392. Harrod to R. F. Kahn , 2 November 1934 [a]

[Replies to 391 , answered by 400 and 402 ]

Christ Church, Oxford #

2 November 1934

My dear Kahn

If you succeed in convincing Haberler you must not take all the credit to yourself! I too have been hammering away at him on the lines that unless you have some funny definition of savings, savings must be equal to investment. [1]

I still feel somewhat alarmed about the general situation. There are not many clever men like Maynard about and it is of great importance not only for economics but also for practical affairs that he should not have a reputation for perpetual inconsistency and un-reliability. I foresee a chorus of "Keynes has changed his mind again" [2] by people who confuse the form of an argument with its substance. (I assume that what is of substantial importance in the Treatise stands, though the definitions and apparatus are scrapped). But if you have people as near him as Dennis [3] going about saying that he has veered round again, what are the general body of economists--full of professional jealousy--, to say nothing of bankers and politicians, likely to say?

Now with regard to the Treatise I feel that the milk probably has been spilt and a good deal of scrapping is desirable. But the moral is--avoid definitions leading to paradox, because in the long run they are bound to have an evil progeny. Our common sense contains implicit safeguards against fallacies, which no man can safely neglect. However water tight you may think you have made certain paradoxical definitions, you will always find, I believe, that when the matter is looked at from somewhat different point of view, the definitions become an encumbrance and a nuisance. This is surely the lesson of the Treatise doctrines.

Now take your letter. Almost all of it is paradoxical, though I think I follow the thread of argument. The climax of paradoxicality is your (iv):--"The rate of interest cannot be determined by the supply and demand of savings." [4] That is simply frightful, though I have no doubt you could justify it.

What I take to be the most important point in the Treatise is this. You define equilibrium rate of interest in some way that has significance for the trade cycle (e.g. that which make I = the S of the Treatise). You then demonstrate that the mechanism of the market does not secure an automatic reversion to equilibrium, when there is a movement away from it. [5] I still teach that and suppose it to be right. I want that stated in a new way that avoids both the paradoxicality and also certain formal defects (e.g. that shown by Meade [6] ) of the Treatise. But I do not want new paradoxes introduced, because I scent in them further dangers. You have got to consider not only your pupils, who are like wax in your hands, but also the main body of economists, who are working perhaps at different problems and can only abort new theorems if they are couched in terms consonant with the accepted definitions and categories of thought of, shall I say, equilibrium economics. 1 You may blow upon equilibrium economics, on the ground that it is partly a vain show, but economists are not going to give up their at worst harmless interest in it at anyone's behest.

I regard myself in a way as one of Maynard's staunchest supporters. I have continued to teach what seems to me right in the Treatise, 2 though out of touch with recent developments.

If you are talking these things over with Maynard, I wish you would mention this point of view, I mean the point of view which has regard to the desirability of making concessions to concepts, habits, forces of re-adjustment etc. of an audience other than your Cambridge pupils. I should like very much to have a long talk with you and him about it some time if you think it worth while and it is not too late.


Roy Harrod

  1. 1. See letter 388 , [jump to page] .

    2. Harrod expressed his concern about the public opinion on Keynes's consistency in a number of occasions: see for instance his letters to James Meade and Hubert Henderson of 1 March, 1936 (letter 534 , [jump to page] ). See also his Life of John Maynard Keynes (1951), pp. 467-73.

    3. D. H. Robertson.

    4. Letter 391 , [jump to page] .

    5. Harrod summarized Keynes's credit cycle theory in a similar way in a letter to Haberler, where he also drew its implications as to the possibility of trade cycle theorizing: see letter 378 , [jump to page] .

    6. Harrod presumably refers to James Meade's note on "Mr. Keynes' Definitions in the `Treatise on Money'", in The Rate of Interest in a Progressive State (1933), pp. 48-51.

    1. a. ALS, five pages (numbered from the second) on three leaves, in RFK 13/57/72-76.

1. This sentence is marked in the margin by Kahn, from "if they are couched ...".

2. This sentence is marked in the margin by Kahn.

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