An Extended Introduction

Roy Harrod was born in February 1900 and died in March 1978. His father, Henry Dawes Harrod, was a businessman and author of two historical mono­graphs. His mother, Frances (nee Forbes-Robertson) was a novelist, and sister of the notable Shakespearean actor-manager, Sir Johnson Forbes-Robertson.

Harrod went up to Oxford in early 1919 and first read Literae Humaniores (Classical Literature, Ancient History and Philosophy). He might well have devoted his career to academic philosophy, and he valued his publications in that subject more highly than his seminal contributions to economics. Harrod once remarked that significant economic problems have only attracted the attention of profound thinkers for about 200 years, and interest in them

This chapter is reprinted from Eltis (2008) with the permission of Palgrave Macmillan.

W Eltis (1933-2019)

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. A. Cord (ed.), The Palgrave Companion to Oxford Economics, https://doi.org/10.1007/978-3-030-58471-9_13 might well disappear in another 200. In contrast, deep thought has been devoted to the great philosophical problems (e.g. the validity of inductive methods of thought) for more than 2000 years and new contributions will be read for so long as civilised life remains. But his philosophy tutor at New College, H.W.B. Joseph, deterred him from devoting his life to that subject, by reacting extremely negatively to his essays.

He followed his First Class Honours in Literae Humaniores in 1922 with a First Class in Modern History just one year later, and in 1923, Christ Church, Oxford, elected him to a Tutorial Fellowship (confusingly described as a Studentship in that College) to teach the novel subject, economics, which was to be part of Oxford’s new Honour School of Philosophy, Politics and Economics (PPE).

Harrod was allowed two terms away from Oxford so that he could learn enough economics to teach it, and it was suggested that he might spend this time in Europe, but he first went to Cambridge where he attended a wide range of lectures and wrote weekly essays on money and international trade for John Maynard Keynes. He was equally fortunate when he returned to Oxford, for while he was critically discussing the economics essays of Christ Church’s undergraduates, he was himself writing weekly microeconomic essays for the Drummond Professor of Political Economy, Francis Ysidro Edgeworth.

In addition to his new academic work, Harrod took a notable part in the administration of his College (where he was Senior Censor in 1929-1931, the most responsible office a student of Christ Church can be called upon to dis­charge), and also the University where he was elected to Oxford’s governing body (the Hebdomadal Council) in 1929 before he was 30. In the University and in Christ Church, he fought powerful campaigns on behalf of Professor Frederick Lindemann (subsequently Lord Cherwell) who held Oxford’s Chair of Experimental Philosophy (Physics) and became principal scientific adviser to Winston Churchill’s wartime government and a member of his post-war cabinet.

By 1930, Harrod's economics had developed to the point where he was able to publish an important and original contribution, “Notes on Supply” (Harrod 1930a), in which he was the first twentieth-century economist to derive the marginal revenue curve. This should have appeared in 1928 to pro­duce a claim for international priority, but Keynes, the editor of the Economic Journal, sent the article to Frank Ramsey, who first believed there were diffi­culties with the argument. Ramsay subsequently appreciated that his objec­tions rested on a misunderstanding, but Harrod's innovation was less startling in 1930 than it would have been in 1928. He followed this initial contribu­tion to the imperfect competition literature with an important article, “Doctrines of Imperfect Competition” (Harrod 1934a), in which he sum­marised the essential elements of the new theories of Edward Chamberlin and Joan Robinson.

During the 1930s, Harrod frequently stayed with Keynes and he was increasingly drawn into the group of brilliant young economists which included Richard Kahn and Joan Robinson who were helping Keynes develop the new theories which culminated in The General Theory of Employment, Interest and Money. Harrod had written a number of important and influen­tial articles in the press advocating new reflationary policies in the early 1930s and these, together with his extension of Kahn's employment multiplier to international trade in his International Economics (Harrod 1933a), prompted Schumpeter to write in 1946 in his obituary article on Keynes that ‘Mr Harrod may have been moving independently toward a goal not far from that of Keynes, though he unselfishly joined the latter's standard after it had been raised' (Schumpeter 1946: 509, fn. 24).

Shortly after The General Theory appeared, Harrod published The Trade Cycle (Harrod 1936a) in which he developed some of the dynamic implica­tions of the new theory of effective demand. The conditions where output would grow were a central theme in Adam Smith's The Nature and Causes of the Wealth of Nations, and it had been much analysed in the great nineteenth­century contributions of Malthus, Ricardo, Mill and Marx, but the long-term dynamic implications of immediate changes to particular economic variables received virtually no attention in the neoclassical work that followed the mar­ginal revolution.

In the Second World War, Harrod's friendship with Lindemann and his increasing distinction as an economist led to an invitation to join the Statistical Department of the Admiralty (S Branch) which Churchill set up when he again became First Lord in 1939. This moved to Downing Street when Churchill became Prime Minister in 1940, but Harrod did not have a particu­lar talent for detailed statistical work and he developed an increasing interest in the international financial institutions, the International Monetary Fund and the World Bank, which would need to be set up as soon as the war was won, and from 1942 onwards he pursued this work in Christ Church.

Harrod's post-war academic work included important contributions in three areas. In addition to the continuing development and refinement of his pre-war research on dynamic theory, he published extensively on the theory of the firm and on international monetary theory which had been his particular concern during the war.

The Oxford Economists’ Research Group had begun to meet prominent British industrialists before the war. A group of Oxford economists which generally included Harrod invited individual industrialists to dine in Oxford, and after dinner they were questioned extensively on the considerations which actually influenced their decisions. This led to the publication of a number of much cited articles and the book, Oxford Studies in the Price Mechanism (Wilson and Andrews 1951), although Harrod did not contribute to the vol­ume. Propositions which emanated from these dinners included the notion that businessmen took little account of the rate of interest in their investment decisions, and that they did not seek to profit maximise, but priced instead by adding a margin they considered satisfactory to their average or “full” costs of production.

Harrod’s work on the world’s international monetary problems occupied a good deal of his time and attention in the post-war decades. Keynes himself had considered the breakdown in international monetary relations a crucial element in the collapse of effective demand in so many countries in the 1930s, and he devoted much of the last years of his life to the creation of new institu­tions which would avoid a repetition of these disasters. Harrod believed he was continuing this vital work when he devoted much thought and energy to these questions. He arrived at the conclusion that there was bound to be some inflation in a world which was successfully pursuing Keynesian policies, and that the liquidity base of the world’s financial system was bound to become inadequate if the price of gold failed to rise with other prices. Harrod believed that underlying world liquidity which rested on gold in the last resort must be allowed to rise in line with the international demand for money. He therefore came to focus on the price of gold, and in his book, Reforming the World’s Money (Harrod 1965), he proposed that a substantial increase in the price of gold would be needed if subsequent international monetary crises were to be avoided. Harry Johnson (1970) has summarised Harrod’s contribution to this debate.

Harrod took a great interest in actual developments in the UK economy, and published seven books and collections of articles in the first two post-war decades which were directly concerned with the policies that Britain should follow. There was, in addition, an immense range of articles in academic jour­nals, bank reviews and the press on these questions, not to mention monthly stockbrokers' letters for Phillips & Drew. Harrod argued strongly and power­fully that nothing was to be gained by running the economy below full employ­ment, which meant an unemployment rate of less than 2% in the 1950s and the 1960s. In the late 1950s, he was deeply concerned that the removal of import controls would render it increasingly difficult for Britain to pursue such Keynesian policies, and he was a vigorous opponent of European Common Market entry. He attached more significance than some distinguished Keynesians to holding down inflation but he published statistics in Towards a New Economic Policy (Harrod 1967a) to show that in Britain this had tended to be faster when the economy was in recession than when output was allowed to expand. Harrod argued therefore that deflationary policies could play no useful role in policies to control the rate of cost inflation, which he considered the essential element in inflation in Britain. Policy swung sharply away from this Keynesian tradition in the last years of Harrod's life, and he wrote a final letter to The Times on 21 July 1976 in which he praised the economics of Tony Benn and Peter Shore for their opposition to the Labour government's public expenditure cuts, for, ‘To cut public spending when there is an undesirably high rate of unemployment is crazy' (Harrod 1976: 15).

Harrod's advocacy of import controls and his adverse reaction to deflation­ary policies at all times might suggest that he was an economist of the left, but his willingness to support each of the British political parties at various times underlines how his approach to economic and social problems cannot be typecast. The lines of policy he supported always followed directly from his understanding of the significance of the major interrelationships, and it was his belief that Keynesian theory (which he had so notably helped to refine and develop) provided the appropriate tools for the analysis of Britain's economic problems that led him towards the expansionist policies he so consistently advocated. But further theoretical and empirical relationships which he believed were equally well founded led him to advocate a series of social poli­cies to which very right-wing labels can be attached.

Just before the 1959 general election, Harrod's article “Why I Shall Vote Conservative”, which appeared in the 20 September edition of The Observer, put forward the startlingly unfashionable argument that only the Conservatives would allow more money to go to the better off who had most to contribute to the future of Britain (see Harrow 1959a). Harrod's strong belief in the importance of the quality of the country's population stock (which, he held, mattered no less than the physical capital stock) lay behind this article. He thought the quality of the population would be bound to deteriorate if the middle classes continued to have fewer children than the poor. Harrod was a strong believer in the inheritance of every kind of ability, and a provocative conversational conclusion he drew was that in an ideal world one-third of Christ Church's much sought-after undergraduate places should be sold to the rich. Their children often had insufficient academic ability to perform well in examinations, but they had inherited abilities of other kinds which would take them to the highest positions, so they should go to Oxford first. Harrod's reasoning on the inheritance of ability and its implications is set out in detail in the Memorandum he submitted to the Royal Commission on Population in 1944 (see Harrod 1950). There he suggested that a difficulty in finding ser­vants was one reason why the middle classes had fewer children. Among his suggestions to remedy this state of affairs was that Diplomas in Domestic Service should be established, and that it should become common practice for servants to have latch-keys and the same rights as their mistresses to enjoy social lives with no questions asked. His Memorandum reads strangely nowa­days when it is widely regarded as unacceptable that any practical conclusions may be drawn from the proposition that human abilities are inherited. Harrod never hesitated to carry his arguments to their limits, and he always went where his reasoning took him, irrespective of the predictable reactions of others.

The unselfconsciousness of both his academic and his public writing comes out especially in his two biographical volumes, the official life of Keynes (commissioned by the executors) which he published in 1951 (Harrod 1951a) and The Prof (Harrod 1959b), his personal sketch of Lord Cherwell. As well as providing magnificent accounts of their subjects from the standpoint of one who had known them intimately (and who profoundly understood the economic problems that Keynes had wrestled with), these books contain extensive autobiographical passages which will enable later generations to know more of Harrod than any biographer can begin to convey.

Harrod ceased to lecture at Oxford in 1967 upon reaching the statutory retirement age of 67, but as a Visiting Professor he continued to teach in sev­eral distinguished North American universities. He died at his Norfolk home in 1978, eleven years after his Oxford work came to an end.

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