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Gold, the Real Bills Doctrine, and the Fed: Sources of Monetary Disorder

Eminent monetary economists Richard Timberlake and Thomas Humphrey, via Cato Institute, announce the publication of  Gold, the Real Bills Doctrine, and the Fed: Sources of Monetary Disorder, 1922–1938:

In Gold, the Real Bills Doctrine, and the Fed, preeminent monetary historians Thomas M. Humphrey and Richard H. Timberlake deliver a compelling critique of the U.S. central bank’s once-central theory on monetary policy: the Real Bills Doctrine. Theirs is the first full-length treatise on the doctrine and its formative role in the Great Depression and other monetary disorders of the early 20th century.

Gov. Carney gives remarks on the dollar at Jackson Hole

Institutional change supported the role of the dollar, with the creation of the Federal Reserve System providing, for the first time, a market-maker and liquidity manager in US dollar acceptances. This was particularly helpful for promoting the use of the dollar in trade credit, reinforcing its use as a means of payment and invoicing currency.

Yet the US was, at least at first, an unwilling hegemon. Under the gold standard, the Fed’s absorption of gold inflows exported significant deflationary pressures to the rest of the world.38 Europe was dependent on the recycling of capital flows by the US, which lent much of its surplus back to Europe to enable payments of war reparations and debt. Europe suffered severely when this stopped in 1928. Moreover, the increase in price levels that occurred as a result of the First World War left the global economy with too little gold in total to sustain money supply at the level consistent with full employment. Supplementing gold reserves with foreign exchange to boost money supply led to competition between the UK and the US to provide that service to other countries.
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