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

Peter J. Boettke · Alexander William Salter · Daniel J. Smith

2021-06 · Cambridge University Press

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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.

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Peter J. Boettke is a University Professor of Economics and Philosophy at George Mason University, Director of the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics, and BB&T Professor for the Study of Capitalism at the Mercatus Center at George Mason University.

Alexander William Salter is an associate professor of economics in the Rawls College of Business at Texas Tech University and the Comparative Economics Research Fellow at TTU's Free Market Institute.

Daniel J. Smith is an associate professor of economics in the Jones College of Business at Middle Tennessee State University and the Director of the Political Economy Research Institute.