Full text: Study week on the econometric approach to development planning

of them is properly represented in our accounting system. Some 
‘thoughts on this subiect are given in F&! "561. 
bY Relationships. The general nature of the relationships 
connecting production, consumption, accumulation and foreign 
rade was defined long ago by the great economists of the 
second half of the nineteenth century, such as JEvoNs, WALRAS, 
MARSHALL and PARETO. Their contribution was, precisely, to 
formulate an economy as a system. These general ideas were 
set out fully and explicitly by BowLEY [4], who remarked in 
his introduction that « there seems to be no book in existence, 
at least in English, that presents in a coherent form the mathem- 
atical treatment of the theory of political economy which has 
Seen developed during the past eighty years or more. » This 
was said in 1924. 
But these general ideas provide no more than a guide. In 
trying to formulate the economy as a system, the great writers 
of the past naturally made many simplifying assumptions. For 
example, in the theory of consumers’ behaviour, they assumed 
that an individual tries to maximise the utility of his con- 
sumption subject to a fixed set of prices and a budget constraint. 
In this theory individual preferences are assumed to be fixed. 
[f, like these writers, we are concerned with formulating eco- 
nomic relationships in a general way, this is a legitimate as- 
sumption which leaves us free to concentrate on the constrained- 
maximum problem whose solution is the outcome of the theory. 
But if we are interested in empirical demand analysis we 
cannot make such an assumption since we know that individual 
oreferences change, partly because the circumstances of the 
individual change with age and partly because, with time, 
new commodities appear and social attitudes and fashions 
change. Thus is studying the pattern of consumers’ expen- 
liture over time, it may be more important to find a way of 
allowing for changes in preferences than to have a very sophi- 
sticated means of allowing for responses to income and prices 
Stone - pag. o

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