The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Real Bills Doctrine Versus the Quantity Theory

  • Timothy S. Fuerst
Reference work entry


The real bills doctrine and the quantity theory of money represent distinct theoretical models of price-level determination and consequently imply different prescriptions for the conduct of monetary policy. The real bills doctrine takes the price level as exogenous and recommends money supply movements that passively respond to the economy. In sharp contrast, the quantity theory insists that the only way to ensure price level stability is by constraining the money supply and not allowing the money supply to move passively in response to economic conditions.


Central banks Credit Equation of exchange Federal Reserve System Fiat money Fisher, I. Gold standard Great Depression Hume, D. Inflation Interest rate policy Law, J. Monetary policy Money supply Neutrality of money Nominal interest rates Quantity theory of money Real bills doctrine Real bills doctrine versus the quantity theory Ricardo, D. Smith, A. Thornton, H. Velocity of circulation 

JEL Classifications

E31 E52 E6 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Timothy S. Fuerst
    • 1
  1. 1.