428. Harrod to G. Haberler , 9 February 1935 [a]

[Replies to 427 , answered by 429 ]

Christ Church, Oxford #

9 February 1935

My dear Haberler

I dont really see where the slip is, serious or otherwise (apart from my false references to your sections, which were not my fault! [1] ). I am afraid I allowed myself a little, I hope gentle, sarcasm. Beyond that I cant plead guilty of impropriety.

With regard to increments of income the simplest assumption is that they have the same velocity as the main part. By what I still call the ordinary definition this means that people will be saving a certain proportion of these increments as a matter of course and using that saving in order to add to their monetary holding. On your definition this is not to count as saving.

I did not seek to show inconsistencies in your definition, but only that it did violence to ordinary usage. "Absurdity" was the strongest word I used. [2] And I submit it does involve precisely the absurdities or anomalies I indicated.

You say that a man "can spend his higher income only in the next period". [3] I am puzzled at your use of the word can. Why can he? As you must know from German experience the maximum possible velocity of circulation is much higher than the average. A man who is waiting for the "hammer" to fall on him at 3 p.m. is perfectly happy if he negotiates his loan at 2.59 p.m. He can see that at his V is raised to 1 per minute. And even over long distances money can be circulated [b] remarkably quickly by telegram. But so far as possibility is concerned a man can physically spend an increment absolutely simultaneously provided that it does not exceed his unspent margin. Physical possibilities only check him if his increments per minute exceed the value of his unspent margin. A remarkable rate of increase.

General behaviour of this sort would I suppose reduce your "period". But in my reductio ad absurdum I was considering how your definition affects the usual categorization of different types, viz. of people whose behaviour varied on either side of the mean. [4] Take the spendthrift. Suppose your average V is 30 days. A man whose income had fallen from £50.000 to £500 per annum but none the less deliberately spent £3.000 in these days on current expenses, as he well might, by selling his securities would normally be regarded as a reckless spendthrift and consumer of capital or dis-saver. Yet by your definition he has not dissaved a penny. On the contrary he has saved. (I assume his former income was c. £4-5.000 per 30 days). I dont see how you can escape from this--not inconsistency but absurdity.

But the important part of my article which I do seriously ask you to think over is the last three paragraphs. I begin--with a generosity that you did not accord to me!--"suppose that we allow them this definition." What follows? Not, I hope you will grant, that the banks ought to <buy> to keep incomes constant!

Yours very sincerely

Roy Harrod

  1. 1. Harrod, "Rejoinder to Drs. Haberler and Bode" ( 1935:1 ), p. 82. Section I of Bode and Haberler, "Monetary Equilibrium and the Price Level" (1935) was introduced to meet Harrod's objections to the preliminary draft: see Bode to Harrod, letter 415 of 7 January 1935, [jump to page] . Harrod's Rejoinder was written before he saw the changes (it was referred to by R. F. Kahn and L. C. Robbins on 8 and 9 January--letter 416 , [jump to page] , and letter 417 R, [jump to page] --, while the revised draft was sent after 15 January--Bode to Harrod, letter 421 , [jump to page] ).

    2. Harrod, "Rejoinder to Drs. Haberler and Bode" ( 1935:1 ), p. 84.

    3. See in particular letter 427 , [jump to page] .

    4. Harrod, "Rejoinder to Drs. Haberler and Bode" ( 1935:1 ), pp. 83-84.

    1. a. ALS, four pages on two leaves, in GH Box 66.

      b. Ms: «circulate».

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