From George Polya’s classic How to Solve It (p. 148).
To apply a rule to the letter, rigidly, unquestioningly, in cases where it fits and cases where it does not fit, is pedantry. Some pedants are poor fools; they never did understand the rule which they apply so conscientiously and so indiscriminately. Some pedants are quite successful; they understood their rule, at least in the beginning (before they became pedants), and chose a good one that fits in many cases and fails only occasionally.
To apply a rule with natural ease, with judgment, noticing the cases where it fits, and without ever letting the words of the rule obscure the purpose of the action or the opportunities of the situation, is mastery.
Polya, of course, was distinguishing between pedantry and mastery in applying rules for problem solving, but his distinction can be applied more generally: a distinction between following rules using judgment (aka discretion) and following rules mechanically without exercising judgment (i.e., without using discretion). Following rules by rote need not be dangerous when circumstances are more or less those envisioned when the rules were originally articulated, but, when unforeseen circumstances arise, making the rule unsuitable to the new circumstances, following rules mindlessly can lead to really bad outcomes.
In the real world, the rules that we live by have to be revised and reinterpreted constantly in the light of experience and of new circumstances and changing values. Rules are supposed to conform to deeper principles, but the specific rules that we try to articulate to guide our actions are in need of periodic revision and adjustment to changing circumstances.
In deciding cases, judges change the legal rules that they apply by recognizing subtle — and relevant — distinctions that need to be taken into account in rendering decisions. They do adjust rules willfully and arbitrarily. Instead, relying on deeper principles of justice and humanity, they adjust or bend the rules to temper the injustices that would from a mechanical and unthinking application of the rules. By exercising judgment — in other words, by doing what judges are supposed to do — they uphold, rather than subvert, the rule of law in the process of modifying the existing rules. The modern fetish for depriving judges of the discretion to exercise judgment in rendering decisions is antithetical to the concept of the rule of law.
A similar fetish for rules-based monetary policy, i.e., a monetary system requiring the monetary authority to mechanically follow some numerical rule, is an equally outlandish misapplication of the idea that law is nothing more than a system of rules and that judges should do more than select the relevant rule to be applied and render a decision based on that rule without considering whether the decision is consistent with the deeper underlying principles of justice on which the legal system as a whole is based.
Because judges exercise coercive power over the lives and property of individuals, the rule of law requires their decisions to be justified in terms of the explicit rules and implicit and explicit principles of the legal system judges apply. And litigants have a right to appeal judgments rendered if they can argue that the judge misapplied the relevant legal rules. Having no coercive power over the lives or property of individuals, the monetary authority need not be bound by the kind of legal constraints to which judges are subject in rendering decisions that directly affect the lives and property of individuals.
The apotheosis of the fetish for blindly following rules in monetary policy was the ideal expressed by Henry Simons in his famous essay “Rules versus Authorities in Monetary Policy” in which he pleaded for a monetary rule that “would work mechanically, with the chips falling where they may. We need to design and establish a system good enough so that, hereafter, we may hold to it unrationally — on faith — as a religion, if you please.”
However, Simons, recovering from this momentary lapse into irrationality, quickly conceded that his plea for a monetary system good enough to be held on faith was impractical, abandoning it in favor of the more modest goal of stabilizing the price level. However, Simons’s student Milton Friedman, surpassed his teacher in pedantry, invented what came to be known as his k-percent rule, under which the Federal Reserve was to be required to make the total quantity of money in the economy increase continuously at an annual rate of growth equal to k percent. Friedman actually believed that his rule could be implemented by a computer, so that he confidently — and foolishly — recommended abolishing the Fed.
Eventually, after erroneously forecasting the return of double-digit inflation for nearly two decades, Friedman, a fervent ideologue but also a superb empirical economist, reluctantly allowed his ideological predispositions to give way in the face of contradictory empirical evidence and abandoned his k-percent rule. That was a good, if long overdue, call on Friedman’s part, and it should serve as a lesson and a warning to advocates of imposing overly rigid rules on the monetary authorities.