Contemporary Influence

Hawtrey’s work was widely read and cited. Currency and Credit was a popular textbook on both sides of the Atlantic. He also carried out extensive debates through correspondence with other leading economists. In contrast, spending his career as an advisor in the British Treasury meant that he did not have continuous dialogue with students, the next generation of economists. Determinedly self-taught and insistent on using his own terminology, he was somewhat outside the mainstream. Differences of language or of using the same word (e.g. investment) to mean something different, sometimes stood in the way of understanding.

Hawtrey was the fifth most cited ‘macroeconomist’ during the interwar period, 1920-1939 (based primarily on articles listed in the relevant sections of the Index of Economic Journals) (Deutscher 1990b: 188-194). Table 21.1 lists the top ten along with an index of the number of citations.

Table 21.1 Most cited macroeconomists of the interwar period

Hawtrey’s place among the leading macroeconomists was sustained throughout the period. He ranked sixth between 1920 and 1930, fourth between 1931 and 1935, and sixth from 1936 to 1939. However, his placing fell away following the Second World War.

Schumpeter attested to Hawtrey’s stature in the interwar years: ‘Throughout the twenties, Hawtrey’s theory enjoyed a considerable vogue. In the United States, especially, it was the outstanding rationalization of the uncritical belief in the unlimited efficacy of the open-market operations of the Federal Reserve System that prevailed then’ (Schumpeter 1954: 1,121). The receptive hearing that Hawtrey received from US economists is shown by his connection to the work of Allan A. Young. Young was an important figure more through his personal influence as a teacher in the Harvard economics department than his publications. Early on he commented on the originality and value of Hawtrey’s work and he used Currency and Credit as the textbook for his courses in money and banking in the 1920s. He took a temporary appointment at the London School of Economics (LSE) from 1927 to 1929 and arranged that Hawtrey replace him at Harvard in 1928-1929. Young passed away in 1929 at the age of 52 before completing his LSE appointment.^[1] Laidler has made the case for a chain of influence from Hawtrey through Young and Lauchlin Currie (who as a student had worked with Young and had also attended Hawtrey’s Harvard classes), to the Chicago monetary tradition (Blitch 1983; Laidler 1993).

In the 1930s the persistence of the downturn and the ascendance of Keynes’s work combined to raise doubts about Hawtrey’s analysis, though he remained a key participant in contemporary debates. Hawtrey had a long-lasting friendship and professional interaction with Keynes. Keynes reviewed the first edition of Currency and Credit warmly: ‘This is one of the most original and profound treatises on the Theory of Money which has appeared for many years’ (Keynes 1920). Through the 1920s they found themselves in broad agreement on the need for managed money and on there being some role for a monetary transmission mechanism for economic fluctuations. However, they disagreed over many important points, including the approach to the return to the gold standard, the practical power of Bank rate policy, and the potential role of public spending to boost employment. As a discussant of a 1929 paper presented to the Royal Statistical Society by Hawtrey on ‘Money and Index Numbers’, Keynes remarked:

There are very few writers on monetary subjects from whom one receives more stimulus and useful suggestion.. .and I think there are few writers on these subjects with whom I feel in more fundamental sympathy and agreement. The paradox is that in spite of that, I nearly always disagree in detail with what he says! (Keynes 1973b: 127).

Hawtrey and Keynes corresponded at length over A Treatise on Money and The General Theory. Hawtrey’s critique of the ‘Fundamental Equations’ as tautologies likely nudged Keynes in the direction of The General Theory. The dynamics of the Treatise operated through relative price adjustments and Hawtrey proposed a model that called for quantity adjustments in advance of price movements. In the Treatise, Keynes placed more emphasis on nonmonetary causes of fluctuations and Hawtrey teasingly suggested he was advancing ‘a non-monetary theory of money’, an approach ‘in the tradition of the Cambridge school of economists’ (Hawtrey 1932: 359). Hawtrey’s critique of The General Theory was reprised in Capital and Employment (Hawtrey 1937).

In the course of his commentary, Hawtrey developed examples that contained at least an embryonic multiplier analysis. The variant that he published in The Art of Central Banking proposed an assumption that a change ‘in income is divided in a fixed proportion (k:1-k) between consumption and investment’, observing that in this context investment would usually be termed ‘savings’. He went on to show that ‘provisional equilibrium’ after some initial shock to consumer expenditure, A C, was a change in the value of output equal to AC/(1 - k) (Hawtrey 1932: 351). This and similar exercises have led a number of authors to applaud Hawtrey as at least one of the discoverers of the multiplier (Davis 1980).

Hawtrey’s work also intersected frequently with that of Dennis Robertson, the second most cited macroeconomist of the interwar period. Robertson developed non-monetary (real) models of the business cycle, an approach in stark contrast with that of Hawtrey. Robertson found the origins of fluctuations especially in the behaviour of investment: the discontinuous flow of innovations, the time required to carry out capital projects and the durability of capital. Robertson was generally sceptical about the power of interest rate policy to mitigate fluctuations and to the extent that monetary policy could be effective; he argued against price stability as the right target because that could discourage the flow of innovations. Robertson’s contributions to economics were wide-ranging, but in his 1963 Lectures on Economic Principles he introduced the final section on money and economic fluctuations with the personal observation that ‘this has always been to me the most interesting part of economics—the only part to which I can hope to be remembered as having made any personal contribution’ (Robertson 1963: 325). Robertson, even more than Hawtrey, collaborated with Keynes and influenced him. Of his 1926 work Banking Policy and the Price Level he wrote that he had had ‘so many discussions with Mr. J.M. Keynes’ regarding the nature of saving and its role in the economic cycle ‘that I think neither of us now knows how much of the ideas therein contained is his and how much is mine’ (Robertson 1926: 5).

Robertson’s earliest work also dealt with the economic cycle. A Study of Industrial Fluctuation published in 1915 was developed from a 1913 essay. He also reviewed Hawtrey’s Good and Bad Trade for the Cambridge Review in 1913. The review took Hawtrey to task for overemphasizing monetary forces and for its lack of empirical evidence: ‘Mr. Hawtrey’s work is innocent of an appeal to facts’ (Robertson 1913: 163). Robertson also dismissed Hawtrey’s opposition to public works as a remedy for unemployment, saying that it ‘scarcely deserves formal refutation’ (Deutscher 1990a: 82-84).

Robertson’s work in the 1920s paid more attention to monetary forces and gave a more receptive account of Hawtrey’s analysis. Fundamentally, however, Robertson saw the origins of fluctuations in ‘real’ factors and suggested only a limited role for monetary policy or a policy aimed at price stability.

Hawtrey’s courteous debates with other contemporaries were an important part of economic discourse in the 1930s. His 1937 work, Capital and Employment, included essays that critically examined the work of Hayek, Pigou, Harrod, and Keynes, along with a gentle debunking of Major Douglas’s theory of social credit.

• [1] Hawtrey was considered as Cannans successor at LSE and again after Young’s death. I do not knowwhether he actively pursued the post. (See Howson 2011: 142, 163-164.)