370. D. H. Robertson to Harrod , 27 September 1934 [a]
[The exchange continues at 372 ]
Trinity [College, Cambridge]
27 September 1934
My dear Roy,
(1) Your addendum  (of which I have been sent 2 copies, & return one, scribbled on).
There are 2 points, (i) do I agree, (ii) do I want to sign an addendum to this report to say so? To take (ii) first, I think the answer is No. I think the C[hatham ]H[ouse] people are rightly anxious to prevent the thing being peppered with reservations and minority reports ,  and I want to cooperate with them in that.  It is necessary to make plain (with names) the cleavage on the definite question of an early return to gold, and to indicate the existence of other cleavages:  but it appears from the proof that apart from that the numerous members of the C[ommit]tee who are only too ready to ride off on their several hobby-horses have been restrained, & I should be sorry to set them a bad example.
(i) is more difficult. I definitely disagree about the timing of the thing. But on the crucial section 9, I am theoretically sympathetic,--indeed, I think, prepared to go further than you, for I do not feel sure that in theory the "productivity" or otherwise of the loans is a criterion of whether interest "ought to" be paid on them to bankers or bank depositors.  And I suspect that if the policy is really going to be used on a gigantic scale it may become necessary--it may become so in USA now--to cut through that entanglement of the business of money-creation with the business of lending which is the source of so many of the difficulties, practical & theoretical, about Money. But I don't think I am a public-workser or deficit-man on that scale: and it seems to me that for more moderate applications of the policy one can more conveniently work on traditional lines, regarding the interest-cost to the public as part of the cost of preserving, through bad times and good, an efficient banking-system. Though perhaps there is room for supplementing this by special deals with the banks, central or other (as in the case of the B[ank] of E[ngland]'s war profits).
As I say, I don't feel sure that your distinction between consumption loans and productive loans is theoretically sound: and that gives my timidity (or common-sense) an excuse for saying, No, this is not a plank on which to put to sea.
(2) Your Economica article,  --for which thanks. I must now reveal that Part II seemed to me so misguided that I have written a brief assault, which I propose to offer to the editors in the hope of drawing from you a riposte.  I had to do this, for if your line of reasoning is right it makes nonsense of everything which I (as well as Hayek & Co) have been trying to say for the last 8 years!  --I want to think over the thing again quietly before sending it off (I am at the moment in the middle of a "round of visits"), but when I do so will suggest to the Editor to send it straight to you for reply.
--I went for a walk last Sunday with your new Dean,  such a nice man.
I hope you have had a good holiday
2. The Economist reviewer was indeed disappointed that the authors "were not able to achieve a greater degree of unanimity than they did", and that even in the chapter on "ultimate objective" there were dissenting footnotes ("Monetary Policy", 9 February 1935, p. 313).
3. Harrod later asked Keynes's opinion as to the publication of this Addendum, hinting that Chatham House could be displeased by the addition of a separate report: see letter 385 , [jump to page] .
4. Appropriate qualifications were added to the Chatham House Report, with names, regarding the difficulties preventing a return to the gold standard (The Future of Monetary Policy, 1935, pp. 24-27); the existence of a divergence of opinion was also stressed in the foreword (ibid., p. vi). Eventually, Harrod decided to comply with this style, and stressed some of his points in supplementary notes printed on pp. 13 and 15.
5. Harrod explained to Keynes that he suggested (rather than recommended) no-interest loans: see letter 385 , [jump to page] .
6. Harrod, "The Expansion of Credit in an Advancing Community" ( 1934:8 ). See, for context, note 1 to press item 8 .
An offprint of Harrod's article, with Robertson's comments in the margin, is preserved in the Marshall Library in Cambridge (ROB 12 (1-31)). Robertson pencilled the following notes: on p. 293, in correspondence to Harrod's remark that if, as it is likely, the forces operating to reduce the natural rate of interest reduce in similar measure the productivity of the existing instruments of production, "the possibility of conversion [of fixed money charges on to a lower interest basis] will not prevent the primary difficulty from arising", Robertson asked "why?". Similarly a few lines below, next to Harrod's statement that "Conversion can only reduce the money income of `fixed interests' in proportion to the fall in the real productivity of the fixed instruments", Robertson wondered "again why?".
On p. 295, Robertson corrected Harrod's sentence "... when technological improvements were making existing instruments of production more productive on balance" by "... when technological improvements were affecting existing instruments of production more favourably than other factors of production". On p. 296, Robertson corrected Harrod's sentence "Consider the case of a rising aggregate income and a stable price level" by introducing the qualification that the aggregate income is "real and monetary". He commented on the next sentence: "So far as its monetary holdings are `betriebsfond' they are added to automatically with the increase in income. So far as they are `reserve', the only reason for its wishing to add to them would be that by an unfortunate oversight the bank has forgotten to write them up (on the corresponding ? Govt debt down to it) with the raised price-level, i.e., that there has been a large concealed capital transfer from creditor to debtor, which the creditor has now not to make" (the question mark in the passage within brackets is Robertson's own).
On p. 297, where Harrod wrote "The natural rate of interest is that which causes real capital to be increased at a rate equal to that at which the aggregate savings of the community increase. The savings of the community in any period may be defined as the difference between the value of its total income and the value of consumable goods purchased therewith", Robertson remarked that in the first sentence "savings" are real, while in the second sentence they are monetary, and wondered whether there was some "confusion here". (Haberler also remarked that it was not clear whether Harrod referred to savings in real or monetary terms: see letter 367 , [jump to page] ).
Finally, Robertson underlined the word "real" in Harrod's sentence "If the business community wishes to increase its holding of real capital by s it must ..." (p. 298), commenting that "It doesn't increase its holding of real capital at all".
7. Robertson, "Mr. Harrod and the Expansion of Credit" (1934), pp. 473-75; Harrod replied with a "Rejoinder to Mr. Robertson" ( 1934:11 ).
8. Since, that is to say, Robertson's Banking Policy and the Price Level (1926).
9. Alwyn Terrell Petre Williams, Dean of Christ Church 1934-38.
- a. ALI, four pages on two leaves, in HP IV-990-1069d/20.
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