What Type of Inflation Target‪?‬

For much of monetary history, inflation targeting was unnecessary. (1) There was no need to worry about constraining the central bank's inflationary proclivities because no central bank existed. The quantity of basic money was constrained by the mints' commitment to full-bodied gold and silver coinage (at least where the mint-owners lacked monopoly status or chose not to exploit that status through debasement). The quantity of bank-issued money was constrained by the commercial banks' commitment to gold- and silver-redeemability for banknotes and deposits. Together these commitments prevented excessive monetary expansion and thereby price inflation. (2) Today (since 1971) the commitments are gone, and a substitute is needed. Constraining Central-Bank Discretion