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THE HAGUE, 18 August 1954
S i j z e n l a a n k^

PROP. DR J . TINHERGKR

P r o f e s s o r P . O . MAHALAl^OBIS
8, King George Avenue,
New Delhi 2

^ Qi

P.R.S,

Dear Professor Mahalanohis,
As I wrote to you in ray previ-^us l e t t e r I had the
pleasure of discussing with Dr MiiMaarjae the problems involved
in your develop/aent model, and I would l i k e to present a
short coinment using the usual symbols for the ecorioraic
v a r i a h l e s and yoiir syrtfools for the c o - e f f i c i e n t s .
: Y
n a t i o n a l income = G + I
(1)
Variables
0
consumption
M
Investment in machines for
consumer goods i n d u s t r i e s
E
investment in equipment for
investment goods i n d u s t r i e s
1
t o t a l investment = M + E
(2)
Apart from the two a l r e a d y mentioned
Equations
there a r e two teclinical equations,
é = p^ M
(3)

(k)

i = 3i E

There has to be one more equation
between the 5 variables for which you
chose an equation M = X I
(5)
and I am inclined to
choose I = a Y
(5')
I think we can agree on assuming the two p's
to be constants; my preference v^ould be in addition to
assiime a to be constant, representing the saving ratio
of the country v/hereas you seem to prefer to introduce
X as a constant which implies that a would not be a
cSnstant, My difficulty may be formulated in this way that
I do not see any economic meaning in X„ whereas the
meaning of a is clear to me, a s
there has been observed
a constancy in a over averages of business cycles which
would make it an easy starting point for analysis. It
is true,however, that this constancy need not prevail
in the future, espeéially if we may hope for important
capital iiaports. 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 policye In such a case I prefer
tot specify and define beforehand what instruments of
economic policy would have to be considered.
Yoiirs very sincerely,

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