158. F. P. Ramsey to Harrod , 27 March [1929] [a]

[Replies to a letter not found]

4 Mortimer R d , Cambridge

27 March [1929] [1]

Dear Harrod,

Thank you very much for your kind letter; I am glad to know you are interested in my article. [2] I certainly don't see any signs of misunderstanding in your comments.

(a) Yes perhaps £5000 is much too high for bliss, [3] but enough appliances might do wonders e.g. the machine which puts your dinner on while you order it by telephone.

(b) I'm sorry W(y) isn't clear; [4] what I ought to have said is that W(y) is the happiness enjoyed by a man who can spend y more than he earns. But I think you've made it out all right in spite [b] of my obscure explanation.

(c) IIb really hasn't any interpretation, I fear. It is simply an exhibition on the graph of the formula for finite time. [5]

(d) Yes if . The bigger r the more saving.

(e) I think the main point of III [6] is that you can't just draw a demand and supply curve for capital and apply the usual apparatus of saver's rent etc.; e.g. the treatment of saving as a use of income with its own elasticity of demand (as in Pigou Public Finance [7] p. 138) is not really right. I did a very elaborate treatment of taxation and savings which was cut out by Maynard; rightly as it was too involved in comparison with the conclusions which were feeble. [8]

I first started thinking about saving through being dissatisfied with Pigou's treating it in this way; but now I think what he says is good enough perhaps, as anything better would be so complicated and fruitless.

(f) On p. 558 "except to provide for old age" has a little more point than I think you see, though of course as you say it isn't the right phrase to use. The point I had in mind was that suppose people didn't get feebler when old; then the man for whom wouldn't save anything, but the man with would save say £1 when young in order to spend £2 when old, even though his earning power didn't fall. I think it might do if I said "except to provide against diminished earning power in old age".

No I don't think Allyn Young's thing is any good; [9] he seems to me to be in an awful muddle. His diagram presupposes that the man taxed has a fixed income; in which case, as he says, all commodities should be taxed equally. But Pigou (and I) said this too (Pigou Public Finance p. 127 near bottom only he says not fixed income but fixed supply of work) and it doesn't contradict what I said, as, if the tax goes back to the average consumer, the production of all commodities is diminished in the same proportion, namely not at all.

AY deals in particular with the supposition that there are only two commodities for one of which demand is absolutely inelastic; in this case income (or supply of work) being also supposed fixed, it simply makes no difference how you arrange the taxation. The economic world is supposed so rigid that the problem of differentiation disappears. But how this makes a criticism of Pigou or me I don't see; I think he supposed that it was contrary to what we said but it isn't.

I do hope you'll come to Cambridge soon; you could always stay with us, or in King's. Do come for a weekend next term?

Yours,

Frank Ramsey

  1. 1. Year read from postmark.

    2. F. P. Ramsey, "A Mathematical Theory of Saving", Economic Journal XXXVIII, December 1928, pp. 543-59.

    3. The concept is defined in Ramsey, "A Mathematical Theory of Saving", p. 548.

    4. See Ramsey, "A Mathematical Theory of Saving", p. 550.

    5. Ramsey, "A Mathematical Theory of Saving", pp. 551-52.

    6. Ramsey, "A Mathematical Theory of Saving", pp. 555-59.

    7. A. C. Pigou, A Study in Public Finance, London: Macmillan, 1928.

    8. Ramsey, "A Mathematical Theory of Saving". Ramsey's correspondence with Keynes is reproduced in The Collected Writings of John Maynard Keynes (1971-89), vol. XII, pp. 784-89. The originals are in JMK EJ/1/3/65-76.

    9. A. A. Young, Review of "A Study in Public Finance, by A. C. Pigou", Economic Journal XXXIX, March 1929, pp. 78-83. The diagram mentioned by Ramsey is on p. 81.

    1. a. ALS, four pages on four leaves, in HP IV-963-973; envelope addressed to 34 Campden Hill Gardens.

      b. Ms: «inspite».


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