320. J. M. Keynes to Harrod , 10 October 1933 [a]

[Replies to a letter not found; the exchange continues at 322 ]

46, Gordon Square, Bloomsbury #

10 October 1933

My dear Roy,

The enclosed [1] is very interesting, but I am a little confused as to what to do about it. This is partly because I have, myself, been thinking about your subject matter so intensively in recent weeks, that I find it difficult to approach any one else's ideas about it with the objectivity proper to an Editor. Chiefly, however, I am not quite clear how we are going to deal in the Journal with comments on Pigou's book. Macgregor has sent the book for review to Beveridge, which, having regard to the nature of the book as distinct from its title, is not, of course, very suitable. My impression is that Beveridge is making no progress, and will probably throw it up. [2] In that case I may take on the reviewing of it myself. If this does not happen, then I am thinking of putting into a note in the Journal some of the things which I should have said in a review. [3]

These things would really fit in pretty well with what you want to say, since whilst they are about the same question, they are about different aspects of it. You are engaged in pointing out that Pigou's argument about money-wages only applies to a very special case, and you tackle the problem of what the answer ought to be in a more general case. [4] I want to point out that even in his own special case, Pigou's argument is completely vitiated by a serious slip. I enclose a brief note about this which I wrote out for Dennis.

Finally there is the question of the correctness of your own argument. To solve the question of the effect of the reduction of money-wages in a most general case is hideously complex, and requires in my judgment a different technique from that which you employ. I think the case which you take is less general than you seem to suggest, and also I have one point of criticism on [b] it. Neither of my criticisms, however, go very deep, and could easily be met by you if you were to agree with them. The criticisms are as follows:--

1. On pages 6 and 7 [5] your argument only holds on the assumption that output is constant. If output is not constant, various complications come in, particularly the question of elasticity of supply.

2. On page [c] 7 and subsequently [6] you are arguing, I think, that the inducement to extend output depends on the proportion of prime costs to prices. To my way of thinking, this is not correct. It depends on the absolute amount of the excess of sale proceeds over prime costs. If the absolute difference between sale proceeds and prime costs increases, then in general there will be an inducement to extend output.

Will you think this over? On the general question of what to do with the article, I will write to you again later, when I know what is happening about reviewing the book. Meanwhile I return your manuscript for reference.

Yours ever,

J M Keynes

Roy Harrod Esq., Christ Church, [d] Oxford.


See annexe


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