)

9781108479844, Cambridge University Press

Hardback, published 3 June 2021

256 pages
23.5 x 15.7 x 1.5 cm, 0.43 kg

'With inflation on the rise, political tensions on high, and congressional dysfunction in Washington, DC, what should we expect from our central bankers and monetary institutions? How can we get monetary policies that will benefit the economy? A new book tackles these questions with vivid historical examples and surprisingly uncommon 'commonsense' economics. Money and the Rule of Law by Peter Boettke, Alexander Salter and Daniel Smith discusses the difficulties of central banking, especially when decisions are made according to subjective discretion rather than stable, predictable rules.' Thomas L. Hogan, Discourse (Business & Economics)

Contemporary monetary institutions are flawed at a foundational level. The reigning paradigm in monetary policy holds up constrained discretion as the preferred operating framework for central banks. But no matter how smart or well-intentioned are central bankers, discretionary policy contains information and incentive problems that make macroeconomic stability systematically unlikely. Furthermore, central bank discretion implicitly violates the basic jurisprudential norms of liberal democracy. Drawing on a wide body of scholarship, this volume presents a novel argument in favor of embedding monetary institutions into a rule of law framework. The authors argue for general, predictable rules to provide a sturdier foundation for economic growth and prosperity. A rule of law approach to monetary policy would remedy the flaws that resulted in misguided monetary responses to the 2007-8 financial crisis and the COVID-19 pandemic. Understanding the case for true monetary rules is the first step toward creating more stable monetary institutions.

Preface
1. Introduction
2. Knowledge problems with discretionary monetary policy
3. Incentive problems with discretionary central banking
4. When firefighters are arsonists
5. On the shoulders of giants: monetary policy insights of the classically liberl Nobel Laurates
6. Money and the rule of law
7. Conclusion: money and liberalism in the 21st century.

Subject Areas: Political economy [KCP], Monetary economics [KCBM], Macroeconomics [KCB], Economics, finance, business & management [K]