581. J. M. Keynes to Harrod , 30 August 1936 [a]
[Replies to 580 , answered by 582 ]
Tilton, Firle, Sussex #
30 August 1936
My dear Roy,
I like your paper  (may I keep the copy you have sent me?) more than I can say. I have found it instructive and illuminating, and I really have no criticisms. I think that you have re-orientated the argument beautifully. I also agree with your hints at the end about future dynamic theory.
I am reading a paper to the economic club at Stockholm on about the same date as you will be reading this,  and have been thinking (it isn't written yet) of trying to pick out what I thought most important. But I now feel that I should like to read them your paper instead! There are, however, one or two points mainly omitted in yours which I should be inclined to put into mine:--
(1) I have been much pre-occupied with the causation, so to speak, of my own progress of mind from the classical position to my present views,--with the order in which the problem developed in my mind. What some people treat as an unnecessarily controversial tone  is really due to the importance in my own mind of what I used to believe, and of the moments of transition which were for me personally moments of illumination. You don't feel the weight of the past as I do. One cannot shake off a pack one has never properly worn. And probably your ignoring all this is a better plan than mine. For experience seems to show that people are divided between the old ones whom nothing will shift and are merely annoyed by my attempts to underline the points of transition so vital in my own progress, and the young ones who have not been properly brought up and believe nothing in particular. The portholes of light seen in escaping from a tunnel are interesting neither to those who mean to stay there nor to those who have never been there! I have no companions, it seems, in my own generation, either of earliest teachers or of earliest pupils; yet I cannot in thought help being somewhat bound to them,--which they find exceedingly irritating!
(2) My second point is, perhaps, part of my first. You don't mention effective demand or, more precisely, the demand schedule for output as a whole, except in so far as it is implicit in the multiplier. To me the most extraordinary thing, regarded historically, is the complete disappearance of the theory of demand and supply for output as a whole, i.e. the theory of employment, after it had been for a quarter of a century the most discussed thing in economics. One of the most important transitions for me, after my Treatise on Money had been published, was suddenly realising this. It only came after I had enunciated to myself the psychological law that, when income increases, the gap between income and consumption will increase,--a conclusion of vast importance to my own thinking but not apparently, expressed just like that, to anyone else's. Then, appreciably later, came the notion of interest being the measure of liquidity-preference, which became quite clear in my mind the moment I thought of it. And last of all, after an immense lot of muddling and many drafts, the proper definition of the marginal efficiency of capital linked up one thing with another. 
(3) You do not show how in conditions of full employment, which I should now like to define as the limiting case in which the supply of output schedule ceases to be elastic, my theory merges in the orthodox theory.
I should much like to have your paper for the E.J. My only ground for hesitation is the personal embarrassment of how much space as editor I can properly give to discussions of my own stuff. In December I am expecting something from Ohlin.  Would next March be too late from your point of view?
J M Keynes
2. J. M. Keynes, "Further Reflections on Liquidity Preference", delivered on 25 September 1936; the lecture notes are published in Keynes's Collected Writings (1971-89), vol. XIV, pp. 100-101.
3. This includes Harrod, who insistently complained of the controversial character of Keynes's criticism of the traditional approach (see for instance letters 462 , [jump to page] , and 469 , [jump to page] ), while in his paper on "Mr. Keynes and Traditional Theory" he maintained that there was substantial continuity between Keynes and the classical position ( 1937:4 , pp. 75, 85 and passim).
4. On the importance of the discovery of the marginal efficiency of capital in Keynes's process of thought see also letter 470 , [jump to page] .
5. B. Ohlin's article "Some Notes on the Stockholm Theory of Saving and Investment" was eventually published in two parts in the March and June issues of vol. XLVII (1937) of the Economic Journal, pp. 53-69 and 221-40.
- a. ALS, four pages on four sheets, in HP II-65. An AI version, housed in JMK GTE/2/2/64-67, seems to be the preliminary draft of the letter actually sent. The two versions, however, are almost identical. The letter is printed in Keynes, Collected Writings, vol. XIV, pp. 84-86. Reproduced by kind permission of the Provost and Scholars, King's College, Cambridge.
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