819. Harrod to J. M. Keynes , [August 1938] [a]

[Replies to 811 and 817 , answered by 821 ]

Christ Church

[August 1938]

Dear Maynard

Interim Report!

I did not comment on your original notes in detail. Had I done so, I should have pointed out that you use s for marginal propensity to save [1] whereas I use it for proportion of income saved. Even if your s is 100% this will not have a very big effect on my s. Moreover for me t is quite indeterminate, depending on the length of time taken into account. Thus the DI related to a given DA (increment of consumption goods) varies inversely with the interval chosen, whereas s is an absolute quantity.

In the equation , G is smaller the smaller the interval chosen, C is greater the smaller the interval chosen and s is independent of the interval. The validity of the equation is independent of the interval.

This belongs not to the accident of notation but to the essence of the theory. My main principle that the supply of saving depends upon the level of income principally, while the demand for saving depends upon the increase of capital of all sorts required for the increment of output (depends \ principally on the rate of growth) demands this particular notation in which the marginal propensity to save plays no leading role. Of course if marginal s is high, my s will increase not very rapidly but substantially with the mere lapse of time, if growth is positive, and this was taken into account by me in another place as a subsidiary matter. [2]

I realize that if you use the multiplier principle to assess the effects of a change in circumstances otherwise considered as static the marginal propensity to save is all important. It is all important; but not in relation to the branch of theory I am here trying to develope. The relation of dynamic theory to the static can, I am confident, be shown quite elegantly, but again space forbids.

I dont myself think that my analysis does depart in essentials from the conditions of the real world. I cant ask you to re-read as you have not got it. But I promise that all your comments shall be given weight in the attempt at further clarification, though I do not think this will call for complete re-writing. The insertion of a few extra pointers to the essential structure of the argument should make all plain sailing.



  1. 1. Letter 811 , [jump to page] .

    2. As to the changes of s in the course of the cycle see the draft of the "Essay in Dynamic Theory", essay 19 , [jump to page] ; for long-run considerations see for instance the final section of the "Essay in Dynamic Theory" (Harrod 1939:7 , p. 33; draft, [jump to page] ).

    1. a. ALS, two pages on one leaf, in JMK EJ/1/5/316-17. Printed in Keynes, Collected Writings, vol. XIV, pp. 332-33.

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