Rules versus discretion in monetary policy historically contemplated

Monetary-policy rules arise when the value of a medium of exchange exceeds its cost of production. Two classes of monetary rules can be identified: (1) price rules that target the value of money in terms of a real commodity, e.g., gold, or in terms of an index of prices, and (2) quantity rules that target the quantity of a money aggregate. Historically, price rules, e.g., the gold standard, have predominated, but the Bank Charter Act of 1844 imposed a quantity rule as an adjunct to the gold standard, because the gold standard had performed unsatisfactorily after being restored in Britain in 1821. This chapter considers the historical development of different versions of quantity and price rules and the reasons why rules of either type have been found wanting.