Mid-Twentieth Century

Dennis Robertson took the Chair of Political Economy at Cambridge following Pigou’s retirement in 1943. Robertson had been a student of Marshall and Pigou and started his academic career by researching the nature of industrial fluctuations, particularly from the viewpoint of changes in supply conditions. He advanced an overinvestment theory of cycles which encompassed not only large-scale innovations, crop variations, and the indivisibility of capital goods but also a lack of coordination among entrepreneurs with respect to their decisions to invest, a shortcoming aggravated by the volatility of expectations (Robertson 1915, 1926). Also, Robertson had a deep interest in monetary economics, particularly the determination of the interest rate, which he explained through a loanable funds theory. The actual cost of financial capital, to Robertson, reflected the productivity of capital goods and society’s cash-holding habits on the side of the demand for money, while savings decisions and pure credit creation by the banks would provide the supply of liquid resources (Robertson 1934, 1936).