519. E. F. M. Durbin to Harrod , 4 February [1936] [a]

[Answered by 520 ]

33 York Terrace N. W. 1.

4 February [1936]

Dear Harrod,

I have intended for some time to write to you about your review of my "Problem of Credit Policy" in the Journal. [1] Unfortunately my Christmas Vac[ation] was ruined by my being ill and this is the first opportunity that I have had. I was, by the way, a little surprised that you did not let me [b] see what you had written before it appeared in print. You may remember that when you consented to review the book you said you did not wish to be involved in further public controversy on these matters and that consequently you would not wish me to exercise what you described as my "conventional right of reply" to your review. In answering your letter [2] I remember saying that that was all right by me as long as I could be assured by seeing the review that you had not misunderstood what I was trying to say and you agreed to this course.

I do not think that it actually matters because although I am naturally sorry that you did not find more that you liked in my book I do not feel in the least misrepresented except on one point.

But to turn to the review--there are three major criticisms of my central arguments that you advance: [3]

1. that I give no reasons for supposing that the real world lies nearer to the assumptions requiring constant incomes than to those requiring constant prices (p. 726).

2. That my hatred of producers' credits is due to a failure to consider a continuous injection of them (p. 727)

3. That I invert the relation of cause and effect between the capital good and consumption good industries during the recovery (pp. 727-8).

Let me comment on these three criticisms:

(a) I accept 2. wholeheartedly. There is no doubt that the failure to consider a continuous rate of injection for producers' credits together with the failure to discuss the possibility that capital itself may require a constant money income (pointed out to me by Robertson & Hawtrey [4] ) are the major weaknesses of the book. I misled myself by supposing that the injection of a series of increments (in § [2] of Chapter II) [5] was such a discussion. But of course you are right to point out that this is not the same thing as the assumption that the injection has gone on smoothly in the past--the assumption I give to consumers' credits. Whether such a smooth injection is possible and could lead to a stabilisation of prices without a different degree of mobility in wages I remain to be shown. I think you will agree that Part II of your "Expansion of Credit" article [6] does not make this point at all clear. But I quite concede that I have not considered the possibility--a bad mistake.

(b) On 1. I do not quite get your point. It is quite true, as you say, that I have offered no general reasons for supposing that wages were "sticky". But I must confess that I did not do so because I thought the facts were too utterly commonplace to repeat.

My theoretical contention is that it is impossible to stabilise prices if wages are slow to move relatively to prices. The theory may be <+>, but is it really possible to dispute the character of the real world in this respect? Take the rigidity of English wages in boom and slump alike. Perhaps the best demonstration of the point is in Pt IV of Isles's [c] "Wages and the Price Level". [7]

Perhaps you were thinking of more general postulates--about the nature of capitalism itself. Obviously wages have been mobile--in the past in this country--in Japan and America now. Even here my general sense of the way society works suggests to me that wages only move as a consequence of a change in the profit position and are therefore dependent upon and not independent of the movements of prices and credit. I do not believe in the reality of substantial autonomous movements of money wages--especially with a well <informed> Trade Union organisation in existence.

(c) Your point 3. is, to me, much the most interesting. It certainly sights another possibility that I had not fully considered.

I am not sure that I get your point. On p. 727 you say that the danger point is reached for me when "the level of prices has been restored to the level of costs, and ... there is full employment in the consumption goods See Ms: «good». industries". You say that you do not see why these two points should be "reached simultaneously". That I cannot understand. If by the level of prices reaching the level of costs you refer to prices and costs everywhere I never said that such a point would coincide with full employment in the consumption good industries. Indeed I said the exact opposite. If, on the other hand, you refer to prices and costs in the consumption good industries then I do not see why an equality between prices and costs of the full output should not occur simultaneously with full employment in the consumption good industries.

Again on p 728 you say that " there is reason to believe that the recovery in consumption itself provides a temporary and abnormal stimulus to investment". [8] That I cannot understand. If money has not been given away how can consumers' income have risen without a prior increase in producers' credits and a price boom in the capital good industries? The money must have come from somewhere. And why should a level of investment derived from full employment and normal profits in the consumption good industries be temporary and unmaintainable?

But I suppose your central point is not quite this. You may be asking why full employment in the consumption good industries may not come right at the end of the boom when all the damage is done and when a policy of increased taxation would simply bring on the crisis and make it more acute. That appears to me to be a very just question and criticism and I can only ask for more time to consider it. I believe there is an answer to it.

Thank you for the kind things you said. There is just one unkind one that I think unfair--that in paragraph 3 on p. 726. I think that I am less given to sterile "alternative cases" than most economists and it is a little unfair to make a general accusation of sterility and in the next sentence to say that you do not propose to justify it.

But thank you for all the trouble you have taken.


Evan F M Durbin

P. S. I have just got my new Keynes. It is a wonderful 5/- worth. I have only had time to read the introduction. I do not believe that any one ever really goes back <+> [e] , or renders nugatory, a century of scientific thought! [9] I wish Keynes would not make such extravagant claims. It only embarrasses [f] those who like what he says and wish to defend it against wholesale attack.

  1. 1. Harrod, "The Problem of Credit Policy, by E. F. M. Durbin" ( 1935:6 ). Durbin, The Problem of Credit Policy (1935).

    2. Neither side of this exchange is extant.

    3. An AN in Durbin's hand, one page, in Durbin Papers 3/5(11), summarizes as follows the points to be discussed with Harrod:

    • Thoughts on Harrod

      1. The effect of constant debenture charges--and constant wages--in a progressive community

      (2. The impossibility of stabilising prices with sticky wages and costs).

      3. The method by which it would be possible to inject money--and stabilise prices--if wages & other final incomes were rising at the same rate as physical output.

      4. The effect of raising wages--or money costs--in a system otherwise static except for an increase in capital & physical output.

    4. In a letter to Durbin, Robertson compared the consequences of a stable prices and stable money income policies in the case of a fall in the real marginal productivity of capital, and concluded that to "keep the total of money incomes constant [...] will occasion losses and be deflationary" (Robertson to Durbin, 29 July 1935, in EDP C40a/52; the passage was marked by Durbin with a vertical line in the margin. The exchange is commented in E. Durbin, New Jerusalems. The Labour Party and the Economics of Democratic Socialism, 1985, pp. 154-55). Hawtrey reviewed Durbin's book for Economica: "The Problem of Credit Policy, by E. F. M. Durbin", N.S. 2, November 1935, pp. 461-64; see in particular p. 462 for a criticism of Durbin's assumption that money is injected "at a stage."

    5. Durbin, The Problem of Credit Policy (1935), pp. 50-53. The section number was left blank by Durbin.

    6. Harrod, "The Expansion of Credit in an Advancing Community" ( 1934:8 ), pp. 296-99.

    7. K. S. Isles, Wages Policy and the Price Level, London: King & Son, 1934, in particular pp. 195-210.

    8. This seems to be Harrod's earliest statement in print of the acceleration principle.

    9. J. M. Keynes, The General Theory, 1936 (in Collected Writings, vol. VII), p. 3.

    1. a. ALS, six pages on three leaves, in HP IV-293-295/2.

      b. Ms: «not me».

      c. Ms: «Isles».

      d. Ms: «good».

      e. one or two illegible words.

      f. Ms: «embarasses».

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