151. J. M. Keynes to Harrod , 17 July 1928 [a]
[Replies to 149 , answered by 152 ]
Tilton, Firle, Sussex #
17 July 1928
My dear Roy,
Your article has now reached me.  I find the first part of it most neat and elegant. But I am not yet clear about the consequences which you draw on p. 5 to the effect that a cartel which arranged to transfer a certain amount of production from the smaller to the larger firms would cause a more advantageous employment of resources.  This seems to me either a non-sequitur or not clearly a sequitur.
At first sight what you seem to me to have proved is that if a large firm is prepared to cut prices in order to obtain or secure a given absolute volume of business, as is a small firm, then the large firm must be more efficient than the small firm. But it might be that the large firm would only make the price concession to obtain new business which was the same proportion of its old business as the small firm could hope to secure of its business by a similar concession. I have not expressed myself clearly in the above but perhaps you will see what I am driving at, namely that some additional assumptions beyond those which have been made explicit have slipped in when you draw the inference about the cartels. If Harrods were prepared to make as big a cut over the whole of their trade in order to sell one more leg of mutton as the village butcher would, then I agree that there is evidence that Harrods is more efficient and that it would be socially advantageous to transfer business from the village butcher to Harrods. But I don't see how you can infer this from the mere existence of Harrods and the village butcher side by side.
However, I will keep your article and try it on Henderson and Frank Ramsey, whom I shall be seeing this week. 
J M Keynes
2. Harrod, "Notes on Monopoly and Quasi-Competition", here reproduced as essay 6 , [jump to page] .
3. Keynes's appointment diaries scheduled "Hubert and Faith to Tilton" for 19 July, and "Ramseys to Tilton" for 20 July (JMK PP/41).
- a. TLS with autograph corrections, one page, in HP II-16, with envelope addressed to Christ Church but forwarded to Mullion Cove Hotel, Mullion, South Cornwall. Cc with corrections in HP II-200. CcI, with corrections, in JMK EJ/1/3/85; photocopy of the latter in RFK/14/75/84. Reproduced by kind permission of the Provost and Scholars, King's College, Cambridge.
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