481. Harrod to J. M. Keynes , 8 October 1935 [a]

[Answered by 482 ]

Ch[rist]. Ch[urch, Oxford].

8 October 1935

Dear Maynard

A letter from Dennis [1] suggested this thought to me, which seems to me to be clearer than anything I have seen expressed so far.

Banks have 2 functions, one concerned with the circulating medium one with lending. After much controversy it has been well established--despite Cannan and the banks--that the banks can create money. With that the conclusion has been allowed to slip through unchallenged that they can also create new lending. Whereas in fact in the sphere of lending what Cannan and the bankers say is right--they can only lend what is lent to them. They are irretrievably middlemen. Is that a clear statement of the position?



  1. 1. Harrod refers to the letter from D. H. Robertson dated 5 October 1935, here reproduced as letter 478 . See also Harrod's reply to Robertson, here reproduced as letter 480 , and the continuation of the exchange at letters 483 , 487 , 494 , 495 , 496 , 497 and 498 . For references on Cannan and the theory of credit creation see notes 1 and 2 to letter 480 .
    1. a. ALS, one page, in JMK GTE/1/409.

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