P5. More Money in Circulation. Spending on Capital Account. Provision in the Budget
[Letter to The Times, 10 March 1933, p. 15]
10 March 1933
Sir,--In the course of the last year some measure of stability in our economic system has been reached; but it is now working at a deplorably low level, and signs are lacking that it is likely to make a spontaneous recovery.  It is therefore a matter of urgency that means should be explored for applying some positive stimulus.
The method which is most securely founded on economic principle, which wins most general agreement among expert opinion, and which is most immediately practicable, is a restoration of the general level of British commodity prices, not by restriction of output, which would merely aggravate the evils from which we are suffering, but by increasing monetary demand.
The banking system has already given some measure of support to this policy. The Bank of England has enlarged the reserve basis of the Joint Stock Banks, and they in their turn have expanded credit by the purchase of securities;  money rates have been maintained at a very low level.  There is evidence that the new money provided has so far stagnated in pools  and not been applied in such a way as to increase the demand for commodities. We have, however, no hesitation in affirming that more far-reaching action along these lines would be beneficial. 
The Government is singularly well-placed to assist in reviving demand. We strongly recommend the adoption of such a policy. The following is a possible device for giving effect to it.  The Budget estimates might be divided into two parts--expenditure on current account and expenditure on capital account.  The former would be balanced out of income in the ordinary way; the latter would be financed by borrowing  and explicitly used as a means for injecting new credit into active circulation.  It is a general maxim of financial prudence that all government expenditure should be financed by taxation, and this is no doubt a wise maxim in normal times; but it would be pedantic and injurious to regard it as barring the Government from giving assistance to the well-accredited policy of price restoration in present conditions.
Expenditure on capital account would be made up in two ways. 1. All items of capital, non-recurrent, extraordinary or development expenditure, to which the Government is already committed and which the Chancellor of the Exchequer would in the ordinary course of events have to finance by taxation, would be transferred to the capital account. This transference would relieve the ordinary Budget and enable the Chancellor to reduce taxation  in the coming financial year. 2. All other sound schemes for capital expenditure would be financed from it.
At the same time local authorities should be encouraged to proceed with their own schemes. 
G. C. Allen, Professor of Economics, University College, Hull. W. M. Allen, Fellow of Balliol College, Oxford. Harold Barger, Lecturer in Economics, University College, London. Constance Braithwaite, Lecturer in Economics, Birmingham University. R. F. Bretherton, Fellow of Wadham College, Oxford. E. H. Phelps Brown, Fellow of New College, Oxford. D. Caradog Jones, Lecturer in Social Statistics, Liverpool University. A. M. Carr-Saunders, Professor of Social Science, Liverpool University. E. G. Dowdell, Lecturer of St. John's College, Oxford. L. M. Fraser, Fellow of Queen's College, Oxford. H. T. [a] N. Gaitskell, Lecturer in Economics, University College, London. C.W. Guillebaud [b] , Fellow of St. John's College, Cambridge. R. L. Hall, Fellow of Trinity College, Oxford. W. Hamilton-Whyte, Head of Economics Department, Bristol University. E. L. Hargreaves, Fellow of Oriel College, Oxford. R. F. Harrod, Student of Christ Church, Oxford. L. N. Helsby, Lecturer in Economics, Durham University. John Hilton, Professor of Industrial Relations, Cambridge. E. M. Hugh Jones, Fellow of Keble College, Oxford. D. T. Jack, Lecturer in Political Economy, University of St. Andrews. J. H. Jones, Professor of Economics, Leeds University. D. H. Macgregor, Drummond Professor of Political Economy, Oxford. J. E. Meade, Fellow of Hertford College, Oxford. R. Opie, Fellow of Magdalen College, Oxford. J. F. Rees, Principal of University College of South Wales. J. Henry Richardson, Professor of Industrial Relations, Leeds University. W. J. Roberts, Professor of Economics, University College of South Wales. E. A. G. Robinson, Fellow of Sydney Sussex College, Cambridge. J. Robinson, Director of Studies, Peterhouse College, Cambridge.  A. B. Rodger, Fellow of Balliol College, Oxford. J. W. F. Rowe, Lecturer in the Faculty of Economics, Cambridge. P. Sargant Florence, Professor of Commerce, Birmingham University. J. Sykes, Head of Department of Economics, Exeter College. W. S. Thatcher, Lecturer in the Faculty of Economics, Cambridge. Gilbert Walker, Lecturer in Economics, Birmingham University. E. G. Wilson, Tutor of St. Hilda's College, Oxford. Barbara Wootton, University College, London. 
The Members of Parliament planned to submit a motion supported by at least 100 signatures, which the economists' letter should have followed (Nicholson to Harrod, letter 282 R of 23 February), but nothing seems to have happened.
Nonetheless, Harrod immediately inquired who could sign a collective letter. He explained his plan to Joan Robinson, who asked for a preliminary draft before approaching Pigou and Robertson, and suggested that some people at the London School of Economics might sign (this hope, however, eventually proved groundless) (Robinson to Harrod, letter 286 R of 25 February). She also showed Harrod's letter to Keynes, who wrote to Harrod that he was "very happy to hear that they are instigating you to this" and announced that he was writing a series of articles for The Times on the situation (to become "The Means to Prosperity" (1933); Keynes to Harrod, letter 285 R of 25 February).
The draft was soon ready, and was sent off before the end of the month to "anyone who seemed in the least degree eligible" to sign it. Accordingly, Harrod prepared a list of "Professors, lecturers, etc., in Economics" including 69 names, drawn from the Universities of Birmingham, Bristol, Cambridge, Durham, Leeds, Liverpool, London--both University College and LSE--, Manchester, Reading, Sheffield, Bangor, Cardiff, Exeter, Aberdeen, Edinburgh, Glasgow, Belfast, Trinity College in Dublin. The draft was accompanied by a letter signed by Harrod and James Meade which explained that "We have reason to believe that the present moment is an opportune one for giving publicity to a view which is widely held among economists, and that The Times is likely to give sympathetic consideration to a letter on the subject" (printed, on one page, in HP IV/1270-1303/3).
By 28 February replies began to flow in. Meanwhile Harrod kept discussing with Keynes and Barrington-Ward of the best date for publication (letters 285 R, 287 R, 290 R). At fist it seemed opportune that Keynes's articles went in first, but since these were eventually postponed to 13 March "owing to the pressure of news about Germany", Harrod's and Meade's letter was eventually published on 10 March under the title "More Money in Circulation. Spending on Capital Account. Provision in the Budget" (the title was given by the editor of The Times). It was signed by 37 economists, while 19 declined to sign it and two replied after publication (see note 14 below).
In connection with this letter, Harrod sent a memorandum to The Times (here reproduced as essay 11 ), in which he explained his proposal in more detail. He later returned on the subject with an article for the Daily Telegraph ("Britain's Lead in Currency Policy", Harrod 1933:4 , press item 6 ), while the implications on international trade were discussed in a further letter to The Times ("Trade of the World", Harrod 1933:5 , press item 7 ).
This letter, together with Keynes's articles on "The Means To Prosperity" (1933), had some echo in parliamentary debates: see The Times's report on 23 March ("Unemployment. Chamberlain and Public Works. An Article in `The Times'", p. 7), and Parliamentary Debates. Official Report, House of Commons, 5th series, vol. 276, pp. 342-44. It should be noted that Harrod had sent a draft of the letter prior to publication to Walter Runciman, the President of the Board of Trade, in the "hope against hope" that he would take action on it (letter 292 of 3 March 1933).
2. The Economist's monthly index of business activity indicates a more or less steady, but slow, increase from October 1931. In March 1933 the index passed for the first time the 100 points mark, which was the base of 1924, against a peak of 112.2 in August 1929 ("Index of Business Activity", 21 October 1933, pp. 4-5). The index of wholesale prices was still decreasing with respect to the previous months, although the lowest point was passed in 1932 (The Economist, Monthly Supplement, 29 July 1933, p. 5).
3. Commercial banks heavily purchased gilt-edged securities: the amount of such securities held by industry fell by 40 per cent in 1932. See for instance H. W. Richardson, Economic Recovery in Britain, 1932-9 (London: Weidenfeld and Nicholson, 1967), pp. 190-95, and E. Nevin, The Mechanism of Cheap Money. A Study of British Monetary Policy 1931-1939 (Cardiff: University of Wales Press, 1955), pp. 250-51.
4. The Bank rate remained at 2 per cent from the War Loan conversion of June 1932 to the war.
5. Joan Robinson suggested to eliminate this expression (autograph comments on the printed draft, in JMK A/33/1/131-32).
6. Joan Robinson suggested to substitute this sentence by "In these circumstances more far-reaching action is necessary in order to revive demand" (in JMK A/33/1/131-32).
7. The last three sentences substitute the following passage in the draft which was circulated to the signatories (in HP IV/1270-1303/15): "The Government is singularly well-placed to give assistance to this policy. We strongly recommend the adoption of some such scheme as the following."
8. A similar proposal was advanced in the Liberal Yellow Book: Liberal Industrial Inquiry, Britain's Industrial Future (London: Benn, 1928), chapter XXIX and p. 485.
9. The draft circulated to the signatories specified "short term borrowing". Harrod eliminated the words "short term" on Keynes's and Joan Robinson's suggestion: see Keynes to Harrod, 2 March 1933, letter 290 R, and Joan Robinson's suggested corrections in JMK A/33/1/131-32.
10. For a statement by Harrod on the necessity of a deficit on current account, given before the Royal Institute of International Affairs' Group on International Monetary Problems on 5 July 1933, see note 8 to letter 385 of 26 October 1934.
11. Joan Robinson proposed to add at this point: "or <austere> cuts" (autograph comments, in JMK A/33/1/131-32)
12. This paragraph did not belong in the draft circulated to the signatories.
13. Joan Robinson joked on having been qualified as director of studies of Peterhouse: letter to Harrod of 10 March 1933, in HP IV-1270-1303/32.
14. In folder HP IV-1270-1303 a number of letters from economists are collected, in reply to Harrod's invitation to sign the statement for The Times. Phelps Brown, Caradog Jones, J. F. Rees, W. H. Whyle, C. Braithwaite, H. Gaitskell and J. W. F. Rowe agreed to sign; P. B. Whale (London School of Economics) would have signed (but eventually did not) only provided that a change of emphasis was introduced; G. W. Daniels and T. S. Ashton (Victoria University of Manchester), J. G. Smith (University of Birmingham), G. N. Clark (All Souls, Oxford), P. Sraffa (Cambridge), D. Knoop (Sheffield), E. C. Rhodes (LSE), and E. Cannan (LSE; a copy of Cannan's letter is in CP 1033/63-65) refused to sign; A. Gray (University of Aberdeen) and H. A. Marquand answered after the collective letter was published. Further correspondence is reproduced as letters 288 R, 289 R and 291 R; see also letters 293 R and 294 R.
- a. Times: «F.».
b. Times: «Guilleband».
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