Sir Ralph George Hawtrey (22 November 1879, Slough – 21 March 1975, London) was a British economist, and a close friend of John Maynard Keynes. He was a member of the Cambridge Apostles, the University of Cambridge intellectual secret society.
He took a monetary approach towards the economic ups and downs of industry and commerce, advocating changes in the money supply 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. He also advanced in 1931 the concept that became known as the multiplier, a coefficient showing the effect of a change in total national investment on the amount of total national income.
It was his view that the botched attempt to restore the international gold standard led to the Great Depression. He had played a key role in the Genoa Conference 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 (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.
He was educated at Eton, and went up to Trinity College, 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.
Alfred Marshall 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 at Cambridge and Currency and Credit (1919) became a standard work in Cambridge in the 1920s.
He taught at Harvard University as a visiting lecturer from 1928 to 1929 on a special leave from the UK Treasury. After his official retirement in 1945 he was elected Price Professor of International Economics in the Royal Institute for International Affairs a post which he held from 1947 to 1952.
Hawtrey was knighted 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, to which he grafted an income approach, foreshadowing a treatment by John Maynard Keynes. 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 and General Theory.
His major contributions related to the quantity theory and the trade cycle. 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.
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.