375. Harrod to R. F. Kahn , 15 October 1934 [a]
[The exchange continues at 376 , answered by 382 ]
Christ Church, Oxford #
15 October 1934
My dear Kahn
I cordially recommend Smith for Maynard's club.  He is a really intelligent man and always makes a good contribution to a discussion. I think you would find him quite an acquisition. I dont attach much importance to his failure at the D.Phil. (He got a B.Litt.)  Very few have ever been given one in economics. It is supposed to be for an original contribution to knowledge and this is not too easy to assess in that particular subject. Four years ago he was selling screws in an iron-mongers' shop in Portsmouth. He made his way here via W.E.A. classes and an extra annual scholarship. He got the Junior Webb Medley Scholarship in 1931 the principal university prize in economics. He got a 1st in 1932, I believe the best in economics of that year. We (Christ Church) then gave [b] him a senior (research) scholarship at £300 p.a--a thing for which there is considerable competition. So his record is a very good one. And from my own knowledge I can say that he is a man full of ideas. 1
Pollard  is a very different case. I was deceived in the first instance by a too facile tongue. He was doing research and did not write one regular essay [c] . He is awfully nice and well-meaning and he is also <persistent>. He has on his own thought out this thesis which tho' simple seems to me rather interesting. The normal theory of foreign trade is that a gold inflow balance exerts an inflationary and the reverse a deflationary influence. But in fact in a depression it is generally assumed that influences making for deflation are simultaneously transmitted from country to country the world over. In other words the fact that countries are smitten more or less simultaneously by slump is not likely to be mere co-incidence, but is due to the transmission from country to country of depressing forces. And these must come through the balance of payments. Now this is quite inconsistent with the view quoted at the outset as normal. Because according to it the amount of deflationary influences being conveyed internationally via the foreign balance must be exactly equal at any time to the amount of inflationary influences. Ergo we must revise our ideas about what an inflationary or deflationary balance of payments is (depending on how the balance is composed of goods, loans etc.), and recognize that a gold inflow balance may be deflationary.  Dont you think that quite clever? I confess I had never thought of it in this form. He has done a lot of work about it, but owing to his vile American education and perhaps to some lack of nature - ability [d] , he has been terribly slow in working it up into anything like formal shape. He cant write. And he cant marshal [e] his ideas in proper logical order. I think he would be quite interesting at the club, but of course he is vastly inferior to Smith.
Now I want to enlist your interest in something else. I forget if I sent you the enclosed offprint.  Anyhow I send you this copy. The constructive part is Pt I. Pt II is intended to get the Hayekian fallacy out of the way. 2 I am still quite convinced that a major fallacy of a simple kind lies at the root of both the Hayek books,  namely what I call the omission of a cross entry. He uses the loans should be equal to savings dictum in a form (unlike JMK's: I am very impatient to know his revised version) in which loans = savings is a tautology. And he then condemns certain banking policies on the ground that loans would not be equal to savings.
I for some time too placidly assumed that the greater part of the learned world would take Piero Sraffa's polemic as successful.  But I now find that all sorts of people--not only those actually at the L.S.E.--are gradually accepting the Hayek point of view, and I think it is time to stop the rot.
Dennis, however, has joined the fray and written a reply to me which will appear in the next number of Economica. I have written a rejoinder [f] which I confess I think absolutely satisfactory and I feel that the line is well held there.  Meanwhile under great pressure from a chap on the Economist,  I wrote a letter which appeared in the last book supplement.  That I gather is about to be attacked from all sides. I have no doubt they will give me proper facilities for replying to those also.  I mention all this because I should like you to keep your eye on what is happening and let me know what you think. I am afraid I havent now got a copy of the Economica Rejoinder. I will let you have an offprint when it appears.
I feel it is not enough to reply by pointing to the somewhat complicated rival system of JMK 3 --and this interval of revision is leaving the field clear for the other school--but also that one must indicate that, whatever may be true, the Hayek approach just wont wash. That is what I have tried to do.
I am not quite happy about the Economist letter because I put the case for stable prices too dogmatically pour épater. It depends on a definition of the amount of savings absorbed in money holdings, while DHR would not accept and which makes loans = saving not a tautology. But one couldnt in an Economist letter go into definitions elaborately. But if the pundits explain they dont like my def[inition]s they may think or lead others to think that they can legitimately slip back into the Hayek position, which of course they cant. I am rather sorry that I wrote that letter--I was continually badgered by a chap on the Economist to do so. But I am very happy about the Economica [g] Rejoinder which I think clears up the matter.
2. Henry Smith (1905-88) was informally educated in Portsmouth before going to Christ Church in 1930; he became a lecturer in business finance at Liverpool University (1935-37), and then lecturer in economics and resident economic tutor at Ruskin College from 1937 (Contemporary Authors, Dictionary of National Biography, and information from Christ Church). His Oxford dissertation on "Retailing Costs and Technical Progress" was not considered by the examiners (Opie and Phelps Brown) to be of sufficient merit to be awarded a BLitt nor to qualify for a PhD. However, they left the Board of the Faculty of Social Studies free to act in the sense they thought better (Social Studies Reports 1932-35, in OUA FA4/18/2/2, p. 113).
3. Harrod had asked Keynes about Pollard's records in Cambridge in December 1933; Keynes replied on 10 January 1934 that the Economics staff was prepared to recommend Pollard to the tutor for a PhD: see letter 343 , [jump to page] .
4. Harrod later acknowledged to have adopted Pollard's view in The Trade Cycle ( 1936:8 ), pp. 155-56.
5. Harrod, "The Expansion of Credit in an Advancing Community" ( 1934:8 ). The offprint, inscribed "from R.F.H." in Harrod's hand, is preserved in RFK 14/47. See, for context, note 1 to press item 8 .
6. F. Hayek, Prices and Production (1931); Monetary Theory and the Trade Cycle (1933).
7. P. Sraffa, "Dr. Hayek on Money and Capital", Economic Journal XLII, March 1932, pp. 42-53, and "Money and Capital: A Rejoinder", Economic Journal XLII, June 1932, pp. 249-51.
8. Robertson, "Mr. Harrod and the Expansion of Credit" (1934); Harrod, "Rejoinder to Mr. Robertson" ( 1934:11 ). Robertson's letters to Harrod on this topic are reproduced here as letters 370 , 372 and 373 .
9. Probably Douglas Jay: see letter 389 , [jump to page] .
10. Harrod, "Banking Policy and Stable Prices" ( 1934:9 ), here as press item 8 .
11. See letter 376 , and in particular note 1 .
- a. ALS, eight pages (numbered from the 2nd to the 7th) on four leaves, in RFK 13/57/87-94.
b. Ms: «We (Christ Church) gave then gave him ...».
c. Ms: «essays».
d. This word was added as an afterthought.
e. Ms: «marshall».
f. Ms: «I have a written a rejoinder».
g. Ms: «Economic».
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