rather than for financial speculation in stocks and bonds or for long-term investments then no inflation could result. It is simple to see why this is nonsense. In periods of inflation, as the price of goods in inventory keeps rising, this doctrine would call for banks to keep on expanding credit, thus adding further fuel to the inflationary fire. That this doctrine did not lead to monetary disaster was due to the gold standard, which by keeping prices roughly stable, ensured that the “real bills’ doctrine was never given a chance to be applied in an environment of rising prices.
