Hawtrey contributed to a number of significant developments in economic analysis, including an original form of the cash balance approach to the
quantity theory of money, to which he grafted an income approach, foreshadowing a treatment by
John Maynard Keynes. He also advanced, as early as 1931, the concept of
multiplier, which was given a central role by Keynes, and, indeed, Hawtrey played a significant role in the development of Keynes's thought in the years between his
Treatise and
General Theory. His major contributions related to the
quantity theory and the
trade cycle. He was one of the first English economists to stress the primacy of credit money rather than metallic legal tender. Furthermore, his income-based approach led to a closer integration of the theories of money and output. For Hawtrey, money income determines expenditure, expenditure determines demand and demand determines prices. Hawtrey summarised his aims in monetary theory in the preface to
Currency and Credit. :: Scientific treatment of the subject of currency is impossible without some form of the quantity theory … but the quantity theory by itself is inadequate, and it leads up to the method of treatment based on what I have called the consumers’ income and the consumers’ outlay – that is to say, simply the aggregates of individual incomes and individual expenditures. (1919, p. v) Consumers’ outlays include investment (the result of saving), since investment is spent on fixed capital. The difference between outlays is then consumers’ balances and income, thus only consisting of accumulated cash balances (including money in bank accounts). In addition, a similar demand exists, for money balances by traders related to their turnover. Both consumers’ and traders’ balances may be held by individual agents – Hawtrey notes that the true traders' income is the profits of the business and that this consumers’ income included this. ==Main publications==