Money and the rule of law

Abstract

Contemporary monetary systems permit those in positions of authority to exercise discretionary power in the pursuit of monetary policy objectives. We argue there are strong prima facie reasons why this is normatively problematic. Engaging the literature on the rule of law, we argue that a general and nondiscriminatory rule ought to apply to monetary institutions for the same reasons such a rule ought to apply to other important institutions. We recognize that this prima facie case may be overcome by sufficiently strong consequentialist concerns, but show that these concerns are ungrounded: discretionary monetary authorities, both in theory and practice, perform poorly. We thus affirm the importance of the rule of law for monetary policy as a requisite for both non-arbitrary governance and macroeconomic stability.