Thursday, May 15, 2014

Real Bills Doctrine -- Part 11

Do Real Bills Eliminate the Need for Savings?
Thomas Allen

    Real bills of exchange do not eliminate the need for savings as some opponents assert that proponents claim. They are not intended to do so. The function of savings and the function of real bills are entirely two different things.

    Savings are necessary to provide resources for the expansion of farms, mines, and factories. As productivity precedes real bills, savings must come before any real bills are generated.

    Once items are produced and on their way to the final consumer, then real bills come into being. Their purpose is to facilitate the movement of goods from their origin to their final destination.

    Real bills free up savings so that more savings are available for production. They do this by eliminating the need for borrowing savings to distribute goods.

    Real bills cannot and do not replace savings. They are not a substitute for savings. Since real bills make the distribution of goods more efficient and less costly, they are not a form of savings.

    When an economy operates on the real bills doctrine, it expands and prospers. Without the real bills doctrine, it stagnates because savings must be withdrawn from production to fund distribution. Because it frees up savings for production, the real bills doctrine leads to an increasing standard of living. It eliminates the need for savings to fund the distribution of goods. Thus, it makes more savings available for the production of wealth, which leads to a higher standard of living. Moreover, the real bills doctrine may actually increase savings. As more wealth is created, more resources become available for savings.

    When the real bills doctrine is abandoned, the standard of living suffers. It is lower because the production of wealth is lower. The production of wealth is lower because savings that would have gone into production must be diverted to the distribution of consumer goods.

    Real bills do not eliminate the need for savings. To the contrary, they lead to an increase in savings.

[This article first appeared in The Gold Standard, issue #15, 15 March 2012.]

Copyright © 2011 by Thomas Coley Allen.

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