156. J. M. Keynes to Harrod , 1 August 1928 [a]
[Replies to 155 ]
Tilton, Firle, Sussex #
1 August 1928
I hope you will salve something of the article.  But if you pursue the matter on the basis of assuming full competition will you not be up against all the usual increasing and decreasing returns difficulties--a difficulty, that is to say, as to how firms of different sizes can exist together in conditions of full competition unless there is a constant return?  I am still an adherent of the theory put forward by Sraffa in his Journal article  to the effect that observed results could only be explained by assuming that each producer has within certain limitations his own private and local market.
R. Harrod, Esq., Christ Church, Oxford
This illness has been attributed to Keynes's rejection of Harrod's "Notes on Monopoly and Quasi-Competition" (E. H. P. Brown, "Sir Roy Harrod: A Biographical Memoir", 1980, p. 9). In reality, it was due to the stress caused by Harrod's mother's melancholy. In an autobiographical statement written for his therapists, Harrod described his years as an undergraduate as alternating moments of exhilaration due to participation in a number of clubs and societies, and depression due to Frances Harrod's disease; this led him to a first nervous breakdown (see note 1 to letter 8 R) and on the edge of suicide (the passage is cited in note 2 to letter 29 R). Later her state improved slightly, and Harrod "got over suicide and murder obsessions". However, the situation remained tense, and eventually precipitated:
(For references to the papers to correct see letters 152 , [jump to page] , and 153 , [jump to page] ; the unwritten book is International Economics, later published as 1933:10 : see note 1 to letter 135 )
Harrod slowly recovered, and eventually resumed the discussion with Ramsey in July 1929 (see letter 168 ), who withdrew his criticism. The first part of Harrod's note was saved, and formed the core of section II of "Notes on Supply" ( 1930:3 ).
2. Harrod discussed the implications of imperfect competition on the laws of returns in particular in "The Law of Decreasing Costs" ( 1931:2 ), but hints can also be found in "Notes on Supply" ( 1930:3 ), pp. 237-39.
3. P. Sraffa, "The Laws of Returns under Competitive Conditions", Economic Journal XXXVI, December 1926, pp. 535-50.
- a. CcTLI, one page, in HP II-18, with envelope addressed to Christ Church; further copy in HP II-200 and JMK EJ/1/3/92, photocopy of the latter in RFK/14/75/74. Reproduced by kind permission of the Provost and Scholars, King's College, Cambridge.
b. Ms: «difficile».
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