See accompanying letter

1. Pp. 4 and 5. I do agree with you that J.M.K.'s later definition of full employment is unsatisfactory. And I am sorry that you did not think fit to bring this, which I regard as much your strongest point of criticism, into your paper. [2] (I am sorry as a seeker after truth and not as, what I hope you wont regard me, a pro-Maynard propagandist!)

Maynard surely only regards the increase of money as stimulating if there is unemployment, i.e. if you can avoid the vicious circle of rising wages and prices: of course some stimulating effect is still possible if there is a small rise in these: but there comes a point (full employment) when no further stimulation is possible. And I have no doubt he would hold that as a practical matter of experience, one should stop before absolutely full employment, if a strong upward spiral occurred. But this is really common ground. Of course large changes in the quantity of money if accompanied by similar changes in prices and wages leave no effect on the rate of interest. To argue that is beating against the air. What you have to show is that large changes in the quantity of money will in fact in the long run always produce proportionate changes in wages and prices (Irving Fisher's position [3] ).

I should say that Maynard does not lay much more, if any more, stress on the quantity of money than a great many other writers. What he does claim to show is how changes in the quantity of money affect prices.

2. Why should not the British Public save 10% of its income without having half or even quarter of its pop[ulation]. unemployed? [4]

3. pp. 8 and 9. You say one can only reconcile this phenomenon (high interest in boom; low in slump) with Maynard's theory "by treating an increased banker's ratio of cash to deposit liabilities as equivalent to an increase in the quantity of money". [5] No, certainly not. I cannot think why you say this. If the value of goods turned over falls more than the quantity of money (deposits + cash in circulation) ceteris paribus the rate of interest falls and conversely. This is an absolutely simple explanation based on Maynard's theory which fully accounts for the phenomenon. This very curious passage in your letter possibly suggests to my mind that you have in some rather serious way misinterpreted Maynard.

4. I quite agree that it may be expedient to have loose definitions. On the other hand for some purposes it may be necessary to have exact ones. Our def[inition]s must be judged by their fruitfulness. It is an absolute waste of time to attack someone [b] else for having adopted a certain def. unless he has used it inconsistently. You have an interesting def. of investment. But there are a dozen others in the field. It is quite absurd to claim that Maynard ought to have lit upon yours. [6]

5. P. 13. My point is that it is very doubtful whether stocks including finished and half-finished goods do rise in the slump and fall in the boom on the whole. Yet it is on this assumption that your account of the behaviour of interest rates in boom and slump is based. Maynard's account is based on a much better ascertained phenomenon, viz. that the value of turnover fluctuates more than the quantity of money. You throw off your theory in an airy way as though it would immediately carry conviction. Cf. poor Maynard who has been thinking round and about his theory for the last 5 years!

Your "this is patently untrue ..." sentence. [7] Given the propensity to consume, incomes will be higher if there is an undesired accumulation of stocks going on than otherwise. The people making these goods for stock will be drawing and spending income: this gives employment to others etc. Of course at some point people will say By Jove, we must stop this undesired accumulation. And if they succeed, then investment (undesired) and incomes will drop accordingly.

I cannot follow your criticism of the equation on p. 115 nor your statement that in the event of an undesired accumulation of stocks DY w  = DI w  - DC w  = 0.

6. You ask--do I think a vast programme of public works would raise the rate of interest? [8] Maynard [c] says not if you see that the quantity of money is sufficient to look after liquidity preference. I do not know. What I do deny is that it would do so by making the demand for capital exceed the supply, since it might equally well increase income so that the supply at the old rate was the same as before. I incline to Maynard's view, which seems reasonable. Confidence is an important factor. I think rates might rise through lack of confidence (which Maynard would simply call an increase of liquidity preference).

7. Suppose an increased propensity to save. If this caused a slump it might be expected to bring down the rate of interest. But not necessarily by nearly enough to cure the slump. The Maynard point is that the increased propensity to save has no tendency in itself (via supply & demand) to bring down the interest rate: but only by causing the relation of quantity of money to liquidity preference to alter.

8. You ask me do I honestly believe that demand is not deficient owing to a study of the facts or a desire to believe in the utility of Maynard's theory. [9] I am not clear that my desire to believe in the utility of Maynard's theory is so overwhelming. I dont see why it should be! (My book, in which I suppose I now have some vested interest is only concerned with the trade cycle and I suppose it can hardly be disputed that demand is deficient in the slump.) I dont know quite how to approach the facts in such a way as to be convinced by your thesis, which, you must confess, is paradoxical. It is high time that you wrote a book or article about the transfer problem.

9. I dont see that you have given any vindication of the orthodox theory. Maynard's point that the rate of interest cannot be expected to be naturally adjusted so as to provide full employment seems to me to stand. I can only remind you of the allocution to which you listened some weeks ago. [10]


P.S. Now finally for the point about public controversy. [11] It is clearly most undesirable that you should be debarred or inhibited by any personal feelings for Maynard. But I cannot rid of myself of the suspicion that some of the phrases which appear in your paper and letter are a reaction from past inhibitions. Having perhaps let your tongue be tied too much by your personal feelings in the past, your pent up feelings are now carrying you far further than you would go if you could view the matter quite judicially. I mean when you say that his book is a "farrago of confused sophistication." [12] (I wonder how you would compare it in that respect with Pigou's Theory of Unemployment! [13] ) After all these linguistic terms are relative. You must take it in comparison with Pigou, Hawtrey, Hayek etc. I cant really think that relatively to the standard works written by other people on this kind of subject, you could in a sober moment use such language. I myself read through the whole book in proof twice. [14] I was critical of certain passages and violently critical of his treatment of so-called orthodox doctrine. I read it most carefully page by page looking out for any inconsistency or confusion making marginal comments etc. I came to it quite fresh. I must say I though it wonderfully clear and lucid and coherent and consistent. I cannot believe that my mental faculties were so blunted as not to notice the farrago of confusion. I had absolutely no axe to grind. I owe nothing of material importance in life to Maynard! Nor do I have any expectation of benefit! He taught me for a term in Cambridge, [15] has always been very kind about little things and is a constant source of intellectual illumination. But I cannot believe my judgment can have been so warped.

You say that in certain circles those who do not accept his doctrines are regarded as intellectually inferior beings. That would of course be absurd and intolerable. But is it really so? I cannot think what those circles are. Perhaps 2 people in Cambridge together with a few undergraduates. No; I dont think we need worry about that.

Now when you say that Maynard's book is not a great new light, you are much more likely to be right, because there so very seldom is a great new light. I do think myself that it is important (probably). There is this underlying idea that this free play of supply & demand will produce an optimum condition. There has long been some scepticism about it, a certain amount of murmuring and disgruntlement, but no really coherent account of why it should not. Maynard now presents a consistent theory of under-demand. If it is true, it is surely rather important. And though open to conviction in a contrary sense I am disposed to think it is on the right lines.

But suppose that you are right and that there is nothing much in it, no great new light, only a clever intellectual construction (not a farrago of confusion, please). What is the proper attitude? Well personally I should have thought--kill it by kindness. It certainly wont live unless a large number of people not merely pay lip-service to it, but are able to take up its ideas into their mental stock in trade and work with them. And if your view of it is right, they wont be able to do that. Even if it the book were right, it would be in serious danger of not being recognized.

I agree that Maynard's manners are provoking. Why should he not be given as good as he gives? No reason, really. At least I should not let personal considerations come in there. But I think that there are reasons in the interests of economics against being provoked into a dog-fight. I cant see that it will serve any useful purpose and merely make more stink. As for the gallant defence of orthodox economics, well really there is so little in orthodox economics anyway. What there is that is right is not likely to collapse under Maynard's blast.

From your point of view, I can understand one excuse for indulging in polemic--that is if you could produce something that would not merely give the impression of a dog-fight, but something that was clearly crushing and final, something à la Macaulay. [16] That might be worth doing (always provided that Maynard is wrong) and be a real public service. But I hope I have expressed my own regard for your other work sufficiently strongly for me to be able to say without giving offence about this one, that it is not such as to rise to those heights. It is a palpable hit, but in no sense a knock out blow: in no sense a final and crushing retort that would carry conviction to all readers.

  1. 1. Henderson, "Mr. Keynes's Theories. Marshall Society, Cambridge. May 2nd, 1936", CcTDI, 24 pages (in HP II/182; a further incomplete copy HHP 10/2). For further details see note 1 to letter 540 .

    2. Letters 540 , [] [jump to page] and 541 , [jump to page] . In the revised version of his paper (see note 1 to letter 540 for details) Henderson gave much more space to a discussion of Keynes's theory of employment.

    3. See e.g. I. Fisher, The Purchasing Power of Money (1925), chapter 2, pp. 156-59 and 296-97.

    4. Letter 541 , [jump to page] .

    5. Letter 541 , [jump to page] .

    6. Letters 540 , [] [jump to page] and 541 , [jump to page] .

    7. Letters 540 , [] [jump to page] and 541 , [jump to page] . Reference is to Henderson, "Mr. Keynes's Theories. Marshall Society, Cambridge. May 2nd, 1936", p. 13.

    8. Letter 541 , [jump to page] .

    9. Letter 541 , [jump to page] .

    10. Harrod may refer to a paper he read on 29 February 1936 before the Political Economy Club, to be elaborated into "Mr. Keynes and Traditional Theory" (Harrod 1937:4 ): this was mentioned in a letter from Hall dated 24 February (letter 529 R) and one to Robertson dated 18 May (letter 561 , [jump to page] ).

    11. Letter 541 , [jump to page] .

    12. Letter 541 , [jump to page] and note 8 .

    13. Pigou, The Theory of Unemployment (1933).

    14. The intense correspondence between Harrod and Keynes on The General Theory was exchanged between June and September 1935, beginning with letter 451 .

    15. On Harrod's sojourn in Cambridge under Keynes's guidance in 1922 see note 2 to letter 30 R.

    16. Reference is to T. B. Macaulay (1800-59), Whig politician, essayist and historian, whose History of England (originally published between 1848 and 1861), although undisguisedly partisan and uncritical in its approach, was for a long time regarded as a model of thoroughness.

    1. a. ALS, one page, and ANI, eight pages on four leaves, in HHP Box 10.

      b. Ms: «some one».

      c. Ms: «Maynards».

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