Staff Report 64

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

Neil Wallace
Thomas J. Sargent | Consultant

Published January 1, 1981

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)
Published In: The new classical macroeconomics (Vol. 2, 1992, pp. 440-464)

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