496. Harrod to D. H. Robertson , 15 November 1935 [a]
[Replies to 495 , answered by 497 ]
Ch[rist]. Ch[urch, Oxford].
15 November 1935
My dear Dennis
You do not disturb me by the charge of tautology. A valid generalization, in my view, is either a tautology or based on empirical evidence.  Unhappily the number of generalizations in economics based on empirical evidence is extremely small. And if you decry tautology, you are decrying almost the whole of economic theory. 
But about bank loans I still think your analysis is faulty. Of course I agree that, if a dealer unloads stocks of copper, (he may be said to create an additional supply of copper) then on the ordinary principles of general theory he depresses its price, since, although he indirectly "creates" as much additional buying as he does selling, he does not alter the demand curve. The analogy here is that when a bank makes additional loans it indirectly "creates" a certain amount of additional borrowing, viz. on the part of the people who accept its loans; but it does not thereby alter the demand schedule for loans, and, if this were the end of the story, I should say that the bank's action must lower the rate of interest.
The true analogy is, however, with a dealer who sells copper which he has not got. If his sale is to take effect, he must be in a position to buy from some one else. And if he has to do that his action, tho he may gain some commission on the "turn", is not conducive to lowering the price of copper. To make the analogy exact we must suppose that he sells and, to cover himself, buys spot. If when the bank lends no one is induced to hold additional bank i.o.u's the net effect of the lending is not an addition to bank loans. The money lent is repaid to this or another bank by some one else. This is what I mean by saying that the banks are irretrievably middlemen. They can only lend what is lent to them. In the case of a commodity the supply may be increased by producers producing something extra, or by the dealers unloading stocks. (An analogy with the second alternative might be said to occur when banks part with their gold.) But why should people, ceteris paribus, want to hold more i.o.u.'s? They will only do so if the rate of yield of other assets falls. But since the banks (subject to reservations about gold) determine the quantity of i.o.u's outstanding, the rate of interest must cet. par. fall.
I should like to say something in your honour. But if I drag you into an article on J.M.K. it will not be for that purpose, but in order to state clearly what seem to me to be the logical connexions between his views and those which you have caused in my mind and in those of others to be associated with your name. It will not be a question of tracking things to sources but of relating certain ideas. But if the article comes off and it turns out that you figure prominently in it, I will submit it to you.
You speak to one converted when you deplore Maynard's mental attitude. I tried to persuade him with very limited success to cut down his polemics.  But I do feel one must not take this too seriously. Nothing human is perfect. A certain measure of intemperance and egoism is the price we often have to pay for a really outstanding achievement. In his case I feel we have in him something really outstanding in clarity and synthesis. Cant we accept the good and turn our blind eye to the troublesome points? As for his followers you are able to treat them so very much de haut en bas--well, I really dont think they affect this question.
I do feel that there is serious danger of his contribution not having sufficient attention. Many will not understand it; others who could with great patience do so are out to find fault. The band of possible appreciators is narrowly limited. The arrogance which you find so troublesome (and no doubt it is more so for you being close at hand than for me) is quite patent to all and may do him harm. I have had quite intelligent people, far removed from Cambridge and economics, ask me--is Keynes going mad? And he with his lynx-like perception may well be in some semi-conscious way aware of this and react, in the usual fashion with still greater dogmatism. I dont think his apparent aloofness to criticism must be taken as showing real in-susceptibility. That is why I feel that if I intervene it ought to be with a positive and constructive attitude--"so and so is good." I dont mind exposing the real links, if I can find them, between what he & others have thought. But I dont at all want to take the semi-hostile line--and I think it most important in the interest of all concerned, of economics itself, that you should not take it--"this is merely what has been often said in a slightly different form." Of course I do think it is more than slightly different, albeit related to traditional doctrine.
2. The significance of tautologies for economics was also the subject of a remark in Harrod's "Rejoinder to Mr. Robertson" ( 1934:11 ), written more than a year earlier, where he pointed out "that tautology has played a notable and useful part in economic theory, especially in checking up on fallacies that involve the omission of cross-entries" (p. 477).
3. See letter 479 , [jump to page] , and in particular note 3 for a reference to Harrod's discussion with Keynes on this point.
- a. ALS, three pages (the last two of which are numbered) on two leaves, in DHR 3/2 5-6 .
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