From Felix Schafer (15 October 1956)
Text in English to type
[…] For if it would not have been for you and Ilona, I would be hardly in a position to write this letter. I still remember when U met you and Ilona first. It was in February 1924 on the Socialist Students' Quarters in the seminary for Guild Socialism. You were then not yet out the "Volkswirt" - by the day Federn told me once you were the most genial, ingenious person he had ever met – and Ilona. She looked so young that I first thought she had just left secondary school. […] … the economic problems of a Neurathian centralised socialist economy and of a guild socialist system. For apart fro the possibility of prices and economic calculus it was the alternative between an {allout pharming} system, where human dignity might have become second, and a system preserving this value you taught us to consider as supreme. I was not mature enough then to grasp the importance of this aspect for work on economic problems. Looking back I think you have not done so badly [24] in this realm. Of course our "problem of the two goods" could have been found solved by Edgeworth's principle of recontraction and the cleaning of economic theory from value worked out by you in 1924-27 could have been done better with the aid of indifference {waves}. An article in Italien by Stutzki published in 1926, which anticipated the whole argument in mathematical form was not available. Thus you have arrived at a proposition by yourself ten years before it was published by Hicks. Likewise you were clear about the necessity to assume quantitative relations between commodities, i.e. potential prices, when you were going to derive actual prices such as e.g. in Böhm-Bawerk horse market. I still remember when you worked out this proposition generally accepted today on Klostenburg in 1927. And the theorem of purchasing power economy and exchange economy might fist into contrast between microeconomics and macroeconomics analysis, and certainly indicates a bifurcation, as [25] far as purchasing power and commodity money is concerned, through I am not so sure regarding other phenomena. Anyhow the marginal analysis is too narrow to worry about the bearing of this theorem and to do much work in marginal analysis at all, though one ought to know it. Of course I am still fascinated – and I think you too – by the elegant systems of a Walras, Menger, Marshall, Böhm-Bawerk, and other great masters. But their assumptions are necessarily unrealistic, if they want to maintain their great systems. Or what are we to think e.g. of Ohlin's theory of international trade, where the gains from free trade are so well {ellsutered}, when this theory rests upon mobility, divisibility etc of the agents of production and of commodities assumptions which never existed and are unlikely to exist in any future time? Apart from being unrealistic such theories – and they are the core of marginal analysis – are dangerous [26] because they lead to measures, which have unbearable effects. […]