307. Harrod to D. H. Robertson , 29 April 1933 [a]
[Replies to 302 and 306 ]
Christ Church, Oxford #
29 April 1933
My dear Dennis
Your letter I think contains new matter which wasnt before us as we sat round the table. I was not going farther than trying to ease the pain caused by our failure to decide what the doctrine of the Treatise in its crude form implied. The truth is another matter.
May I return to the balance. My doctrine is that improvement in the foreign current credit account has the same potentiality of giving employment as public works. But if that potentiality becomes an actuality (i.e. is not countered by hoarding or some such process) the increased employment will wipe out the balance. The extra credit will be offset by an extra debit.  What JMK ought therefore to have looked at was not the decline of the balance but the decline of the credit account.
There is however one complication. If a balance is achieved by a tariff or a change of taste, that balance has the same effect as an increase of the credit account. Here again if the balance has its full natural effect in stimulating employment, it will be destroyed. So even in that case it isnt the achievement of a favorable balance, but its achievement + its utilization + its consequent annihilation that goes with improved employed.
Where I think Maynard has got muddled is in his attempt to include in one formula the stimulation that may be given (i) by an improvement in the credit account and (ii) by an improvement in the balance due to a tariff or change of taste. 
In both cases the good thing takes the form in the first instance in an improved balance. But in so far as the improved balance does stimulate employment in full measure it disappears. And in fact its improvement and its annihilation may well go pari passu. So it is very deceptive to attempt to measure the gain to the country in a period of time by the net outstanding improvement in the balance at the end of the period.
Taking the balance as the criterion has another danger. It may be due to internal deflation. In that case it has no stimulating effect. The most you can say is that the balance enables you to reflate and undo the bad effects of the previous deflation which secured you the balance.
I am afraid I shant see you next week end as unfortunately I shall be out of Oxford from a time on Saturday till early Monday morning. I gather that you will have the pleasure of hearing Cannan on inflation!
2. Keynes only referred to the increase or decrease of the net foreign balance, which he maintained to have "exactly the same effects and repercussions as an increase or decrease in loan expenditure at home", "The Means to Prosperity. Mr. Keynes's Reply to Criticism. Work and Spending", The Times, 5 April 1933, pp. 15-16, in Collected Writings, vol. XXI, p. 179.
- a. ALS, four pages on two leaves, DHR C3/2 1-2 ; photocopy in HP (NC).
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