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History of Political Economy 32.2 (2000) 347-379
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On the Spread of an Idea:
The Strange Case of Mr. Harrod and the Multiplier
Daniele Besomi *
Some scientific ideas are accepted immediately, others take years to be recognized or even need to be rediscovered; occasionally, they are never integrated into the mainstream at all. Then there are the strange cases of ideas that are overlooked even when conditions seem most favorable for prompt understanding and acceptance. This article discusses the difficult diffusion of one new idea, the investment multiplier, a concept whose significance was initially unapparent to Roy Harrod (1900-1978). The multiplier itself was troublesome: Ralph Hawtrey, [End Page 347] for instance, provided an early formulation but overlooked its implications (Dimand 1997), and Keynes and Richard Kahn themselves needed almost two years to fully appreciate its significance.
Harrod's case, however, is even more puzzling. An intelligent reader, eager to understand the developments in the Keynesian field, he kept in regular contact with Keynes and his Cambridge followers. In 1932 Harrod had grasped the analytical properties of Kahn's employment multiplier and was ready to apply it to foreign trade in the first edition of his book, International Economics (1933b). In 1933 he read Keynes's articles on the multiplier principle, and in 1934 he and Kahn exchanged intense correspondence on its premises and main implications. However, unable to understand what was taking place, Harrod remained ignorant of the doctrine of effective demand until he read Keynes's General Theory in proofs during the summer of 1935.
The case of Harrod and the multiplier is interesting for two reasons. First, it provides an example of the lack of automatism in the diffusion and acceptance of scientific concepts and of the necessity that the recipient and proposer of an idea actively connect it to the intellectual tradition of the discipline. Second, the publication of the Harrod-Keynes correspondence on the proofs of Keynes's General Theory seems to suggest that Harrod must have played a role at an earlier stage as a discussant of Keynes's ideas (see, e.g., Black 1997, 89). In reality, Harrod was out of touch with events and could call himself a "convert" only in October 1935 (Harrod to Robertson, 7 October; Harrod to Kaldor, 10 October). What prevented Harrod from applying the multiplier principle to investment, despite his ability to transfer the concept from employment to foreign trade and the benefit of Kahn's advice and guidance?
To establish the chronology necessary for my interpretation, I outline in section 1 the progress of the relevant ideas on the Keynesian front. Next, I examine the origin and early development of Harrod's foreign trade multiplier; in section 3 I show that the analogy between this notion and Keynes's investment multiplier is very strict. In the following section, I illustrate the evolution of Harrod's approach to the saving-investment relationship, from his understanding of saving as a condition for accumulation in 1934 to the interpretation of the multiplier process that he integrated in his trade cycle theory in 1936. The relevant steps of this transition were "tutorials" by Kahn in autumn 1934, followed by an attempt to argue with Gottfried Haberler in terms of the equality of saving and investment, and finally by the reading of [End Page 348] the General Theory, which was published in 1936. This intricate part of the story would be hard to believe if not buttressed by ample evidence; therefore, I examine in detail private correspondence. I conclude by suggesting that Harrod's difficulties originated from his failure to appreciate the premise of Keynes's reasoning, and I show how the process of understanding the Keynesian multiplier passed through the interpretation of the General Theory as a complete reorganization of the relationships between economic magnitudes.
1. The Background
Harrod developed his foreign trade multiplier and later learned of Keynes's investment multiplier in the context of two debates: on saving and investment, and on the development of the doctrine of effective demand...