829. Harrod to J. M. Keynes , 7 September 1938 [a]

[Follows on from 814 and 827 , replies to 811 , answered by 838 ]

7 September 1938

Dear Maynard

I have now been through your notes carefully. I have inserted a new passage about the warranted rate. [1] The concept is really analogous with the old equilibrium. If in static theory producers produce too little, they will be well satisfied with the price they get and feel happy; but this is not taken to be the right amount of output; they will be stimulated to produce more. The equilibrium output is taken to be that which just satisfies them and induces them to go on as before. Similarly the warranted rate is that which just satisfies them and leaves them going on as before. The difference between the warranted rate and the old equilibrium (i.e. the difference between dynamic and static theory) is, on my view, that if they produce above the warranted rate, they will be more than satisfied and be stimulated, and conversely, while in the case of the equilibrium in static conditions the opposite happens. The "field" round the equilibrium contains centripetal, that round the warranted rate centrifugal forces. I think the main part of your criticism was based on a misconception of the warranted rate.

I feel that this is rather a case of doing what Dennis once did, asking the reader to re-read! [2] As I re-read, I felt that the explanation is fairly full. The reader is almost bound to miss some points if he comes to it with pre-conceptions.

I have made a number of particular corrections to meet your points. [3]

With regard to ex ante I do not think it matters using this in a somewhat different sense from Lindahl, since the definition is given. It is rather a neat phrase and I dont think the usage is sufficiently established for anyone to be able to say I mustnt use it in the way I have. I have an objection to using warranted in this connexion. I apply warranted to the unknown variable, rate of growth, the value of which is found by solving the equation. It is again analogous to the equilibrium price or quantity of output in static theory. The quantity of capital required or proportion of income saved are data, analogous to the demand schedules of static theory. (Data, the values of which, like those of the demand schedules, change from time to time.) Ex-ante investment is analogous to the demand for a commodity which demanders would make at a certain price; ex post investment is analogous to the statistically recorded demand which may be different from ex ante demand because the price has changed while the orders are in the mail-bag etc. [4]

I have inserted a paragraph about confidence. [5]

I will let you have the revised screed shortly.



  1. 1. Harrod, "Essay in Dynamic Theory" ( 1939:7 ), p. 16. See note 8 to the draft, here reproduced as essay 19 .

    2. Robertson, Banking Policy and the Price Level (1926), p. 4.

    3. The corrections introduced in order to meet Keynes's comments are listed in the editorial notes to essay 19 .

    4. Harrod, "Essay in Dynamic Theory" ( 1939:7 ), p. 19. See note 21 to essay 19 .

    5. Harrod, "Essay in Dynamic Theory" ( 1939:7 ), pp. 18 and 26-27. See notes 13 , 17 and 38 to essay 19 .

    1. a. ALS, two pages on one leaf, in JMK EJ/1/5/320-21. Printed in Keynes, Collected Writings, vol. XIV, pp. 336-37.

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