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The Real Bills Doctrine: A Restatement

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  • Michael F. Sproul

    (UCLA)

Abstract

In this paper I argue that the Real Bills Doctrine has been wrongly discredited, and that it ought to displace the Quantity Theory as the dominant theory of money. The discussion begins with the observation that the issue of backed money will not be inflationary as long as central banks follow the real-bills rule of only issuing money to those customers who offer good security in exchange. I then contend that modern paper currencies, which we normally think of as unbacked fiat money, may be (and probably are) backed. If correct, this would imply that the Real Bills Doctrine, and not the Quantity Theory, is a correct model of the value of modern money. The paper concludes by discussing a few controversies in the history of the Real Bills Doctrine, and shows that the major arguments responsible for the defeat of the Real Bills Doctrine contain obvious and serious errors.

Suggested Citation

  • Michael F. Sproul, 1997. "The Real Bills Doctrine: A Restatement," Macroeconomics 9711001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:9711001
    Note: Type of Document - MS works; prepared on IBM PC ; to print on HP; pages: 36; figures: none. In this paper I argue that the Real Bills Doctrine has been wrongly discredited, and that it ought to displace the Quantity Theory as the dominant theory of money.
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    References listed on IDEAS

    as
    1. McCallum, Bennett T, 1992. "Money and Prices in Colonial America: A New Test of Competing Theories," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 143-161, February.
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    More about this item

    Keywords

    real bills doctrine quantity theory money banking inflation federal reserve central bank;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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