Consumer Goods Or Capital Goods—Supply Consistency In Development Planning (Notes and Comments)

Everyone who has heard of Harrod-Domar realises that growthtargets imply something about savings rates. But growth targets alsoimply something about the availability of capital goods. The business ofeconomic planning, as Winston points out [1], is to ensure compatibilitybetween the Harrod-Domar and the Mahalanobis constraints. If domesticsavings exceed the availability of domestic plus foreign capital goods,two "despised alternatives" confront the economy: inventory accumulationor slower growth. To avoid this unhappy predicament, Winston outlinesthree remedial policies. Our purpose is to suggest that the Harrod-Domarand Mahalanobis constraints may not be independent. Remedial policiesaimed at that larger capital goods supply may affect the private andpublic savings rates and the growth of income. These suggestions arehardly novel [2]. They turn on re¬placing the proportional savingsfunction with a classical savings function (i.e., one which specifiesprivate savings rates by economic sector), on distinguishing tax ratesby type of domestic production and imports, and on stipulating aconnection between consumer-goods production and import of raw materialsfor the consumer industries.