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Copyright © Cambridge Political Economy Society

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A note on ‘Mr Meade's Relation’ and international capital movements

Paul C. Dalziel and Geoffrey C. Harcourt

Lincoln University New Zealand
Jesus College Cambridge, UK

Abstract

James Meade (1993) described how in 1931 he used process analysis to prove the fundamental Keynesian relation that investment causes saving. This note uses more general versions of process analysis to demonstrate that the structure of the underlying processes creates ‘Mr Meade's Relation’, not the mathematical assumption of a fixed marginal propensity to save nor the heuristic assumption of a closed economy. The processes create a ‘conservation of saving’ principle, and the multiplier operates until all saving is voluntarily held. The final section highlights the ongoing importance of process analysis and this relation for macroeconomic methods and policy.

Manuscript received November 13, 1995; final version received January 27, 1997.


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