Keynes and Hawtrey

For the next few weeks, I am going to be writing a lot about the austere-looking gentleman whose visage adorns, and whose ideas inspire, this blog: the great, but underestimated, Ralph Hawtrey. I was asked last summer to write an entry on Ralph Hawtrey for the forthcoming Elgar Companion to Keynes, and, with the due date for my contribution fast approaching, I have decided to conscript readers of this blog as commentators and research assistants, as I try to pull together my scattered thoughts about the close, productive, and complicated relationship between these two luminaries of English economics in its heyday, during the first half of the last century. Obviously, more is known about the life of Keynes, by far the more famous of the two, than about Hawtrey’s, and my focus for this assignment is not so much Hawtrey in his own right, but Hawtrey as an important, but perhaps not quite central, figure in Keynes’s life, and in his career as an economist. But it is actually quite remarkable how similar were their backgrounds and how their lives and careers for a long time seemed to proceed on nearly parallel tracks.

Both Keynes and Hawtrey were born into families in the upper echelons of the English intelligentsia and educational systems. Keynes’s father, John Neville Keynes, was a Cambridge don, who lectured on Moral Science and wrote a well-regarded book on the methodology of economics, The Scope and Method of Political Economy. Hawtrey’s grandfather was Assistant Master of the Lower School at Eton, and a second cousin of a Headmaster, and later Provost, of Eton. The grandfather subsequently established a preparatory school, St. Michael’s, where Hawtrey’s father became assistant master. Before going to Cambridge, Hawtrey and Keynes both attended Eton. Born in 1879, four years before Keynes, Hawtrey graduated from Cambridge in 1901, the year of Keynes’s arrival. Both studied mathematics, not economics, at Cambridge. While Keynes, through his father, knew Marshall well, it does not appear that Hawtrey had any contact with Marshall while at Cambridge or thereafter. In any event, both Hawtrey and Keynes were largely autodidacts in economics. Besides concentrating on mathematics, both Hawtrey and Keynes studied philosophy under G. E. Moore, and were greatly influenced by his teachings. Moore’s influence on Hawtrey is perhaps most clearly visible in Hawtrey’s 1925 book, The Economic Problem, his only book on general economics, a book that bears the stamp of Moore’s ethical teachings. Moore’s teachings were also a major influence on the Bloomsbury group of which Keynes was a famous member, and to which Hawtrey was also connected, though not as closely as Keynes. Like most male members of the Bloomsbury group, Hawtrey was a Cambridge Apostle, serving as Keynes’s sponsor when Keynes was elected an Apostle in 1903. Keynes’s 1925 marriage to the Russian ballerina Lydia Lopokova led to his estrangement from the Bloomsbury group. After Hawtrey married the Hungarian concert pianist Emilia d’Aranyi (a great-niece of the famed Hungarian violinist Joseph Joachim) in 1915 she was described by Virginia Woolf in a letter to Duncan Grant as “a practically barbaric Pole . . . with ungoverned passions and the brain of a yellow cockatoo,” though she noted the Hawtreys affectionate manner towards each other.

Upon graduation, Hawtrey decided to enter the British civil service, and, in preparing for the entrance exam, began to study economics. Starting at the Admiralty in 1903, Hawtrey took a position in the Treasury in 1904 as a Clerk. Retaining his interest in mathematics, Hawtrey corresponded with his Cambridge friend Bertrand Russell about various proofs that Russell was puzzling over, proofs eventually published in the Principia Mathematica of Russell and Whitehead. In 1910 Hawtrey became the Principal Private Secretary of the Chancellor of the Exchequer, Lloyd George, assisting in the preparation of the 1910 Budget, and becoming a First Class Clerk in 1911. In 1919 he was appointed Director of Financial Enquiries Branch of the Treasury. While at the Treasury, Hawtrey undertook intensive studies into economics and the theory of money and business cycles, publishing his first book, Good and Bad Trade, in 1913, in which he presented a complete and purely monetary theory of the business cycle.

Keynes also started in the civil service, becoming clerk in the India Office in 1906, but, growing bored with his work, he returned to Cambridge in 1908 to write his Treatise on Probability (not published till 1921). In 1909, Keynes became a lecturer in economics, and, in 1911, was appointed editor of the Economic Journal. In 1913, Keynes published first book Indian Currency and Finance, which led to his appointment to the Royal Commission on Indian Currency and Finance. After World War I started, Keynes rejoined the Civil Service and worked in the Treasury, but at a much higher level of responsibility than Hawtrey. And in 1919 Keynes was appointed the official representative of the Treasury to the Versailles Peace Conference, which led directly to the 1919 publication of Keynes first great work, The Economic Consequences of the Peace, his excoriation of the Treaty of Versailles,which established his reputation as an economist and made him a public figure of immense influence.

During the war, Hawtrey worked in relative obscurity at the Treasury, publishing a few articles in the Economic Journal. But in 1919, Hawtrey, too, published his second book, Currency and Credit, which quickly became one of the most influential books on monetary economics in the world, becoming over the following decade the standard text in monetary economics in Great Britain and in much of the English-speaking world. As Director of the Financial Services Branch, Hawtrey could work more or less independently on whatever he wanted to while responding to the queries about monetary and financial policy put to him by higher-ups in the Treasury, or writing memos on whatever topics he thought his superiors needed to hear about. In this period, Hawtrey achieved his greatest influence on policy, writing several influential papers on the reconstruction of the international monetary system after World War I. He was instrumental in organizing the Genoa International Monetary Conference and writing its recommendations for restoring the international gold standard in the form of what became known as a gold exchange standard, an idea that Keynes had proposed in his Indian Currency and Finance. The goal was to stabilize the purchasing power of gold rather than allow it to rise prewar level, which would have entailed a massive deflation.

In his Tract on Monetary Reform, published in 1923, Keynes mildly criticized Hawtrey and the Genoa resolutions for seeking to stabilize the international price level by way of the gold standard, which Keynes believed would put Britain at the mercy of the US and the newly created Federal Reserve System, which then held approximately 40% of the world’s monetary reserves of gold. Under those circumstances, Keynes felt it was better for Britain not to rejoin the gold standard, and certainly not at the prewar parity, but rather follow a policy aimed at stabilizing the internal British price level, while letting the dollar-sterling exchange rate take care of itself. This was the background for the more serious dispute between Keynes and Hawtrey in 1925 over the British decision to rejoin the gold standard at the prewar dollar parity of $4.86 per pound. While Keynes was totally opposed to restoring the gold standard at the prewar dollar-sterling parity, Hawtrey favored the move, because he was confident that the Federal Reserve would follow an accommodative policy allowing Britain to avoid significant deflationary pressure even with the pound back at prewar parity. The performance of the British economy after Britain returned to the gold standard was probably not as good as Hawtrey had hoped, but neither was it as bad as Keynes had feared. Unemployment, though high by historical standards, gradually declined to less than 10% by 1929, and British output and income growth was quite respectable.

However, in 1928-29 when the Fed drastically tightened its policy in response to supposedly excessive stock-market speculation, Keynes’s fears that Britain would be vulnerable to the effects of policies taken by the Federal Reserve proved only too accurate. Of course, Hawtrey was sharply critical of the Fed tightening, especially given the insane policy of the Bank of France, starting in 1928, to convert its foreign exchange reserves into gold. Precisely the danger about which Hawtrey had been warning since 1919 was coming to pass, the combined result of the policies of the Bank of France and the Federal Reserve. Despite their disagreements about a number of details about how to implement policy, it does not seem that Keynes and Hawtrey had any fundamental disagreements about monetary theory or about the big picture of what was happening at the outset of the Great Depression.

In the next installment, I’ll have something to say about the Keynes-Hawtrey relationship as it evolved while Keynes was writing the Treatise on Money and later the General Theory; Hawtrey was deeply involved in the process of writing and revising both works, reading and commenting on early drafts of both works, though, especially in the latter case, not without causing severe strains in the relationship. And as an added treat, I may also have a bit to say in a future post about Hawtrey and Hayek.

9 Responses to “Keynes and Hawtrey”


  1. 1 Ravi March 5, 2013 at 8:27 am

    Greatly looking forward to other entries in the series.

  2. 2 David Glasner March 5, 2013 at 9:07 am

    Ravi, Thanks, I hope that I can meet your expectations.

  3. 3 JP Koning March 5, 2013 at 10:21 am

    For posterity’s sake, here an older post on Hawtrey/Keynes.

    David, you mentioned that you thought Keynes would have agreed with Hawtrey about the insane Bank of France (IBOF), but for “more complicated” reasons. How did they differ?

  4. 4 Luis March 5, 2013 at 10:28 am

    You are a great economic historian, David, a pleasure to read you. I’m learning a lot in your post, so different of many others without any anchor in the history. This return to the past is for me more important than any empirical test. Congratulations.

  5. 5 Blue Aurora March 6, 2013 at 11:59 pm

    Whilst I’d love to help, my knowledge of the Hawtrey/Keynes relationship doesn’t go beyond what I’ve told you in e-mail correspondence, David Glasner. However, from what I have been able to find on the web, perhaps this man might be able to help. You may have had contact with him before, however.

    http://www.mckendree.edu/directory/frank-spreng.php

    Have you tried contacting the archivists at the University of Cambridge? Ralph Hawtrey’s papers are stored there, and you can find a digital catalogue at Cambridge’s JANUS system. To be precise, they are at Churchill College’s Archive Centre. I believe you will have to contact someone from there for that.

    http://janus.lib.cam.ac.uk/db/node.xsp?id=EAD%2FGBR%2F0014%2FHTRY

    Also, try digging through this.

    http://www.ampltd.co.uk/digital_guides/treasury_papers_series_2_JMK/Contents.aspx

  6. 6 Alan Gaukroger March 8, 2013 at 7:29 am

    A few years ago I completed a dissertation on the role of Ralph Hawtrey within the inter-war British Treasury. It was written from the perspective of a student of twentieth century British History rather than from that of monetary economist. Indeed, its greatest weaknesses arise from my lack of any formal training in economics (although it must be said that this handicap did not seem to hold back either Keynes or Hawtrey).

    The link to it is:

    http://eprints.hud.ac.uk/2980/1/agaukrogerfinalthesis.pdf

    It was written in my semi-retirement when I sought to re-connect with some of my schoolboy interests after a life working in the physical sciences. It should give some insight into the characters and ambitions of the people surrounding Hawtrey in the course of his Treasury work.

    Please feel free to make use of, comment upon, criticise, or lambast my efforts if they are of any assistance in your task.

    I look forward to reading your entry.

  7. 7 David Glasner March 8, 2013 at 9:07 am

    JP, Sorry, rereading the post (thanks for remembering) you linked to did not jog my memory. I would have to go back and reread what Keynes wrote, and even that might not do it for me. If I remember (underline if), I will try to go back and have a look. Feel free to send me a reminder, if I don’t get back to you.

    Luis, Thank you for your kind words.

    Blue Aurora, Thanks for your suggestions. I have seen the archive summary, but have never had a chance to look at the contents which have not been put on line. I did just find Alan Gaukroger’s dissertation about Hawtrey’s career at the Treasury on line (by coincidence?) and he went through the archives in writing his very informative dissertation, which I hope to make more use of in the future.

    Alan, Thanks for your comment. I am so glad that you contacted me. I only found your dissertation the other day, and immediately printed out all 530 pages and have already read the introductory material. It looks like a treasure trove to me.


  1. 1 Keynes and Hawtrey: The Treatise on Money and Discovering the Multiplier | Uneasy Money Trackback on March 10, 2013 at 6:46 pm
  2. 2 Austrians in the History of Thought | Economic Thought Trackback on June 7, 2013 at 12:51 pm

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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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