638. Harrod to R. G. Hawtrey , 26 February 1937 [a]

[Replies to 631 , continues at 644 , answered by 662 ]

Christ Church, Oxford #

26 February 1937

Dear Hawtrey

I am greatly obliged to you for altering your text at various points. I wont attempt to answer your letter as I must now get myself into a judicial frame of mind for the purpose of reviewing your book--only a shortish review unhappily for the Listener .

I will only take up one point. You quote from my letter "with a limited population the rate of increase which obtains during the recovery simply cannot go on indefinitely. If there is a strong force driving it on, prices begin to soar and profits to get greatly inflated and the tendency to over-saving will occur". You add "But these conditions imply an excess of capital outlay over saving, quite a different hypothesis from that in your book". [1] I did not mean that.

During revival increase of consumption and capital outlay are high: when these decline there will be over-saving.

Objector: Why should they decline?

Answer. Because if population is limited there is a limit to the possibility of increasing output of consumption goods.

Objector: Why should not existing population be progressively speeded up and increase of consumption maintained in this way.

Answer. In that event there would be a rising spiral of prices & profits and over-saving owing to the shift to profit.

I did not mean to suggest any excess of capital outlay over saving, but the opposite.

With regard to the main point of course if the deepening fills the gap between the widening process and available savings, cadit questio. My argument was 1. that a small gap if not so filled would lead later to a large one and 2. that there was no reason to suppose it would be filled. (This is not inconsistent with the deepening process going on all the time: the question is whether the deepening process will accelerate just at the moment required to fill the gap and if so why.).

But I must desist!

Yours very sincerely

Roy Harrod

  1. 1. Letter 631 , [jump to page] , with reference to letter 617 , [jump to page] .
    1. a. ALS, three pages on two leaves, in HTRY, file 10/49 (Churchill Archives Centre, courtesy of the Master and Fellows of Churchill College, Cambridge, and the Keeper and staff of Churchill Archives Centre). Photocopy in HP (NC).

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