429. G. Haberler to Harrod , [February 1935] [a]

[Replies to 428 , answered by 435 ]

[February 1935]

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. [1]

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. [2] )? 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. [3] 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? [4] 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

Yours sincerely

Gottfried Haberler

  1. 1. See note 4 to letter 396 .

    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.

    1. a. ALS, two pages on one leaf, in HP IV-395-422.

      b. Ms: «letter Feb.»

      c. Ms: «


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