463. J. M. Keynes to Harrod , 9 August 1935 [a]

[Replies to 458 , 459 , 460 , 461 , and 462 , answered by 464 ]

Tilton, Firle, Sussex. #

9 August 1935

My dear Roy,

Thank you very much indeed for taking so much trouble. I have not dealt with nearly all your points as yet, since I am taking them in their turn when I come to revise the chapters in question. It is too disturbing to turn one's mind on to all of them at once. So far they have been of great benefit.

In particular I have adopted your suggestion about reclassifying the different types of unemployment. [1] I think this has led to a vast improvement. One way and another I have re-written the first three chapters on so large a scale that I am getting another galley proof [b] which I hope to send you early next week. So put off your re-reading until this is in your hands. I have also adopted your suggestion about using the term "Marginal Factor Cost" . [2] Like you I do very much dislike excluding user cost from prime cost, and had been casting round for an alternative term without success. Your "factor cost" is just right, I think. The chapters dealing with income, user cost and the rest of the definitions I have also dealt with very drastically, and have managed to delete about half of it altogether. I have felt that these chapters were a great drag on getting to the real business, and would perplex the reader quite unnecessarily with a lot of points which do not really matter to my proper theme. But it is only now, after an interval, that I have been able to perceive which parts can be thrown into the waste paper basket--and thank God they are considerable. I think all this will now read much simpler and more convincing. What I have to say is not really so terribly complicated; but there is some evil genius which sits at the elbow of every economist, forcing him into all sorts of contorted and unnecessary complications.

The only points so far where I do not accept your criticisms are:

1) Galley 20, end of chapter 4. [3] I do not agree that my method does not avoid units of aggregate output. The whole of your comment here indicates I think that you have not got me. I have, however, re-written this in the light of what seems to me to be your misunderstanding.

2) I am bothered about your comment on [c] galley 29 which I enclose herewith. [4] This does not matter, since I have managed to delete the whole of the chapter dealing with quasi-rent. But surely one means by quasi-rent the excess price over average cost, multiplied by the number of units?

There remain your comments about my criticism of the classical theory of the rate of interest as distinguished from my own theory. [5] I have not really got to this yet, and have only glanced at your notes without comparing them with my own text. But my first reaction here is one of disagreement. I still maintain that there is "no sense" in the view that interest is a price which equates saving and investment; or at any rate that if one could invent a sense for it, it would be quite remote from anything intended by the classical theorists. Perhaps the clue is to be found where you allege that I am doing great violence to the accepted and familiar when I maintain that "two independent demand and supply functions won't jointly determine price and quantities", [d]   [6] for my whole point is that the functions in question are not independent. To my way of thinking, to say that the rate of interest equates saving and investment is just like saying that market price is fixed at that value which ensures that the sum which the purchaser pays shall be exactly equal to the sum which the vendor receives. However, I will recur to this matter in its proper place, and will certainly be at pains to make the matter clearer and more cogent if I can.

Yours ever,

J M Keynes

R. F. Harrod Esq., Porthminster Hotel, St. Ives, Cornwall.

  1. 1. See letter 458 , [jump to page] , with reference Keynes's The General Theory (1936), p. 6.

    2. See letter 458 , [jump to page] ; for Harrod's reply see letter 464 , [jump to page] .

    3. See letter 458 , [jump to page] , with reference to The General Theory (1936), pp. 44-45.

    4. See letter 458 , [jump to page] ; Harrod enclosed a further note with his reply (letter 464 , [jump to page] ).

    5. See in particular letters 459 , 460 , and 462 .

    6. See letter 460 , [jump to page] .

    1. a. TLS with autograph corrections, two pages on two leaves, in HP II-52; CcI in JMK GTE/1/305-306. The letter is printed in Keynes, Collected Writings, vol. XIII, pp. 537-39. Reproduced by kind permission of the Provost and Scholars, King's College, Cambridge.

      b. Ts: «galleyproof».

      c. Ts: «on».

      d. Ts: «quantities."».


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