David Glasner Cheers For Hawtrey and Cassel

Today, we are doing a little more work regarding the Interwar Period, which was a big focus over the past two years. Specifically, we will look at a 2013 paper, “Pre-Keynesian Monetary Theories of the Great Depression,” by Ronald Batchelder and David Glasner. You can read it here:


David Glasner has a website here:


To summarize the paper, it is basically a “blame gold” argument, that says that aggressive accumulation by central banks (especially France) in 1928-1932 caused the real value of gold to rise, thus inducing a “monetary deflation.” These are arguments we’ve seen before. One thing I like about this version is that it explicitly excludes a lot of “price-specie flow mechanism”-related arguments that say that gold accumulation by France causes contraction/deflation in the U.S. or Britain etc. This is basically fallacious, and Glasner says so. This is a nice contrast to H. Clark Johnson’s Gold, France and the Great Depression, 1919-1932 (1998), and also “The French Gold Sink and the Great Deflation of 1929-1932” (2012) by Douglas Irwin, in which these ideas are mixed in with a lot of other notions mostly related to “price-specie flow” notions. Also, it updates these ideas to 2013, so we can see if anything worthwhile might have been uncovered since 1998.

We aren’t really going to make any new arguments here, but I think it is useful to see if those that make these arguments have anything to bring to the table. Are we missing something?

Here are some of our previous items on the subject:

August 25, 2017: The Interwar Period 2: It’s Not That Complicated

Here is the abstract of the paper:

 Abstract: A strictly monetary theory of the Great Depression is generally thought to have originated with Milton Friedman. Designed to counter the Keynesian notion that the Depression resulted from instabilities inherent in modern capitalist economies, Friedman’s explanation identified the culprit as an ill-conceived monetary policy pursued by an inept Federal Reserve Board. More recent work on the Depression suggests that the causes of the Depression, rooted in the attempt to restore an international gold standard that had been suspended after World War I started, were more international in scope than Friedman believed. We document that current views about the causes of the Depression were anticipated in the 1920s by Ralph Hawtrey and Gustav Cassel who independently warned that restoring the gold standard risked causing a disastrous deflation unless the resulting increase in the international monetary demand for gold could be limited. Although their early warnings of potential disaster were validated, and their policy advice after the Depression started was consistently correct, their contributions were later ignored and forgotten. This paper explores the possible reasons for the remarkable disregard by later economists of the Hawtrey-Cassel monetary explanation of the Great Depression.

From the beginning, we are told that this is a “strictly monetary theory.” This seems to be held up as a sort of accomplishment. I would hope by now that the idea that the Great Depression was “strictly monetary” — that there was no other contributing factor — would seem like the height of silliness, but I guess not. As I described in Gold: the Final Standard, economists tended to get lost in the “Prices, Interest, Money Box,” which really left them no options but a “strictly monetary theory.” You can see I wasn’t making this up, or even exaggerating.

The paper is based on this claim:

However, as an increasing number of countries followed Germany (1924) and Britain (1925) back on the gold standard, and especially when France, having stabilized the franc in 1926, enacted legislation in 1928 requiring 40 percent cover on the note issues of the Bank of France and mandating the holding of all legally required reserves in gold rather than foreign exchange, the international monetary demand for gold began to increase sharply in 1928.

However, the paper provides no statistics. We know why not — the statistics show, unequivocably, that the “international monetary demand for gold” did not “increase sharply in 1928.” It is basically a fantasy.

Can you see the “sharp increase” in gold accumulation? No? I can’t either. It didn’t exist. Rather, there was a remarkably smooth trend of gold accumulation dating from 1845 to about 1964. Around 1964, this trend suddenly reversed, and central banks started to dump gold. I am sure you will agree that this 1964 reversal was the biggest change in this trend since 1850. And yet, it apparently had no effect at all. Commodity prices were basically unchanged.

Now, I know that someone is going to try to argue that some tiny wiggle has some kind of earth-shattering consequences, but just look at it. Remember, we are trying to find a cause of the Great Depression, and not only that, a “strictly monetary theory” of the Great Depression — something that caused the Great Depression in absence of any other factors. It’s fantasy. I think this is why Hawtrey and Cassel were “overlooked” by Keynes and others in the 1930s. I am sure that they knew about it, and “overlooked” it quite deliberately.

The paper had some nice description of other “interpretations” of the Great Depression, which I would say coincides rather well with the description I gave in Gold: the Final Standard. All in all, I find this paper rather nice, at it is sensible and rational, quite unlike the confused “argle bargle” I find in most papers where you have to do a fair amount of “interpreting” to even guess at what the author is trying to say.

It’s worth noting that Hawtrey was apparently a funny-money guy. Scott Sumner, a avowed NGDP guy whose own Great Depression book we looked at last year, was so happy with Hawtrey’s proto-NGDP arguments that he named his own chair after him. Here’s Hawtrey in 1918:

The better alternative seems to be to aim at making the consumers’ outlay constant. But, of course, it must not be absolutely constant; it must vary with the population, and must also vary in some way with the quality of the work they do. If that ideal could be attained, the value of the monetary unit in terms of human effort would be kept fixed.

The whole discussion by Sumner is worth reading.

Scott Sumner on Ralph Hawtrey’s early NGDP-targeting arguments.

So, like Sumner, it is not too hard to see why Hawtrey had a blame-gold fixation. If you are going to follow any “strictly monetary” approach, as NGDP targeting most certainly is, then, like any funny-money enthusiast, you must blame gold for the Great Depression, and then claim that funny money was the way to go. Apparently, today’s NGDP people also lump Cassel, and maybe Irving Fischer, into this “proto-NGDP” group.