Revisiting the Old Theory of Cyclical Growth: Harrod, Kaldor cum Schumpeter

Abstract

This paper advances two main arguments. First, it argues that Harrodian instability can be thought of as the motor force of long period expansions and contractions. This means that the virtuous cycle of an ever-increasing growth rate during the upturn of a long cycle can be seen as a process of runaway expansion, caused by an actual growth rate above the warranted rate. Likewise, the vicious cycle of an ever-deepening downsizing can be interpreted as resulting from an actual growth rate below the warranted rate. Secondly, by showing how a revised Harrodian model can yield a limit cycle in the rate of accumulation, the paper argues that the turning points in these long cycles can be explained by a nonlinear Kaldorian savings function and a variable scrapping rate.