433. H. D. Henderson to Harrod , 20 February 1935 [a]

[Answered by 434 ]

14, Upper Park Road, Hampstead, N.W.3

20 February 1935

My dear Harrod,

I am glad that you can lunch with me and go for a walk tomorrow. I was sorry that I could not come to that meeting about research plans last week. I don't know how the matter now stands and my recollection of the memorandum which the Economics tutors put in some time ago is rather hazy, so that I am uncertain how far what I am going to say fits in with the views that were expressed there. [1] But I think it may be useful if before we meet I try to put my notions in order by setting them down on paper.

I agree very strongly with a view which I think was stressed by the Economics tutors that research in the social sciences in Oxford ought to be developed on the lines which permit the active participation of the college tutors. [2] That, I think, should be a cardinal principle and I would add to it another, that the general system should be one which takes account of the peculiar features of Oxford and the life lived by college tutors and tries to make the most of their strong points.

The principal strong points seem to me to be the following: (i) The college tutors at a place like Oxford may be expected to be a group of exceptionally able people with well trained, acute and clear-headed minds, and with a much wider range of general culture and knowledge than is possessed by the majority of economic specialists.

(ii) They meet one another frequently and easily and are better equipped than people in most other places for thrashing out a difficult question in discussion. These are general advantages which would apply at any time. At the present moment two further points should be added:

(iii) They happen just now to be most of them men of much the same age and they could therefore work together as a fraternity exceptionally well.

(iv) They are most of them I think close students of analytical economic literature and controversy, and speak, as it were, the same language on these subjects.

On the other hand, the following seem to me the chief disadvantages of Oxford tutors for effective research:

(i) During term time they are exceedingly busy with teaching duties. [3]

(ii) The life that they live is not in the least like an office life: it does not lend itself to the effective use of secretarial assistance, etc.

(iii) They are not in close contact with any centre of economic life or economic information. You cannot in Oxford as you can in London obtain some small but vital piece of information in five minutes by ringing up someone on the telephone.

It follows, I think, from these considerations that the Oxford tutors are not well qualified either as individuals or on a co-operative basis for research of a field-work character, i.e. for the sort of research which begins by saying: "Here is a field of economic affairs. Let us study it intensively, ascertain all the available fact and see what generalisations emerge." On the other hand, there is a type of research which very much needs doing to-day which no-one so far as I know is making any serious attempt to do, and which the Oxford tutors working together as a team would be peculiarly well qualified to undertake. I might formulate it as an attempt to determine as far as possible the issues of fact upon which the major economic controversies of the day really turn. [4]

Let me take a couple of simple illustrations. What is the degree and the modus operandi of the influence of changes in Bank Rate as distinct from changes in the volume of bank credit upon prices and trade activity? Hawtrey asserts, and I think still goes on asserting, that Bank Rate is very important because of its influence on the wholesale dealer, who he says will increase his stocks when Bank rate is low and reduce them when it is high. [5] I am under a strong impression that every wholesale dealer denies categorically that he would ever act in this sort of way. [6] He would claim I think that it would be speculation to do so, and that he only increases or reduces his orders to manufacturers in accordance as the orders he gets from retailers move up or down. [7] Now this is a question of fact upon which I think no-one has ever attempted to get a really authoritative answer: but it might be quite practicable I think, after the way was smoothed by a few personal approaches, to get a number of leading wholesalers to give written replies to precisely framed questions on the point, the effect of which could be summarised with verbatim extracts, though without quoting names. [8] Again, what is the effect of an increase in bankers' cash upon their volume of advances? Does it make a difference to their willingness to grant advances whether they have surplus cash or not? Again my impression is that most joint stock bankers (though not I think all) deny that it makes any difference. But it would be extremely useful, though here it might be difficult, to get them to give precise answers to precisely framed questions. [9]

I have chosen comparatively simple examples, and I think it would probably be well in practice, if work of this character were attempted, to start with fairly simple issues upon which a more or less definite result might be hoped for. But though they are comparatively simple, they are not so simple as they appear, and there would be an immense value in having investigations of this character made by a set of clear-headed people who would know exactly what questions they wanted to ask and who would be able to appraise the significance of the answers they received. In more general terms, I feel that a good deal of present research activity is largely wasted because people plunge into it too slapdash without enough preliminary thought and discussion as to the matters on which it would be really useful to obtain information. I envisage, as one of the most useful things that the Oxford tutors could do, a scheme under which they would meet regularly together as a group with a paid whole-time secretary to assist them, would discuss the questions of fact upon which information was most needed to settle important issues, would isolate first those questions [b] upon which it seemed most likely that information would be readily obtainable, would discuss thoroughly how best to obtain the information and equally thoroughly its significance when obtained. [10]

Needless to say I am not suggesting this to the exclusion of other propositions such as the Statistical Institute, but my personal fancy would be that something of this sort should be a central feature of what is attempted.

Please forgive the length of this, which I know is largely a repetition of what has been said before.

Yours sincerely,

H. D. Henderson

R. F. Harrod, Esq., M.A.

  1. 1. Refers to the "Memo. On Economic Studies in Oxford", here reproduced as essay 15 (October or November 1934), in which Harrod and the young economic tutors expressed their preferences regarding the future development of economic studies in Oxford. See, for further details, note 1 to letter 430 and note 2 to essay 15 .

    2. See "Memo. On Economic Studies in Oxford", essay 15 , [jump to page] .

    3. The point was already raised in the "Memo. On Economic Studies in Oxford", essay 15 , [jump to page] , and was one of the bones of contention in the disagreement between the Economics fellows and A. D. Lindsay (see note 1 to letter 430 and note 9 to essay 15 ).

    4. The discussion on the opportunity of organizing "factual inquiries" in Oxford had been the subject of a previous exchange of views between Harrod and Henderson: see letter 358 , and for a comment note 3 to the same letter.

    Henderson's argument, including the examples to follow in the text, were repeated almost verbatim in a memorandum on "Research in Economics in Oxford", dated February 1935, which Henderson sent to Douglas Veale, the University Registrar, on 18 November 1935, suggesting that a group should be formed with the assistance of a paid whole-time secretary (copy of the memo in Social Studies Research Committee, OUA UR6/MS/3 File 1 part 1).

    5. See for instance R. G. Hawtrey, Good and Bad Trade. An Inquiry into the Causes of Trade Fluctuations, London: Constable, 1913, pp. 66-67 and 185.

    6. Harrod later discussed this aspect with Hawtrey in the light of the results of the OERG research: see letter 700 , [jump to page] .

    7. The first of the Oxford Economists' Research Group (but the name of the group only stabilized later: at the time it was called "Oxford Economic Research Group") questionnaires actually included a set of questions on the influence of the Bank Rate on entrepreneurs' decisions:

    • 7. Is the rate at which [the business] can borrow from the bank an important consideration to the average business concern? Has an alteration of Bank Rate ever a materially direct influence in inducing a business to expand or contract its activities? Would the average business ever increase its stock of raw materials except in response to an increase in orders? Is the long-term rate of interest an important factor in regard to policies of capital extension? (Oxford Economic Research Group, "Questions for Discussion", [January or February 1936], in ABP 170).

    The analysis of the replies on this special aspect was carried out by James Meade, "Analysis of Information received on factors determining the volume of Investment", undated (but between July and November 1937), in ABP 173, and J. E. Meade and P. W. S. Andrews, "Summary of Replies to Questions on Effects of Interest Rates", Oxford Economic Papers 1, October 1938, pp. 14-31. Besides the interviews, which took place from February 1936, the subject of interest rates was further inquired at the beginning of 1939 by means of a questionnaire which was circulated in over 1300 copies (see letter 897 ); copies of the questionnaires and a number of replies are preserved in ABP 47.

    8. The Oxford Economists' Research Group eventually adopted this procedure. See Young and Lee, Oxford Economics and Oxford Economists (1993), pp. 128-36.

    9. An OERG questionnaire, drafted by Harrod, was especially dedicated to bankers (Q. 4). Unfortunately no copies survived.

    10. This seems to be the earliest document in which the procedure of inquiry of what became the Oxford Economists' Research Group is outlined. Henderson himself later specified the group's method in the application for a full time secretary, addressed to the University's Registrar:

    • [...] a small group has been formed from among the Oxford Economic Tutors for the purpose of pursuing co-operative research. The group consists at present of R. F. Bretherton, R. F. Harrod, C. J. Hitch, J. Marschak, J. E. Meade, R. Opie, E. H. Phelps Brown and myself, and the subject upon which the Group has decided to concentrate its activities for the time being is that of the factors governing fluctuations in British business activity since 1924. The Group has now held two meetings, and has made considerable progress in drawing up a plan for work. On the one hand it is proposed to invite various men in industry and business to visit Oxford during the course of the next two terms to meet the Group for the purpose of discussion, and a list of questions which is in the course of being formulated will be sent in advance of those who come in order to define the scope of the discussion. On the other hand the group hope to study in advance the available statistical and other data which will be relevant to the different discussions. For this latter purpose a considerable amount of preparatory work will be required. The newly formed Statistical Institute, whose Director Marschak is one of the members of the Group, will be helpful in this connexion; but its staff is very limited. [Henderson to Veale, 5 December 1935, Social Studies Research Committee, OUA UR6/MS/3 File 1 part 1]

    For a description of the procedure followed by the group see for instance Meade and Andrews, "Summary of Replies to Questions on Effects of Interest Rates", Oxford Economic Papers 1, October 1938; R. L. Hall and C. J. Hitch, "Price Theory and Business Behaviour" (1939); Harrod, "The Pre-War Faculty", Oxford Economic Papers NS 5, Supplement "Sir Hubert Henderson 1890-1952". For later accounts see F. S. Lee, "The Oxford Challenge to Marshallian Supply and Demand: The History of the Oxford Economists' Research Group", Oxford Economic Papers 33, 1981, and "The History of the Oxford Challenge to Marginalism, 1934-1952", Banca Nazionale del Lavoro Quarterly Review 179, 1991; Young and Lee, Oxford Economics and Oxford Economists (1993), chapter 5; D. Besomi, "Roy Harrod and the Oxford Economists' Research Group's Inquiry on Prices and Interest, 1936-39", Oxford Economic Papers 50, 1998, pp. 542-43.

    1. a. TLS, three pages on three leaves, in HHP 22A/6.

      b. Ts: «thosequestions».

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