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The real bills doctrine vs. the quantity theory: a reconsideration

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Author Info
Thomas J. Sargent
Neil Wallace

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Abstract

On our interpretation, real bills advocates favor unfettered intermediation, while their critics, who we call quantity theorists, favor legal restrictions on intermediation geared to separate “money” from “credit.” We display examples of economies in which quantity-theory assertions about “money-supply” and price-level behavior under the real bills regime are valid. In particular, both the price level and an asset total that quantity theorists would identify as money fluctuate more under a real bills regime than under a regime with restrictions like those favored by quantity theorists. Despite this, the Pareto criterion does not support the quantity-theory position.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 64.

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Date of creation: 1981
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Handle: RePEc:fip:fedmsr:64

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. John Bryant & Neil Wallace, 1980. "A suggestion for further simplifying the theory of money," Staff Report 62, Federal Reserve Bank of Minneapolis. [Downloadable!]
  2. Kareken, John & Wallace, Neil, 1977. "Portfolio autarky: A welfare analysis," Journal of International Economics, Elsevier, vol. 7(1), pages 19-43, February. [Downloadable!] (restricted)
  3. Wallace, Neil, 1981. "A Modigliani-Miller Theorem for Open-Market Operations," American Economic Review, American Economic Association, vol. 71(3), pages 267-74, June. [Downloadable!] (restricted)
  4. Bryant, John & Wallace, Neil, 1979. "The Inefficiency of Interest-bearing National Debt," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 365-81, April. [Downloadable!] (restricted)
  5. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467. [Downloadable!] (restricted)
  6. Heller, Walter Perrin & Starr, Ross M, 1976. "Equilibrium with Non-convex Transactions Costs: Monetary and Non-monetary Economies," Review of Economic Studies, Blackwell Publishing, vol. 43(2), pages 195-215, June. [Downloadable!] (restricted)
  7. Martins, Marco Antonia Campos, 1980. "A Nominal Theory of the Nominal Rate of Interest and the Price Level," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 174-85, February. [Downloadable!] (restricted)
  8. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December. [Downloadable!] (restricted)
  9. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January. [Downloadable!] (restricted)
  10. James Tobin, 1963. "Commercial Banks as Creators of 'Money'," Cowles Foundation Discussion Papers 159, Cowles Foundation, Yale University. [Downloadable!]
  11. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Oxford University Press, vol. 18(2), pages 203-20, April.
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  1. David Folkerts-Landau & Peter M. Garber, 1992. "The European Central Bank: A Bank or a Monetary Policy Rule," NBER Working Papers 4016, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Stanley Fischer, 1983. "A Framework for Monetary and Banking Analysis," NBER Working Papers 0936, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Sanford J. Grossman & Laurence Weiss, 1984. "A Transactions Based Model of the Monetary Transmission Mechanism: Part 1," NBER Working Papers 0973, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Jonathan Eaton, 1987. "Lending with Costly Enforcement of Repayment and Potential Fraud," NBER Working Papers 1697, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Marco Espinosa-Vega & Steven Russell, 1999. "A public finance analysis of multiple reserve requirements," Working Paper 99-19, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
  6. Thomas J. Sargent & Neil Wallace, 1983. "A model of commodity money," Staff Report 85, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  7. Thomas J. Sargent, 1982. "Beyond demand and supply curves in macroeconomics," Staff Report 77, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
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