Arnold proposed this method of evaluation as a corrective for what he called the "fallacious" estimates of poems according to their "historic" importance in the development of literature, or else according to their "personal" appeal to an individual critic.
[1] A touchstone is a small tablet of dark stone such as fieldstone, slate, or lydite, used for assaying precious metal alloys.
[2] An example in literature is the character of Touchstone in Shakespeare's As You Like It, described as "a wise fool who acts as a kind of guide or point of reference throughout the play, putting everyone, including himself, to the comic test".
[3] A touchstone can be a short passage from recognized masters' works used in assessing the relative merit of poetry and literature.
This sense of the term was coined by Matthew Arnold in his essay "The Study of Poetry", where he gives Hamlet's dying words to Horatio as an example of a touchstone.