P21. Banking and Trade Recession (2) [1]

[Letter to The Economist, 23 July 1938, p. 172]

23 July 1938

To the Editor of The Economist

Sir,--Although I am in favour of public works, Mr Ross is wrong in saying that I asserted that they " could do no possible harm." [2] I used those words of my own scheme, [3] which may be summarised concisely thus: (a) The Bank of England should provide such an increase in the cash basis of the joint stock banks, and the Treasury should maintain such a supply of Treasury bills on the market, as would enable the joint stock banks to purchase long-dated securities of the value of £100,000,000 or more, without seriously disturbing the proportions of their assets; and (b) the joint stock banks should purchase long-dated securities of the value of £100,000,000 or more. This has nothing to do with public works.

Mr Ross writes:--

  • I should prefer to await the economic results of our own re-armament programme and President Roosevelt's pump-priming before encouraging further schemes in England.

The main point of my letter, which, although he has paid me the compliment of a comment, he appears to have read with scant attention, was that the favourable factors, which he mentions, make the case for public works less urgent and increase the chances of success of milder measures.

But I disagree with him in his view that we should do nothing. The position in the United States is uncertain. The depression has been gathering momentum despite re-armament, and it is not likely that a reversal of the movement may be expected to come from that source.

The output of guns and aeroplanes may be increased. But the demand for producers' equipment, required as a preliminary to the higher production of arms, is probably a more potent stimulus, and may well be already past its peak. The case against continued inaction appears overwhelming.

I am, etc.,

R. F. Harrod

Christ Church, Oxford

  1. 1. This letter replies G. E. Ross's critical comments on a previous letter from Harrod to The Economist, published under the same title a fortnight earlier (Harrod 1938:9 , here reproduced as press item 20 ).

    ÆKeynes had written instead in support of "Harrod's plea [...] for concerted measures to reduce the long-term rate of interest", agreeing that a reduction would presumably be advantageous in present circumstances and that in any case there could be no "objection to settling so important a matter by making an experiment" (J. M. Keynes, "Banking and Trade", letter to The Economist CXXXII, 16 July 1938, p. 120.)

    After publication of Harrod's reply to Ross, other correspondents submitted their view under the title "Banking and Trade Recession": H. V. Smith (6 August), G. E. Ross on 13 August, L. Wilkinson and A. C. Dobbs (20 August). On 20 August, the editor of The Economist summarized and commented upon the technical practicability of Harrod's proposal ("Expanding the Credit Base", pp. 371-73). This induced Harrod to rejoin on 10 September: "Expanding the Credit Base" ( 1938:17 , here reproduced as press item 25 ).

    2. G. E. Ross, "Financing Public Works", letter to The Economist CXXXII, 16 July 1938, pp. 120-21.

    3. Harrod, "Banking and Trade Recession" ( 1938:9 , here reproduced as press item 20 , [jump to page] ).


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