427. G. Haberler to Harrod , 7 February 1935 [a]

[Follows on from 423 , answered by 428 ]

League of Nations, Geneva #

7 February 1935

My dear Harrod,

I have read your rejoinder in the "Economica" with great interest. [1] I am sorry that there was no opportunity to see it and to communicate with you before it appeared in print. It would have saved you, I think, from making a rather serious slip. You said that, if a man's income is rising "he can get little credit for frugality; he may ... ." [2] You overlook that, on the assumption which Mr. Robertson makes (we refer to his article in general because we do not want to repeat his whole argument [3] ) he can spend his higher income only in the next period. Income earned in this period becomes disposable only in the next. He can buy his "admirable securities" of which you speak only in the next period of time, and if he does so he saves and "gets credit for his frugality". A corresponding argument holds in the case of the saving. [4]

In other words: if you accept the period analysis [5] (I know of course that you do not, [6] but this question I do not raise now as you do not raise it at the point, to which I refer) the absurdities, or rather the inconsistencies with the general usage of the word "saving" of which you speak, do not exist. In other words: you accept the definition in order to show that it leads to inconsistencies, but you do not carry it through. You apply the period analysis only to one point of the income, not to the increment. Then of course (if you use the proposed concept inconsistently) you are naturally led to inconsistencies. That is then not the fault of the definition, but of your inconsistent use of this definition.

This seems to me so obvious that I think it would be only fair to write a short paragraph in the next number of the "Economica" in order to correct this point. [7] I should like to ask for your authorisation to write to the editors (if you should not agree they would surely not publish the note). I would, of course, show you the text of the note in advance.

Let me say two words more. I think I could answer much better now than Mr. Robertson did the objection that everything depends on the arbitrary length of the period. [8] The distinction of short periods is, in my opinion, absolutely necessary because otherwise you would be forced to assume that the velocity of circulation becomes infinite, [9] which would lead you to absurd results. If money which is earned in this period is being spent at once, then it is earned by the individual who gets it also at once, and he spends it at once, and so on. Somewhere you must draw a line and say, this is the end of this period, and a new one now begins. I admit, however, that it is only a first and inadequate approximation to assume this period to be of the same length for all types of payments, but an approximation is surely better than just to overlook the problem altogether.

With kind regards,

Very sincerely yours

G Haberler

R. F. Harrod, Esq., Christ Church, Oxford. [b]

  1. 1. Harrod, "Rejoinder to Drs. Haberler and Bode" ( 1935:1 ).

    2. Harrod, "Rejoinder to Drs. Haberler and Bode" ( 1935:1 ), p. 83.

    3. K. Bode and G. Haberler, "Monetary Equilibrium and the Price Level" (1935), p. 81, with reference to D. H. Robertson, "Saving and Hoarding" (1933).

    4. Harrod, "Rejoinder to Drs. Haberler and Bode" ( 1935:1 ), p. 83.

    5. Refers to Robertson's method of analysis, which implied the definition of saving in terms of consumption out of the income of the previous period.

    6. See in particular letter 388 , [jump to page] , letter 394 , and letter 414 , [jump to page] .

    7. No such a statement was printed in Economica.

    8. The objection was raised by Keynes, "Mr. Robertson on Saving and Hoarding", Economic Journal XLIII, December 1933, pp. 699-700; Robertson's reply, under the same title, is on pp. 709-710. Harrod formulated a similar criticism in "Rejoinder to Drs. Haberler and Bode" ( 1935:1 ), p. 84. On the origin of Harrod's remark, see note 6 to letter 416 .

    9. See letter 396 ( [jump to page] ), in particular note 4 .

    1. a. TLS with autograph additions and corrections, one page, in HP IV-395-422. Cc with autograph corrections in GH Box 66.

      b. Ts: «R. G. Harrod, Esq., Christchurch, Oxford.».


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