It was therefore not until the inter-war period with its hyperinflation and the great depression, that attention was directed in a large way to aggregate problems of this sort. From this, as you know, after much controversy resulting largely from the contributions of Keynes and Robertson, in the English-speaking world, and from Wicksell’s pupils at Stockholm, there emerged substantial clarification. We know now how to define the relationships of planned saving and planned investment, in such a way that we can say formally that until planned saving is equal to planned investment, it has all the virtues – and more – that classical orthodoxy attributed to it and that, after that point when it is in excess, we walk so to speak through the looking-glass and, in the first approximation at least, it produces the evil effects which the under-consumption theorists thought they saw but so signally failed to explain. We kpow too about the possibilities – I will not say probabilities – of blockages in the adjustment mechanism of the capital market at very low rates of interest; and we can certainly set forth the comparative statics of the whole subject with a simplicity and precision discontinuously better than anything previously available.

I will not attempt any detail in dealing with this phase of history. It would take a course of lectures in itself to disentangle the contributions of the various participants and the rights and wrongs of the sometimes embittered controversies. As for the main propositions, are they not the stable fare of most introductory courses of lectures nowadays, often to the serious neglect of even more fundamental parts of the subject? There is, however, one aspect of our subject which is very conveniently dealt with in this connection, the question, namely, of the nature of the investment productivity functions. Does the curve of the marginal efficiency of investment descend gradually or steeply? How near in any given state of knowledge are the limits to the possible benefits of accumulation? Discussion of this question goes far back. Lauderdale’s scepticism concerning the utility to a farmer of ‘accumulating a hoard of spades, ploughs and other utensils of husbandry infinitely greater than he could use’ can be interpreted as an argument for a steeply declining schedule; and if he and Malthus, relying upon such an assumption, had put their argument for the dangers of under-consumption in terms of stickiness in the capital market in the shape of a sluggish investment demand confronted with falling profit rates and an inelastic saving schedule deriving from ingrained habits of thrift, it would have been at least logically consistent, whether or not it had empirical justification.

One can certainly agree with the afterthought: to judge from some of his remarks to Malthus, 2 Ricardo would have been horrified and so probably would have been Mill’s father. It is worth noting, however, that they were wholeheartedly adopted by Robert Torrens, the survivor of the first generation of the nineteenth-century classical schoo1. 3 It is clear that the analytical concepts of the Keynesian models are, logically speaking, neutral in this connection; they can exhibit a state of affairs in which the incentive to invest falls off rapidly or one in which it declines very slowly. But it is true that Keynes himself was prone to pessimistic views in this connection.

He found it difficult to conceive the inventions which could keep the marginal efficiency of investment high for very long; and he did not much believe in·the alleged greatly increased openings for investments at lower rates of interest. ‘Today and presumably for the future’, he wrote, ‘the schedule of the marginal efficiency of capital is, for a variety of reasons, much lower than it was in the nineteenth century. The acuteness and the peculiarity of the contemporary problem arises, therefore, out of the possibility that the average rate of interest which will allow a reasonable level.