Adam Smith’s Theory of Money and Banking

Nicholas Curott ()
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Nicholas Curott: The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise

No 47, Studies in Applied Economics from The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise

Abstract: This paper addresses a long-running debate in the economics literature – the debate over Adam Smith’s theory of money and banking – and argues that recent reinterpretations of Smith’s monetary theory have erroneously diverted historians of monetary thought from the correct, but briefly articulated, initial interpretations of Thornton (1802) and Viner (1937). Smith did not present either the real-bills theory or a price-specie-flow theory of banknote regulation, as is now generally presumed, but rather a reflux theory based upon the premise that the demand for money is fixed at a particular nominal quantity. Smith’s theory denies that an excess supply of money can ordinarily make it into the domestic nominal income stream or influence prices or employment.

Keywords: Adam Smith; price-specie-flow mechanism; real bills doctrine; free banking; law of reflux; monetary approach to the balance of payments (search for similar items in EconPapers)
JEL-codes: B12 B31 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016-02
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jhisae:0047

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