Hawtrey on the “wide fluctuations in the money value of output”
Congratulations to the Ralph G. Hawtrey Chair of Monetary Policy! Making my way through some of the references from George Selgin’s monograph “Less than Zero” recently, I ended up reading a transcript of a Chatham House discussion from 1929 on “The International Gold Problem”. The transcript is a bit rough in places, but whole thing is a fascinating read; here’s a contribution from Hawtrey to add to Scott’s collection:
Mr R. G. HAWTREY: In my view one of the most serious evils arising from fluctuations in the value of the currency is the trade. Whatever the causes of the trade cycle may be, one thing is common ground to every one, and that is that the trade cycle include the fluctuation of the price level combined with a fluctuation of productive activity. The two go together. Fall in price were due to increased production and the rise in scarcity, no further explanation would have to be looked for. But in fact the fall coincides with diminished production and the rise with increased production. The total value in money of the output of the world is increased both by the percentage by which prices rise and by the percentage by which the physical volume of production rises. Likewise, the subsequent fall in the price level is superimposed on the shrinkage of production. These wide fluctuations in money value of output are clearly a monetary phenomenon. A fall in the price level due to monetary causes brings about business depression and unemployment. The depression of the ’eighties, following the general adoption of the gold standard and the heavy fall in prices from 1873 onwards, supplies a well-known example.
More than eight decades later and it is now a minority view that the “wide fluctuations in the money value of output” … i.e. nominal GDP since 2008… are “clearly a monetary phenomenon”!