780. Harrod to N. Kaldor , 14 June 1938 [a]

[Replies to 779 , answered by 783 ]

Christ Church, Oxford #

14 June 1938

By Jove [b] , you are a trickster, a knave, pur sang. Here am I trying to argue under the limitations of your assumptions, and then you suddenly introduce without warning perfect competition (cf. p. 3 where I have marked with a cross ). [1]

If there is a rise in real wages in perfect competition and no change in the marg[inal] cost of borrowing (and no varying costs owing either to fixed equipment or entrepreneurship) the price will rise. One must set a limit to the assumptions you allow. You cant just drag in any you please to prove your point. If prices do not rise the firms will produce at a loss, that is all. But the weakest firm will be knocked out and the price will rise. There is no inducement to use more roundabout methods.

With regard to your page 5, the supply schedule of capital taken together with technological possibilities gives you the cheapest way of producing n units of output for all values of n. You say that I dont know what part of the schedule is relevant; [2] I reply that that point is not relevant. 1 Your cheapest method of production for any given output is determined unequivocally. You say (lower) that if real wages are the same for all output you determine unequivocally the proportion. 2 You do nothing of the sort.

That there is an a-symmetry there is not in my mind a shadow of doubt. How important it is a matter of opinion. I have the impression that in economic writing it is often neglected to the detriment of the argument, but of course I may be wrong there and I am prepared to respect your judgment. But when you say that there is no a-symmetry, then I merely feel you have some inhibition, and when you make an analogy with the old dead controversy about whether supply or demand determines price, [5] I am confirmed in my view that you have not made the necessary effort to follow what I am talking about. (Not intentional rudeness of course! Merely psychological inhibition!)

Your last para. [6] (a) leads to deepening in any case 3 and widening if demand remains the same. (b) Fall in prices relative to costs leads to narrowing but not change in roundaboutness, unless narrowing reduces marg. cost of borrowing, 4 in which case it will lead to deepening.

Any invective this letter may contain is not of course ill-meant but only intended to shake you out of your "dogmatic slumber."

Yours

Roy Harrod

  1. 1. Letter 779 , [jump to page] (see footnote [ii] ).

    2. Letter 779 , [jump to page] .

    3. See letter 783 , [jump to page] .

    4. See letter 783 , [jump to page] .

    5. Letter 779 , [jump to page] .

    6. Letter 779 , [jump to page] .

    7. See letter 783 , [jump to page] .

    8. See letter 783 , [jump to page] .

    1. a. ALS, four pages on two leaves, in NKP NK/3/30/86/17-20. Photocopy in HP NC. Marked "Old letter" at the top of the first page by Harrod.

      b. Ms: «jove».


1. Kaldor marked this place with two crosses in the margin. [3]

2. Kaldor marked this place with a cross in the margin. [4]

3. Kaldor marked this place with a cross in the margin. [7]

4. Kaldor marked this place with three crosses in the margin. [8]


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