In Defense of the Real Bills Doctrine
For over seventy years, the question of what caused the Great Depression in the United States (1929â€“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 â€œfetteredâ€ the Fedâ€™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 â€œgolden fettersâ€ and exonerates the gold standard. But there is a secondary aspect of Timberlakesâ€™s article. Timberlake blames the Great Contraction on the Fedâ€™s adherence to the so-called Real Bills Doctrine.
Volume (Year): 3 (2006)
Issue (Month): 1 (January)
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