From Hawtrey to Keynes

‘Dealers Economics’ and the Impact of Multiplier Theory

Abstract

Although R. G. Hawtrey (1879-1975) had been an outstanding monetary economist in the 1920s and 1930s, and was greatly respected by Keynes, the subsequent ‘Keynesian Revolution’ made Hawtrey's analysis out-of-date. But recently the situation has been changing. Now it is time for a reappraisal.
In a Treasury memorandum entitled “Germany and the Reparations Burden” (Sep. 1928) and in working paper No. 66 of the Macmillan Committee (Jan. 1931), Hawtrey independently devised the ‘multiplier theory’ (that is, if investment increases, output will also increase until additional saving is balanced to additional investment). This preceded the work of R. F. Kahn. Interestingly Keynes (and later Kahn), who read these papers, appreciated Hawtrey's analysis. Nevertheless we cannot insist that Hawtrey's thought including the multiplier theory) influenced Keynes's thought. Why?
The clue to solving this paradox lies in the nature of Hawtrey's ‘dealers economics’. He always put stress upon the role of dealers (market intermediaries who hold stocks) and trade fluctuations triggered by money-flow change. On the other hand, Keynes emphasized the role of entrepreneurs and money-stock change (ex. liquidity preference). The difference is deeper than it seems. That is the reason why Hawtrey cannot occupy a crucial place in the making of Keynes's ‘General Theory’.