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PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA - 2R 
First point. If in equation 2.4 œ is equal to I, the rate of growth 
is 0. In this case, whether there is public investment or private 
investment, the rate is exactly the same. This is quite disturbing 
because if public investment is more efficient, one would expect that 
this conclusion would be independent of œ. The logic of the model 
cannot be attacked in any way; it is absolutely correct. But it is 
necessary to stress the hypothesis from which the conclusions are 
derived. Thus, my first point is: if ¢ is equal to 1, public invest- 
ment has no role at all in increasing the rate of growth. 
My second point is: HAAVELMO has said that the hypothesis that 
real income is proportional to capital does not play any role in the 
final results. But if it were assumed that real income cannot in- 
crease indefinitely as a result of increasing investment, the conclu- 
sions of the model would be absolutely different. 
And, on the contrary, if it were assumed that real income is 
increasing proportionally to real capital, we would be admitting an 
hypothesis which is in contradiction with the facts. 
If one assumes an indefinite increase of real national income 
resulting from indefinitely accumulating capital, this is equivalent 
that the stage of decreasing returns to capital is never reached. And 
this is not confirmed by observation. 
Thirdly, the hypothesis of a cycle of oscillation for K, is essen- 
tial for the conclusions, HAAVELMO is completely right in saying 
hat fluctuations of K, have been observed in the past, and I am 
ready to admit equation (4.1) at least as a first approximation. But 
as far as public investment is concerned it has never been observed 
to be able to compensate for the fluctuations of private investment. 
In addition, we have never observed an absence of fluctuations in 
public investment. Thus, I could propose another model conform- 
ing with information relating to the past and show that public 
investment has exactly the same drawbacks as private investment 
for the rate of growth. 
At all times, we must be very careful about the use politicians 
could make of such a model. They might believe that a general 
demonstration had been . given of the superiority of public invest- 
[81 Haavelmo - pag. 22