663. D. H. Robertson to Harrod , 28 April 1937 [a]

[Replies to 651 , answered by 701 ]

Trinity [College, Cambridge]

28 April 1937

Dear Roy,

Work at Geneva--a short holiday in Savoy (where I was lucky in joining on to the Meades)--the beginning of term, have conspired to delay answer to the enclosed. [1]

(2) You will find something about unplanned saving in this thing of Lindahl's, which was probably sent you at the time, [2] --also, I think, in Myrdal's "Gleichgewichtsbegriff [b] ...", [3] but my copy is at the binder's.

(5) This letter of Hawtrey's may interest you. [4]

Please return both some time.

(1) (3). These sections get down to the root of our differences so far as they are methodological.

I think the propensity of the natural intelligent man 1 to suppose that saving and investment (in the sense of capital outlay) frequently differ is thoroughly sound. It is right that Economic Pedantics, in the hands of myself & others, should try to give such precision as is possible to the definitions on which this use of language rests: & it is unfortunately true that the attempt to do so comes up against difficulties. So does the attempt to give precision to the notions of the "purchasing power of money" and of "keeping capital intact": but the natural intelligent man is none the less right to use these notions freely. I think that JMK created a great deal of unnecessary fog, first in 1931 by implying that this use of language required a much more paradoxical use of the word saving than it does, and secondly in 1936 by tying himself up with a definition which forced him to abandon this use of language without giving us anything to put in its place. [7]

That we need something to put in its place I feel most strongly. You, I think, are closer to me than to the complete Keynesians in that you do not dismiss the whole concept of "money equilibrium under progress" as nonsense. But you regard attempts to express the conditions for it in terms of thrift and its utilisation as otiose. That might perhaps be so in a world in which all operations on the money-stream were made by the use of the taxing and dole-giving powers of the Gov[ernmen]t. But in fact we live in a world where they are still made by the use of the lending and loan-recalling powers of the banks,--institutions which started as, & believe themselves to be, instruments for the effective utilisation of the public's thrift. What more natural than to attempt to demonstrate a connection between the success with which they fulfil that function and the preservation of monetary equilibrium? What more barren than to say, as you do, [8] that they are inevitably fulfilling that function perfectly, whether they preserve equilibrium or create violent disequilibrium in either direction?

But I shall not persuade you, I fear.

As regards dogmengeschichte, I do not know who first used the formula of difference between saving & investment in the sense of capital outlay. I seem to remember seeing it in "Nation" articles in the years just before 1931,--whether by JMK or HDH I do not know. I am inclined to think JMK invented it, & this use of the word investment (a most important invention, I think); but I find it also on p. 24 of the 1 st ed t of Hayek's Prices & Production, [9] --for the temporal relation of this work to the Treatise on Money see p. xiv of the preface to the former. The importance of divergence between saving and investment in the ordinary sense is clearly set out by Lavington, The Capital Market, pp. 70-2, [10] the connection of the latter with capital outlay being separately discussed. Wicksell's discussion is in terms of the divergence between "the demand for loan capital and the supply of savings" (Lectures, II, 193). In the introductory chapter of the same work (pp 6-14) he explains very clearly how saving may fail to eventuate in the accumulation of real capital, without actually using the phrase of a divergence between them. [11]

I do feel that by cutting yourself off from this line of thought you are making the whole thing enormously more difficult of apprehension to the natural intelligent man!

You are not, I suppose, one of the two guests of the College whom I am to meet at lunch with the Vice-Master on May 23 rd ? Couldn't you be?



  1. 1. Harrod's letter to Robertson of 3 April 1937, which was found among Harrod's papers: see source note a to letter 651 .

    2. Robertson refers to E. Lindahl, "A Note on the Dynamic Pricing Problem", later published in O. Steiger, Studien zur Entstehung der Neuen Wirtschaftslehre in Schweden. Eine Anti-Kritik, Berlin: Duncker & Humblot, 1971, pp. 204-11. Harrod was sent a copy on Haberler's suggestion (see letter 393 , pages [jump to page] and [jump to page] ); his copy of the four-pages Ts is in HCN 10/11/1.

    3. G. Myrdal, "Der Gleichgewichtsbegriff als Instrument der geldtheoretischen Analyse", in F. A. Hayek, Beiträge zur Geldtheorie, Wien: Springer, 1933.

    4. Probably refers to Hawtrey's reply (dated April 1937) to Robertson's comments of 31 March 1937 on Hawtrey's Capital and Employment (1937), a draft of which is in HTRY 10/78.

    5. See note 2 .

    6. J. M. Clark, Strategic Factors in Business Cycles, New York: National Bureau of Economic Research, 1934. A. H. Hansen, "Mr. Keynes on Underemployment Equilibrium", Journal of Political Economy XLIV(5), October 1936, pp. 667-86.

    7. Robertson probably refers to "A Rejoinder" (Economic Journal, September 1931) and "The Pure Theory of Money. A Reply to Dr Hayek" (Economica, November 1931), now in Keynes's Collected Writings (1971-89) vol. XIII, pp. 219-36 and 243-56 respectively. The 1936 reference is to The General Theory.

    8. See, for instance, the exchange of letters between Harrod and Robertson during Autumn 1935: letters 480 , 483 , 487 , 495 , 496 , 497 and 498 .

    9. F. von Hayek, Prices and Production (1931).

    10. F. Lavington, The English Capital Market, London: Methuen, 1921.

    11. K. Wicksell, Lectures on Political Economy. Volume II: Money, London: Routledge, 1935.

    1. a. ALS, three pages on three leaves, numbered from the second, in HP IV-990-1069d/51.

      b. Ms: «Gleichgewichtsgewiss...».

1. E.g. Haberler (see enclosure [5] ); J.M. Clark, Strategic Factors, 137, 189; Hansen in Jour. Pol. Econ. Aug 1936 pp. 673-4. [6] [Robertson's footnote].

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