Tackling the instability of growth: a Kaleckian-Harrodian model with an autonomous expenditure component

This article presents a basic Kaleckian model, enriched by the simultaneous addition of an Harrodian investment function and an autonomous expenditure component that grows at an exogenous rate. The model shows that the usual short-run properties (wage-led growth) are only transient, since the long-run growth rate converges towards that of autonomous expenditures. However, the impact on the level of variables (output, capital stock, labour, etc.) is permanent. The model also provides a conditional solution to the ‘second’ Harrod knife-edge problem: the destabilising behaviour of firms (as they adjust their investment decisions to the discrepancy between the actual and the normal rates of capacity utilisation) is now required to achieve the normal rate of capacity utilisation.