Portal de Periódicos da CAPES

Mr. Harrod on Hump Saving

1950; Wiley; Volume: 17; Issue: 65 Linguagem: Inglês

10.2307/2550181

1468-0335

J. de Graaff,

Economic Theory and Institutions

fundamental theory of the supply of saving, says Mr. Harrod,1 may be set out in the form of equations . This note is concerned with the particular form in which Mr. Harrod proceeds to set these equations out, and with the way in which he interprets them. But if, in consequence, a large part of it is devoted to a rather critical discussion of some of his results, we should not let this divert our attention from the importance of the problem to which he has chiefly applied them. Very briefly, Mr. Harrod investigates whether or not there is any automatic regulator (such as the rate of interest) which can be relied upon to maintain the stability of an advancing economy. He concludes that there is not. The argument of the present note in no way casts doubt upon the validity of this general conclusion. Mr. Harrod distinguishes between two broad types of personal saving. First, there is the saving a man does for his heirs-saving for posterity. The second he terms hump saving. Hump savings are savings a man makes only in order to be able to spend at some later stage of his lifein order to secure for himself that distribution of consumption through time that maximises his utility, discounted to the present. The term hump is appropriate because, broadly speaking, a man may be expected to accumulate assets during youth and middle age to provide for his retirement and senescence. If he calculates correctly, and desires to leave nothing for posterity, he will dissipate these assets at such a rate that their exhaustion coincides with his death. The curve depicting the time path of the volume of his assets will therefore be humped. It is the reaction of the area under this curve-of the hump itself-to changes in the rate of interest that Mr. Harrod investigates. He is led to conclude that the size of the hump is likely to grow as the rate of interest rises. Before examining the validity of this conclusion, it might be as well to dispose of the first element in personal saving: