Ralph Hawtrey has always been in the shadow of Keynes, but might well have been the superior macroeconomist. I think you could also argue that Hawtrey’s model of macroeconomics was more “Keynesian” than the General Theory, in the sense of being closer to what economists of the 1990s and early 2000s meant by the term “Keynesian”.

In an earlier post, I pointed out that the model in the General Theory had three key components:

So Keynes basically has a model with three components:

1. Aggregate demand shocks (NGDP shocks)

2. Sticky wage-units (sticky nominal wages)

3. Labour unit fluctuations (employment fluctuations)

Wait, that’s my musical chairs model!

But that’s also the essence of Hawtrey’s model of macro, as spelled out in Currency and Credit (1919, p. 376) and other works:

But then what allowance is to be made for a general scarcity or a general abundance of commodities? If the consumers’ outlay be constant, the index number will be raised by scarcity and depressed by abundance. If the index number be constant, the consumers’ outlay will be raised by abundance and depressed by scarcity.

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.

This requires a bit of explanation, as terminology has changed a lot since 1919. By “consumer outlays” Hawtrey meant something like NGDP:

They may conveniently be called “consumers incomes” and the “consumers’ outlay,” though it must be understood that “consumer” includes “investor” for investment is one of the purposes on which income can be spent. [from the 1930 edition]

Hawtrey saw sticky wages as being a key component of the business cycle, and hence favored stabilizing (per capita) NGDP, or aggregate demand, in order to stabilize output. Indeed Hawtrey (p. 375) was ahead of his time in recognizing employment stability as the central macroeconomic problem:

The working classes have the greatest interest in a stable currency, and so long as the monetary unit does not break away from all bounds, like the assignats, the question of justice between debtor and creditor is less important than the effect of currency movements on employment and real wages.

Hawtrey also anticipated some of Keynes’s most famous metaphors. Here’s Hawtrey in 1919:

Primitive man clung to his religious rites for fear he should neglect the progress of the seasons and the annual round of agricultural operations. The currency experts of the nineteenth century, with similar prudence, sanctified metallic money with an almost religious taboo.

And here’s Keynes in 1924:

In truth, the gold standard is already a barbarous relic.

So why was Keynes the much bigger success?
If we look at what might be called “the economics of Keynes” rather than Keynesian economics, we see ideas like:

1. The paradox of thrift

2. The liquidity trap

3. Fiscal stimulus in slumps

4. The revival of mercantilism

In my view these were intellectual dead ends, which resulted from the depressed conditions and near-zero interest rates of the 1930s. By the 1990s these ideas had been expelled from the Keynesian model, at least at the elite universities. One way to test my claim is to see if the “underworld” of old Keynesianism had a revival when economies again fell into a long zero interest rate slump.

And it did revive. All the old “zombie ideas” have been revived in the past 8 years. Perhaps this summary is best:

1. Hawtreyan Keynesian economics is similar to New Keynesian economics. It’s the form of Keynesian economics that is popular during a period with positive interest rates, where the central bank actively tries to smooth out the path of NGDP.

2. Keynesian Keynesian economics is the economics of long periods of near-zero interest rates and elevated unemployment. It’s the economics of the paradox of thrift, of anti-laissez-faire attitudes, or jealousy over other countries having current account surpluses, of opposition to downward wage flexibility, of fiscal stimulus.

We really need to get back to the world of Hawtreyan Keynesian economics.

PS. There is a new video promoting my book on the Great Depression: