What Caused Harrod to Completely Capitulate to Keynes in His Letter of August 30, 1935? The Answer Can Be Found in Keynes’s Letter to Harrod of August 27, 1935, Where Keynes Demonstrated That the Classical Theory Was Only a Single IS Curve in (Y, r) Space That Intersected Nothing
37 Pages Posted: 28 Sep 2018
Date Written: September 9, 2018
Keynes provided an overwhelming argument in his letter of August 27th, 1935 to Harrod that convinced Harrod twice to acknowledge that Keynes had made a “radical reconstruction” of the theory of the rate of interest. Special significance can be given to Keynes’s three point post script in which Keynes demonstrated that the classical theory of the rate of interest had no curves to intersect because the IS curve is a single downward sloping curve in Y-r space.
There is a missing equation that is required in order to have a determinate, quantitative equilibrium in Y-r space (Aggregate Income (Effective demand)-rate of interest) space. Harrod was completely overwhelmed by Keynes’s analysis in the letter of August 27th.
Unfortunately, it is apparent that Harrod started to have second thoughts about his complete capitulation to Keynes concerning the need for a radical reconstruction of the theory of the rate of interest in his letter of August 30, 1935.The result was that Harrod mislead Hawtrey in their 1951 correspondence and the readers of his biography of Keynes so as to hide the relevant parts of the letters of August 27th and August 30th from them (see my SSRN contribution in the references).
Keywords: IS-LM, IS-LP(LM), Harrod, Hawtrey, Keynes, Chapter 21, Pages 179–182 of GT, Letter of August 30, 1935
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation