Hawtrey's view on Trade Cycles

Trade cycles refer to the fluctuations in economic activity that occur over a certain period. Many economists have studied trade cycles and have come up with different theories to explain them. One such economist is Ralph George Hawtrey, who believed that trade cycles are a purely monetary phenomenon.

Explanation:

Hawtrey was a British economist who lived from 1879 to 1975. He was a member of the British Treasury and worked on monetary policy during the inter-war period. He believed that trade cycles were caused by changes in the money supply, which in turn affected the level of investment.

According to Hawtrey, the trade cycle is a purely monetary phenomenon that is caused by fluctuations in the demand for money. When the demand for money increases, interest rates rise, which leads to a decrease in investment. This, in turn, causes a decrease in economic activity and leads to a recession. On the other hand, when the demand for money decreases, interest rates fall, which leads to an increase in investment. This, in turn, causes an increase in economic activity and leads to an expansion.

Hawtrey believed that the central bank could control the trade cycle by manipulating the money supply. By increasing the money supply during a recession, the central bank could lower interest rates and stimulate investment, thus leading to an expansion. Conversely, by decreasing the money supply during an expansion, the central bank could raise interest rates and reduce investment, thus leading to a recession.

Conclusion:

In conclusion, Hawtrey's theory of trade cycles is based on the idea that fluctuations in the money supply are the primary cause of economic fluctuations. While this theory has been criticized by some economists, it has had a significant influence on the development of monetary policy.

Hawtrey