What LawMicro Has to Teach LawMacro: An Exploration of the Rule of Law and Monetary Policy

23 Pages Posted: 9 Feb 2024 Last revised: 25 Mar 2024

See all articles by Peter J. Boettke

Peter J. Boettke

George Mason University - Department of Economics; Mercatus Center at George Mason University

Alexander William Salter

Texas Tech University - Rawls College of Business; American Institute for Economic Research

Daniel J. Smith

Middle Tennessee State University - Department of Economics and Finance; Middle Tennessee State University - Jennings A. Jones College of Business

Date Written: March 11, 2024

Abstract

Among LawMacro scholars, there is a growing interest in the incorporation of distributional goals into economic institutions and policies, especially central banks. We argue that this approach threatens to undermine the rule of law in monetary policy. This is troubling because the rule of law is necessary for maintaining monetary generality and predictability. Recent macroeconomic failures, such as the Financial Crisis and the inflation following the COVID-19 pandemic, highlight the economic consequences of a lawless central bank. Unconstrained and discretionary central banking are only weakly democratically accountable, which raises legitimacy concerns with their pursuit of broader social agendas without explicit statutory authorization. We make the case for strengthening the rule of law to promote monetary generality and predictability and to better ensure democratic accountability.

Keywords: Federal Reserve, inflation, LawMacro, LawMicro, monetary policy, monetary rules, rules vs. discretion, rule of law

JEL Classification: E58, E6, K00

Suggested Citation

Boettke, Peter J. and Boettke, Peter J. and Salter, Alexander William and Smith, Daniel J., What LawMicro Has to Teach LawMacro: An Exploration of the Rule of Law and Monetary Policy (March 11, 2024). GMU Working Paper in Economics No. 24-02, Available at SSRN: https://ssrn.com/abstract=4721380 or http://dx.doi.org/10.2139/ssrn.4721380

Peter J. Boettke

George Mason University - Department of Economics ( email )

4400 University Drive
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Mercatus Center at George Mason University ( email )

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Alexander William Salter (Contact Author)

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

HOME PAGE: http://awsalter.com

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

Daniel J. Smith

Middle Tennessee State University - Department of Economics and Finance ( email )

MTSU Box 190
1301 E. Main St.
Murfreesboro, TN 37132-0001
United States

HOME PAGE: http://www.danieljosephsmith.com/

Middle Tennessee State University - Jennings A. Jones College of Business ( email )

TN
United States

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