Real Bills Doctrine

DEFINITION of 'Real Bills Doctrine'

An economic theory that surmises that when central banks loan money only for "productive" projects the loans will not be inflationary. The Federal Reserve Act of 1913 was based in part on the Real Bills Doctrine, which asserted that the creation of money would automatically be directed to real goods and services if the central bank and banks provided credit only to short-term, self-liquidating loans. The Real Bills Doctrine has been completely discredited since 1945 by most economists.

BREAKING DOWN 'Real Bills Doctrine'

Opponents of the Real Bills Doctrine emphasized that all monetary creation is inflationary, regardless of how the money is used or what types of projects the loan will support. Some economists place blame on the Real Bills Doctrine for the Federal Reserve policy during the Great Contraction and Great Depression of the late 1920s and early 1930s.

RELATED TERMS
  1. Continuity Of Interest Doctrine ...

    A doctrine which stipulates that a corporate acquisition can ...
  2. Doctrine Of Utmost Good Faith

    A minimum standard that requires both the buyer and seller in ...
  3. Self-Liquidating Loan

    A type of short- or intermediate-term credit that is repaid with ...
  4. Privity

    A legal interpretation in contract law where contracts are only ...
  5. D’Oench Duhme Doctrine

    A banking rule which states that a borrower or guarantor cannot ...
  6. Borrowed Servant Rule

    A legal doctrine indicating that an employer may be held liable ...
Related Articles
  1. Real Estate

    Hard Money Loans: Know This Tool for Real Estate Investors

    A hard money loan may be a faster route to financing than a bank loan, but be sure you understand the pluses and minuses before you take one on.
  2. Budgeting

    Should You Pay Your Bills On Autopilot?

    Now that you can sign up to have your bills paid automatically online, it it a smart way to make your life more efficient? A look at the pros and cons.
  3. Retirement

    Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.
  4. Economics

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  5. Economics

    How Central Banks Control The Supply Of Money

    A look at the ways central banks pump or drain money from the economy to keep it healthy.
  6. Economics

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  7. Credit & Loans

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
  8. Economics

    Understanding the Bank Rate

    Bank rate is a term describing the interest rate a country’s central bank charges its domestic banks on loans it makes to them.
  9. Economics

    What Does a Central Bank Do?

    A central bank oversees a nation’s monetary system.
  10. Credit & Loans

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
RELATED FAQS
  1. How do commercial banks us the 'money multiplier' to create money?

    Find out how commercial banks can expand the supply of money in an economy through the fractional reserve system, otherwise ... Read Answer >>
  2. What role did the Great Depression play in developing America's bank reserve policies?

    Learn about the changes to the Federal Reserve system and bank reserve laws in the United States in the aftermath of the ... Read Answer >>
  3. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
  4. Are Sallie Mae loans considered federal loans?

    Identify the differences between federal and private student loans, explore the qualities of each type of loan, and find ... Read Answer >>
  5. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  6. Who uses bills of exchange?

    Find out who uses bills of exchange, why they are important in international trade and what happens when a bill is traded ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center