366. G. Haberler to Harrod , 3 September 1934 [a]
[Replies to 365 , continues at 367 ]
League of Nations, Geneva
3 September 1934
Many thanks for your letter. I shall be glad to get your comments on my paper,  but please do not hurry, if it is inconvenient for you: I shall study carefully your paper  and shall write to you about it. I am not a blind admirer of Hayek's theory and I come more and more to the conclusion that severe price stabilisation is after all not so bad a policy as I thought it was.  I have raised some doubts as to the validity of Hayek's objections against the stable prices during a period of rapid progress in a contribution to the Spiethoff-Festschrift.  Didn't I send you a copy of this? Unfortunately I have not got one here.
If you read my memorandum I should be especially grateful, if you would let me know, whether in your opinion my representation of the various theories is correct or not.
I read with great pleasure your article in the Q.J.  Could I have an offprint? I liked especially part I. Also with part II I find myself in agreement. I doubt, however, whether the explanation of a cyclical movement of the economic system which you give in part III, although perhaps logically correct, has anything to do with the business cycle as we find it in reality.
With kind regards,
P. S. Please do not worry with quoting numbers of official letters. 
2. Harrod, "The Expansion of Credit in an Advancing Community" ( 1934:8 ).
3. Haberler had already pointed this out to Harrod a few months earlier: see letter 355 , [jump to page] ; see in particular note 2 for an earlier reference in Haberler's writings.
4. Haberler accepted Hayek's distinction between the effect of an increase in roundaboutness in a fully integrated industry and in an industry where all the distinct stages of the production process are taken up by different firms. In the first case the introduction of a more roundabout process does not require additional money (although of course additional capital is needed), because the transfer of intermediate products takes place in the accounting books. But in the second case the lengthening of the production process is carried out by a new independent firm taking up the supplementary stage of production, and therefore requires additional money. Therefore, in the first case the prices of the original means of production remain unchanged, while in the second case--given the quantity of money--they must drop. According to Hayek, in both cases the lengthening of the production process can be carried out without difficulties. Haberler thus concludes that in the second case it should be possible to increase the quantity of money and maintain the price of the means of production constant, without giving rise to the troubles feared by Hayek. Hayek's principle that the quantity of money should be kept constant can therefore be disposed of, also in the light of the disturbances that this will cause on the distribution of income, and aim at maintaining constant prices instead, as advocated by several authors including Hawtrey and Robertson (Haberler, untitled contribution to J. A. Schumpeter (ed.), Der Stand und die nächste Zukunft der Konjunkturforschung. Festschrift für Arthur Spiethoff, München: Duncker & Humblot, 1933, p. 99).
5. Harrod, "Doctrines of Imperfect Competition", Quarterly Journal of Economics, ( 1934:3 ).
6. See source note a to letter 365 .
- a. ALS, two pages on one leaf, in HP IV-395-422.
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