Maxi devaluations and contraction

Abstract

I AM deeply indebted to Ravindra H Dhotakia for his most perceptive comments 'Maxi Devaluations and Cooper's Hypothesis', EPW, November 23) on my paper 'Cooper's Contractionary Devaluation Hypothesis. A Note', EPW, July 27) on two counts. First, it is always gratifying for an author to have his work read and reacted upon by someone whose views matter. Second, for pointing out the limitations on the use of infinitesimals in analysing finite changes. Most theoretical economists tend to fall into the sometimes reprehensible habit of consideringe-changes from an initial equilibrium, which requires characterisation of the relevant functional forms only in the neighbourhood of the initial equilibrium. This would be unexceptionable if either of two conditions are met: (a) the functions are strictly monotonic in the relevant range; or (b) the changes being contemplated can reasonably be assumed to be relatively small. If neither is met, the results arising from the use of differential calculus in the analysis become suspect.