775. N. Kaldor to Harrod , 3 June 1938 [a]

[Replies to 773 , answered by 776 ]

15, Mecklenburgh Square, [London] W.C.1 #

3 June 1938

My dear Harrod,

I think I understand your point about the "asymmetry" perfectly, [1] & I think I understood it before; but I do not agree with it. On the contrary, I believe, there is "perfect symmetry" as between real wages & the rate of interest, or the marg. cost of borrowing & the marg. real wages, in their respective rôles as determinants of the "degree of roundaboutness". However, I said all I could in this respect in my previous letter. There are one or two points, arising out of your last letter which need clearing up:--

1) You seem to be arguing on the basis of "macroscopic" analysis, i.e. taking a system as a whole, with full-employment equilibrium. In my own argument, I was dealing with the reactions of individual firms to different stimuli, under diff. conditions facing the firm. "Real wages being given" meant, in my last letter, [2] that the time's demand & supply schedules are constant.

2) Do you agree that a reduction in the rate of interest must always lead to an expansion of the firm's output, irrespectively whether it leads to a "deepening" or not? It is not clear from your last letter whether you do.

3) Do you agree that "marg. real wages" must change in order that there should be a change in the degree of roundaboutness; that in fact, there is a unique relation between the two? If so, why is the marg. cost of borrowing more "primary", as a determinant, than "marg. real wages"? And anyhow, what is the difference which constitutes the a-symmetry? I certainly agree that a change in real wages can leave methods unaffected, provided marg. real wages remain the same. In the same way a change in the rate of interest can leave it unaltered, provided this does not imply a change in the marg. cost of borrowing. Where is the difference?

Yours

Nicholas Kaldor

  1. 1. Letter 773 , [jump to page] .

    2. Letter 771 , footnote [i] to [jump to page] .

    1. a. ALS, two pages on one leaf, in HP IV-669-688. Photocopy in NKP NK/3/30/86/106-7.


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