Hawtrey, R. G.

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Hawtrey, R. G.



Ralph George Hawtrey, English economist, was born in 1879. He was educated at Eton and Trinity College, Cambridge, where he obtained a first-class honors degree in mathematics. After leaving Cambridge he entered the administrative civil service and worked at the Treasury from 1904 until his retirement in 1945. He was knighted in 1956.

Throughout his career he held only two academic (or quasi-academic) appointments: in 1928-1929 he was given special leave by the Treasury to lecture in economics at Harvard University; and after his official retirement he was elected Price professor of international economics at the Royal Institute of International Affairs, a post which he held from 1947 to 1952.

Hawtrey is often wrongly regarded as one of the Cambridge academic economists and is grouped with Pigou, Keynes, Robertson, and other pupils of Marshall. But he acquired his knowledge of economics not at Cambridge (he never attended even one of Marshall’s lectures) but at the Treasury, where he came under the stimulating influence of Sir John (later Lord) Bradbury, permanent secretary of the Treasury.

The first of Hawtrey’s books, Good and Bad Trade (1913), contains the germ of many of his later ideas on monetary theory. He subsequently developed these ideas at greater length and with more precision in such major works as Currrency and Credit (1919), The Art of Central Banking (1932), and Capital and Employment (1937).

Hawtrey was one of the outstanding figures among those British economists who led the way in much of the rethinking of monetary theory after World War i, and he had a considerable influence on the early development of Keynes’s thought (Har-rod 1951, p. 357). The emphasis he laid on the concept of money as something abstract, though capable of numeration—a unit of account, divorced from any necessary link with a metallic or other substance—made a marked impact on the minds of a generation of economists who had grown up with the traditional nineteenth-century attitude toward the gold standard.

He was one of the English pioneers of the “in come” approach; thus, he wrote in Good and Bad Trade-. “The total effective demand for all commodities per unit of time is the aggregate of all money incomes. The total cost of production of all com modities per unit of time is the aggregate of all money incomes” ([1913] 1962, p. 7). He developed this idea further in his Currency and Credit by bringing in, for example, the notion of the income velocity of money, which he defined as the ratio of consumers’ outlay to the unspent margin: Consumers’ outlay (out of income) includes invest ment, while the unspent margin is the supply of the means of payment—that is, the excess of the purchasing power people and businesses have ac quired over what they have spent.

Hawtrey based his monetary explanation primarily on the argument that credit is inherently unstable because of the working of the banking system and its effect on the holders of stocks in particular. Dealers (merchants, wholesalers, and re tailers) occupy a key position in the economy: “[They] are the economic leaders. They take the initiative in production, and the activity of the manufacturers depends on the orders they give” ([1919] 1950, p. 427). Since dealers hold stocks largely with borrowed money, they are peculiarly susceptible to changes in the rate of interest they have to pay for the money they borrow. It is chiefly because of the importance which he attached to the role of dealers that Hawtrey, unlike Keynes and many other economists of recent times, always maintained that the operative instrument for credit reg ulation is the short-term, not the long-term rate of interest.

While Hawtrey agreed that a low short-term rate may be able to do little to assist an economy to re cover from a deep depression, he was convinced that a sufficiently high bank rate (possibly even 10 per cent or higher) can damp down and counter act inflationary forces caused by credit expansion, however strongly they may be working. He recently contended that the 7 per cent bank rate, which operated for six months in 1964-1965, was largely ineffective because it was too low at a time when the long-term rate (the yield on consols) was itself 7 per cent.

His views as to the utility of public works underwent a good deal of modification in the course of time. In his earliest work he contended that “the Government by the very fact of borrowing for this expenditure is withdrawing from the investment market savings which would otherwise be applied to the creation of capital” ([1913] 1962, p. 260). Later he said: “It is not the Government expenditure [on capital works] that gives employment, but the Government borrowing. The borrowing would have the same effect if it were to meet a deficit due to a remission of taxation” (1928, pp. 112-113). The shift in his position is even clearer in the following passage: “Now it is quite true that capital outlay undertaken by the Government may conduce under appropriate conditions to an expansion of general demand. It must be additional, that is to say, must not by using up the resources of the investment market, prevent or delay an equal amount of privately initiated capital outlay. It need not necessarily be financed by avowedly inflationary methods; if it merely sets in motion money held idle in balances for want of eligible investments, it will enlarge the flow of money” (1944, p. 95). But he went on to say that business ought never to be allowed to lapse into such a state of depression and stagnation that government expenditure is the ap propriate remedy. If this is allowed to happen, it points to a failure on the part of those who control the banking system to exercise their proper function. He consistently preached the doctrine that the best way to stop depression is to stop the preceding boom; and for this purpose credit regulation can be fully effective.

Hawtrey’s position in the ranks of modern mone tary theorists does not depend so much upon the validity of his views on the causation and control of the trade cycle as upon the deeper and clearer understanding which he made possible of both the operation of the banking system and the role of money in a modern economy.

His name is associated in the minds of most economists with the doctrine that the trade cycle is essentially a monetary phenomenon, and it should not be overlooked that his writings include a care fulanalysis of the part played by the period of pro duction and by the widening and deepening of capital in different phases of the cycle.

No account of his work, however short, should omit mention of the contribution Hawtrey made at the International Monetary Conference held at Genoa in April 1922. He was one of the represen tatives of the British Treasury there, and it was largely through his influence that agreement was reached on the desirability of cooperation between the central banks in the regulation of credit in order to prevent undue fluctuations in the purchasing power of gold. However, the Genoa Resolutions were never put into effect.

When Hawtrey was 82 years of age, he published The Pound at Home and Abroad (1961), in which, inter alia, he upheld with customary vigor the thesis that the primary causes of the recent difficulties of the British economy were, first, the fixed parity of the sterling exchange with a depreciating dollar, and second, the undervaluation of the pound ever since it was devalued in 1949 from $4.03 to $2.80—in this latter contention his has been a lone voice among British economists. This book also contains his memo randum of evidence submitted to the Radcliffe Committee on the Working of the Monetary System and some trenchant criticisms of parts of the report of that body.

Although Hawtrey adhered in general to the same fundamental tenets throughout his career, he modified their expression so as to take account both of historical developments and of the evolution of contemporary economic thought, and it is by his later books and editions that his work should be assessed.

C. W. Guillebaud

[See alsoBanking, Central; Business Cycles.]


(1913) 1962 Good and Bad Trade: An Inquiry Into the Causes of Trade Fluctuations. New York: Kelley.

(1919) 1950 Currency and Credit. 4th ed. New York and London: Longmans.

1921 The Exchequer and the Control of Expenditure. New York: Oxford Univ. Press.

(1923) 1926 Monetary Reconstruction. 2d ed. London: Longmans.

1926 The Economic Problem. London: Longmans.

(1927) 1947 The Gold Standard in Theory and Practice. 5th ed. London: Longmans.

1928 Trade and Credit. London and New York: Longmans.

(1930) 1952 Economic Aspects of Sovereignty. 2d ed. London and New York: Longmans.

(1931) 1933 Trade Depression and the Way Out. New ed. London and New York: Longmans.

(1932) 1962 The Art of Central Banking. 2d ed. London: Cass.

(1937) 1952 Capital and Employment. 2d ed. London and New York: Longmans. → See especially pages 157-219 on “Keynes’ General Theory of Employment, Interest and Money.”

(1938) 1962 A Century of Bank Rate. 2d ed. London: Cass.

1944 Economic Destiny. New York and London: Longmans.

1946α Economic Rebirth. London and New York: Long mans.

1946b Bretton Woods for Better or Worse. London and New York: Longmans.

1949 Western European Union: Implications for the United Kingdom. London: Royal Institute of Inter national Affairs.

1950 The Balance of Payments and the Standard of Living. London: Royal Institute of International Affairs.

1954 Towards the Rescue of Sterling. London and New York: Longmans.

1955 Cross Purposes in Wage Policy. London and New York: Longmans.

1961 The Pound at Home and Abroad. London: Long mans. → See especially Chapter 2, “Relative Strength of the Pound and the Dollar”; Chapter 12, “The Under-valuation of the Pound”; and Chapter 14, “The Radcliffe Committee: Aims of Monetary Policy.”


Armitage-Smith, George (1906) 1935 Principles and Methods of Taxation. 11th ed. Revised by R. G. Hawtrey. London: Murray.

Harrod, R. F. 1951 The Life of John Maynard Keynes. London: Macmillan. → A paperback edition was published in 1963 by St. Martins.

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