Harrodian Instability: a Misleading Concept

CSWP 24 (February 2017)

Author Attilio Trezzini

Keywords Harrodian Instability, Demand-led Growth Theory, Methodology

JEL O40, E12, B41

The concept of Harrodian instability is reexamined taking into due consideration the fact that growth occurs through irregular fluctuations. This undermines the cornerstone of Harrodian instability, namely the way in which investment is assumed to react to a degree of utilization differing from its desired level. The methodological consequence of Harrodian instability is reconsidered: the assumption that only theoretical positions in which capacity and demand are perfectly adjusted can be regarded as theoretically acceptable appears to be based on weak foundations. The relevance of the cumulative tendencies toward expansion and recession is greatly reduced. Different ways of addressing these hypothetical phenomena are suggested.


Download the paper