486. Harrod to J. M. Keynes , 10 October 1935 [a]

[Replies to 482 ]

51, Campden Hill Square, W. 8. #

10 October 1935

Dear Maynard

Sorry. I cant have made clear what I was driving at. The banks as you say by decreasing liquidity preference can bring down the terms of lending and so cause there to be more lending than there would otherwise be. My point was that they cant swell the total of lending from their own sources. For their lendings are always equal to their borrowings. I now think that the main source of the muddles of the "constant money" theorists, is that they imagine that the banks can create additional lending out of nothing as they can create additional money. This is linked with the idea of Investment being greater than Saving etc.

I havent got a point to argue. This merely assists me to see more clearly the point at which the Hayekian school has gone off the lines.



  1. a. ALS, two pages on one leaf, in JMK GTE/1/411-12.

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