Real Bills Doctrine Versus the Quantity Theory

Abstract

Drawing on two very different hypotheses about the link between nominal money and economic activity, the real bills doctrine and the quantity theory of money represent sharply divergent advice on the conduct of monetary policy. The quantity theory has many prominent advocates, but the real bills doctrine has had a dominant influence in the history and practice of central banking. Further, the real bills doctrine was at the core of the Congressional act creating the US Federal Reserve System so that its importance echoes down to the current day.