447. Harrod to J. E. Meade , 22 April 1935 [a]
22 April 1935
My dear James
I think this  is splendid. If something of this sort were published--altho' in a very simplified form--I believe it would make an enormous difference to the attitude of a large part of the electorate to the Labour Party. But I fear the Labour Party is very far from adopting the principles relating to unemployment.
The only substantial criticism I have to offer is with regard to the choice of industries for socialization.  Your statements reads to me rather unrealistic, because you havent mentioned the administrative problems involved. From the practical point of view, this would surely be the first consideration. And I think you ought to mention this--otherwise a labour leader such as Morrison might dismiss it as hopelessly academic.  I fear that the imperfect competition criterion, tho' what you say is perfectly right, could only be given a subordinate place in the early stages, because goods which are apt to be very imperfect in the matter of advertisement & salesmanship are miscellaneous, finished goods, where changes of taste & fashion are rapid, not sufficiently stable for the early experiments in state control. I think your criterion of the importance of the industry in capital development--might you not mention housing specifically?--is important, but I notice that you dont even mention this criterion in your summary on p. 75 (c). 
I have made marginal notes on pp. 2,  20  & 33.  I dont think your plan of taxing deposits will do! 
Have you thought any more about the project of subsidizing (& fining) private enterprise as part of an unemployment policy? I dont think you were present at my allocution to the Thursday <lot> on that subject.  A self-supporting scheme might be worked out on the lines of Kahn (E.J. p. 29).  By the bye are you convinced that his theoretic point in that paragraph (the long one) is right?
I have been reading Paul Douglas.  I cant grasp the relation of his doctrines of Ch. V to the ordinary notion of elasticity of substitution, to which he gives his blessing in another place.  In fact I cant really understand his ch V. Meanwhile I see Gifford has emerged again (in Econometrica).  I believe he is right there.
2. Meade, "Outline of Economic Policy for a Labour Government", p. 69.
3. Herbert Stanley Morrison (later Baron Morrison of Lambeth), 1888-1965, a self-educated Labour leader, minister of transport in the second Labour government. He was largely responsible for the Road Traffic Act of 1930 and the London Passenger Transport Act of 1931. In Socialisation and Transport (London: Constable, 1933) he argued "in a realistic and practical way" (p. viii) that an autonomous public corporation would be the best instrument for controlling a nationalized industry.
4. In "Outline of Economic Policy for a Labour Government", pp. 74-75, Meade suggests that "In the choice of industries to be socialised those undertakings should be selected in which competition is least perfect", and lists some criteria for judging imperfection of competition.
5. In the margin of Meade's sentence "Moreover some time is bound to elapse before the redistribution of wealth can be brought about by the use of income derived from nationally owned capital, since the purchase of this capital by raising a surplus of taxation to buy out existing owners must proceed for a number of years before a significant fund will be available for the purpose of redistributing the national income more equally." (ibid., p. 34), Harrod commented: "Not quite clear what this means."
6. In the margin of Meade's statement that an action of the banks causing interest rates on their assets to be lowered "may even cause people to buy securities with their deposits instead of wishing to keep money deposited with the banks and this will help in raising the price of securities and lowering interest rates" (ibid., p. 44), Harrod commented: "What about withdrawals of cash?".
7. Meade wrote: "Socialization of industry will therefore bring no direct relief to the budget. Industries should be socialized by means of the issue of government bonds to the owners bearing interest which fully compensates the income reasonably to be expected from the concerns which are socialised. The effect of this upon the Budget will be to increase in the Revenue Budget the amount spent in interest on debt while at the same time the income of the Revenue Budget from the profits of socialized industries will increase by a roughly similar amount" (ibid., pp. 51-52). Harrod commented: "Should not a govt. guaranteed income however be somewhat lower than the actuarial equivalent of probable profit to compensate for removal of risk factor. I agree strongly with the general tenor of this para but I think the govt. might be allowed a little profit <on> socialized industries."
8. Taxation is discussed in "Outline of Economic Policy for a Labour Government", p. 52.
9. No records survive concerning the allocution Harrod is referring to.
10. R. F. Kahn, "Some Notes on Ideal Output", Economic Journal XLV, March 1935, pp. 1-35.
11. P. H. Douglas, The Theory of Wages, New York: Macmillan, 1934.
12. Douglas, The Theory of Wages, pp. 57-59
13. C. H. P. Gifford, "The Period of Production under Continuous Input and Point Output in an Unprogressive Community", Econometrica 3, 1935, pp. 199-212. Another contribution by Gifford on the concept of the period of production was referred to by Keynes in letter 444 , [jump to page] .
- a. ALS, three pages on two leaves, in JMP 2/9/1-2.
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