Robert Torrens and the Evolution of the Real Bills Doctrine

In the current era of quantity theorists and inconvertible currencies, the real bills doctrine has received a surprising amount of recent attention (e.g., Sargent and Wallace, 1982; Smith, 1988; Selgin, 1989; Cunningham, 1992). While the real bills doctrine has a long history, the doctrine underwent considerable evolution during the period from the Bullionist debates of the Restriction Period, 1797–1819, to the Banking School versus Currency School debates surrounding the introduction of Peel's Act in 1844. The debates of the Restriction period are significant for being directly concerned with the workings of an inconvertible, real-bills-based paper currency while the later debates involved the real bills doctrine under convertibility. A primary objective of this paper is to explore the views that Robert Torrens held concerning the inconvertible and convertible versions of the real bills doctrine as a rule for central bank policy. Torrens's contributions as an anti-bullionist and, later, as a leading member of the Currency School reflect the importance that both convertibility and bank lending practices have for interpreting the real bills doctrine and the related law of reflux. The apparently paradoxical evolution of Torrens's monetary thought identified by Lionel Robbins (1958) is attributed primarily to the evolution of his views on bank lending practices.