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

[Replies to 619 ]

Trinity [College, Cambridge]

2 February 1937

Dear Roy,

Many thanks: I'm glad that at any rate I'd got your meaning right.--I think JMK has missed my note in some way.

But there is this to be said, isn't there? If we assume (p + q), the "propensity to consume", constant, then it does follow that in my case (1) the balance of payments will become favourable, and that in my case (2) it will become adverse. [1] The event supposed on p. 156, lines 3-7, of your book [2] can only happen, I think, if (p + q) is increased (and that in more than a certain degree) as a result of the increase in x. But this possibility may be held to be excluded by your own doctrine that as income increases a larger proportion of income will be saved. [3]

Conversely in my case (2) the balance of payments can only become favourable if (p + q) is diminished (and that in more than a certain degree),--a possibility which may be held to be ruled out by the same hypothesis.

My own disposition of course is to think that multipliers are especially dangerous creatures in foreign trade,--being merely a short cut for argument in terms of the fundamental factors (desire schedules, real ratios of interchange etc.), and hence always liable to change when multiplicands change!



  1. 1. Letter 618 , [jump to page] .

    2. "An increase in exports may so stimulate internal activity as to entail a greater increase of imports; the consequential passive balance, so far from being a sign that the totality of foreign dealings are exerting a restrictive influence, may indicate precisely the opposite" (The Trade Cycle, 1936:8 , p. 156).

    3. Harrod, The Trade Cycle ( 1936:8 ), pp. 92 and 106-9.

    1. a. ALI, one page, in DHR C3/2 10 .

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