IDEAS home Printed from https://ideas.repec.org/p/gre/wpaper/2018-30.html
   My bibliography  Save this paper

Growth without Expectations:The Original Sin of Neoclassical Growth Models

Author

Listed:
  • Michaël Assous

    (Université Lyon 2, CNRS, Triangle)

  • Muriel Dal Pont Legrand

    (Université Côte d'Azur, CNRS, GREDEG, France)

Abstract

Early developments of growth theory are seen widely as the result of a two-step process – the first represented by Harrod's Essay in Dynaamic Theory, and the second by Solow's 1956 model. Harrod is considered to be the first to highlight the pervasive instability in macrodynamics, which Solow showed disappeared with the inclusion of flexible-coefficient production functions. It has been recognized since that this is a misreading (Besomi 1995, 1998, Bruno and Dal-Pont Legrand 2014). Hoover and Halsmayer (2016) examined how this "culture of misunderstanding" guided both Solow's modelling work and his reading of Harrod. Our paper pays attention to the specific issue of the introduction of an (independent) investment function in those early growth models. Using new archival material, we examine this complex issue and show how macroeconomists of that period dealt with problems related to incorporating expectations, an a priori unavoidable step in order to build robust investment functions. Those elements were indeed discussed at length, in the early 1960s, by economists such as Sen, Samuelson and Solow as shown in his correspondence with Hahn. Our paper sheds light on some hidden foundations of growth models and examines the nature of the break Solow’s model introduced in the growth research program as initially defined by Harrod.

Suggested Citation

  • Michaël Assous & Muriel Dal Pont Legrand, 2018. "Growth without Expectations:The Original Sin of Neoclassical Growth Models," GREDEG Working Papers 2018-30, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  • Handle: RePEc:gre:wpaper:2018-30
    as

    Download full text from publisher

    File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2018-30.pdf
    File Function: First version, 2018
    Download Restriction: no

    References listed on IDEAS

    as
    1. Olivier Bruno & Muriel Dal-Pont Legrand, 2014. "The instability principle revisited: an essay in Harrodian dynamics," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 21(3), pages 467-484, June.
    2. Michael Assous, 2013. "Solow's Struggle with Medium-Run Macroeconomics: 1956-1995," Center for the History of Political Economy Working Paper Series 2013-17, Center for the History of Political Economy.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    4. Arena,Richard & Porta,Pier Luigi (ed.), 2012. "Structural Dynamics and Economic Growth," Cambridge Books, Cambridge University Press, number 9781107015968, April.
    5. James Tobin, 1955. "A Dynamic Aggregative Model," Journal of Political Economy, University of Chicago Press, vol. 63, pages 103-103.
    6. Solow, Robert M, 1988. "Growth Theory and After," American Economic Review, American Economic Association, vol. 78(3), pages 307-317, June.
    7. Mauro Boianovsky & Kevin D. Hoover, 2009. "The Neoclassical Growth Model and Twentieth-Century Economics," History of Political Economy, Duke University Press, vol. 41(5), pages 1-23, Supplemen.
    8. F. H. Hahn, 1960. "The Stability of Growth Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 74(2), pages 206-226.
    9. Daniele Besomi, 2000. "On the Spread of an Idea: The Strange Case of Mr. Harrod and the Multiplier," History of Political Economy, Duke University Press, vol. 32(2), pages 347-380, Summer.
    10. Yoshida, Hiroyuki, 1999. "Harrod's Knife-Edge Reconsidered: An Application of the Hopf Bifurcation Theorem and Numerical Simulations," Journal of Macroeconomics, Elsevier, vol. 21(3), pages 537-562, July.
    11. Michaël Assous & Olivier Bruno & Muriel Dal-Pont Legrand, 2015. "The Law of Diminishing Elasticity of Demand in Harrod’s Trade Cycle (1936)," GREDEG Working Papers 2015-02, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    : growth; expectations; investment function; (in-)stability;

    JEL classification:

    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gre:wpaper:2018-30. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Patrice Bougette). General contact details of provider: http://edirc.repec.org/data/credcfr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.