BROWSE

Real Bills Doctrine

Definition

The real bills doctrine asserts that money should be issued in exchange for short-term real bills of adequate value. The doctrine was developed by practical bankers over centuries of experience, as a means for banks to stay solvent and profitable. Banks that follow it avoid inflation, maturity mismatching, and speculative bubbles and unwanted reflux of money.

What is 'Real Bills Doctrine'

An economic theory that surmises that when central banks loan money only for "productive" projects the loans will not be inflationary. The Federal Reserve Act of 1913 was based in part on the Real Bills Doctrine, which asserted that the creation of money would automatically be directed to real goods and services if the central bank and banks provided credit only to short-term, self-liquidating loans. The Real Bills Doctrine has been completely discredited since 1945 by most economists.

Explaining 'Real Bills Doctrine'

Opponents of the Real Bills Doctrine emphasized that all monetary creation is inflationary, regardless of how the money is used or what types of projects the loan will support. Some economists place blame on the Real Bills Doctrine for the Federal Reserve policy during the Great Contraction and Great Depression of the late 1920s and early 1930s.


Further Reading


Some issues concerning interest rate pegging, price level determinacy, and the real bills doctrine
www.sciencedirect.com [PDF]
… Humphrey has written several articles examining the historical pedigree of the real bills doctrine, and has … 11 Mints derived the more succinct term, “real bills,” from a passage in Adam Smith's … in which Smith discusses a bank that “discounts to a merchant a real bill of exchange …

Some real evidence on the real bills doctrine versus the quantity theorySome real evidence on the real bills doctrine versus the quantity theory
onlinelibrary.wiley.com [PDF]
… Humphrey has written several articles examining the historical pedigree of the real bills doctrine, and has … 11 Mints derived the more succinct term, “real bills,” from a passage in Adam Smith's … in which Smith discusses a bank that “discounts to a merchant a real bill of exchange …

The real bills doctrineThe real bills doctrine
papers.ssrn.com [PDF]
… Humphrey has written several articles examining the historical pedigree of the real bills doctrine, and has … 11 Mints derived the more succinct term, “real bills,” from a passage in Adam Smith's … in which Smith discusses a bank that “discounts to a merchant a real bill of exchange …

The real-bills doctrine versus the quantity theory: A reconsiderationThe real-bills doctrine versus the quantity theory: A reconsideration
www.journals.uchicago.edu [PDF]
… Humphrey has written several articles examining the historical pedigree of the real bills doctrine, and has … 11 Mints derived the more succinct term, “real bills,” from a passage in Adam Smith's … in which Smith discusses a bank that “discounts to a merchant a real bill of exchange …

Misconceptions about the real-bills doctrine: A comment on Sargent and WallaceMisconceptions about the real-bills doctrine: A comment on Sargent and Wallace
www.journals.uchicago.edu [PDF]
… Humphrey has written several articles examining the historical pedigree of the real bills doctrine, and has … 11 Mints derived the more succinct term, “real bills,” from a passage in Adam Smith's … in which Smith discusses a bank that “discounts to a merchant a real bill of exchange …

The analytical framework of the real-bills doctrineThe analytical framework of the real-bills doctrine
www.jstor.org [PDF]
… Humphrey has written several articles examining the historical pedigree of the real bills doctrine, and has … 11 Mints derived the more succinct term, “real bills,” from a passage in Adam Smith's … in which Smith discusses a bank that “discounts to a merchant a real bill of exchange …


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