440. Harrod to G. Haberler , 8 March 1935 [a]

[Replies to 436 ]

Christ Church, Oxford #

8 March 1935

Dear Haberler

Your letters always lead me on in the most disgraceful way.

1. when I say suppose they dont spend the £1000 at first, [1] I am not saying we must or ought to suppose that. I was merely making a supposition which might be congenial to you and showing how on that supposition S = I.

2. There is no difficulty about spending the whole £1000 at first, provided that the increment does not exceed the unspent margin outstanding at the moment; even if it does, it can be spent almost at once as I tried to bring out with my example in a former letter of a man in danger of bankruptcy. [2]

3. If you ask what we ought to assume, my reply is that our assumption is bound to be arbitrary if we suppose the increment to come in a lump. It often does so in the case of an individual, but taking a community it is better to assume a rate of increase of incomes. And the best assumption about expenditure is that it increases at the same or at a somewhat lower rate. If the latter, the proportion of income saved is rising.

I draw attention to some wording in your last letter which you may protest is innocent, but which I dont believe you would have used if you really were innocent. You say:--"You adopt as a matter of course Robertson's view, namely the period analysis." [3] I call your attention to the word "view". A view is some conclusion reached as the result of analysis. Now I am not aware that I adopted any view of Robertson's in this sense. Methods of analysis, as contradistinguished from views, are not true or false, but fruitful or barren. A method may be fruitful in one connexion and useless in another. One ought to adopt such methods from time to time as lead to good results. What I do say about the period method is that judging by results it usually leads to a hopeless bog of confusion. This in turn, I think, is because it usually necessitates the multiplication of assumptions out of all reason.

I go further. I think there is a certain logical priority about the other method. The period analysis depends on the quantitative importance of various kinds of lags [b] : if we knew these we might make great advance: it is the assumptions about them in the absence of factual knowledge that are so dangerous. The other method is in a way less ambitious but is a necessary propaedeutic. It is desirable to be absolutely clear about the mutual relations of the various elements at any point of time in a progressive society. If we are muddled about these, we shall become far more muddled if we superimpose a number of arbitrary assumptions about lags. The value of the ordinary (on my view!) definition of saving is that it can be used in the preliminary work of getting a clear view of the simultaneous relations of the different elements in a state of advance

Yours

Roy Harrod

  1. 1. Letter 435 , [jump to page] .

    2. Letter 428 , [jump to page] .

    3. Letter 436 , [jump to page] .

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

      b. The word was circled by Haberler.


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