“For much of monetary history, inflation targeting was unnecessary. 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. Today (since 1971) the commitments are gone, and a substitute is needed.
Inflation targeting has been much discussed in recent years as a proposal for constraining the Federal Reserve’s monetary policymaking. As proposed constaints on central banking go, it is relatively weak. Inflation targeting doesn’t abolish the central bank, and—at least in the well-known version recommended by Bernanke et al. (1999)—doesn’t even fasten a strict rule on it.”
Lawrence H. White (2007)
What Type of Inflation Target?
Cato Journal, Vol. 27, No. 2 (Spring/Summer 2007)