550 PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA - 28
condition that total expenditure in the system as a whole must
be equal to potential total income, also specifies a very definite
division of this total expenditure between new investments,
replacements and total consumption. Replacements are determ-
ined by the rate of wear and tear, and new investments by the
rate of change of demand for consumption goods. The sum
of these three types of demand — as a proportion of total
potential gross income — is required to be equal to unity.
The right hand side of (V.11) represents gross equilibrium
investment expressed as a proportion of gross potential income
and the left hand side the proportion of gross income which is
not spent on consumption goods. Let me point out explicitly
(since a misunderstanding is possible) that the left hand side
of (V.11) may, therefore, be regarded as expressing the saving
ratio, but nothing more than that. It must not be interpreted,
for example, as a propensity to save. No behavioural relation
about savings has been introduced in the present analysis. We
have simply been looking for the conditions that must be satis-
fied to keep the system in equilibrium, independently of how
individuals behave and of how institutions induce them to
behave. And our results have been that — whatever individual
behaviour may be — the equilibrium conditions are two. First
of all, enough productive capacity must be provided, in each
sector, to keep up with the expanding demand — condition
(V.10). And secondly, given total equilibrium investment re-
quired by all the (V.10), the system as a whole must spend on
consumption goods the whole remaining part of gross potential
income — condition (V.1I1).
Total equilibrium investment — i.e. the right hand side
of (V.11) — may of course be given the macro-economic inter-
pretation we have already discussed. We may say that, in
macro-economic terms, (V.11) expresses HARROD’s equation (4).
(*) See footnote (1) in chapter III.
10] Pasinetti - pag. 80
