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PROP. DR J . TINBi;RGKN

THE HAGUE, 18 AufjU-St

195^

Sijzenlaan k^
P r o f e s s o r P . O . LiAKALAHOBIS

8, King George Avenue,
New Delhi 2

P.R.S,

_______

Dear Professor I.'ahalanohis,
As I v/rote to you in my previous letter I had the
pleasure of discussing with Dr hl}Maciaethe problans involved
in your development model, and I would like to present a
short coiTiraent using the usual symbols for the economic
variables and your symools for the co-efficients.
Variables
:Y
national income = G + I
(1)
G
consumption
M
Investment in machines for
consimier goods industries
B
investment in equipment for
investment goods industries
I
total investment = M + H
(2)
Equations
: Apart from the tv/o already mentioned
there are two technical equations,
0 = PQ M
(3)
i = Pj_ E
(4)
There has to be one more equation
between the 5 variables.for which you
chose an equation M = \ I
(5)
and I am inclined to
choose I = aY
(5')
I think we can agree on ass-uming the tv/o p's
to be constants; my preference would be in addition to
assume a to be constant, representing the saving ratio
of the country whereas you seem to prefer to introduce
7t as a constant which implies that o: would not be a
constant, iV.'y difficuli:y may be formulated in this way that
I do not &ee any economic meaning in X whereas the
meaning of a is clear to me, a-a ' there has been observed
a constancy in a over averajes of business cycles which
v/ould make it an easy starting point for analysis. It
is true,hov/ever, that this constancy need not prevail
in the future, especially if we may hope for important
capital imports. Even in this latter case, however, I do
not see any reason to consider X
to be constant, I do
see, however, the desirability or investigating alternative
developments which may be conceivable by changing certain
instruments of economic policy. In such a case I prefer
tot specify and define oeforehand what instruments of
economic policy would have to be considered.
Yours very sincerely.

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PROP, m J, fwwmm

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8» King QSOV0» Avanos»

Dssy Piufsawt MshslsmoMs»
As I iwots to ye» in «r fw^iows I s t t s r X ii** « h s ^ ^
plsssurs of disoussing with Or MUM» ths proiasms tmO^mA
in yoor drvslopratait m>asXf snd Ï «oula l i k t to pfsssnt a
short ooBiasnt using tiis «coal symDols for His stiWMuiM
variablas and your «sriiibols for ttis oo-sffisicnts*
Variablss
t Y
nstlsiiBl lasons » C 4 Z
(1)
0
sonM^ptisn
li
tniPSStiitsAt in fflsghinss tt»
aonsiMsr goods inOastriss
B
iavsstmsnt in sgjEUIoPBiaBt foot
inTsstwoiEt «BOOS iadastriss
Z
total im—tosnt « K • X
(2)
XcMstioas
t Apeoft frwa tUs t»s slrsatfy wsnttsnsd
thsrs ars tue tsohnioal s<|ueti«os»
émmu
(3)

t . 0^ X

M

Thsrs isas to lis SOS novs «qpstlsn
bstussn nm $ "vwlstolss fw w/tdMk p w
(5)
sboas «I s^Astisa li « 1u X
snd Z «a iwsHnsd to *
^ .^
^^tiooss Z » S(Y
(9*)
Z think «• son savss sn sstwitng ttas t«» f *s
to M oonstants} ay prsfsrsnos would \m l a addiüsw t s
sssoBS a to IH» oonstant» rsprsssnting ths sariag rat|0
of the country fdisvsss yo» sssa to ppsfs» to liiliiiilliisi
]L as a oonataat #iish Sagpliss that « soOld not M a
^Bstant. My diffisul .y raay hs forrsKaatsd in this «sy ttist
Z do not sss any soonsmio msanlng in )u * « » • « • ths
Bssning of a i s «assr to n s , a s thsri has *ss«i ilMMinrsA
s swistansy in a ovsr awwagss of teisinsss oyalss «feioh
wuld msks i t sn sssy starting point fsr snsilywLS* Zt
Is tros.howsvsr» «*at this oonsisnsy nsst noft papSTOi
in the future, sspstially Itf «« rfiay hops for iinjjortant
capital imports, S¥sn in this l a t t w oas% h w y » 3^^^
not sss aiKir rsason to oonsiasr 1L^ to hs ooHStSBt. Z «•
ses» however» ths dssirahility of investigating altematit»
dsvslopiBsnts shiflh sBsy tos sonssivsbls Ijy shan^bg Sirtsln
instnnsnts of soonendLs polisy. Za ««eli s sass Z p p s j »
tot spsoify snd dsfins osforshand shat instniMnts of
sssnemls polisy sould hsTS to tos saasidisfsd»

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