[4] Smith then substituted short-term self-liquidating commercial paper for Law's production proxy, land, and so the real bills doctrine was born.
The British banker, parliamentarian, philanthropist, anti-slavery activist, and monetary theorist Henry Thornton (1760–1815) was an early critic of the real bills doctrine.
It required all member banks seeking Federal Reserve discount window assistance to affirm that they had never made speculative loans, especially of the stock-market variety.
Milton Friedman and Anna J.Schwartz held that opinion but did not discuss its full implications in their book published in 1963, A Monetary History of the United States, 1867–1960.
Skeptics of this hypothesis that cite other monetary crises – like the German hyperinflation and the Mississippi Bubble – to their true source: the real bills doctrine.
This low target interest rate proposal has much in common with the long-discredited real bills doctrine, according to which the money supply should expand passively to accommodate the legitimate needs of trade".
The "Direct Pressure" letter required any commercial bank seeking to avail itself of Fed lender-of-last-resort assistance to show, beyond a shadow of a doubt, that it had never even thought of making "speculative" loans, particularly of the stock-market variety.
Instead of borrowing the reserves needed to meet the cash drain from the Fed and exposing themselves to "Direct Pressure" questioning, those banks failed in huge numbers.
Economists Thomas J. Sargent and Neil Wallace published "The Real-Bills Doctrine Versus The Quantity Theory: A Reconsideration" for the Journal of Political Economy in 1982.
[16]Australian Professor Emeritus Roy Green, a Special Advisor and Chair for UTS Innovation Council at the University of Technology Sydney,[17][18] wrote in 1927 that "The 'real bills doctrine' has its origin in banking developments of the 17th and 18th centuries.
It received its first authoritative exposition in Adam Smith's Wealth of Nations, was then repudiated by Thornton and Ricardo in the famous bullionist controversy, and was finally rehabilitated as the 'law of reflux' by Tooke and Fullarton in the currency-banking debate of the mid–19th century.
Green's description of the real bills doctrine was later repeated in Semantic Scholar, an artificial intelligence-backed search engine for academic publications begun in 2015.
The author describes how in the initial passage of the act in 1913, Congress demonstrated its steadfast commitment to the "real bills" doctrine in two interrelated ways: 1) by limiting what assets the Fed could purchase, discount, and use as collateral for advances, and 2) by ensuring that any newly created government-sponsored credit enterprises were kept separate from the Federal Reserve System.
During the Great Depression, however, Congress passed legislation that blurred the line between monetary and credit policy, slowly chipping away at the real bills doctrine as it sought to combat the crisis.
In tracing this history, the author concludes that the original framers of Section 13(3) meant to sanction direct Federal Reserve lending to the real economy, rather than simply to a weakened financial sector, in emergency circumstances.
[21] There have reportedly been money supply problems with Diem digital currency (formerly known as Libra),[22][23] a commissioned blockchain which was proposed by the American social media company Facebook, Inc.