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In Defense of the Real Bills Doctrine


  • Per Hortlund


For over seventy years, the question of what caused the Great Depression in the United States (1929–1933) has been one of the most debated economic issues. Since Friedman and Schwartz (1963), the cause has prominently been attributed to monetary mismanagement by the Fed, which let the money stock contract and thus failed to act as a lender of last resort. Recently, some authors have seen this contraction as a necessary consequence of the gold standard, which “fettered†the Fed’s hands making it unable to respond to increased currency demands (Bernanke 1993, Eichengreen 1992 and 2002, Temin 1989 and 1994, Wheelock 1992). In the previous issue of Econ Journal Watch, Richard Timberlake takes issue with this view. In my judgment, Timberlake successfully argues against “golden fetters†and exonerates the gold standard. But there is a secondary aspect of Timberlakes’s article. Timberlake blames the Great Contraction on the Fed’s adherence to the so-called Real Bills Doctrine.

Suggested Citation

  • Per Hortlund, 2006. "In Defense of the Real Bills Doctrine," Econ Journal Watch, Econ Journal Watch, vol. 3(1), pages 73-87, January.
  • Handle: RePEc:ejw:journl:v:3:y:2006:i:1:p:73-87

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    1. repec:ucp:bkecon:9780226519999 is not listed on IDEAS
    2. Michael D. Bordeo and Anna J. Schwartz, 1995. "The Performance and Stability of Banking Systems under "Self-Regulation": Theory and Evidence," Cato Journal, Cato Journal, Cato Institute, vol. 14(3), pages 453-479, Winter.
    3. Eichengreen, Barry, 1996. "Golden Fetters: The Gold Standard and the Great Depression, 1919-1939," OUP Catalogue, Oxford University Press, number 9780195101133.
    4. David C. Wheelock, 1992. "Monetary policy in the Great Depression: what the Fed did and why," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 3-28.
    5. Barry Eichengreen, 2002. "Still Fettered After All These Years," NBER Working Papers 9276, National Bureau of Economic Research, Inc.
    6. Selgin, George A. & White, Lawrence H., 1994. "Monetary Reform and the Redemption of National Bank Notes, 1863–1913," Business History Review, Cambridge University Press, vol. 68(02), pages 205-243, June.
    7. Richard H. Timberlake, 2005. "Gold Standards and the Real Bills Doctrine in U.S. Monetary Policy," Econ Journal Watch, Econ Journal Watch, vol. 2(2), pages 196-233, August.
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    Cited by:

    1. Richard H. Timberlake, 2006. "Reply to Hortlund's "Defense of the Real Bills Doctrine"," Econ Journal Watch, Econ Journal Watch, vol. 3(2), pages 393-397, May.

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