Brief von Josef Steindl an Tibor Scitovsky
Josef
Steindl
1504596470548
March 22 1981
Dear Tih ,r,
Thanks a 1 t for your letter and especially for your comments.
Let me first deal with your post-script relating to the earlier
paper on evolution and techniques. *our question is easy to answer,
hut unfortunately it has occasioned me to discover that the
equation 6.4 on page 154 is ^rong. This equation is derived from
6.2 ( to which we have to go bafck because I can hot, naturally,
assume constant labour input, as in 6.3 ). The correct result is
N/CN -jO-b)/ajNb
and the next equation
N/Cjr - constant times exp {oo bt)
and the following sentence must rumproductivity grows at the rate
of CO h which means that its growth rate would be one third of
that of output if b=l/5.
How rs to your questi n Xhe productivity per yearfis dfi/dt / dCH/dt
Prom 6,2 we get
c nstant x C.T
H
dN/dt = constantx CT
and since C,
Differentiating with respect to time (function of function rule)
we get
-» ^
„ 1-b , the above becomes
N =N
dll/dt •» constant x Nb
Ch
which is the same expression as for the average productivity N/C^
and that confirms your last statement on the two exponential rates
being equal.
The mess I have made in 6.4 does not exactly add to my credibility
but at least the correction strengthens my argument. ( If ever
I will, following more erlauchte Vorbilder publish a collection
of essays I shall have a hell of a time correcting all this
bungled arguments and algebra ).
The application of my argument is less interesting for the fiase of
learning than for large scale economies. It rests, of course on
the intuitive idea that the scale effect is of the same order of
magnitued fpr the economy as a whole as for say a petrol refinery
or other plant f>r which we know the value, ^'his is not entirely
arbitrary because one can argue that all the external economies
can really be reduced to internal scale effects in auxiliary
production functions
Niw to the trend paper. The reinvestment coefficient is really
the coeffient a/1-c in Kaleckis euqatim of the cycle and equally
in the equati n f r the trend (see the ry of economic dynamics
equati n 25* and 52 page 146 ) The equation f>r the ftsii is
and the equation f r the cycle is the same except that it lacks the
last two terms ( the trend equ refers of course to moving averages),
a is as it were a re-investment coefficiet in the narrower sense ~
indicating how great a prop rtion of its retained profit business
one as long as only business savings ore considered, but if you
apply it to the total savings of the economy it becomes very doubtful
(see my paper on household saving!). Moreover, the coefficient is
reduced if you consider also the adverse effect of capacity creatinn
which is represented by c. The whole coefficient a/1-c must be
below one, otherwise no cycle will materialise ( there is a wrong
statement about that in my paper on p.11, top ^hich has been
corrected in the meantime). Your remarks on the oil companies
buying up firms - which presumably implies at least for the time
being and for the ec n my as a wh le a kind of reducti n f
indebtedness - illustrates the tendencies which run c unter to
a reinvestment.
In the end I c nfess that I probably at one or the other place
used the terra reinvestment coefficient in the way in which you
underst ood it i e simply relation 'f investment to that of the
preceding peri d , taking the trend values. If the trend were
explained by a difference equation >f the first order such as
- k yt-i
then there would be no difference between the two meanings.
As to your second question about lag: No, the lag is that
of diffusion, which may be quite long - until(practically) everybody
has introduced the new method. That does not eaclude that you
Your objection against my scenario of enforced diffusion
does not impress me, although what you have in mind - the
overcapacity crisis - is doubtless a very realistic possibility
for a branch of business. However you have to reckon with the
capacity effects oftechnical progress in any case, and it has
just to be countered by now investment , from newinnovation.
You seem to overlook that the diffusion ultimately reduods the
profit margins again to normal level, and therefore
favours expansion. May be your objections are valid more for one
branch than for the economy as a whole.
I hope y^u have recovered from the flue completely
and p.re in g od spirits. I feel reasonably well after a bad
january-february I bought a Shure cartridge M97HE with
considerable success, stimulated to this and to renewed purchases
of records by my subscription to Stere Review.
Let me thank y>u for the considerable help you give
me by reading s patiently meine schlampige papers.
With best wishes to you and Elisabeth
Yours,
Josef ^teindl birn 1912 in Vienna, studied there and received
his doct r's degree in 1935> After that he worked at the
Austrian Institut fttr K'n junk turf>rschung up to the German
occupation f Austria when he emigrated, A grant of a
research lecturership by Balllol ^olle ;e, Oxford, made it possible
for him to c >rae to %igland where he subsequent!#- worked
at the Oxford Institute of Statistics. At the beginning of 1950
he returned to Austria to work at the Austrian Institute of
Economic ^esearc until his retirement in 1970* He became a
honorary professor of the university of Vie na i197^»
In 1974^75 he was a visiting professor in Stanford, California.
His publications include Maturity and Stagnation in American
Capitalism, Oxford 1952, and Random Irocesse and the Growth
of Firms, London 19&5*