A Note on ‘Mr Meade’s Relation’ and International Capital Movements

Recognition that a change in investment expenditure always leads to an equal increase in voluntary saving has been highlighted by several commentators as one of the key innovations in Keynes’s General Theory; see especially Hicks (1936: 239), Robinson (1937, ch. 2), Meade (1975: 82), Patinkin (1976: 65; 1993: 647), and Skidelsky (1992: 554). Following a reference in Kami’s (1931: 189) seminal presentation of the multiplier, this identity relationship between investment and voluntary saving has been called ‘Mr Meade’s Relation’, and in a brief note Meade (1993) has described how he first discovered and presented it to the Cambridge ‘Circus’ in the first half of 1931.1 First, Meade set out the ‘causal relationships’ among increases in investment, income and saving in the form of arrowed lines within a sequential diagram. This method of ‘process’ or ‘period’ analysis, often using Robertson’s (1936, 1940) equivalent tabular presentation, remains an important part of post-Keynesian textbooks (see Harcourt et al., 1967, ch. 10; Chick, 1983, ch. 14; and Davidson, 1994, ch. 3), but has virtually disappeared from modern-day research. As far as we are aware, Chick (1985), Cottrell (1986), Earl (1990) and Dalziel (1996a,b) are the only recent authors to advocate its wide use.