272. J. E. Meade to Harrod , 30 November 1932 [a]
[Replies to 270 ]
Hertford College, Oxford #
30 November 1932
My dear Harrod,
Thank you very much for your note. I am so sorry that I have not answered it before. I think that I agree entirely with your argument. I overstated what I intended to say, when I spoke of the importance of "velocities". Clearly the rate at which unemployment is decreased in the one country by the primary rise in its incomes and decreased in the other depends upon the proportions of income spent on imports; and similarly the rate at which unemployment increases in the other country due to the fall in its incomes and also increases in the first country, will also depend on the proportion of income spent on imports. But these rates at which employment and unemployment spread will also depend upon the relative velocities of circulation in the two countries. I think it is quite right to assume first of all that the velocities are the same in the two countries, but in order to complete the theoretical analysis I should have thought that it was essential to realise that, if the velocities are different in the two countries, the result will be different. A greater part of the readjustment will take place in the country, in which the velocity of circulation of money is greater. That is to say the readjustment will take the form more of a rise in incomes in X, if the velocity of circulation in X is greater than it is in Y, and more of a fall in incomes in Y if the velocity in Y is greater than that in X.
I think your note gives a neater method of arriving at my solution. Thus--
I concluded that the gap between imports and exports was closed by an increase in X's imports and a decrease in her exports. My = your i (the proportion of income in X spent on imports), & my = your --(the proportion of incomes in Y spent on imports). Thus , and . Thus the increase in X's imports reduction in her exports = Y X. My formula says that the increase in X's imports reduction in her exports = . Again I personally prefer this general statement, of which yours is the most natural instance.
I am returning the typescript of your book.  I am afraid I have not had time to study it, as I should like to have done. I fear I have only raised this one small point.
I have heard from Dalton  that he would like us to send him a report on our opinions, on how we should attempt to deal with a financial panic. That is to say, he would like those of us, who are willing, to continue that discussion, which we had, when he came down here recently, and send him the results of our deliberations. The Policy Committee of the L[abour]. P[arty]. Executive are to write a full and lengthy report by the middle of next summer, and Dalton would therefore like to have something from us during February. What I am doing therefore is to write round to the Economists here, explaining the position, and asking them, if they are willing, to formulate their ideas on this subject during the vac[ation]., and, if possible, to write them down on paper. We could then hold, say, two meetings in the first half of next term, and get something together, even if it is only a statement of our own individual & conflicting views. Would you assist? 
Radice, the secretary of the New Fabian Research Bureau, has also written to me suggesting that I should get the Economists in Oxford, who would be willing to work for the N. F. R. B., to work on the more general problem of the Financial and Economic Relations of the country with the rest of the world during the transition to Socialism. This includes a discussion of
(a.) the principles on which the state should trade with other nations;
(b.) the principles, on which it should lend abroad;
(c.) the questions how far control of foreign trade and foreign lending is necessary, and what form such controls should take, if they are necessary;
(d.) suggestions as to how much we could do alone without international economic co-operation with other nations, and what kind of policy and controls we should suggest as an international policy, open to competitive and socialist states.
This second task is of course very large, but there is no hurry for it; and we could work <along> at it in sub-committees of two or so. I think however we might suggest some useful ideas, & am myself enthusiastic about our undertaking it. What do you think? 
J. E. Meade
2. Dalton to Meade, 21 and 24 November 1932, in Meade 2/7(1) and 2/7(50) respectively. This invitation took place in the context of Dalton's co-ordination of research on questions of policy options for the future Labour government: see for instance E. Durbin, New Jerusalems (1985), pp. 208-14.
3. This procedure led to the elaboration of a "Proposal on the Control of a Financial Panic", a confidential document "Prepared by a group of Oxford Economists who are member of the Party" for the Labour Party Finance and Trade Committee (Policy No. 113), March 1933. The document was signed by J. E. Meade, L. M. Fraser, E. L. Hargreaves, R. F. Bretherton, Harrod, R. L. Hall, Redvers Opie, and E. M. Hugh-Jones (MP 2/7(24-32). A draft, also signed by the same group of economists, is in the same folder, folios 5-23).
4. Meade eventually undertook this task, and obtained the collaboration of a number of economists in Oxford. Harrod was invited to a meeting to discuss "Exchange Control" in Meade's rooms in March 1933 (see letter 294 R). Harrod suggested some major changes to a first draft, and eventually sent comments on a second draft of Meade's memorandum on "The Exchange Policy of a Socialist Government" on 7 June 1934: see letter 357 . This was not Harrod's first collaboration with the New Fabian Research Bureau, as he was a speaker at the joint Society for Socialist Inquiry and Propaganda and NFRB Conference on the Socialisation of Banking, held in January 1932: the outline of Harrod's talk on "Central Banking" is reproduced here as essay 8 .
- a. ALS, eight pages on four numbered leaves, in HP IV-745-767/2.
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