The Harrod Model of Growth and Some Early Reactions to It (2006)

Roy Harrod himself saw his 1939 article, ‘An essay in dynamic theory’,and his 1948 book, Towards a Dynamic Economics, as putting forward a new, exciting way of seeing and doing economics. It would, he wrote, make ‘the old static formulation of problems [seem] stale, flat and unprofitable’ (Harrod, 1939, p. 15). His primary purpose was to set out some fundamental relationships between rates of change of levels of key variables at a moment of time (instead of, as in static analysis, relationships between levels). He abstracted from lags between variables in key relationships – they could come in later – and from all but the necessary attention to the i mpact of certain expectations on economic behaviour and decision making. This led him to distinguish between four concepts of the rate of growth of economies: expected (g e ), actual (g), warranted (g w ) and natural (g n ). The first two are self-explanatory; the last two are very much his innovations. g w is rather inelegantly defined by Harrod (1939, p. 16) as ‘that rate of growth which, if it occurs, will leave all parties satisfied that they have produced neither more nor less than the right amount’. This would lead decision makers to repeat the rates of growth they had first planned and then subsequently achieved.