630. Harrod to J. E. Meade , [16] February 1937 [a]

Christ Church, Oxford #

[16] February 1937 [1]

Dear James

Many thanks for sending me the note from <McLaullan>. [2] I asked the Dean about him who says that he is a very good man. I am in some doubt as to whether to write to him.

I am awfully sorry about you not being up to the mark. I hope you are taking this lightly. Dont be too conscientious! And remember that your primary duty in life is to economics. Hertford pays you to be an economist first and foremost and not to teach undergraduates. These noble foundations were intended to provide homes and incomes for scholars (i.e. ourselves qua scholars) and we must not go against the founders' wishes. Even if a majority of our colleagues of today [b] interprets their wishes otherwise, we must stand up for the right of private interpretation. Which means dont let Hertford overwork you, take your pupils in 2's and 3's etc. [3]

I had rather an amusing experience in Cambridge yesterday. I was staying the week-end with DHR . [4] He said "on Monday at 10.a.m. I am lecturing on Currency and Banking, wont you give my lecture for me?" I said I would and did!

Now I am going to raise an economic point. But dont let it become a burden to you. You remember how you emphasized the importance of the decline in the relative price of capital goods in the slump and I inserted one or two sentences in my book in deference to your views. [5] I was convinced by your argument and I confess I have tended to assume perhaps too hastily that it was the volume of capital goods output that was all important. At our T rade Cycle group [6] the other night Hitch made a point which if right is surely important. He argued that it is the value not the volume of capital goods output which is important as touching the absorption of saving. [7] Consequently, he held, that, since the demand for constructional goods as a whole is probably inelastic in a slump, arrangements tending to hold up their prices were beneficial in mitigating the severity of the slump. We argued your point against him that a drop in capital goods prices is helpful in tending to make the productive process more capitalistic at a moment at which it is all important that investment should be stimulated, but he argued that the drop in prices with an inelastic demand reduces net investment even if it does lead to some substitution.

Suppose consumption goods industries B have to pay capital goods industries A £1500 instead of £1000 for replacements. The extra £500 comes out of the reserves of B and is distributed as income in A. Thus it is a factor mitigating depression. He admitted that some of the £500 might have been wrongly--if not expended--distributed as income in B or if received in A might merely be used to repay overdrafts which does no good. But these he claimed were secondary matters, the primary effect being reflationary. Do you agree?



  1. 1. Misdated 9 February. Harrod's description of the weekend in Cambridge indicates that the letter was written on the Tuesday after the visit (see letter 625 ; Harrod's diary confirms that the visit occurred on the weekend of the 14th).

    2. The note was not found.

    3. The archives of Hertford College do not seem to house documents shedding light on this episode. From the Governing Body minutes it would seem, however, that Meade was highly regarded in the College, of which he was Fellow since 1930 and Bursar since 1934.

    4. See letter 625 .

    5. Harrod refers to the exchange relating to Meade's Note I attached to letter 510 (see in particular [jump to page] ), and to the passages he added on pp. 59 and 77 of The Trade Cycle ( 1936:8 ) (see letter 511 ).

    6. The Oxford Economists' Research Group: see note 1 to essay 17 on Harrod's terminology.

    7. Hitch's point may be connected to the discussions regarding Harrod's "Notes on Interviews with Entrepreneurs", which took place on 5 February 1937 (see note 2 to essay 17 ): an unidentified member of the group expressed the goodwill factor in terms of the present value of the future aggregate net revenue and of the present value of sales. Harrod stroked out the word "value" (second occurrence) and substituted it by "volume" (the passage is cited in note 13 to essay 17 , [jump to page] ). The matter may have been discussed among the members of the group, and have given rise to Hitch's comment.

    1. a. ALS, 6 pages (pages 3 and 5 being numbered) on three leaves, in MP 2/4 (35-37); photocopy in HP (NC).

      b. Ms: «to day».

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