Statics and Dynamics in Harrod's Trade Cycle

Review of Political Economy 9(2), 1997, pp. 181-209

-Abstract-

The Trade Cycle (1936) was Harrod's first systematic approach to economic dynamics. However, most of its premises were laid several years earlier. In the first place, Harrod had established in an unpublished essay (1925) the methodological principle, that in trade cycle theory an analysis of the determinants of the level of output ought to be preliminary to the study of the causes of its variations. Moreover, since the late 1920s Harrod became increasingly convinced that the analytical procedure of 'traditional theory', if appropriately interpreted and generalised, could provide the model for discussing the theoretical problem of the changes of output. Finally, in 1934 Harrod criticised traditional theory on the epistemic ground, arguing that it was giving too much emphasis to the stabilising forces, and insisted instead that correct trade cycle theorising should consider a principle of instability as a factor permitting departure from equilibrium. These premises, together with the concepts of the multiplier and the accelerator with which Harrod recently became acquainted, eventually constituted the core of his dynamics.

This paper examines different facets of the notions of statics and dynamics in The Trade Cycle in the light of these premises. In particular, it focuses on the role of equilibrium and stability analysis in Harrod's theoretical approach, and it discusses the intricate connections between the operation of static and dynamic forces, which lay at the foundation of Harrod's dynamics.