443. R. F. Kahn to Harrod , 23 March 1935 [a]

[Replies to a letter not found, follows on from 439 , continues at 446 ]

King's College, Cambridge #

23 March 1935

My dear Roy,

I must apologise for this dreadful delay. I am so sorry. I was just going to embark on a reasoned reply. But it occurs to me that I can perhaps be more helpful by submitting to you the following dilemma:--

Let us suppose that people save a fixed proportion of their income. Then:

(i) you argue that if inventions are zero the maintenance of full employment requires a falling rate of interest;

(ii) you define "neutral" inventions in such a way that, according to you, the maintenance of full employment requires a constant rate of interest.

Now suppose that the rate of inventions, while remaining "neutral", becomes steadily less in amount. Surely (i) becomes the limiting case of (ii) as the rate of invention tends to zero? But according to your conclusion (i) cannot be the limiting case of (ii). Does this mean that if inventions are taking place on a very limited scale they cannot be zero? or what?

It seems to me that you have never properly faced up to the fact that investment can take place even in the absence of inventions. How does your equation apply in such a case? Investment is designed not merely to add new equipment when there was no equipment before, but also to replace old equipment by better equipment.



  1. a. ALS, two pages on one leaf, in HP IV-586-668b.

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