Hicks's Theory of the Short-Term Rate of Interest and Thornton and Hawtrey's Influences

Lucy Brillant (1)

1 LEDi - Laboratoire d'Economie de Dijon

John Richard Hicks offered an endogenous theory of money from the sixties to his last book "A Market Theory of Money" (1989). He develops a theory of credit, and a theory of short-term rates of interest that he had neglected in his previous writings like "Mr Keynes and the Classics" (1937). In this early article, Hicks put the emphasis on the market for cash balance and the motives for the demand for money, while leaving aside the money market and the clearing functions of banks. In the sixties, Hicks was largely inspired by Henry Thornton (1802) and Ralph George Hawtrey (1913, 1919). The originality of this paper is that we interpret the short-term rates as the price of liquidity. This enables to interpret Hicks’s analysis of the floor of the short-term rates of interest, and to shed light on his vision of the role of the central bank. Hicks’s interest in Thornton’s and Hawtrey’s theories grew in the sixties, when Milton Friedman was advocating a monetary rule (1965). Hicks thought that Thornton’s monetary ideas could “help out the field” (Hicks, 1967).

Mots clés: Inflation rate; Bills of exchange; banks; bills; convertibility; discretionary policies; instability of credit; money; short-term rate of interest

Domaines: Economies et finances

Lucy Brillant. Hicks's Theory of the Short-Term Rate of Interest and Thornton and Hawtrey's Influences. Journal of the History of Economic Thought, 2019, 41 (3), pp.393-410. ⟨10.1017/S1053837218000482⟩. ⟨hal-01794570⟩