Sir Ralph George Hawtrey (22 November 1879,
Slough
Slough () is a town and unparished area in the unitary authority of the same name in Berkshire, England, bordering west London. It lies in the Thames Valley, west of central London and north-east of Reading, at the intersection of the M4 ...
– 21 March 1975, London) was a British economist, and a close friend of
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
. He was a member of the
Cambridge Apostles
The Cambridge Apostles (also known as ''Conversazione Society'') is an intellectual society at the University of Cambridge founded in 1820 by George Tomlinson, a Cambridge student who became the first Bishop of Gibraltar.W. C. Lubenow, ''The Ca ...
, the
University of Cambridge
, mottoeng = Literal: From here, light and sacred draughts.
Non literal: From this place, we gain enlightenment and precious knowledge.
, established =
, other_name = The Chancellor, Masters and Schola ...
intellectual secret society.
He took a monetary approach towards the economic ups and downs of industry and commerce, advocating changes in the
money supply
In macroeconomics, the money supply (or money stock) refers to the total volume of currency held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include Circulation (curren ...
through adjustment in the bank rate of interest, foreshadowing the later work of Keynes. In the 1920s, he advocated what was later called the
Treasury View
In macroeconomics, particularly in the history of economic thought, the Treasury view is the assertion that fiscal policy has ''no'' effect on the total amount of economic activity and unemployment, even during times of economic recession. This vie ...
. He also advanced in 1931 the concept that became known as the
multiplier, a
coefficient
In mathematics, a coefficient is a multiplicative factor in some term of a polynomial, a series, or an expression; it is usually a number, but may be any expression (including variables such as , and ). When the coefficients are themselves var ...
showing the effect of a change in total national investment on the amount of total
national income
A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted nati ...
.
It was his view that the botched attempt to restore the
international gold standard led to the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
. He had played a key role in the
Genoa Conference
The Genoa Economic and Financial Conference was a formal conclave of 34 nations held in Genoa, Italy, from 10 April to 19 May 1922 that was planned by British Prime Minister David Lloyd George to resolve the major economic and political issues faci ...
of 1922, which attempted to devise arrangements for a stable return to the gold standard.
Life and career
Hawtrey was born in Slough, near London, only son and last child of
George Procter Hawtrey
George Procter Hawtrey (1847–1910) was a British actor, playwright and pageantmaster, and former schoolmaster.
Early life and education
Hawtrey was son of Reverend John William Hawtrey, headmaster of the Alden House School at Slough. Hawtrey's ...
(born 1847/50; died 1910) and his first wife Eda (died 1892), daughter of William Strahan. His father, a schoolmaster, left the profession for acting, where he met no great success; the family's impecuniousness led Ralph Hawtrey to seek the stable employment of the Civil Service. A cousin was the economist
Alfred Marshall
Alfred Marshall (26 July 1842 – 13 July 1924) was an English economist, and was one of the most influential economists of his time. His book '' Principles of Economics'' (1890) was the dominant economic textbook in England for many years. I ...
.
He was educated at
Eton Eton most commonly refers to Eton College, a public school in Eton, Berkshire, England.
Eton may also refer to:
Places
*Eton, Berkshire, a town in Berkshire, England
* Eton, Georgia, a town in the United States
* Éton, a commune in the Meuse dep ...
, and went up to
Trinity College, Cambridge
Trinity College is a constituent college of the University of Cambridge. Founded in 1546 by Henry VIII, King Henry VIII, Trinity is one of the largest Cambridge colleges, with the largest financial endowment of any college at either Cambridge ...
in 1898. He graduated in 1901 with
first-class mathematics honours. He entered the Admiralty in 1903, then he was moved to the Treasury (1904), where he became director of financial enquiries in 1919. Until his retirement in 1945 he worked in the
UK Treasury
His Majesty's Treasury (HM Treasury), occasionally referred to as the Exchequer, or more informally the Treasury, is a department of His Majesty's Government responsible for developing and executing the government's public finance policy and eco ...
.
Alfred Marshall
Alfred Marshall (26 July 1842 – 13 July 1924) was an English economist, and was one of the most influential economists of his time. His book '' Principles of Economics'' (1890) was the dominant economic textbook in England for many years. I ...
took no immediate part in Hawtrey's economic education. His economic education was, for the most part, acquired in the Treasury. However, he had close contacts with the Cambridge economists. Away from economics he was involved with both the Apostles and with Bloomsbury, whilst within the subject he was a visitor to Keynes's
Political Economy Club
The Political Economy Club is the world's oldest economics association founded by James Mill and a circle of friends in 1821 in London, for the purpose of coming to an agreement on the fundamental principles of political economy. David Ricardo, ...
at Cambridge and ''Currency and Credit'' (1919) became a standard work in Cambridge in the 1920s.
He taught at
Harvard University
Harvard University is a private Ivy League research university in Cambridge, Massachusetts. Founded in 1636 as Harvard College and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of higher le ...
as a visiting lecturer from 1928 to 1929 on a special leave from the
UK Treasury
His Majesty's Treasury (HM Treasury), occasionally referred to as the Exchequer, or more informally the Treasury, is a department of His Majesty's Government responsible for developing and executing the government's public finance policy and eco ...
. After his official retirement in 1945 he was elected Price Professor of International Economics in the
Royal Institute for International Affairs
Chatham House, also known as the Royal Institute of International Affairs, is an independent policy institute headquartered in London. Its stated mission is to provide commentary on world events and offer solutions to global challenges. It is ...
a post which he held from 1947 to 1952.
Hawtrey was
knighted
A knight is a person granted an honorary title of knighthood by a head of state (including the Pope) or representative for service to the monarch, the Christian denomination, church or the country, especially in a military capacity. Knighthood ...
in 1956.
Contributions
Hawtrey contributed to a number of significant developments of economic analysis, including an original form of the cash balance approach to the
quantity theory of money
In monetary economics, the quantity theory of money (often abbreviated QTM) is one of the directions of Western economic thought that emerged in the 16th-17th centuries. The QTM states that the general price level of goods and services is directly ...
, to which he grafted an income approach, foreshadowing a treatment by
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
. He also advanced, as early as 1931, the concept of
multiplier, which was given a central role by Keynes, and, indeed, Hawtrey played a significant role in the development of Keynes's thought in the years between his ''
Treatise
A treatise is a formal and systematic written discourse on some subject, generally longer and treating it in greater depth than an essay, and more concerned with investigating or exposing the principles of the subject and its conclusions."Treat ...
'' and ''
General Theory''.
His major contributions related to the
quantity theory
In monetary economics, the quantity theory of money (often abbreviated QTM) is one of the directions of Western economic thought that emerged in the 16th-17th centuries. The QTM states that the general price level of goods and services is directly ...
and the
trade cycle
Business cycles are intervals of Economic expansion, expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are ...
. He was one of the first English economists to stress the primacy of credit-money rather than metallic legal tender. Furthermore, his income-based approach led to a closer integration of the theories of money and output. For Hawtrey, money income determines expenditure, expenditure determines demand and demand determines prices. Hawtrey summarised his aims in monetary theory in the preface to ''Currency and Credit''.
[Bigg, R.J. "Hawtrey, Ralph George (1879–1975)." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008.]
:: Scientific treatment of the subject of currency is impossible without some form of the quantity theory … but the quantity theory by itself is inadequate, and it leads up to the method of treatment based on what I have called the consumers’ income and the consumers’ outlay – that is to say, simply the aggregates of individual incomes and individual expenditures. (1919, p. v)
Consumers’ outlays includes investment (the result of saving), since investment is spent on fixed capital. The difference between outlays are then consumers’ balances and income, thus only consist of accumulated cash balances (including money in bank accounts). In addition, a similar demand exists, for money balances by traders related to their turnover. Both consumers’ and traders’ balances may be held by individual agents – Hawtrey notes that the true traders' income is the profits of the business and that this consumers’ income included this.
The ‘unspent margin’, or total money balances, is made of the consumers’ and traders’ balances taken together. From this, he derives a form of the
quantity theory
In monetary economics, the quantity theory of money (often abbreviated QTM) is one of the directions of Western economic thought that emerged in the 16th-17th centuries. The QTM states that the general price level of goods and services is directly ...
. Hawtrey argues that traders’ balances are relatively stable, and thusthe supply of money (in a wide sense taken to include credit) and consumers’ income and outlay are concerned with the operational relationships. Compared to the Cambridge income-based approach, his places greater emphasis on the demand for nominal balances rather than real balances. Keynes used a similar balances approach to the quantity theory, after 1925, leading up to the ''Treatise on Money'' (1930), in which he distinguishes first between investment and cash deposits and later between income, business and savings deposits.
Hawtrey analysed the demand for money in terms of motives. He identifies a transaction demand, a precautionary demand, and a residual demand which reflects a gradual accumulation of savings balances. He thinks agents as saving gradually but investing only larger sums periodically. In the meantime these short-hoards act as a buffer stock. The interest forgone is the main costs of holding money balances, and thus he points to a balancing process between costs and advantages in determining desired balances. The introduction of a banking system into the model allows agents to substitute borrowing power for money balances (Hawtrey, 1919, pp. 36–7).
A concept of effective demand is also introduced by Hawtrey.
::The total effective demand for commodities in the market is limited to the number of units of money of account that dealers are prepared to offer, and the number they are prepared to offer over any period of time is limited according to the number they hope to receive. (1919, p. 3)
Hawtrey points to a defect in the theory of an elastic supply of labour based on marginal utilities of product and effort, in ''Trade and Credit'' (1928). while a difference between the marginal utility of the product and the disutility of effort may prompt an additional supply of labour "in the simple case of a man working on his own account" (1928, p. 148), Hawtrey argues, this is not the general case since: "the decision as to the output to be undertaken is in the hands of a limited number of employers, and the workmen in the industry are passively employed by them for the customary hours at the prevailing rates of wages" (1928, p. 149). In this case output decisions are based not on the gross proceeds, but on the net profit margin.
The gold standard and the Great Depression
During
World War I
World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...
, most countries, including the United States, effectively abandoned the
gold standard
A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the la ...
to finance their wartime expenditures. This led to a massive drop in demand for gold and thus a large drop in its value. After the war ended, the countries sought to reconstitute the system. Hawtrey in 1919 and
Gustav Cassel
Karl Gustav Cassel (20 October 1866 – 14 January 1945) was a Swedish economist and professor of economics at Stockholm University.
Work
Cassel's perspective on economic reality, and especially on the role of interest, was rooted in British ne ...
(independently in 1920–21) warned that restoring the gold standard without a simultaneous policy of restricting the international monetary demand for gold would push up gold prices and result in a
deflation
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflation ...
ary crisis.
Hawtrey was instrumental in organising the
Genoa Conference
The Genoa Economic and Financial Conference was a formal conclave of 34 nations held in Genoa, Italy, from 10 April to 19 May 1922 that was planned by British Prime Minister David Lloyd George to resolve the major economic and political issues faci ...
in 1922, and his and Cassel's cautions were reflected in the resolutions. Cassel proposed that circulation of gold coins should be ended; while this proposal was rejected at the conference, when England returned to the gold standard in 1925, circulation of gold coinage was indeed eliminated by Churchill's
Gold Standard Act
The Gold Standard Act was an Law_of_the_United_States#Federal_law, Act of the United States Congress, signed by President William McKinley and effective on March 14, 1900, defining the United States dollar by gold weight and requiring the United ...
.
In contrast to Hawtrey and Cassel's support for a managed gold standard, Keynes opposed a return to the gold standard. While agreeing with Hawtrey and Cassel that a return to the gold standard would be deflationary in the short run, Keynes believed that it would be inflationary in the long run, and thus unstable.
Irving Fisher
Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist, statistician, inventor, eugenicist and progressive social campaigner. He was one of the earliest American neoclassical economists, though his later work on debt def ...
also thought that the gold standard was unstable and would have undesirable deflationary or inflationary pressures.
For most of the 1920s, the various countries did restrain their demand for gold. In Hawtrey and Cassel's view, at the end of the 1920s, due to the actions of the French central bank and the US
Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
, there was a rapid increase in the price of gold, which meant, under the gold standard, a general deflation. This led to the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
in the late 1920s and 1930s.
Hawtrey and Cassel both recognised the dominant role of the United States in the world economy after World War I. They recommended that the Federal Reserve pursue aggressive monetary policies to counteract the deflationary pressures after 1929. When it became clear that the US was unwilling to pursue such policies, they both recommended that their respective countries (England and Sweden respectively) leave the gold standard. England left the gold standard in September 1931 and Sweden suspended it shortly afterwards, with Cassel playing an important role in the latter.
Main publications
* ''Good and Bad Trade'', 1913.
* ''Currency and Credit'', 1919.
* ''Monetary Reconstruction'', 1922.
* "The Trade Cycle", 1926.
* ''Trade and Credit'', 1928.
* "The monetary theory of the trade cycle", ''EJ'', 1929.
* ''Trade Depression and the Way Out'', 1931
* ''The Art of Central Banking'', 1932.
* ''The Gold Standard in Theory and Practice'', 1933.
* ''Capital and Employment'', 1937.
* ''A Century of the Bank Rate'', 1938.
* "The Trade Cycle and Capital Intensity", ''EJ'', 1940.
* ''Economic Destiny'', 1944.
* ''Economic Rebirth'', 1946.
* "Keynes and Supply Functions", 1956.
* ''The Pound at Home and Abroad'', 1961.
References
* Bigg, R.J. "Hawtrey, Ralph George (1879–1975)." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008.
Further reading
*E.G. Davis (1981) – "R.G. Hawtrey" in D.P. O'Brien, J.R. Presley (eds.), ''Pioneers of Modern Economics in Britain''
External links
Britannica entry on Sir Ralph Hawtrey*
Who Was WhoThe Papers of Sir Ralph Hawtreyheld at
Churchill Archives Centre
The Churchill Archives Centre (CAC) at Churchill College at the University of Cambridge is one of the largest repositories in the United Kingdom for the preservation and study of modern personal papers. It is best known for housing the papers of ...
{{DEFAULTSORT:Hawtrey, Ralph George
1879 births
1975 deaths
People educated at Eton College
Alumni of Trinity College, Cambridge
Harvard University staff
People from Slough