Structural Disequilibrium — Traverse

John Hicks

in Methods of Dynamic Economics

Published in print October 1987 | ISBN: 9780198772873
Published online November 2003 | e-ISBN: 9780191596438 | DOI:
 Structural Disequilibrium — Traverse

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The chief thing which has emerged from the Harrod-type theory considered in Chapter 12 is that an economy which has been in long-term equilibrium at fixed prices (which are to maintained) cannot adjust to a change in its desired growth rate, unless the propensity to save is varied, or the capital-output ratio is varied. If there is a difference between the propensities to save out of wages and out of profits, and it is these propensities that are fixed, a new equilibrium can be found, provided that there is a suitable change in the rate of profit. Indeed, if anything emerges to change the overall propensity to save out of income in the right direction, along any channel, the Harrod difficulty can be got over. And if the change in the growth rate affects the capital-output ratio in the right direction, that also will help. But suppose the Harrod difficulty has been got over: that a suitable change in the propensity to save, for whatever reason, has occurred — will that be the end of the trouble? The magic that used to be attributed to a Keynesian fiscal policy assumed that it would; but there is a school of economists who have been maintaining, all along, that it is not. They do have something to say; this chapter looks for a method which will give it attention.

Keywords: Harrod-type theory; economic theory; dynamic economics; equilibrium; Traverse

Chapter.  6102 words. 

Subjects: Macroeconomics and Monetary Economics

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