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Harrod's long‐range capital outlay as a stabilizer of Harrodian instability
Author(s) -
Franke Reiner
Publication year - 2019
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12205
Subject(s) - economics , ceteris paribus , context (archaeology) , instability , investment (military) , microeconomics , capital (architecture) , neoclassical economics , macroeconomics , keynesian economics , law , physics , mechanics , history , paleontology , archaeology , politics , political science , biology
Drawing on Harrod, Kalecki and Kaldor, this paper seeks to revive the view that ceteris paribus firms reduce investment if they have already built up high capacities relative to their assessment of the normal potential of their markets. This reaction introduces a fundamental stabilizing mechanism into the economy. The paper adapts the idea to a growth context and applies it to the neo‐Kaleckian baseline model with its Harrodian instability. It demonstrates that, in principle, a sufficiently strong feedback could stabilize the steady state.