622. H. Richter-Altschäffer to Harrod , 4 February 1937 [a]
[Answered by 640 ]
care of American Embassy, Berlin
4 February 1937
Dear Mr. Harrod,
I have been much impressed by your illuminating article on "Mr. Keynes and Traditional [b] Theory" in the last issue of Econometrica, and quite agree with much of what you have said. I particularly welcome your statement that you envisage "in the future two departments of economic principles", the first being the fundament of static theory, the second that of dynamic theory  --and the total complex of all these principles combined, I may add, will be the fundament of a stato-dynamic theory of the reality of the economic system with which we are confronted: in other words, of a realistic theory, so-to-speak, of the actual economic world in which we live. To the end of erecting the edifice of such a comprehensive theory Mr. Keynes has made all-important contributions, and your own work, I am sure, eminently serves the same desirable purpose.
In regard to the division of economic principles into two departments which you have suggested, you may be interested to hear that in my recent book "Volkswirtschaftliche Theorie der öffentlichen Investitionen"  I have attempted a theoretic clarification of the working of our economic system much along the line suggested by you. I distinguished therein a static sector of the economic process--governed by ultimate consumer demand and characterized by an inherent continuity of developments, by the existence of objective economic magnitudes (as against prospective expectation) as well as by a flow of production which is an exact equivalent of current ultimate consumption less eventual disinvestment--from a dynamic sector which takes care of the rest and is characterized by a prevalence of uncertainty of entrepreneurial [c] expectations (as against objective economic magnitudes) and the phenomena of capital accumulation, positive or negative. The working of the static sector is deducible [d] from, and can be judged by, the apparatus of traditional equilibrium theory, while the facts and principles governing the dynamic sector explain the large movements towards [e] expansion or contraction of economic activity as a whole.
I am somewhat skeptical in regard to your opinion that the dependence on entrepreneurial expectations of the marginal productivity of capital might be incorporated in traditional--static--theory.  I rather think that the true place of this concept is the "dynamic department"--where other principles reign and less certainty obtains than in the static sector.
I should have been glad to send you a copy of my book, but unfortunately I have no spare copies left. Maybe you care to get it from your library, and if so I should be glad to have your comments.
Mr. R.F. Harrod., Christ Church, Oxford, England
2. H. Richter-Altschäffer, Volkswirtschaftliche Theorie der öffentlichen Investitionen, Munich: Duncker & Humblot, 1936.
3. "Mr. Keynes and Traditional Theory" ( 1937:4 ), pp. 76-77.
- a. TLS with autograph correction, two pages on two leaves, in HP IV-974. The author's name is printed on the sheet, but not his address. A photostat of the CC is also preserved in the same file: this was sent by Richter in 1957 (Cc of a TL by Harrod to Richter, dated 23 August 1957, in HP IV/772-777).
b. Ts: «traditional».
c. Ts: «enterpreneurial» (here and below).
d. Ts: «deduceable».
e. Ms: «toward».
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