429. G. Haberler to Harrod , [February 1935] [a]
[Replies to 428 , answered by 435 ]
My dear Harrod,
I have your letter of [b] Feb. 9th. I am sorry to say that you evade my arguments. You speak about "absurdities" and "inconsistencies" and what the word "can" may mean, also it is quite clear from the context what I meant. Certainly the velocity of c[irculation] could be much greater, but I take it as it is. You imply that it is infinite and you do not answer to this argument. 
I should like to ask also the following question: suppose we assume that there is no new saving. Everybody spends his whole income on consumers' goods and, if money income is increased by inflation, this is not changed: everybody spends still the whole income for current consumption. Now a credit expansion is being made. A certain amount of money--say 100 units per unit of time--is being created for several years and is invested, that is, the new money is spent to construct, say, a railway. I ask you now, where is the saving which, according to you, must counterbalance this investment (if we stick to the ordinary definition of saving.  )? The entrepreneur who borrows the newly created money and spends it on labour, investments, raw materials does not save by spending the new money. That you have conceded in a previous letter.  If the worker or raw material producer or investment manufacturer or whoever else receives the money as income, I assume that he does not save. Where then is the saving? I should say: nowhere. . But you cannot say that. I really have no idea wherefrom you would get the necessary saving, even if you make or 0 [c] .
Have you read Mr. Hicks' article?  In London they are very fond of it and believe that it opens a new era in the theory of money. I must say, I find it rather disappointing.
With kind regards
2. Harrod regarded as "usual" the following definition of saving: "the excess of income during a period over expenditure on consumption during that period" (Harrod, "Rejoinder to Drs. Haberler and Bode", 1935:1 , p. 82).
3. Letter 399 , [jump to page] . See also letter 394 , [jump to page] .
4. J. R. Hicks, "A Suggestion for Simplifying the Theory of Money", in Economica, February 1935, pp. 1-19.
- a. ALS, two pages on one leaf, in HP IV-395-422.
b. Ms: «letter Feb.»
c. Ms: «
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