The Trouble with Harrod: the fundamental instability of the warranted rate in the light of the Sraffian Supermultiplier
The paper discusses Harrod’s “principle of fundamental instability” of growth at the warranted rate, using the Sraffian Supermultiplier model, together with Hicks’s notions of “static” and “dynamic” stability, which are related to the distinction between the direction versus the intensity of a disequilibrium adjustment. We explain why growth at Harrod’s warranted rate is fundamentally or statically unstable. We then show how the autonomous demand component in the Sraffian Supermultiplier eliminates Harrodian instability and that the dynamic stability of the supermultiplier depends on the marginal propensity to spend remaining lower than one during the adjustment, a modified “Keynesian stability” condition.
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