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

Everyone who has heard of Harrod-Domar realises that growth targets imply something about savings rates. But growth targets also imply something about the availability of capital goods. The business of economic planning, as Winston points out [1], is to ensure compatibility between the Harrod-Domar and the Mahalanobis constraints. If domestic savings exceed the availability of domestic plus foreign capital goods, two “despised alternatives” confront the economy: inventory accumulation or slower growth. To avoid this unhappy predicament, Winston outlines three remedial policies. Our purpose is to suggest that the Harrod-Domar and Mahalanobis constraints may not be independent. Remedial policies aimed at that larger capital goods supply may affect the private and public savings rates and the growth of income. These suggestions are hardly novel [2]. They turn on re¬placing the proportional savings function with a classical savings function (i.e., one which specifies private savings rates by economic sector), on distinguishing tax rates by type of domestic production and imports, and on stipulating a connection between consumer-goods production and import of raw materials for the consumer industries.