R. G. Hawtrey and the Development of Macroeconomics
Abstract
Part 1 The economics of money and cycles in 1913 - an overview: the 19th century tradition Fisher Wesley Clair Mitchell and the trade cycle Wicksell Marshall and his pupils - Keynes' early views, Pigou the Cunliffe report the minority report of the Poor Law Commission. Part 2 Hawtrey's economics: a terminological introduction the dealer the role of banks the demand for money Hawtrey on the Gold Standard international trade and finance interest, profit and capital macroeconomic fluctuations. Part 3 Hawtrey and Keynes - before the "General Theory": pre-Treatise exchanges Hawtrey and the Treatise the impact of Hawtrey's criticisms post-Treatise developments breaking away from the Treatise. Part 4 Hawtrey and Keynes - "The General Theory": the transition "The General Theory" reaction to the 1935 drafts the revised proofs after the general theory some post-General Theory policy questions. Part 5 Hawtrey and Robertson: early work the early 20s - more scope for money new directions saving and hoarding, income nad outlay capital and employment Robertson's assessment. Part 6 Reactions to Hawtrey's economics in the interwar period: citations responses to Hawtrey empirical tests contemporary reactions to Hawtrey's criticisms of Keynes after the revolution.
Chapters (6)
When Hawtrey made his initial forays into the economics of money and cycles he was not well acquainted with the existing literature. The reference in Good and Bad Trade to Irving Fisher, the sole mention of another economist, was added after the fact when an ‘economist friend’ (whom Howson speculates was Keynes) pointed out that Fisher had anticipated some of the key results. Despite this, presumably because of the Cambridge connection, there has been a mistaken tendency to view Hawtrey as one of Marshall’s successors. Eshag includes Hawtrey as one of Marshall’s pupils while O’Brien writes that ‘Hawtrey clearly derived his monetary analysis of the cycle from Marshall.’1 While his close contact with Cambridge and with many important economists who were either first or second generation pupils of Marshall, clearly influenced the style of Hawtrey’s economics, he, in fact, never studied with Marshall. His formal training in economics was confined to preparatory classes for civil service entrance examinations. One of his instructors was the economic historian, Clapham. Howson concludes that ‘his theory owes little or nothing to Marshall’s work’.2 Hawtrey had read John Stuart Mill’s Principles at Eton as well as some of the works of another nineteenth-century economist, Henry Dunning Macleod.
This chapter is an account of Hawtrey’s economics, based primarily on his writings from 1913 until the Second World War. The aims here are to explain and describe his ideas and to identify his analytical methods and central economic propositions. The reception of these ideas by other economists is the criterion by which Hawtrey’s direct impact on economics can be assessed.
Personal friendship predated the first ventures of Hawtrey and Keynes into economics.1 Hawtrey, four years older, preceded Keynes through Eton, Cambridge and the Apostles. This common ground no doubt encouraged the close intellectual connection between them, in particular the striking resemblance of ideas that each held during the twenties concerning monetary economics. The essential bond was their mutual identification of monetary phenomena as the source of macroeconomic problems and of monetary management as part of the cure. There are numerous instances, notably in the writings of conservative British economists, of Hawtrey and Keynes being twinned by their contemporaries as proponents of equivalent positions.2 What is more, Keynes, like Hawtrey, saw Bank rate as an effective instrument of economic management. On the other hand, there is no evidence that Keynes ever accepted the specifics of Hawtrey’s account of the workings of Bank rate or his diagnosis of the mechanism of monetary disturbances. The scope of their agreement is important, but Schumpeter’s claim that Keynes ‘from the Tract to the Treatise…was a Hawtreyean’ is exaggerated.3
The revolutionary feature of the General Theory was its claim to be a theory of the determination of the level of aggregate output. But this was not the goal Keynes announced when he began reworking his ideas in the wake of the reception of the Treatise. Initially he posed the project as an analysis of dynamics, to ‘follow up the actual genesis of change’ as he had promised Hawtrey. One of the aims of the Treatise had been ‘to discover the dynamical laws governing the passage of a monetary system from one position of equilibrium to another’.1 Nevertheless this could hardly be achieved in the confines of a model which formally assumed constant employment and instantaneous price responses.
Dennis Robertson’s career as an economist spanned much the same period as that of Hawtrey. Like Hawtrey, his main contributions were ‘in the fields of monetary theory and industrial fluctuation’.1 Similarly, he was an alumnus of Trinity College, Cambridge and a member of the Apostles. And, to an even greater degree than Hawtrey, he was a friend of Keynes and at various times either his collaborator or critic. Perhaps it is not surprising that Robertson and Hawtrey crossed paths — and swords — repeatedly.
This chapter examines the response in the contemporary literature of macroeconomics and monetary theory to Hawtrey’s ideas, a task central to an assessment of his place in the development of economic thought. The approach I have taken builds on Stigler’s insight that the scientific importance of an individual’s contribution resides in the response to it from his fellow scientists and in the impact it has on their work. If a body of work fails to affect the ideas and research of others, it is a dead-end; whatever its intrinsic merit, it has no further consequence for the progress of knowledge.
Science consists of the arguments and the evidence that lead other men to accept or reject scientific views…The recipients of a scientific message are the people who determine what that message is, and no flight of genius which does not reach the recipients will ever reach and affect the science.1
... One by Robert Hetzel (2022) The other discussion of Hawtrey, Mattei (2023), is of a different character. Largely ignoring Hawtrey's analysis of the causes of the Great Depression, Mattei offers an interpretation of Hawtrey's views and an estimate of his influence on policy in stark conflict with those offered by previous authors (e.g., Moggridge, 1972;Black, 1977;Howson, 1985;Clarke, 1988;Deutscher, 1990;Gaukroger 2008), from which she creates a strawman she blames for manipulating the British Treasury into imposing austerity policies needed to restore the international gold standard after World War I, thereby quashing the postwar aspirations of British workers for radical change. ...
... Peter Clarke (1988) and Patrick Deutscher (1990) focus on Hawtrey's (1925a) articulation of the so-called Treasury View that public spending does not increase aggregate employment except insofar as it is financed by monetary expansion. At least in theory, similar expansion could be achieved by reducing Bank rate, or, as noted above, by open-market purchases. ...
This paper considers contributions of Ralph Hawtrey to monetary theory and macroeconomics, focusing in particular on his monetary business-cycle theory and his monetary explanation of the Great Depression. Unlike Milton Friedman’s US-centered explanation of the Great Depression, Hawtrey’s was focused on the international gold standard that collapsed with the outset of World War I and the attempt to restore it. Hawtrey urged that after restoration of the gold standard increased monetary demand for gold be restrained to prevent gold appreciation and deflation. But deliberate French gold accumulation in 1928 and interest-rate increases by the Federal Reserve, led to the ruinous deflation foreseen by Hawtrey. The paper then critically evaluates the recent discussions of Hawtrey’s contributions in recent books by Hetzel (2023) and Mattei (2022)
... There is a parallel between Snyder's position at the New York Fed as a resident intellectual with declining policy influence and the situation in the 1920s of another proponent of a monetary theory of the trade cycle, Ralph Hawtrey, director of Financial Enquiries at the British Treasury. On Hawtrey's trade cycle theory, see Deutscher (1990) and Laidler (1993). technique … for which it deserves the highest admiration." 9 Snyder was a Fellow of the American Association for Advancement of Science, a Fellow of the American Academy of Arts and Letters, and a member of the Institut Internationale de Statistique. ...
Carl Snyder was one of the most prominent US monetary economists of the 1920s and 1930s. His pioneering work on constructing the empirical counterparts of the terms in the equation of exchange led him to formulate a 4% monetary growth rule. Snyder is especially apposite because he was on the staff of the New York Federal Reserve Bank. Why, despite his pioneering empirical work and his position as an insider, did Snyder fail to effectively challenge the dominant real bills views of the Federal Reserve (Fed)? A short answer is that he did not possess a convincing version of the quantity theory that attributed the Great Depression to a contraction in the money stock produced by the Fed, as opposed to the dominant real bills view attributing it to the collapse of speculative excess.
... Despite his reputation as an economist, Hawtrey appears to have developed his crowding out theory somewhat in isolation from the mainstream of economic thought (Deutscher 1990). Although he counted Keynes as a friend from before 1914, and corresponded with other economists in the interwar period, including Pigou, Dennis Robertson and Friedrich Hayek, and was elected as honorary secretary of the Royal Economic Society in 1937, Hawtrey approached economics from the point of view of a Treasury official. ...
The Treasury view of the interwar period is unusual among economic doctrines in that it derives its name from a government department rather than from a professional economist, or a group of economists. It is widely believed that the theoretical basis of the Treasury view was set out by Ralph Hawtrey, the Treasury’s only economist in the interwar period, in an article in Economica in 1925. Hawtrey argued that normally government expenditure financed by borrowing from the public would merely crowd out an equivalent amount of private investment by raising interest rates, unless additional bank credit was created. He believed that, provided that business showed a normal degree of enterprise, the creation of bank credit alone would be sufficient to increase employment, and that public works would be unnecessary. The Treasury view that borrowing to finance public works would tend to crowd out private investment was central to economic policy debates as the world moved into depression, and Keynes’s efforts to demolish it played a significant part in the development of his General Theory of Employment, Interest and Money in the 1930s. The paper address two questions: first, what connection was there between the Treasury view and the doctrines of professional economists? And, second, to what extent was the Treasury view modified in the interwar period in response to the experience of unemployment and criticism by professional economists? The answers to both suggest that the Treasury view was as much a product of traditions of public finance and of the City of London as of Hawtrey’s economic theory.
... This, however, would make nonsense of Hawtrey's emphatic belief in the effectiveness of monetary policy. Furthermore, Hawtrey helped develop the finite-valued spending multiplier, providing a numerical example with leakage into imports alone in a 1928 Treasury memorandum, a numerical example with leakage into saving in a 1930 Macmillan Committee working paper commenting on Keynes's Treatise, and an algebraic version in 1932 (Hawtrey 1932, Dimand 1988, Deutscher 1990, Eric Davis 1990). But if including the interest rate as an argument in the money demand function was news to Hawtrey in 1936, then he would have been perfectly consistent, taking money demand as completely interest-inelastic, to consider monetary policy effective and fiscal policy completely ineffective in stimulating aggregate demand and output, even while fully understanding the multiplier process through which an increase in investment, due to monetary expansion, increases the equilibrium level of national income by a finite amount. ...
The nature of the "Keynesian revolution" and the relation of Keynes's contribution to those of his contemporaries continues to concern historians of economics (e.g. Mark Blaug, "Second Thoughts on the Keynesian Revolution," HOPE 1991). David Laidler, in Fabricating the Keynesian Revolution (1999) and his chapter in The Cambridge Companion to Keynes (2006), argues that Keynesian macroeconomics did not represent a radical change in economic thinking, but, rather, an extremely selective synthesis of themes that permeated twenty years of interwar monetary economics, much of which was overshadowed in textbook versions of the "Keynesian revolution." This essay evaluates the Laidler thesis and attempts, placing Keynes in the context of his contemporary economics to elucidate the work of synthesis by Keynes and his early interpreters, considering whether the theory of the determination of national income as a whole was a radical change in economic thinking that went beyond synthesis.
During episodes of severe depression, interest rates can approach the zero lower bound (ZLB) and stay there for a fairly long time. Mainstream macroeconomic theory (the so-called New Consensus Economics) then fails to provide adequate guidance under a Taylor type rule to conventional monetary policy. Various alternatives have been suggested to revitalise monetary policy in such a situation. The major alternatives can be divided into three categories, namely, (a) those that do not recognise the ZLB as an effective floor, (b) those based on the Keynesian liquidity trap and (c) those based (implicitly) on Hawtrey’s credit deadlock. We discuss these alternatives with a special focus on quantitative easing (QE). In particular, we draw attention to the largely ignored fact that QE had been suggested by the British economist Hawtrey at least as early as 1931 in the policy debates on ways to emerge from the Great Depression.
JEL Codes: E4, E5, N1
Richard Kahn published three books in his lifetime, the second one his Selected Essays on Employment and Growth (Cambridge University Press 1972). Now Maria Cristina Marcuzzo and Paolo Paesani have edited Richard F. Kahn: Collected Economic Essays (Palgrave Macmillan 2023) intended to complement Kahn’s own collection. As well as comparing the two volumes and some of Kahn’s writings not included in either collection, this review article considers how far the two volumes together reflect Kahn’s achievements in his life and academic career.
Many historians of economic theory have by now studied how Keynes developed his theory from A Tract on Monetary Reform through A Treatise on Money to The General Theory. After the pioneering studies by Moggridge (1973) and Patinkin (1976, 1982), there followed Dimand (1988), Amadeo (1989), Clarke (1988,1998), Melzer (1988), Moggridge (1992), Skidelsky (1992), Laidler (1999), and others. This is no wonder, for the Keynesian Revolution remains the most singular phenomenon that economic theory and policy have ever seen.
Hawtrey is, first and foremost, widely known today as an economist in Cambridge, who developed a theory of monetary economic fluctuations. Different from Pigou’s theory focused on psychological factors and Robertson’s one focused on real factors, Hawtrey grasped economic fluctuations as purely monetary phenomenon caused by the behavior of banks. He is also widely known as an economist, who provided the theoretical basis for the so-called Treasury View.
The issue of reparations and war debts was one of the most serious problems facing the world in the interwar-period. The United States, concerned solely with war debts repayment, turned down not only the Allied proposal to link reparations and war debts, but also the British 1922 proposal to cancel the inter-Allied war debts. The return to the Gold Standard at pre-war parity in April 1925 may be seen as an aspect of Britain’s struggle to retain hegemony.
How did Keynes proceed from A Treatise on Money (hereafter the Treatise) to the General Theory? What was it that enabled him to change from the world of the former to that of the latter, and where exactly is the change to be located? These questions are crucial in understanding the Keynesian Revolution, and many interpretations have consequently been put forward. In our view, however, they lack the groundwork of thorough investigation. The present paper seeks to answer these questions convincingly with a new interpretation.
In this paper we argue that Irving Fisher (1867–1947) is an unacknowledged pioneer of modern behavioral economics. Fisher’s behavioralist orientation is evident in his writings on alcohol prohibition. In these works, Fisher argued that behavioral anomalies prevent individuals from making rational choices regarding alcohol consumption. Fisher thought these anomalies arose from three sources: 1) incomplete information; 2) limited cognitive abilities; and 3) lack of willpower. These are essentially the same barriers to rational choice identified by modern-day New Paternalists. Therefore, we argue that Fisher’s work on Prohibition was a pioneering academic achievement that anticipated recent developments in economics, and not an unscientific diatribe, as previous commentators have presumed. Unlike modern-day ‘New Paternalists,’ however, Fisher rejected minor alterations to the choice architecture and advocated outright prohibition instead. This helps to illustrate a potential slippery-slope problem with modern New Paternalist arguments that should be addressed.
John Maynard Keynes died in 1946 but his ideas and his example remain relevant today. In this distinctive new account, Peter Clarke shows how Keynes's own career was not simply that of an academic economist, nor that of a modern policy advisor. Though rightly credited for reshaping economic theory, Keynes's influence was more broadly based and is assessed here in a rounded historical, political and cultural context. Peter Clarke re-examines the full trajectory of Keynes's public career from his role in Paris over the Versailles Treaty to Bretton Woods. He reveals how Keynes's insights as an economic theorist were rooted in his wider intellectual and cultural milieu including Bloomsbury and his friendship with Virginia Woolf as well as his involvement in government business. Keynes in Action uncovers a much more pragmatic Keynes whose concept of 'truth' needs to be interpreted in tension with an acknowledgement of 'expediency' in implementing public policy.
Economists failed to forecast the Great Depression, perhaps because they had lacked reason to theorize enough about business cycles. Since theory is a public good, the market produces too little of it. The prospect of ex post fame may induce theory; but fame comes from explaining famous events, not from averting adverse events. Also, learning-by-doing induces theory by cutting its cost, favoring the first theories to be developed. These dealt with markets-not business cycles-in the decades before the Depression. (JEL classifications: B10, E32)
The systematic emergence of the test approach to index numbers took place in the early 1920s, a period marked by pluralism in American economics. Promoted by Irving Fisher, the test approach to index numbers aimed to select a universally valid, ideal formula for index numbers by employing a series of mathematical tests. However, from the first presentation of Fisher's approach, at the 1920 Annual Meeting of the American Statistical Association, to the publication of his book The Making of Index Numbers, in 1922, he faced a series of criticisms, not addressed to his ideal formula per se, but rather aimed at the very idea that a universal formula for index numbers could be singled out. The most prominent individuals involved in this debate were Wesley Mitchell, Warren Persons, Correa Walsh (Fisher's only supporter), and Allyn Young. Among them, the foremost representative of Fisher's antagonists was Mitchell. This study aims at reconstructing this antagonism, arguing that the disagreements between Fisher and Mitchell resulted from their different backgrounds and their distinct understandings of economics as a science. More specifically, this article illustrates how Fisher, as a mathematical economist, privileged a universalist conception of science, while Mitchell, as an institutionalist, understood economics as a contextual and historical discipline, and it illustrates how these preconceptions spilled over to their debates on index numbers. To illuminate such positions, this study explores their archival correspondence.
R. G. Hawtrey, like J. M. Keynes, was a Cambridge graduate in mathematics, an Apostle, influenced by the Cambridge philosopher G. E. Moore, and connected to the Bloomsbury Group. Though eventually overshadowed by Keynes, Hawtrey, after publishing Currency and Credit in 1919, was in the front rank of monetary economists. This chapter explores their relationship during the 1920s and 1930s, focusing on their interactions about restoring an international gold standard after World War I, the 1925 decision to restore the convertibility of sterling, Hawtrey’s articulation of what became known as the “Treasury view,” Hawtrey’s commentary on Keynes’s Treatise on Money, Keynes’s questioning of Hawtrey after his testimony before the Macmillan Committee, their differences about short-term and long interest rates as monetary-policy instruments, Hawtrey’s disagreement with Keynes about the causes of the Great Depression, and finally their correspondence about the General Theory.
The first monetary theory of the Great Depression is often credited to Milton Friedman. Advanced to counter the idea that the Great Depression resulted from inherent capitalistic instabilities, Friedman’s theory attributed the Depression to policy mistakes by an inept Federal Reserve Board. More recent work on the Depression suggests that the cause lay in the attempt to restore an international gold standard after World War I and did not originate, as Friedman believed, in the United States. This chapter documents that current views about the Depression were anticipated by Ralph Hawtrey and Gustav Cassel, who both warned that restoring the gold standard would cause catastrophic deflation unless monetary demand for gold was limited by international cooperation. We also suggest possible reasons why the Hawtrey-Cassel explanation was overlooked and forgotten.
Ralph Hawtrey, a leading economist of the interwar period, published his first work in economics, Good and Bad Trade, in 1913. The book presents the key elements of the theoretical model Hawtrey developed and refined over the next quarter century. Though he was remarkably consistent in maintaining the theoretical framework outlined in his first work, Hawtrey later rejected the Humean price-specie flow mechanism outlined in Good and Bad Trade, after concluding that, even without gold shipments, international arbitrage equalized national price levels under the gold standard.
The Debt-Deflation Theory of Great Depressions: During the Great Depression, Fisher provided the Hoover and Roosevelt Administrations with much advice (largely unsolicited) about the need for what Fisher termed reflation. Fisher’s emphasis on monetary policy came to be overshadowed by Keynes’s theory of employment and the Kahn-Keynes multiplier analysis of the effect of fiscal policy. Fisher’s “Debt-Depression Theory of Great Depressions” (Econometrica 1: 337–357, 1933), explaining what had gone wrong, attracted little attention at the time, given the wreckage of Fisher’s reputation, but from 1975 onwards influenced the views of Hyman Minsky, James Tobin, Ben Bernanke and Mervyn King on how to avoid another depression—an influence that had practical relevance for the response of Bernanke and King to the possibility of the collapse of financial intermediation in 2007 and 2008.
In this chapter Young’s monetary views are discussed. He stated that modern business was in the hands of men who had come to think in terms of money and the price-making process was largely in their hands. A change in the money supply causes distortion in relative prices which, in turn, caused business cycles. Young took the best points from Fisher, Laughlin and Hawtrey while rejecting their weak points in his monetary views. While agreeing with Laughlin on the gold standard, he rejected his laissez-faire and passive accommodation policies. While agreeing with Fisher’s activist monetary policy, he rejected his rules-based approach. He disagreed with Hawtrey on the discount rate as an instrument of control particularly in the American context.
The chapter deals essentially with economics in Cambridge, UK, with Marshall as leader of a wide community of scholars, the so-called Old Cambridge School: by the 1890s, their neoclassical thought had become the international mainstream. Marshall’s Principles, which embodied “the classical situation that emerged around 1900”, was the most complete expression of neoclassical economics. It is carefully analyzed together with Marshall’s Industry and Trade and his monetary writings. The last part of the chapter deals with the dissent against Marshall’s thinking in England: the works of Wicksteed and Hobson. Wicksteed represented a marginalist conception of economics that differed from Marshall and his followers and was more similar to that expressed by the Viennese school; Hobson was a heretic who anticipated Keynes’s theory of effective demand.
It is widely believed that the difficult return to the gold standard during the 1920s and its demise in 1931 intensified the Great Depression. An interesting way of thinking about national and international monetary mechanisms emerged from the debates between French and British policymakers during those years. We attempt to explain the limited cooperation between the Bank of France and the Bank of England during that period of political tension by examining the monetary thinking of Charles Rist and Ralph George Hawtrey. Both were involved in the controversy over the strategy of the Bank of France, which accumulated – and was accused of sterilizing – gold between 1928 and 1931.
The Trade Cycle (1936a) provided the first articulated version of Harrod’s dynamics. It is based on the interaction between the multiplier and the relation (i.e., the accelerator) and their respective dynamic determinants. The interaction between the accelerator and the multiplier produced a cumulative upward or downward deviation from a steady advance. Harrod’s book had a wide reading, but several of the reviews were unfavorable. The most significant criticisms focused on the two major innovations of the trade cycle: the multiplier–accelerator interaction and the significance and stabilizing role of the law of diminishing elasticity of demand. At the time he started to work on the trade cycle, Harrod also played a key role in the creation, organization, and work of the Oxford Economists’ Research Group (OERG) in 1936. The most important research of the OERG focused on the effect of interest rates on investment and on entrepreneur’s pricing policy over the course of the business cycle.
This edited volume takes a broad perspective on the recent debate on the role of German ordoliberalism in shaping European economic policy before and after the Eurozone crisis. It shows how ordoliberal scholars explain the institutional origins of the Eurozone crisis, and presents creative policy proposals for the future of the European economy.
Ordoliberal discourse both attempts to offer political solutions to socioeconomic challenges, and to find an ideal market order that fosters individual freedom and social cohesion. This tension between realpolitik and economic utopia reflects the wider debate on how far economic theory shapes, and is shaped by, historical contingencies and institutions.
The volume will be of interest to policy makers as well as research scholars, and graduate students from various disciplines ranging from economics to political science, history and philosophy.
Ralph G. Hawtrey was the British Treasury’s only economist during the interwar period. He developed a monetary theory of the cycle by which the inherent instability of credit under the gold standard caused fluctuations in output, incomes, and prices. Hawtrey was a monetary specialist who influenced the inner process of policymaking through his capacity as advisor to Blackett, Niemeyer, and Norman. An extensive analysis of his monetary theory in an open economy provides insight into why in the 1920s he advocated the general adoption of the gold exchange standard coupled with cooperation among central banks.
Ralph G. Hawtrey was not a man of the backwaters. Through the parallel study of Treasury files and Hawtrey’s scholarly publications, this work reveals his direct influence upon the most commanding minds of the Treasury and the Bank of England, the two institutions that, after WWI, shared primary responsibility over the British austerity agenda. After the war, Hawtrey advocated drastic budgetary and monetary rigor in the name of price stabilization. From 1922, Hawtrey admitted the need to decrease the bank rate; yet he remained an adamant supporter of the gold standard, insisting on its maintenance even if it required further monetary revaluation. Hawtrey’s policy prescriptions stemmed directly from his economic model. The “crowding-out argument,” the centrality of credit and of savings, together with the operational priority of technocratic institutions, were essential theoretical underpinnings of Hawtrey’s agenda: implementing the so-called Treasury view.
This paper deals with a debate among Ralph George Hawtrey, John Richard Hicks, and John Maynard Keynes concerning the capacity of the central bank to influence the short-term and the long-term rates of interest. Both Hawtrey and Keynes considered the central bank’s ability to influence short-term rates of interest. However, they do not put the same emphasis on the study of the long-term rates of interest. According to Keynes, long-term rates are influenced by future expected short-term rates (1930, 1936), whereas for Hawtrey ([1932] 1962, 1937, 1938), long-term rates are more dependent on the business cycle. Short-term rates do not have much effect on long-term rates, according to Hawtrey. In 1939, Hicks enters the controversy, giving credit to both Hawtrey’s and Keynes’s theories, and also introducing limits to the operations of arbitrage. He thus presented a nuanced view.
This chapter investigates the nature of the transformation of macroeconomics by focusing on the impact of the Great Depression on economic doctrines. There is no doubt that the Great Depression exerted an enormous influence on economic thought, but the exact nature of its impact should be examined more carefully. In this chapter, I examine the transformation from a perspective which emphasizes the interaction between economic ideas and economic events, and the interaction between theory and policy rather than the development of economic theory. More specifically, I examine the evolution of what became known as macroeconomics after the Depression in terms of an ongoing debate among the "stabilizers" and their critics. I further suggest using four perspectives, or schools of thought, as measures to locate the evolution and transformation; the gold standard mentality, liquidationism, the Treasury view, and the real-bills doctrine. By highlighting these four economic ideas, I argue that what happened during the Great Depression was the retreat of the gold standard mentality, the complete demise of liquidationism and the Treasury view, and the strange survival of the real-bills doctrine. Each of those transformations happened not in response to internal debates in the discipline, but in response to government policies and realworld events. Copyright © 2018 by Emerald Publishing Limited All rights of reproduction in any form reserved.
Hawtrey was born in Slough, near London, and went up to Trinity College, Cambridge, from Eton in 1898. Three years later he graduated 19th Wrangler in the Mathematical Tripos. Hawtrey remained at Cambridge for a further period to read for the civil service examinations, as was quite common at that time. This latter study included some economics with lectures largely by G.P. Moriarty and J.H. Clapham. In 1903 he entered the Admiralty, but in 1904 he transferred to the Treasury, where he was to remain until retirement in 1947 (his official retirement at 65 was in 1944). Hawtrey’s only academic appointments in economics were in 1928–9, when he was given special leave from the Treasury to lecture at Harvard (as a visiting professor) and after his retirement, when he was elected Price Professor of International Economics at the Royal Institute of International Affairs (1947–52). Hawtrey served as President of the Royal Economic Society between 1946 and 1948.
Following an undergraduate mathematics degree from Cambridge, Ralph Hawtrey began in 1903 what was to be a four-decade career in the British civil service, largely in the Treasury. While serving as an adviser to governments, he made important contributions to economics, notably in the fields of monetary theory, monetary policy, and the trade cycle. He wrote prolifically, publishing numerous books and articles in the leading journals. Arguing that credit and credit-based economies were inherently unstable, he advocated an active role for monetary policy, operating through short-term interest rates to provide stability to the price level and, thereby, to the economy. Preferably, leading central banks would be linked in a mechanism of international cooperation aiming at both internal and external stability. Hawtrey was sceptical of the potential role of fiscal policy as a tool for stimulating economic activity and was willing to agree that he provided the intellectual foundations for the ‘Treasury View’.
This chapter traces the career of John Maynard Keynes, paying particular attention to two aspects: the development of his monetary theory between 1924 and 1938 (the years of A Treatise on Money and The General Theory) and his various proposals for international monetary reform between 1929 and 1946 (from A Treatise on Money to the Clearing Union and the International Monetary Fund). Emphasis is placed on the varied sources of inspiration and, over time, how he became more collaborative and more open to stimulation from others. In both cases, the culmination comes with the Second World War in domestic and international economic policy where the previous development of new theories and tools in domestic economic policy (national income accounting) and broader attempts at wartime and post-war international collaboration saw Keynes involved on many fronts, most notably Lend–Lease and its progeny (the Clearing Union and the International Trade Organization).
I examine John Maynard Keynes’s struggle with the doctrine of forced saving during the period 1924-36, from when he worked on the Treatise on Money to the completion of his General Theory. I investigate what led Keynes to completely abolish ideas related to forced saving and how his new formulation was affected by this struggle. I argue that the forced saving thesis is inherently inconsistent with his Fundamental Equations, and the change in the equilibrating mechanism from price to output proposed by Ralph Hawtrey enabled Keynes to completely abolish this notion from his monetary theory.
During the last fifteen years one of the minor growth industries in British economics has been the nature, timing and existence of a Keynesian revolution in British economic policy. The subject has spawned a reasonable literature — one sufficiently large that the Economic History Society has devoted one of its “Studies in Economic and Social History” to introduce students and their teachers to the scholarship in the field (Peden, 1988). However, this work has evolved in a fashion that ignores crucial steps in analysis and has ambiguities as to the subject under discussion. It seems useful to examine it again.
INTRODUCTIONWHO WERE THE LEADING INTERWAR MONETARY AND BUSINESS CYCLE THEORISTS?CAMBRIDGESTOCKHOLM AND LAUSANNETHE AMERICANS: FISHER, CHICAGO, YOUNG, AND CURRIEBUSINESS CYCLE INSTITUTES FROM NBER TO MOSCOWVIENNA AND THE LONDON SCHOOL OF ECONOMICSTHE OUTSIDERS: MONETARY HERETICSKALECKI AND THE MARXIAN TRADITIONCONCLUSION: MACROECONOMICS BEFORE
This article reviews the rich internationalist literature produced by a group of Cambridge Apostles in the interwar years, and evaluates it in the context of contemporary British idealist thought. John Maynard Keynes, Bertrand Russell, Ralph Hawtrey, Leonard Woolf, Gerald Shove, Hugh Meredith, Goldsworthy Lowes Dickinson, Julian Bell, Dennis Robertson and Hugh Dalton not only wrote extensively on international relations, but were widely read and politically influential. Although they never constituted a formal advocacy group or organization, their views on the First World War, the League of Nations, the British Empire and international trade were significantly similar. They also unanimously opposed conscription when it was introduced in Britain in 1916. Their approach appears original especially as far as its ethical foundation, based on Moore’s Principia Ethica, is concerned. The central role played by economic arguments in their reflections is also pointed out.
This article explores economic justice in the writings of the Cambridge authors G. L. Dickinson, G. Shove, R. Hawtrey, D.
H. Robertson, H.O. Meredith, J. H. Bell and F. Ramsey, who were either members of the Apostles’ discussion society or, like
Hugh Dalton, ‘lay’ followers of its philosophical leader, G. E. Moore. The article challenges the prevalent view depicting
the Apostles as uninterested in social problems. Their analyses of economic inequality are reviewed in connection with the
Marshallian tradition, the impact of Fabianism and J. M. Keynes’s views of social justice. Special attention is paid to some
neglected aspects of Moore’s Principia Ethica, which were debated in the Society and influenced the Apostles’ social awareness. They believed that large inequalities were
both unjust and inefficient, and, as Moore’s disciples, they rejected the hedonistic perspective and considered justice not
as an end in itself but as a means to the Good.
Allyn Young is one of the central figures in the development of American economic thought, and is one of the originators of modern endogenous growth theory. However, it has been difficult to appreciate the full extent of Young's work because many of his most significant contributions are buried in obscure journals and unsigned articles. This volume addresses this by reprinting much of Young's lost work, as well as other selected pieces that reveal the scope of his vision which encompasses two of the grand themes of economics, growth and money. The biggest " finds " are 36 encyclopedia articles, originally published anonymously more than 75 years ago. They are important because they shed light on the unity of Young's thought which is based on the single abstract idea that trade is the source of wealth. The volume includes sections on: • the socialist movement • the First World War and its aftermath • money • theories of growth The volume concludes with some writings that are pointers to the nature of the two treatises Young was planning before his untimely death in 1929. A comprehensive bibliography is also provided.
The paper discusses Ralph Hawtrey's critical approach to welfare economics. Hawtrey, one of the Cambridge Apostles, was deeply influenced by the ethical philosophy of G.E. Moore. First in The Economic Problem (1926), and then in several other writings, Hawtrey denounced contemporary economics as lacking in ethical foundations, and, accordingly, regarded the individualist economic system as morally unsatisfactory. Hawtrey's approach is compared to that of a contemporary Apostle and Cambridge economist, Gerald Shove. Hawtrey's and Shove's tentative applications of Moore's philosophy to economics and political science, respectively, provide intriguing evidence of a neglected Moorean undercurrent in Cambridge social sciences.
The intellectual response to the Great Depression is often portrayed as a battle between the ideas of Friedrich Hayek and John Maynard Keynes. Yet both the Austrian and the Keynesian interpretations of the Depression were incomplete. Austrians could explain how a country might get into a depression (bust following a credit-fueled investment boom) but not how to get out of one (liquidation). Keynesians could explain how a country might get out of a depression (government spending on public works) but not how it got into one (animal spirits). By contrast, the monetary approach of Gustav Cassel has been ignored. As early as 1920, Cassel warned that mismanagement of the gold standard could lead to a severe depression. Cassel not only explained how this could occur, but his explanation anticipates the way that scholars today describe how the Great Depression actually occurred. Unlike Keynes or Hayek, Cassel analyzed both how a country could get into a depression (deflation due to tight monetary policies) and how it could get out of one (monetary expansion).
The purpose of this paper is to reconstruct and evaluate, among other issues, Hawtrey’s social philosophy.
Hawtrey’s system as a whole is composed of the two distinct and yet interrelated subsystems: philosophy and social philosophy. The former has three components: the theory of evolution and rationalization; the theory of aspects; and Moorean ethics. The latter has two components: his conception of society in general; and his perception of capitalistic economy as one type of society.
We then examine three problematic elements connected with Hawtrey’s system: epistemology in Hawtrey and Moore; plus products and the market; and the ruler and the public.
The teaching of intermediate macroeconomics, and until fairly recently of graduate macroeconomics, has been dominated by the
IS-LM representation of the determination of aggregate demand by equilibrium conditions for the goods market and the money
market. Robert Solow agreed with James Tobin that this framework in “the trained intuition of many of us” (Young 1987, 1).
Its influence was so pervasive that even Milton Friedman used the IS-LM framework when he wished to explain to the economics
profession at large the essence of the revived quantity theory of money and its differences from Keynesian economics (Gordon
1974). Robert Barro’s intermediate macroeconomics textbook (Barro 1993), which relegates IS-LM to the twentieth and final
chapter on the Keynesian theory of fluctuations, remains an outlier even among textbooks with a strong New Classical flavour,
as the habit of thinking in an IS-LM framework has become ingrained in successive generations of economists, even when they
transform the model by assuming full employment. The IS-LM apparatus provides a convenient way of organizing analysis of income
and interest determination, at the cost of diverting attention from formation of expectations of an uncertain future (stressed
by Keynes 1937) to determination of current income given expectations. Macroeconomic argument was not always conducted in
that framework, however, and IS-LM is absent from Keynes“s General Theory and from Hicks’s Economic Journal review (1936) of the General Theory. One can imagine macroeconomics advancing from the General Theory and from pre-Keynesian monetary and business cycle theory had Hicks never “done a Marshall” with his graph.
This paper traces R.G. Hawtrey's main contributions to the theory of the lender of last resort (LLR), both national and international (ILLR). This theory is a continuation of one of the traditions of the classical period, started by Henry Thornton, which differs in important points from that of Walter Bagehot. In their treatment of the classical concepts the authors partly depart from the interpretation of Thomas M. Humphrey, who considers that Thornton and Bagehot have basically the same approach about LLR. Hawtrey renewed Thonton's views and extended the concepts to new problems, including the ILLR. Hawtrey built a model of LLR in a dynamic macroeconomic model that includes the Cambridge market for cash balance and introduces the bases of a theory of ILLR, describing the sequence of twin crisis, exchange and banking crisis, thus explaining the difficulties for an ILLR to act on the currency market without taking the risks involved, in a situation completely different to the one faced on the money market by the national LLR.
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