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.
My new book Studies in the History of Monetary Theory: Controversies and Clarifications has been published by Palgrave Macmillan
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Uneasy Money 
This was an excellent paper, David Glasner. However, I would like to ask you a few things:
1.) Did you feel it was unnecessary to make a brief reference to the 1954-1956 discussions over J.M. Keynes’s aggregate supply function in The Economic Journal? Ralph G. Hawtrey was involved in those discussions, along with Harry G. Johnson and Dennis H. Robertson, IIRC.
2.) Are you soon going to shortly upload your paper on the relationship between John Maynard Keynes and Ralph G. Hawtrey? IIRC, you said you were writing something like that for some scholarly handbook. I believe I sent you an e-mail to the following article not so long ago, but you didn’t respond. In case you don’t recall why I sent it to you, it was because the author of the piece referred to Ralph Hawtrey’s 1948 review of Etienne Mantoux’s book, The Carthaginian Peace, or The Economic Consequences of Mr. Keynes, in Economica.
http://cje.oxfordjournals.org/content/37/2/403.abstract
R.G. Hawtrey apparently defended the recently-deceased John Maynard Keynes from Etienne Mantoux’s arguments in that book review.
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David, great paper. Some comments below:
1. “If the bank rate is greater than the profit rate, borrowing from the banks increases; if the profit rate is less than bank rate, borrowing decreases. The profit rate corresponds to the real or natural rate plus expected inflation.”
I think this is a typo. Borrowing from banks increases when the bank rate is lower than the profit rate.
2. “When a combination of rising inflation and diminishing reserves causes banks to raise their interest rates to stem a loss of reserves…”
The view that rising credit automatically leads to an increase in inflation (as per Fisher) does not fit the data and is theoretically flawed as Hayek, Myrdal and co pointed out. As Leijonhufvud argued we really dont understand the way in which prices work their way through the economy. We just we think we do.
3. “What if the rate of depreciation of prices is actually greater than the natural rate of interest? If that is so, nothing that the bankers can do will make borrowing sufficiently attractive.”
This is a crucial point and one that is generally ignored by those overly concerned about deflation. Hawtrey recognises that there are two variables here: prices and profits. The Japanese experience was distinguished by a low profit rate whereas the US from 2009 was far less exposed to a deflationary spiral once the banking system had been shored up. Here is a link to an article containing some empirical research comparing the two countries using the approach which I think substantiates Hawtrey’s argument.
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If I was smart enough to understand this paper…I might offer some comments. Very interesting.
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Blue Aurora, Thanks, I am glad you liked the paper. About your specific questions:
1 You have asked me about that discussion several times, and I must admit that I have still not read the various contributions. However, it is not obvious to me that the discussion of the Keynesian supply curve would be relevant to a paper about Good and Bad Trade. But I could very well be wrong in that assumption. If you think it is relevant, I would certainly be glad to hear from you about what the relevance would be.
2 That is I think the next item on my to do list actually. Thanks for reminding me about Hawtrey’s review of Mantoux’s book which I will try to have a look at. My intuition is that the review would probably be worth a footnote, but not more.
Tom thanks for catching that typo, I will fix it. About rising credit and inflation, I think I agree that rising credit need not be inflationary. But under some circumstances it could be. Do you have a specific citation for the Leijonhufvud quote? Thanks for the link. I will try to read the paper.
Benjamin, Glad you found it interesting. You’re under no obligation to comment, but I always appreciated getting feedback from you.
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David, it’s in the costs and consequences of inflation chapter in Information and coordination. p.256-257. See also Inflation and the economists chapter on the Phillips Curve p.276.
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While my reply is belated, David Glasner…
1.) I simply think it would be relevant to mention just briefly from a “history of economic thought” stand-point, although the literature surrounding The General Theory of Employment, Interest, and Money by John Maynard Keynes is vast, Sir R.G. Hawtrey was involved in a debate over the aggregate supply function in J.M. Keynes’s magnum opus in The Economic Journal in the 1950ies. I don’t think the issue is connected enough with R.G. Hawtrey’s 1913 book to warrant an extensive treatment – only a brief acknowledgement as a potential avenue for future research.
2.) I see. Well, I’m glad that I at least reminded you of something you had to do, albeit unintentionally! If you don’t mind me asking, did you take a look at that paper by Larry Lepper in the March 2013 edition of the Cambridge Journal of Economics? I hope it was at least interesting to a small extent.
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Blue Aurora, Thanks for your suggestion, which is reasonable, and I will see if it can be worked into the final version.Sorry I have not looked at the Lepper paper, but I will keep it on my to do list.
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