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Adam Smith’s Theory of Money and Banking

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  • Curott, Nicholas

    (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)

Abstract

This paper addresses a long-running debate in the economics literature – the debate over Adam Smith’s theory of money and banking – and argues that recent reinterpretations of Smith’s monetary theory have erroneously diverted historians of monetary thought from the correct, but briefly articulated, initial interpretations of Thornton (1802) and Viner (1937). Smith did not present either the real-bills theory or a price-specie-flow theory of banknote regulation, as is now generally presumed, but rather a reflux theory based upon the premise that the demand for money is fixed at a particular nominal quantity. Smith’s theory denies that an excess supply of money can ordinarily make it into the domestic nominal income stream or influence prices or employment.

Suggested Citation

  • Curott, Nicholas, 2016. "Adam Smith’s Theory of Money and Banking," Studies in Applied Economics 47, The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.
    • Handle: RePEc:ris:jhisae:0047
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Adam Smith; price-specie-flow mechanism; real bills doctrine; free banking; law of reflux; monetary approach to the balance of payments;
    All these keywords.

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals

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