478. D. H. Robertson to Harrod , 5 October 1935 [a]

[Replies to 477 , answered by 479 ]

Trinity [College, Cambridge]

5 October 1935

My dear Roy,

Many thanks for your letter.

(1) I find your review of D[urbin]. very interesting. 1 I'm not sure how far I agree with the crucial criticism in the penultimate paragraph. [1] The motive to "unmaintainable" investment may come partly from an expansion in the consumption trades, [2] but the means comes from abundant producers' credit,--there is no opposition between the two propositions, and from the point of therapeutics the latter may be the more important, since one cannot control people's desires but only their actions!--The interactions of "consumptive" and "constructional" activity & employment are intensely muddling: I fancy one needs, under the latter lead, to distinguish between forms of capital-good (labelled "machinery") the demand for which is liable to be closely associated with the movement of the market for consumable goods, & forms of capital-good (labelled "building") in which the association is less close. Perhaps in Keynesese this is the distinction between expectation of improved quasi-rents and lowered rate of interest being the decisive factor in stimulating investment. And perhaps this dichotomy is relevant to [b] the question whether consumption & investment are more fruitfully thought of as complementary or rival (which is, in my view, too facilely answered by saying it depends on whether or not there is "full employment").

(2) Your crucial question (pp. 2, 3). [3] I hesitate to attempt an answer without deep & prolonged thought! But (i) I should not like to make my definition of "inflation" turn on the existence of a profit economy. The whole analysis of inflation & the opposite in my B. P. & P. L. [4] was worked out on the assumption of a small-independent-trader-and-producer economy, in which "profit" & "loss" in the Treatise sense were impossible. [5] You may say this was boring and uninstructive,--perhaps it was, though I'm not sure that in some connections, such as the problem of population increase, it isn't quite a legitimate & useful simplification. Anyway I think the theoretic point remains that inflation ("forced lacking" [6] ) and its converse are more general phenomena than "doctoring of contracts". [7]

(ii) Grant a profit economy. Even if I am allowed my own definition of S, I am reluctant to be pinned down to statements about the relation between inflation and " " unless I know more about what I means! In your world of instantly reacting factor-incomes, the increase in I does not involve any increase in real investment at all,--only a scaling-up of factor-rewards. As I have said in my paper, real additional Saving = real additional investment = zero: so there is no maladjustment. [8]

Like you, I have a grievance! Since people seem to like to talk endlessly about the relation between (money) Savings and (money) Investment, I try to emulate them and to invent senses in which their propositions will be true! But my own thoughts run--and if I could dictate to my colleagues our language would run--in terms of acts of real abstinence and increments of real capital.

(3) No, certainly that paper will not be published, [9] --perhaps it might not even to have been read or privately circulated in advance of JMK's considered exposition being available to everyone. I have not seen him yet, & don't know how near birth it is. I'm afraid your committee of 5 (or 13?) might only make confusion worse confounded: but it is a striking idea! I am quite conscious that my regret at his snooks at the "classics" (which seem to include everyone from Say to Pigou) and at the very high claims he is making {I just don't believe economic truth is like that!} constitute psychological obstacles to my judging it on its merits: I try to discount that, and remain unconvinced that anything "path-breaking" has happened. It is all, entre nous, very painful to me, personally as well as professionally.

But when it is before us, and when I have done some more thinking, I do look forward to a long discussion with you (even if your committee doesn't materialise),--perhaps in vacation & ranging over days,--weekends in term, with their social excitements, are no use for that purpose. And I think I won't essay an Oxford week-end this term,--which is going to be a particularly tying one, inter alia because I have resumed for a year my old occupation as a theatrical manager (ADC).



  1. 1. Harrod, "The Problem of Credit Policy" ( 1935:6 ), p. 728.

    2. Refers to Harrod's earliest statement in print of the acceleration principle ("The Problem of Credit Policy", 1935:6 , p. 728): "There is reason to believe that the recovery in consumption itself provides an abnormal and temporary stimulus to investment". This passage was later discussed with Durbin: see letter 519 , [jump to page] .

    3. Letter 477 , [jump to page] .

    4. Robertson, Banking Policy and the Price Level (1926).

    5. For this distinction see Robertson, "Saving and Hoarding" (1933), p. 411. Keynes's definition is in A Treatise on Money (1930), in Collected Writings, vol. V, pp. 111-13.

    6. Although "lacking" is a term used in both Banking Policy and the Price Level (1926) and "Saving and Hoarding" (1933), Robertson preferred the terms "Automatic lacking" and "Induced Lacking" (grouped together as "Imposed Lacking") to "forced saving" for lack of agreement as to the meaning of this term.

    7. The expression is due to Pigou:

    • the rise of prices in good and the fall in bad times, to which this credit policy, together with the associated changes in the income-velocity of monetary circulation, leads, doctors the terms of past contracts in ways not fully foreseen when the contracts were made, thus benefiting industrialists in good times and injuring them in bad times at the expense of lenders of fixed interest and, in a less degree, of wage-earners (Industrial Fluctuations, 1927, p. 230).

    8. The passage is quoted in note 2 to letter 477 .

    9. Robertson, "Money-Flows". For further details see note 1 to letter 476 .

    1. a. ALS, two pages on one leaf, in HP IV-990-1069d/26.

      b. Ms: «for to».

1. As well as a model review for tone & temper! [Robertson's note at the top of the page].

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