619. Harrod to D. H. Robertson , 2 February 1937 [a]

[Replies to 618 and to a letter not found, answered by 620 ]

Ch[rist]. Ch[urch, Oxford].

2 February 1937

Dear Dennis

I cant quite see what Maynard refuses to accept, [1] the formulae being formally interchangeable. I prefer mine (i) because it is simpler (ii) because it may be convenient for certain purposes to approach the matter taking V, X and p as knowns and Y and M as unknowns. If we get Y by my equation, we can then reach M if q is also known.

My only correction is that X [b] should stand for active items on current account and thus include interest etc. on foreign investments. 1

My balance was intended to be, and I think is, [c] the ordinary balance on current account.

With regard to my instructions on pp. 153/4, we are thinking the matter from the point of view of the multiplier.

(i) The expenditure on foreign made goods being taken to include foreign raw materials in home goods is perhaps obvious. I was thinking of consumption goods in this sentence. It means that a deduction is necessary in computing p. 2

(ii) If exports = £400m, this represents a distribution of incomes in England which should be appropriately multiplied (you can think of it in terms of the old infinite series [2] ) to find out how much purchasing power directed to the purchase of English goods will arise directly or indirectly from this receipt of income. But from the £400m [d] must clearly be deducted in the first place foreign raw materials; for the part of the £400m [e] devoted to their purchase does not generate purchasing power in England. The distinction between active items in general and exports in particular only comes in I think when we are considering the dynamic determinants (cf. footnote on p. 152).

(iii) Again suppose V = £400m. In so far as part of this consists of a purchase of foreign equipment, it does not represent a distribution of purchasing power in England. It will not generate further incomes in England.

Does this make the matter plain?

Please do not think of collecting people to keep me entertained as I shall be very content with your company. [3] The only person that occurs to me whom I should hope to get in touch with is S. Runciman. [4]



  1. 1. The difficulty, as illustrated in note 2 to letter 618 , seems to regard the same point under discussion when Harrod submitted his International Economics ( 1933:10 ) to Keynes: see letters 273 ( [jump to page] ), 274 , 277 , 278 and 280 .

    2. In The Trade Cycle ( 1936:8 ), p. 146, Harrod expounded the foreign trade multiplier in terms of a convergent series.

    3. Harrod refers to a weekend he was soon going to spend in Cambridge: see letter 625 .

    4. James Cochran Stevenson Runciman was the second son of Walter Runciman. He was born in 1903 (knighted 1958), educated at Eton and Trinity College, Cambridge, where he was a fellow from 1927 to 1938, and was a lecturer at the University (1932-38). Harrod met him in the 1920s, when he was often a guest at the Runcimans'.

    1. a. ALS, two pages on one leaf, in DHR C3/2 9 .

      b. Ms: «x».

      c. The last two commas have been added to facilitate the reading.

      d. Ms: «£400».

      e. Ms: «£400».

1. [Robertson's ticked this sentence in the margin.]

2. Yes, this makes it plain,--the corrections are only to be made for "multiplier" purposes, not for the purpose of evaluating X and M respectively. [Robertson's pencilled note in the margin].

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