Skip to main content

The Real Bills Doctrine Vs. the Quantity Theory: A Reconsideration

Staff Report 64 | Published January 1, 1981

Download PDF

Authors

Thomas J. Sargent New York University and Hoover Institution
The Real Bills Doctrine Vs. the Quantity Theory: A Reconsideration

Abstract

On our interpretation, real bills advocates favor unfettered intermediation, while their critics, who we call quantity theorists, favor legal restrictions on intermediation geared to separate “money” from “credit.” We display examples of economies in which quantity-theory assertions about “money-supply” and price-level behavior under the real bills regime are valid. In particular, both the price level and an asset total that quantity theorists would identify as money fluctuate more under a real bills regime than under a regime with restrictions like those favored by quantity theorists. Despite this, the Pareto criterion does not support the quantity-theory position.




Published in: _Journal of Political Economy_ (Vol. 90, No. 6, December 1982, pp. 1212-1236) https://doi.org/10.1086/261118. Published in: _The new classical macroeconomics_ (Vol. 2, 1992, pp. 440-464)