The Early Writings on the Trade Cycle and Imperfect Competition

Harrod’s early essays introduced key ideas for the development of his dynamics including the notion of steady advance as a point of reference for the trade cycle and dynamics, the identification of distribution as one of the main dynamic determinants of the trade cycle, and the destabilizing role of monetary factors. Harrod also devoted his efforts to the construction of imperfect competition introducing the marginal revenue product curve to show the coexistence of equilibrium with increasing returns and the long-run average cost curve to demonstrate that competitive equilibrium is consistent with decreasing costs. At this stage of his thinking, Harrod viewed imperfect competition as the foundation for dynamic analysis. Imperfect competition introduced an element of instability which he further explored and worked out in The Trade Cycle (1936). Moreover, under conditions of imperfect competition and unstable equilibria, the cycle, could in fact, be endogeneized.