The Real-Bills Doctrine versus the Quantity Theory: A Reconsideration

Two competing monetary policy prescriptions are analyzed within the context of overlapping generations models. The real-bills prescription is for unfettered private intermediation or central bank operations designed to produce the effects of such intermediation. The quantity-theory prescription, in contrast, is for restrictions on private intermediation designed to separate "money" from credit. Although our models are consistent with quantity-theory predictions about money supply and price-level behavior under these two policy prescriptions, the models imply that the quantity-theory prescription is not Pareto optimal and the real-bills prescription is.

[1]  Thomas J. Sargent,et al.  The ends of four big inflations , 1982 .

[2]  Neil Wallace,et al.  A Modigliani-Miller Theorem for Open-Market Operations , 1981 .

[3]  Karl Shell,et al.  The Overlapping-Generations Model, I: The Case of Pure Exchange without Money* , 1980 .

[4]  Robert E. Lucas,et al.  EQUILIBRIUM IN A PURE CURRENCY ECONOMY , 1980 .

[5]  A Nominal Theory of the Nominal Rate of Interest and the Price Level , 1980, Journal of Political Economy.

[6]  John B. Bryant,et al.  A suggestion for further simplifying the theory of money , 1980 .

[7]  E. Fama.  Banking in the theory of finance , 1980 .

[8]  John B. Bryant,et al.  The Inefficiency of Interest-bearing National Debt , 1979, Journal of Political Economy.

[9]  N. Wallace,et al.  Portfolio autarky: A welfare analysis , 1977 .

[10]  R. Starr,et al.  Equilibrium with Non-convex Transactions Costs: Monetary and Non-monetary Economies , 1976 .

[11]  W. Brock.  Money and Growth: The Case of Long Run Perfect Foresight , 1974 .

[12]  W. DeWald.  The National Monetary Commission: A Look Back , 1972 .

[13]  D. Levhari,et al.  The Role of Money in a Simple Growth Model: Reply , 1972 .

[14]  James Tobin,et al.  Commercial Banks as Creators of 'Money' , 1963 .

[15]  M. Friedman,et al.  A Monetary History of the United States , 1963 .

[16]  P. Samuelson.  An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money , 1958, Journal of Political Economy.

[17]  L. W. Mints.  A history of banking theory : in Great Britain and the United States , 1946 .

[18]  Edward C. Prescott,et al.  " Rational " Expectations , the Optimal Monetary Instrument , and the Optimal Money Supply Rule , 2022 .