805. D. H. Robertson to Harrod , 11 August 1938 [a]
[Replies to 798 ]
Trinity [College, Cambridge]
11 August 1938
How active you are! Family allowances, bank expansion, immigrants, British Ass[ociation]!  How do you do it? The stimulating effect of matrimony, I suppose.
Your letter. I(b).  Let us remember what the question at issue is. It is not whether the acts of individual money saving (defined in a certain way) performed during a certain slice of time add up to the same total as the acts of "investment" performed during the same slice of time,--defined in a certain way. They do. It is what are the forces tending in a certain slice of time to raise or lower the rate of interest. I have not denied (see later in my paper  ) that these forces can be expressed in terms of a demand for a stock of money to hold for various purposes and of a supply of money in the sense of the stock of money permitted by the banks to be in existence. I have merely asserted that it can also (and to the plain City man and schoolboy more intelligibly) be expressed in terms of a demand for and supply of loans. The two routes are alternative, not mutually exclusive. If we adopt the latter, it is the loan made by the bank which tends to lower the rate of interest, not the act of money saving (in your sense) which eventuated from the fact that, so soon as the loan is spent, somebody's money income is increased. That fact in itself does nothing whatever to ease the pressure on the capital market (what may happen later, owing to the increase and redistribution of real income, is another matter): the easing has already been effected by the willingness of the bank to lend.
Incidentally, I think you make too much of the technical difference between loan and overdraft. If it were possible, as I think JMK said in the Treatise, it might be desirable to include unused overdraft facilities in the recorded total of Money,  for purposes of the neo-Keynesian (or any other) system of equations. Surely one would expect interest-rates to harden if (banking mentality and reserves etc. being unchanged) there is an increased pressure to obtain overdraft facilities: or conversely to soften if (demand being unchanged) the banks became richer in reserves or for any other reason more complaisant about granting such facilities.
II.  I think we are in considerable sympathy here, and I much look forward to seeing your paper.  As to Marshall, I do not profess to be clear what his "normal" was, but I do not think it was static,--I think he conceived of capital growth and population growth as "normal".
And I do not wish to decry the study of short-period equilibrium situations, which I agree are a necessary half-way house to dynamics,--only to deprecate the tendency to mistake them for the study of dynamics.
I believe that I shall be in Cambridge after all during the Brit. Ass.,--but I hope you will forgive me if I lie hid. I have been sleeping and working rather badly, and am beheld hand with revision of lectures and reading. If you have time for a personal visit, tant mieux: but you will be much taken up with Presidential duties.
2. Letter 798 , [jump to page] .
3. D. H. Robertson, "A Survey of Modern Monetary Controversy" (1938), pp. 14-15.
4. Keynes, A Treatise on Money, 1930, vol. 1 (in Collected Writings, vol. 5, pp. 36-38).
5. Letter 798 , [jump to page] .
6. Harrod, "An Essay in Dynamic Theory" ( 1939:7 ).
- a. ALI, two pages on one leaf, in HP IV-990-1069d/58.
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