469. Harrod to J. M. Keynes , 22 August 1935 [a]

[Follows on from 468 , answered by 470 ]

22 August 1935

Ch. 16.

It follows from what I said about ch 15 that I am not happy about Ch. 16. [1] But I dont want to worry you too much about it. I feel that you have made your main point of departure from the classical position--viz. the introduction of variations in total income as a relevant factor in this connexion--abundantly plain in other places. This chapter seems to seek to go further and to convict the classical economists of confusion or circularity within the limitations of their own premises. This attempt is not essential for your purpose. And if not essential I should have thought it had much better be left out. For it is clearly impossible to give a satisfactory criticism of this kind on the basis of short passages torn from their context. 1 Such a criticism is bound to seem unfair and I believe it is unfair. If you are merely making the same point at length that they did not consider variations of income as having the significance that you attach to them, chapter & verse are not necessary--no one will dispute your thesis. That you have done more than this I remain profoundly unconvinced. And controversy of this kind lends itself to such easy refutation by reference to other isolated passages. A storm of dust is raised--for what purpose? I will give 2 examples of what I mean by unfair-ness and then desist.

Galley 73. footnotes 3 and 4. [2] Reading forward from the sentence to which footnote 3 is attached, it seems clear that M[arshall] is thinking of the extra work as due "to an extensive increase in the demand for capital", which is precisely in your words a rise in the marginal efficiency of capital. 2 If this is so footnotes 3 & 4 both become irrelevant. You have given your own good reasons in another place for supposing that a rise in the m. e. of cap. wont cause a rise in the rate of interest. Nothing is gained by making a long quotation merely to repeat that point here.

Galley 74. 1st full para. [3] But it is abundantly clear that M[arshall]. does mean "taken in conjunction with the rate of interest"--a rate determined for him by conditions surrounding the new marginal investments. I dont see a shadow of evidence that M[arshall] "is aware that his argument is becoming circular," [4] or that it is becoming circular. The rate of interest, which we require to know in order to assess the value of existing capital, = the marginal efficiency of the new investment. The marginal efficiency of the new investment depends on the amount of new investment undertaken. What determines that amount? According to M[arshall] there will be that amount which makes the m. e. of cap. equal to the marginal disutility of saving (from an income taken as constant). This is not your view I grant, but there is nothing circular in it. 3

Galley 82. 1st. line. [5] A small point. Ought the words "the actual value of" to be inserted before L 2 (r)? I am not quite clear whether this is what you mean or hold that the function itself may change, since at the end of the para you suggest the possibility of the increase of money changing r but not M 2 , which would imply an offsetting change in the function. 4

Galley 84. [6] Arent the thoughts expounded here worthy of being brought into greater prominence (e.g. at the end of the book) as suggesting an instrument of public policy? I mean that the banks should name a minimum price at which they severally or acting through some cartel organization would be prepared to buy govt. obligations. 5

R. F. H.

  1. 1. Chapter 14 and appendix to chapter 14 of the General Theory (1936), respectively (Harrod's numbering refers to the table of contents sent by Keynes on 26 June, letter 451 ).

    2. Collected Writings (1971-89), vol. XIV, p. 480 notes 1 and 2; General Theory (1936), p. 187 notes 1 and 2.

    3. Collected Writings, vol. XIV, pp. 481-82.

    4. This sentence (Collected Writings, vol. XIV, p. 482 top) was left out in the revision of this chapter, but a passage to the same effect remains in chapter 11 (General Theory, 1936, p. 140).

    5. Collected Writings, vol. XIV, p. 488, corresponding to p. 201 line 9 of the General Theory (1936).

    6. Collected Writings, vol. XIV, p. 489; General Theory, (1936) from the beginning of p. 205 to the top of p. 207.

    1. a. ANI, three pages on three leaves numbered from the second, in JMK GTE/1/317-19. Printed in Keynes, Collected Writings, vol. XIII, pp. 546-47.


1. "No! They are the whole story" [Keynes's note in the margin].

2. "Then he's not assuming constant income" [Keynes's note in the margin].

3. Keynes marked the last three sentences with an undulating line in the margin.

4. This paragraph is ticked by Keynes.

5. "Yes! Will consider this" [Keynes's note in the margin].


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