495. D. H. Robertson to Harrod , [November 1935] [a]

[Replies to 494 , answered by 496 ]

[November 1935]

But Roy, dear, you have discovered a new Tautology,--"amount lent = amount borrowed". Of course it does! See any English dictionary! Who ever thought it didn't?

I warned you about these dreadful names in -ing--gerunds or whatever they are--but you have been deaf to my warning.

I never said that the bank creates "lending in excess of borrowing",--I said it creates "additional lending", i.e. lending in excess of what would have existed had the bank not done what it has done. [1]

A supplier of coffee puts additional coffee on the market, and succeeds in "creating" (directly) "additional selling" and (indirectly) an equal amount of "additional buying". According to you, the fact that the "additional buying" is equal to the "additional selling" prevents us from detecting in the process described any force at work tending to lower the price of coffee. God knows what complicated expedients you will not resort to to explain why the price of coffee has fallen! Whereas I say that the price of coffee has fallen because, the demand schedule remaining unchanged, the suppliers of coffee have insisted on disposing of increased supply.

Similarly I say the rate of interest falls because, the demand schedule for the use of loanable founds remaining unchanged, the suppliers insist on disposing of increased amounts of them. Save that we are dealing with a hiring market instead of an outright purchasing market, the analogy is exact. Where is the difficulty?

I feel that we are stumbling over one another's feet among the very elements of the theory of value, & that so long as we are doing this it is hardly any use discussing whether we agree about complicated things like the criteria of equilibrium in a steadily progressive community! [2] But so far as I can see I have answered your last paragraph in my last paragraph. To get generality, I must provide for the possibility of disequilibrium in an "all-profit" economy of the kind described. [3] Hence my criterion has to be stricter than yours, which, so far as I can see, would necessarily be fulfilled in such a community. But apart from this, I think the first half of the second page of my last letter established that there is a close correspondence between your criterion and mine. [4]

I am most anxious that in your dogmengeschichte when it appears you should not overstress JMK's obligations to me. He has always been most generous in his acknowledgments (see preface to Treatise): & I in return avow that a good deal of the central point of BP & PL was his,--including the "induced lacking" which was the germ of what seems to me sound in his later developments. [5] It is the most painful part of this whole position that my attempts to show that the new doctrines are largely a re-statement of old truths are apt to seem like assertions of my own priority. And one is tempted at times to self-assertiveness,--not so much against JMK himself as against his enthusiastic young disciples, who have never thought of these things till the last 2 years, and to whom the whole thing seems a brand-new revelation straight from heaven! But the real point is not a personal one to me,--it is the spiritual necessity which JMK seems to be under to disparage all previous work in these fields and to resent any attempt to show the affinity between some of his concepts and conclusions and those of previous writers,--it is a greater crime to reach agreement with him by other lines of thought than to differ from him!

So please go carefully, & in such wise as not to make a difficult situation worse!

Lately, with the other hand so to speak, I have been conducting a controversy with old Alston about his book The Functions of Money, [6] --which he feels, I think, has not met with the recognition it deserves. It is all an attack on me for countenancing the heresy, as he regards it, of supposing that the accountancy-fact of the "indebtedness" of the bank to deposit-holder or note-holder ever enshrines any economic truth! So I have been feeling, not for the first time, like the Ibis,--safest in the middle!

Yours ever


P.S. Since you are so kind as to ask, it is chiefly ch V in the 1928 ed[itio]n of Money that is relevant (parts 1 of it are word for word the same as the contemporary article on "Doctrines of Banking Policy"); but also ch VIII. [8]

  1. 1. See letter 487 , [jump to page] .

    2. This was the subject of the exchange between Harrod and Robertson in the columns of Economica in 1934: Harrod, "The Expansion of Credit in an Advancing Community" ( 1934:8 ); Robertson, "Mr. Harrod and the Expansion of Credit" (1934), Harrod, "Rejoinder to Mr. Robertson" ( 1934:11 ).

    3. See letter 487 , [jump to page] and note 7 .

    4. Letter 487 , [jump to page] .

    5. Keynes, Treatise on Money (1930), as reprinted in Collected Writings, vol. V, p. xviii, Robertson, Banking Policy and the Price Level (1926), p. 5.

    6. L. Alston, The Functions of Money, London: Macmillan, 1932.

    7. The first edition of Money actually appeared in January 1922.

    8. Robertson, Money (1928); "Theories of Banking Policy", Economica 8, June 1928, pp. 131-46.

    1. a. ALS, four pages on two numbered leaves, in HP IV-990-1069d/31.

1. Other parts are the same as in ch IV of the original (1921) edition [7] [Robertson's note].

Welcome page

top of page

Return to index of this section

Go to previous page

Go to next page