Note: Some Conditions of Macroeconomic Stability

Author(s): David Hawkins and Herbert A. Simon

Source: Econometrica, Vol. 17, No. 3/4 (Jul. - Oct., 1949), pp. 245-248
Published by: Econometric Society
Stable URL: http://www.jstor.org/stable/1905526
Accessed: 10-02-2016 15:05 UTC

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NOTE: SOME CONDITIONS OF MACROECONOMIC STABILITY
BY DAVID HAWKINS AND HERBERT A. SIMON

IN a recentpaper by one of us' there is an errorin the statementof a

supposed sufficient conditionthat a systemof linearhomogeneousequa-
tions should have solutionsall of the same sign. The presentnote is
intendedto correctthat error,to state and prove an apparentlynew,
necessaryand sufficient conditionthat the stated consequence should
hold,and finallyto interpretthesignificance ofthisconditionin economic
terms.
Two preliminaryremarksare in order.First,the errorin the theorem
originallystated does not affectthe substance of the paper to which
referenceis being made. That paper sets forththeoremson the stability
ofsystemswhichdo have stationarysolutionswithall variablespositive.
The lemma under considerationhere gives necessary and sufficient
conditionsthat a systemwill have stationarysolutionswithall variables
positive.That is, it gives a criterionto test whetherthe theoremsin the
body of the paper are applicable to any particularsystemof equation.
Second,the conditionsunderwhichthe variablessatisfying a systemof
linearequations will be all positiveare of economicinterestin theirown
right.They are, in fact,the conditionsdetermining whethera systemof
linear productionfunctionsis capable, given a sufficient supply of the
"fixed" factors of production,of producing any desired schedule of
consumptiongoods.
The systemof equations2is the folloWing:3
n

(1) = O,
L~~~~~~~biixi i 1, *-n)
j=l

with A = 0 and of rank n - 1; bij > 0 forall i F j; bij < 0 forall i.

Instead of dealing directlywith the system (1), it will be more con-
venientto considertheassociatednonhomogeneous system:

(2) Zaiixix-ki= 0, (i =1,..,m)

j-1

I David Hawkins, "Some Conditions of Macroeconomic Stability," FECONO-

AMETRICA, Vol. 16, October, 1948, pp. 309-322. The theorem under discussion is on
page 312.
2 The svstem (1) is essentially that introduced by W. W. Leontief in The Struc-

ture of AmnericanEconoomy,1919-1929, Cambridge: Harvard University Press,

1941. p. 48.
I3In llawkiin's original system we require only that bi1 a 0 fori r- J.The stronger
conditi-Ionbii > 0 em)loyed liere simplifie-sthe statement of the theorem and its
proof aiid, b)eeause of the,conitinuityof solutions of these equations with respect
to variationis of these coeflicients,does niotinvolve any essential loss of generality.
245

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246 DAVID HAWKINS AND HERBERT A. SIMON

with
m = n - l;kj = bin;aij = -bs (i,j = 1, ,m);| A I = I aij #0O.

It is clear that,forx,- = 1, the solutionof (1) is identicalwiththat of

(2), and the [x,]satisfying(1) will all be of the same sign if and only if
the [xi]satisfying(2) are all positive.Further,withoutloss ofgenerality,
we can take aii =- =bi = 1.
In equations (2), xi is the total quantity of the ith commoditypro-
duced; ki is the quantityof the ith commodityconsumed; - aci xi is the
quantity of the ith commodityused in producingthe jth commodity.
The nth equation in system (1), which is linearlydependentupon the
firstm equations,may be interpretedas a consumptionfunction.Alter-
natively,the vector[ki]in (2), whichgives the relativequantitiesof the
various commoditiesconsumed, may be considered the schedule of
consumptiongoods.
The productionsystem(2) is economicallymeaningfulonly if the [xi]
satisfyingit are all positive. Conceivably, the signs of the [xi] may
depend upon the magnitudeof the [ki ]-that is, upon the schedule of
consumptiongoods. Hence we will be interestedin knowingunderwhat
conditionsthe [xi] will be positive for some given set [ki],and under
what conditionsthe [xi]willbe positiveforanyset [ki ) 0].
The defectivetheoremis the following:LEMMA: The systemofequations
forxi all of thesame sign.
(1) is satisfedontly
This theoremis trueonlyforn G 3, as shownby thefollowingcounter-
example:
-2x1 + 4x2 + X3 + X4- 0

4x1-2X2+ X3+ X4 = 0

x1 + X2-2X3 + 4x4 = 0

XI + X2 + 4x3-2X4= 0

We verifyimmediatelythat A 0, and is ofrankn - 1,and thatbij > 0

for all i # j, while bi, < 0 for all i. But the general solution of this
systemis: x = K; X2 = K; X3- -K; X4 -K; whereK is an arbitrary
constant.
The fallacyin the proofofferedforthe lemmalies in paragraphIII of
Hawkins' paper. Specifically,it is not correctthat: if all membersof a
set of hyperplanesintersectin a commonline throughthe origin,and if
each memberof the set has points lyingin the firstquadrant, then the
commonline of intersectionmustlie in the firstquadrant.
We now proceedto a valid, necessaryand sufficient conditionthat the

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 SOME CONDITIONS OF MACROECONOMIC STABILITY 247

equations(2) be satisfiedonlyfor[xi]all positive.THEOREM: A necessary

and sBfficientconditionthatthexi satisfying(2) be all positiveis thatall
principalminorsof thematrix I i a,ij I be positive.
To prove this theoremwe firstconsiderthe augmentedm n matrix
ai] - k i I and proceed to reducethis matrix,row by row,to tri-
angularform.That is, by adding to each row an appropriatelinear
combinationof the precedingrows, we obtain a matrixin which all
elementsto the leftof the main diagonal are zero. This procedurecan
alwaysbe carriedout step by step untila row (say the jth) is reached
witha nonpositivediagonal term.It does not alter the solutionof the
systemand does not alter the values of the principalminorsconsisting
ofthe firsti rowsand columns(i = 1, m
, i).
Because of the arrangementof signsin our particularmatrix,all ele-
mentsin the firstcolumnexceptthe firstcan be made zero by addingto
each row an appropriatepositivemultipleof the firstrow. The signsof
all otherelementsoffthemaindiagonalwillremainnegative.The signof
ai2mayremainpositiveor becomenegative.In theformercase, thethird
and all followingelementsin the second columncan be made zero by
addingto the corresponding rowsan appropriatepositivemultipleofthe
secondrow.In general,ifthe firsti elementson the main diagonal re-
mainpositiveafterthefirsti-I stepsin the triangularization, then the
ithstepin triangularizationcan be carriedoutby addingto theremaining
rowsa positivemultipleof the ith row; otherwiseby adding a negative
multipleof the ith row. We carry out the triangularization until we
reacha row with a nonpositivediagonal term.
For the matrixfinallyobtained,we distinguishtwo cases: (A) all the
diagonaltermsin thetriangularmatrixare positive,(B) at least oneterm
on the main diagonal is nonpositive(and the jth term,say, is the first
nonpositiveone). We now provethat in case (A) all theprincipalminors
arepositiveand all thexi are positive;whilein case (B) at least one prin-
cipal minoris nonpositiveand at least one of the xi is negative-a
statementequivalentto our theorem.
A. In case (A) we solve the corresponding systemof equations suc-
cessivelyforXm >, mx-, *.. , x1in termsofthe ki. Since km> 0, we must
havexm > 0. Since km,j > 0, it followsthat ifall xm-i > 0 (i < j), then
xmj > 0. Hence by induction,all the xi mustbe positive.But, since a
triangulardeterminantequals the productof the elementson its main
diagonal,all principalminorsconsistingof the firstk rowsand columns
ofthe triangularmatrixare positive(k = 1, - * , m). But theseminors
are equal to the corresponding minorsof the originalmatrixI I ai; I 1.
B. In case (B), all elementsto the rightof the main diagonal in the
jth row of the diagonalized matrix are negative, and the diagonal
termis nonpositive.Suppose now that all xi for i > j are positive.

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248 DAVID HAWKINS AND HERBERT A. SIMON

Then, since ki is positive,xi mustbe negative.4But the principalminor

of the firstj rowsand columnsofthe triangularized matrixwillbe nega-
tive or zero,sincethejth elementin theprincipaldiagonalis nonpositive,
the otherspositive. Hence the corresponding minorin ai1 I will be
nonpositive.
Since thesignsofthexi obviouslydo not dependon the orderin which
the equationsare arrangedbeforetriangularization, in case (A) all the
principalminorsof I I ai iI mustbe positive.
This completesthe proofofthe theorem.Moreover,our proofgivesa
directmethodof testingwhetherthe xi satisfying a givenmatrixare all
positive.
COROLLARY: A necessaryand sufficient conditionthatthexi satisfying
(2) be all positiveforany set [ki > 0] is thatall principalminorsof the
matrix Ij aii I I are positive.This corollaryfollowsimmediatelyfromthe
theorem,and fromthe considerationthat the elementsof the matrix
iai I I are independentof the [ki].
EconomicInterpretations. Fromthecorollary, we see thatiftheproduc-
tion equationsare internallyconsistentin permitting the productionof
somefixedscheduleofconsumptiongoods,thentheseconsumptiongoods
can be obtainedin any desiredproportionfromthisproductionsystem.
Hence the systemwill be consistentwithany scheduleof consumption
goods.
The conditionthat all principalminorsmust be positive means, in
economicterms,thatthegroupofindustriescorresponding to each minor
mustbe capable of supplyingmorethan its own needs forthe groupof
productsproducedby thisgroupof industries.If thisis true,and ifthe
conditionA = 0 forequations (1) is satisfied,thenwe can say that each
groupof industriesmustbe just capable of supplyingits own demands
upon itselfand the demands of the otherindustriesin the economy.
For example,iftheprincipalminorinvolvingtheith andjth commodities
is negative,thismeansthat the quantityofthe ith commodityrequired
to produceone unit of the jth commodityis greaterthan the quantity
ofthe ith commoditythat can be producedwithan inputof one unit of
thejth commodity.Underthesecircumstances, the productionof these
two commoditiescould not be continued,fortheywould exhaust each
otherin theirjoint production.
University of Coloradoand
Illinois Instituteof Technology
4Or, ifthe diagonaltermis zero,we have a contradiction-i.e.,all x fori > j
cannot be positive.

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