A Multi-Sectoral Study of Economic Growth: Some Comments

(1) Mr. Zabel contends that there is a mathematical lapse in my analysis which obscures the economic meaning of the solution. His point is that I have one equation (No. 4 in his article), but neglected to eliminate a variable. The relationship in question says that the sumn of the expenditures on all items of private consumption equals total private consumption expenditure. This relationship, however, is used in deriving the set of demand functions in such a way that when demand satisfies the demand functions, this relationship is automatically satisfied. It cannot, therefore, be introduced in the system as an independent equation; in other words, it should be removed . But this does not imply that one could eliminate one variable (cf. p. 29 of my book). Alternatively one might, of course, remove one of the demand functions and keep the budget equation in the system. This procedure lacks the symmetry of the procedure chosen in my book. Zabel's contention on this point affects his revised model. In the model presented in the appendix to his article, he counts an equation (4a) in which all coefficients (1 LjGj) and (gj Lig,j) for j-O, 1, ..,19 must vanish because of the relationships which the demand coefficients must obey (cf. p. 98 of my book). I think, therefore, that unless some additional equation is introduced one cannot obtain a determinate model by retaining both consumers' expenditures Y and total investment as endogenous variables, as is attempted in his model.