When the printer has no rules, the people pay the price

The National Review piece puts the matter plainly: pure unpredictable discretion is no way to operate an economy. I could not have said it better myself, and I spent enough years near a printing press to know what happens when the man running it answers to no discipline but his own judgment on a given Tuesday.

Paper money is not wicked in itself. I argued for it in Pennsylvania when coined silver was scarce and trade was strangled for want of a circulating medium. The colony issued paper notes, backed by land, and commerce loosened up almost immediately. The lesson I drew was not that paper is good or bad — it is a tool, like credit, like a bill of exchange. The question is always: what redeems it, and who enforces that redemption? A rule answers that question in advance, publicly, so the farmer and the shopkeeper can plan. Discretion answers it in secret, after the fact, when it is too late for planning.

The National Review lead implies that the current Federal Reserve operates with too much unanchored flexibility — making large consequential decisions by feel rather than by a committed, transparent framework. I have no firsthand knowledge of modern central-bank mechanics, so I mark what follows as inference rather than recollection: when the authority that issues money can change its guiding principle from meeting to meeting, every holder of that money bears an unpriced risk. The working household — the one with a savings account, a fixed-rate mortgage, a small payroll to meet — cannot hedge that risk the way a large bank can. The cost falls downward, as such costs have a habit of doing.

The historical record I do know is suggestive. Colonial Massachusetts issued paper without discipline and watched it sink. Pennsylvania issued paper under land-security rules and kept it reasonably stable for decades. The difference was not the paper; it was the binding rule. A rule is a promise made in advance to people who cannot otherwise protect themselves against the promise-maker's future convenience.

I will add one caution against the opposite error. A rule rigidly applied in an emergency can do as much damage as no rule at all. The art is in designing a rule robust enough to discipline normal times while allowing a known, publicly debated escape valve for genuine crisis — and then being scrupulously honest with the public about when that valve has been opened and why. Secrecy is the enemy of sound money quite as much as profligacy is.

Counsel for the working household: You cannot fix monetary policy from your kitchen table, but you can refuse to be fully at its mercy. Keep a portion of your savings in instruments whose value does not depend entirely on the central bank's next mood — short maturities, diversified stores of value, as little idle cash as your safety requires and no more. The person who saves in many forms is less exposed to any single issuer's discretion. That is not a radical idea. It is just old-fashioned prudence, and it has never gone out of style.