Brad Delong Likes Bagehot and Minsky Better than Hawtrey and Cassel

It seems as if Brad DeLong can’t get enough of me, because he just quoted at length from my post about Keynes and Hayek even though he already quoted at length from the same post a month ago.  So, even though Brad and I don’t seem to be exactly on the same page, as you can tell from the somewhat snarky title of his most recent post, I take all this attention that he is lavishing on me as evidence that I must be doing something right.

After his long quote from my post, Brad makes the following comment:

As I have said before, IMHO Cassel and Hawtrey see a lot but also miss a lot. The Bagehot-Minsky and the Wicksell-Kahn traditions have a lot to add as well. And Friedman was a very effective popularizer of most of what you can get from Cassel and Hawtrey.

But, as I have said before, those of us who learned this stuff from Blanchard, Dornbusch, Eichengreen, and Kindleberger–who made us read Bagehot, Minsky, Wicksell, Metzler, and company–have a huge intellectual advantage over others.

I left a reply to Brad on his site, (which, as I write this, is still awaiting moderation so I can’t reproduce it here); the main point I made was that Hawtrey (who coined the term “inherent instability of credit”) was not outside the Bagehot-Minsky tradition, or, having invented the fiscal-multiplier analysis before Richard Kahn did (as documented by Robert Dimand), and having relied extensively on the concept of a natural rate of interest in most of his monetary writings, was he outside the Wicksell-Kahn tradition.  But, while acknowledged the importance of the two traditions that Brad mentions and Hawtrey’s affinity with those traditions, I maintain that those traditions are not all that relevant to an understanding of the Great Depression, which was not a typical cyclical depression of the kind that those two traditions are primarily concerned with.  The Great Depression, unlike “normal” cyclical depressions, was driven by powerful worldwide deflationary impulse associated with the dysfunctional attempt to restore the gold standard as an international system after World War I.  Hawtrey and Cassel understood the key role played by the demand for gold in causing the Great Depression.  That is why Brad’s reference to Friedman’s popularization “of most of what you can get from Cassel and Hawtrey” is really off the mark.  Friedman totally missed the role of the gold standard and the demand for gold in precipitating the Great Depression.  And Friedman’s failure — either from ignorance or lack of understanding — to cite the work of Hawtrey and Cassel in any of his writings on the Great Depression was an inexcusable lapse of scholarship.

Daniel Kuehne picks up on Brad’s post with one of his own, defending Keynes against my criticisms of the General Theory.  Daniel points out that Keynes was aware of and adopted many of the same criticisms of the policy of the Bank of France that Hawtrey had made.  That’s true, but the full picture is more complicated than either Daniel or I have indicated.  Perhaps I will try to elaborate on that in a future post.

13 Responses to “Brad Delong Likes Bagehot and Minsky Better than Hawtrey and Cassel”


  1. 1 Daniel Kuehn March 2, 2012 at 10:43 am

    “Daniel points out that Keynes was aware of and adopted many of the same criticisms of the policy of the Bank of France that Hawtrey had made.”

    Shouldn’t this read “same criticisms of the policy of the insane Bank of France”???

    You don’t want us to think you’ve gone soft!

  2. 2 Marcus Nunes March 2, 2012 at 11:27 am

    David
    If I remember well, Doug Irwin has a good summary. To him the Hayek-Keynes debate was between those (Hayek and Co.) who explained, or tried to, how we got into the depression and those (Keynes) who Explained (or tried to) how we coild get out of it. In the meantime Hawtrey and Cassel could explain both how we got in and what to do to get out!

  3. 3 David B. Schuster March 2, 2012 at 1:44 pm

    When you speak of deflationary impulses driven by dysfunctional attempts to restore the gold standard, do you see a connection to the obsession with deficits that we see today? Deficits were very important back when there was a limited money supply (or if your debt is denominated in someone else’s currency). The justifcation for the existence of a central bank is to print money to loan to the government, which would have gotten us out of the Great Depression and could solve our problems now.

  4. 4 JP Koning March 2, 2012 at 5:39 pm

    David, I hope this is not too off topic, and if it is, I blame you since you’ve got me interested in the subject of Cassel with your recent posts enough that I’ve been wandering around reading a few papers about him.

    Douglas Irwin, in his paper on Cassel, (http://www.dartmouth.edu/~dirwin/Cassel.pdf) includes a few quotations from Cassel’s work:

    “the United States have accumulated a very large gold reserve which has not been used for a corresponding credit expansion. Only part of this accumulated gold is actually needed as a basis of the American monetary system. The rest forms an extra reserve, from which the United States are able to supply almost any amount of gold that could practically be asked for by the outside world.” (1928, Postwar Monetary Stabilization)

    and

    The fact that the gold-receiving countries failed to use their increasing gold reserves for extending the effective supply of means of payment must be regarded as abnormal and, therefore, as an independent cause of the fall in prices at the side of the maldistribution of gold.” (1932, The Crisis in the World’s Monetary System)

    The bold font is mine.

    Now correct me if I’m wrong, but don’t these quotations suffer from some of the same weaknesses that Hayek’s suffer from, and which you have pointed out in prior posts? For instance, you said here that Hayek “did not understand that, to a first approximation, the monetary authority of a country on an international gold standard, does not control the quantity of money in circulation in that country.”

    It sounds like Cassel, in claiming that gold reserves can be used for currency expansion, is making the currency-school mistake of assuming the monetary authorities set the quantity of money, whereas in actuality it is demand determined.

  5. 5 hrsaccount March 3, 2012 at 3:51 am

    The problem with the “it’s all about gold” model is that it completely fails to explain the 1938 US recession. If your argument is “we explain every change in trend, you don’t, neener, neener”, then having a change in trend that you can’t explain is a pretty damn big problem.

  6. 6 Brad DeLong March 3, 2012 at 4:01 am

    Remember that the first thing of Hawtrey’s I ever read was R. G. Hawtrey (1925), “Public Expenditure and the Demand for Labour,” Economica 13 (March), which did not impress me…

  7. 7 Tas von Gleichen March 3, 2012 at 5:25 am

    Nice now I know what I should be reading. Also, it seems like we always go back and compare the worst of time of current events. I find this to become ever more annoying. At the same time I don’t see how else we could compare.

  8. 8 wcvarones@yahoo.com March 3, 2012 at 9:36 am

    I like your blog. I just got here by googling Sumner and inflation.

    I tend to agree with you that at this particular point in time, devaluation is the only way out, but I don’t think that justifies having central planners, especially this clueless bunch, manipulate interest rates.

    Greenspan and Bernanke created the financial and economic crisis through serial bubble-blowing and encouraging far too much speculative leverage to build up throughout the financial system. That devaluation is now the only way out does not absolve them of their crimes.

  9. 9 Marcus Nunes March 4, 2012 at 11:59 am

    @hrsaccount
    Wrong! Gold was determinant to the 1937/8 blow-up. While the Treasury sterilized gold, the FEd raised required reserves. A “double-whammy”! In April 1938, FDR said “Enough”.

  10. 10 Marcus Nunes March 4, 2012 at 12:05 pm

    @ DeLong
    Influenced for “eternity” by a sample of 1? Imagine that today a second year economics student reads his first Samuelson article and that is the 1960 “Phillips Curve” piece together with another Nobel winner (Solow). Maybe he wouldn´t be very impressed with two Nobels either!

  11. 11 on your MArx March 5, 2012 at 2:28 pm

    Yes the Fed raised reserves in 1937 but they did so in 1941 and there was little effect as the Romers have shown.


  1. 1 Links for 2012-03-03 | FavStocks Trackback on March 3, 2012 at 12:24 am
  2. 2 Links for 2012-03-03-Economic Issue | Coffee At Joe's Trackback on March 4, 2012 at 6:40 am

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About Me

David Glasner
Washington, DC

I am an economist in the Washington DC area. My research and writing has been mostly on monetary economics and policy and the history of economics. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey's unduly neglected contributions to the attention of a wider audience.

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