Introduction

One of the basic problems in economic planning, in particular in underdeveloped countries, is concerned with the rate at which society should save out of current income to achieve a maximum growth. It is closely related to the problem of how scarce resources at each moment of time should be divided between consumer's goods industries and capital goods industries. In the present paper, we shall analyze the problem in the framework of the two-sector growth model as introduced by Meade, Srinivasan, and Uzawa. We shall abstract from the complications which would arise by taking into account those factors such as changing technology and structure of demand, the role of foreign trade (in particular, of capital imports), and tax policy that are generally regarded as decisive in the determination of the course of economic development. Instead, we shall focus our attention on evaluating the impact of roundabout methods of production upon the welfare of society, as expressed by a discounted sum of per capita consumption. However, since our primary concern is with economic planning in underdeveloped countries, we shall depart with respect to one important point from the two-sector growth model as formulated in which is, in general, concerned with an economy with fairly advanced technology and relatively abundant capital; namely, we shall postulate that a certain quantity of consumers' goods (per capita) is required to sustain a given rate of population growth.