Home > History, Monetary Policy > Hawtrey on the “wide fluctuations in the money value of output”

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”!

Categories: History, Monetary Policy
  1. ChrisA
    January 22, 2015 at 00:36

    On the damage to economies due to monetary causes it’s interesting that one of the main justifications for the Euro was that it would help manufacturers avoid the risk of currency fluctuations and the subsequent risks of mis-pricing their products so increasing trade in the Euro area. In retrospect this small benefit is dwarfed by the risk to manufacturers of ending up in an area where monetary policy was too loose or too tight (like say Italy at the moment). I know the Euro was really more of a political project rather than justified on these commercial grounds, but why didn’t the project creators consider this risk more? If Hawtrey could talk about this in the 1930’s surely this should have been considered a risk in the 1990’s? Given what we know now, what safe guards could the creators have put into the ECB constitution? Obviously this blog would favor NGDP gowth stabilisation, but back in the 1990’s that would probably have not been on the table. What about a minimum inflation rate for countries, i.e. no country inflation rate less than 1%? Or perhaps wage growth targets for the Eurozone as a whole?

    • January 22, 2015 at 08:35

      I don’t know enough of the history of the Euro to comment on that specifically.

      My reading of history is that the consensus around inflation forecast-targeting was if anything less strong back in the 1990s than it is today. In the nineties IT was something of a new experiment. Today it is considered an empirical success. In most of the macro discussion here in the UK since 2008 it has been unusual to find people willing to think outside the box of “monetary policy = 2% IT”.

      Mervyn King in 1994: http://www.ifs.org.uk/fs/articles/king_aug94.pdf

      There he considers NGDP (growth rate) targeting “the most serious candidate” for an alternative intermediate target, specifically because of concerns around short-run stabilisation under supply shocks with inflation target. But he sees flexible IT as sufficient.

  2. james in london
    January 27, 2015 at 11:11


    A bit of slowdown in the fourth quarter, but a decent 2014 overall. Annualised Q4 GDP at Current Prices (NGDP growth “US-style”) was a lowly 2.14% and only 4.01% 4Q YoY. Not enough and no wonder we are not geting proper nominal wage growth.

    Still the BBC headlines look good, and true, 2014 was the best year for GDP growth since 2007.

    • January 27, 2015 at 13:24

      BoE was forecasting RGDP grew 3.4% four quarters to 2014 Q4 – we got 2.7%… and yet… unemployment keeps coming in below forecast. Is it me, or is the data is increasingly hard to read?

  3. james in london
    January 28, 2015 at 10:45

    A long and variable lag due to the relocation of the ONS to Wales?

    More likely due to their reliance on the “output” method for calcuating RGDP. We have observed the methodological issues already of calculating service sector RGDP, and it is increasingly dominant in the UK economy. The output method is a relic of our great industrial past, but should now be ditched.

    And then the ONS take that low quality RGDP figure and inflate with a price deflator (inflator) to get NGDP, which adds to the nonesense.

    Why not just use the easier income or expenditure methods and give us NGDP clean, like in the US? And then focus efforts on improving the deflator to get RGDP. It can’t be that difficult.

    OT, this is just ridiculous, but oh so predictable:

    • January 28, 2015 at 14:07

      Speaking of Swiss & ridiculous… tight money leads to fiscal stimulus, eposide #23412


      • ChrisA
        January 29, 2015 at 09:18

        I hope that compensation will be provided by printed CHF rather than borrowed or taxed….
        Until this article I was wondering if perhaps we were being too hard on the Swiss. Maybe, I thought, they realised that holding the peg was too easy, when they announced the peg they expected to have to buy lots of Euro’s. But they established credibility too early. So they deliberately announced the end of the peg to destroy their credibility so that they could get back to actively printing free francs to buy Euros which they can then distribute to their shareholders as a dividend.

        Well it was just a theory.

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