Escaping from a Blind Alley: Disequilibrium in the Dynamic Analysis of Harrod and Kalecki

18 Pages Posted: 9 Dec 2008

See all articles by Peter Kriesler

Peter Kriesler

UNSW Australia Business School, School of Economics

John Nevile

UNSW Australia Business School, School of Economics

Date Written: June 8, 2008

Abstract

The pioneers of dynamic Keynesian economics, Harrod and Kalecki, began with an analysis of the trade cycle, but are remembered for their contributions to growth theory. Unlike most twentieth century growth theory, they both had a major focus on disequilibrium situations and an examination of this aspect of their theory is the purpose of this paper. Harrod distinguished three stages in his dynamic analysis. The first was the derivation of the fundamental equation and consequent theorems. Fundamental meant underlying: even apart from random factors the equation may never hold exactly in real life. In the second stage, detailed analysis was made of the factors (in addition to the fundamental equation) which have a systematic effect on the path the economy follows. The final stage is policy prescriptions. Except in his 1936 book on the trade cycle, Harrod did relatively little "second stage" work but this did not stop him putting forward policy prescriptions. This three stage structure of analysis contributed to the widespread misunderstanding of the nature of his fundamental equation leading to a widely accepted view of a Harrod growth model which was completely different to what Harrod thought he was putting forward. Kalecki, on the other hand, rejected what Harrod had called "first stage analysis" as being of little interest. His main criticisms of growth theory were aimed at, what he saw, as the vacuousness of such theorising. Instead, his work concentrated on second and third stage analysis, that is, in attempting to understand the non-equilibrium, dynamics of the economy with a view towards policy prescription. For this reason, Kalecki's contribution was less open to misunderstanding than was Harrod's.

Suggested Citation

Kriesler, Peter and Nevile, John, Escaping from a Blind Alley: Disequilibrium in the Dynamic Analysis of Harrod and Kalecki (June 8, 2008). UNSW Australian School of Business Research Paper No. 2008 ECON 12, Available at SSRN: https://ssrn.com/abstract=1313071 or http://dx.doi.org/10.2139/ssrn.1313071

Peter Kriesler (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

John Nevile

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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