HARROD - "THE TRADE CYCLE"
[see accompanying letter]
Page 35: at the top. The first three sentences do not seem to me to be right. It is not the case that if all producers acted like the agriculturists there would be no substantial restriction of output. What would happen would be that prices would fall without limit with various ultimate reactions, especially on the rate of interest.
Page 37: Beginning of first complete paragraph. The whole of this discussion does not seem to me to allow for the fact that equilibrium will only exist if prices fall more than wages. Thus a provision that prices and wages shall always move equally is tantamount to a prohibition of equilibrium.
Page 44: middle. The conclusion that the system will move irretrievably to the position of zero output is surely wrong. As soon as the decline of output has sufficiently reduced national income we have equilibrium at the appropriate level of income.
Perhaps I have misunderstood the stabilisers. For, unless I have, they seem to produce the opposite result to that indicated in the sentence, "when prices fall, the sooner the downward movement is called to a halt, the more powerful the stabilising forces must be. That is the more equally do they offset the falling prices."
On the contrary, it seems to me that, if prime costs were not plastic, i.e. constant money wages, and if there was no diminishing return, prices would always be constant and the only thing which would change would be output. In fact, so far as prices are concerned, the plasticity of prime costs and the principle of diminishing return are de-stabilisers. From this point of view it seems to me that it is the dynamic determinants which are stabilisers.
Page 55: bottom, and 56: top. I doubt if this is convenient. Mention ought to be made of the time unit considered. Gross investment over a year as the unit of time cannot conveniently be taken to include, e.g. services produced and consumed within the period.
Page 57: beginning of complete paragraph. This seems to assume, as a good deal of the argument does, that interest rates are constant.
Page 59: top half. As in my Galton Lecture, I should add to the causes leading to demand for capital--"(iv) owing to improvements allowing an increase in output per head whilst requiring the same amount of capital per unit of output." 
Page 96  and Page 102.  I am not convinced here, mainly on the more fundamental grounds discussed separately. The new investment only justifies itself momentarily and not over the whole course of the investment. Throughout this argument the fact that entrepreneurs are undoubtedly influenced by immediate prospects is over-emphasised and practically becomes the assumption that they are influenced by nothing whatever except immediate prospects.
Page 123. This is not right, I think. It is not clear whether the suggested 4 per cent etc. are the long-term rates [b] of interest or the yield during the years in question. It is shown that they cannot possibly be the long-term rates of interest. But there is no reason why they should not be the expected yields, in which case the long-term rate of interest will be the appropriately discounted average. The position of the long-term rate of interest seems to me to be blown upon merely because it is confused with the current yield.
Page 141. I should agree that open market operations directed to the short-term rate of interest cannot have much effect on the long-term rate unless they affect "the definite view about the future of the rate of interest". But suppose a central bank were to apply open market operations to long-dated securities, surely this might have a sufficiently substantial effect.
Page 149.  There may be a confusion here between home-investment and home-produced home-investment. I find that Dennis has been misled by this.  Where it is said, in the middle of the page, that "the multiplicand is the value of the active current items and the value of net investment at home taken together" the argument requires that "net investment at home" means "net home-produced investment at home". This leads to an appearance that the argument is independent of the balance of trade, whereas this is not really the case.
Page 156. "Increased exports may so stimulate internal activity as to entail a greater increase of imports". This may be so, but it is not obvious to me. It seems to need more discussion and proof.
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