555. Harrod to J. E. Meade , 4 May 1936 [a]

[Replies to 553 , answered by 557 ]

Christ Church, Oxford #

4 May 1936

Dear James

Many thanks for your comments, which I think are just. I am glad you drew my attention to the fact that I have not done the rate of interest justice in discussing foreign lending. [1]

With regard to subsidies, I am no longer so confident as I used to be. I have thought a certain amount about it and cant feel any way to a conclusion that is independent of complicated assumptions. The position I take in the volume is that (i) if the subsidy is general and raised by taxation I do not know what effect it would have on output but that (2) if a formula could be devised by which any increase of output under the subsidy would be accompanied by a suitable shift away from profit, then the subsidy ought to stimulate output. [2] Is it your view that a general subsidy on employment financed by taxation would stimulate output whether it were thus carefully devised or not? If so what about the multiplier? Or perhaps you think that even if not devised for that purpose, the result of a general subsidy would somehow be automatically to cause a shift away from profit?

My present position is that, unless I get some inspiration, I am likely to remain in agnostic position. Dont bother about this. But if you think of anything helpful about subsidies, I should be most glad to know.

(You refer in your letter to a reduction in prime costs due to the subsidy counterbalanced by an equal increase of overheads due to the tax. [3] But if the subsidy is stimulating, surely the reduction in prime costs will be less (since more prime factors are employed) than the increase of overheads, and so we shall have an increase of income.)



  1. 1. Meade's suggestions, however, were not taken into account: see note 4 to letter 553 .

    2. Harrod, The Trade Cycle ( 1936:8 ), pp. 231-32.

    3. Letter 553 , [jump to page] .

    1. a. ALS, four pages on two leaves, in MP 2/4(32-33); photocopy in HP (NC).

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