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)

9781108790840, Cambridge University Press

Paperback / softback, published 3 June 2021

212 pages
23 x 15 x 1.3 cm, 0.31 kg

'Money and the Rule of Law is a welcome contribution to the intellectual road and research agenda at the intersection of political economy, banking theory, and monetary institutions.' Pablo Paniagua, Constitutional Political Economy

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]