Published by EH.NET (April 2000)
Daniele Besomi, The Making of Harrod’s Dynamics. New York: St Martin’s
Press and London: MacMillan, 1999. (Published in the Studies in the History
of Economics series, D.E. Moggridge, editor). xii + 289 pp. $75
(hardcover), ISBN: 0-312-21908-3.
Reviewed for EH.NET by Steve Keen, Department of Economics and
University of Western Sydney (Australia).
Movie-going economists might recall the line in Apollo 13 that NASA
learned more from this failed mission than it had from all its previous
successes. In part, Daniele Besomi tries
to achieve something of the same in Roy Harrod’s failure to inspire economists
to adopt a dynamic approach to their discipline.
There is little doubt that Harrod’s adventure into dynamics was a failure,
in that little if any of what he saw as the dynamic way of thinking took root
in economics. Indeed, economics today is distinguished from almost all other
sciences by a central reliance upon static analysis, rather than the dynamic
and evolutionary approaches which characterize other disciplines.
If Veblen were alive today, his seminal methodological work would not be
titled “Why is Economics not an Evolutionary Science?”, but “Why is Economics
the Only Non-Evolutionary Science?”
Much of the answer lies in the strengths, failings and foibles of Roy F.
Harrod, the economist who most openly and prominently championed economic
dynamics, and in the reactions of other economists to his challenge. While this
point is taken up in Besomi’s epilogue, the main purpose of Besomi’s treatise
is to uncover the process by which Harrod developed his approach to dynamics.
Through his comprehensive survey of Harrod’s published writings and
correspondence with other economists, Besomi finds more method in Harrod’s
quest to develop a dynamic economics than is apparent to
anyone who simply relies upon Harrod’s major works on dynamics (I take these to
be “An Essay in Dynamic Theory” , “Towards a Dynamic Economics” ,
“Second Essay in Dynamic Theory” , “Themes in Dynamic Theory” , and
“Economic Dynamic s” ). These works in themselves appear a patchy melange
of concepts to anyone well-versed in modern dynamic analysis, with inexplicable
attempts to define the greater part of economics as the province of “Statics”
rather than “Dynamics,” a painfully
slow development of analytic technique – if indeed there was any development
at all – and gross inconsistency over time, as highlighted many years ago by
David McCord Wright (1949).
However, there is methodological consistency, Besomi argues, but it can
only be seen if one looks through Harrod’s eyes and in Harrod’s time.
Harrod believed that the Marshallian theory of value could be extended in
stages to cover dynamics, with an essential first step in this being
generalizing Marshallian analysis to cover imperfect competition. Thus those
of us who normally associate the theory of imperfect competition with Robinson
and Chamberlin learn that Harrod devised the concept of marginal revenue, and
developed the formula relating it to price and the inverse elasticity of
The belief that there was continuity between static and dynamic analysis
appears curious to a dynamicist today – as curious as the belief that, to ride
a bike, one must first learn how to balance it while it is stationary.
But it is explicable in the context of Harrod’s time, especially when Harrod’s
extremely limited understanding of mathematics is taken into account. However,
this perceived continuity, which he stressed so much in his writing, made it
very difficult for Harrod to convince economists that he was saying something
new – and made it more difficult still for economists to accept that, where
Harrod was obviously saying something new,
he was not also saying something quite wrong.
This problem was sharpest with the next essential element in Harrod’s
methodology, the belief that a dynamic economics required “abandoning the
assumption of stability of equilibrium, and introducing some destabilizing
factor in the model at the outset” (Besomi, p. 3). Here arose many
misunderstandings of Harrod, largely because economists of his time (and many
not accept that an unstable equilibrium was a meaningful concept. Hicks’s
(1949) erroneous but widely believed statement that “A mathematically unstable
system does not fluctuate; it just breaks down” was typical of the manner in
which this crucial aspect of Harrod’s dynamics was dismissed by economists.
Finally, Harrod was competing for attention at a time when many others –
most notably Keynes – were vying for the attention
of economists, with many calls of new ways to think economically. Besomi
emphasises the extent to which Harrod was a participant in, and product of
these debates, while at the same time establishing that Harrod was as guilty of
misunderstanding his fellows – again, most notably Keynes – as they were of
Besomi also indicates the extent to which Keynes played an important role in
helping Harrod formulate his ideas. Keynes proposed a “fundamental growth
relation” – in terms of the multiplier and accelerator – to Harrod before he
had devised his own (Besomi, pp. 138-150). Keynes’s notion of dynamics was also
much richer than Harrod’s: “What Keynes held against Harrod in the course of
their debate, and what Harrod did not understand,
that in dynamics time must be the ordinary time, full of hopes and
disenchantment, enabling one to recognize the importance of the uncertainty
regarding the future course of events as distinct from the certitudes of the
past” (Besomi, p. 162).
most direct competitors were the econometricians, following on from Frisch, who
modeled the trade cycle as the product of a stable propagation mechanism
reacting to exogenous shocks. Here he lost out completely – so much so that his
own “model” of cycles,
which he insisted could not be reduced to the mechanical interaction of lags,
was recast in precisely that mould by Hicks, Samuelson et al in a fashion which
divorced growth and trend
Harrod was not necessarily correct to oppose a lagged reformulation of his
analysis. Elsewhere (Keen 2000) I argue that the Hicks-Samuelson second order
difference equation was in fact the product of bad economics, and that Harrod’s
model can be stated in a lagged form in which growth and cycle are
he was correct to oppose basing cyclical behavior upon lags alone, and
divorcing growth from cycle. But he had little chance of defending this
position against the far more technically proficient Hicks, Samuelson, and
econometricians generally. As Besomi
observes, “We may thus agree with Goodwin, and Samuelson before him, that
Harrod’s intuition was far superior to his mastery of the analytical tools he
devised for solving the important problems he was posing” (Besomi, p.
Given all this, it is remarkable that anything of merit emerged from this sea
of confusion. Yet something of merit did. Harrod’s dynamics, with its
well-known but misunderstood emphasis upon instability, and its poorly known
but important emphasis upon nonlinearity, did contribute something new and
important to economic theory – regardless of whether or not these ideas ever
took root in mainstream economics.
Precisely because these valid ideas did not take root, Besomi’s book is as much
a study in the pathology of economics as is it a study of Harrod per se. Many
of those who are critical of the twists and turns mainstream economics has
taken since World War II point a finger at textbooks, and here Besomi is no
exception. He observes that “The story of the textbook recognition of Harrod’s
contributions concludes even more sadly: since the 1980s, Harrod’s name rarely
appears in the author indexes of books on macroeconomics. Surveys of trade
cycle theory hardly mention his contributions, while endogenous growth
theorists seem to remember Harrod only in passing, for his ‘production
function with little substitutability among the inputs’ used ‘to argue that the
capitalistic system is inherently unstable'” (Besomi, p. 209, citing Barro and
Salai-Martin (1995), p. 10).
Besomi’s Harro dian saga is a useful tonic to the textbook view of the history
of economic thought. Far from showing a linear progression from old ideas to
new, good ideas to better ideas, we see a haltering to and from movement, with
Harrod buffeted by the debates of his day, publishing what he thought would
communicate well rather than what he necessarily thought, tailoring articles
to the desires of editors All stuff with which practitioners in economics are
familiar, but which has rarely been as well
a major figure like Harrod.
There is, therefore, much that economics could learn from Besomi’s anatomy of
Harrod’s Apollo 13. However, I disagree with the conclusion Besomi
himself draws, when he states that “it would seem that the success of a theory
does not depend only upon its clarity, logical consistency, and heuristic
value, let alone empirical accuracy, but also on its capacity to be integrated
within the accepted currents of thought. To generate
interest, a theory must contain some element of novelty; but to be
understood and integrated, the break with tradition must not be too radical”
(Besomi, p. 214).
I would instead argue that Harrod’s false belief that dynamics did not
constitute “too radical a break with tradition” is part of the reason why
economic dynamics was stillborn in Harrod’s hands.
(Daniele Besomi is an independent research scholar (lucky man!) based in
R. Barro and X. Sala-I-Martin, 1995. Economic Growth, New York:
R. F. Harrod, 1 939. “An Essay in Dynamic Theory,” Economic Journal, 49:
1948. Towards a Dynamic Economics, London: Macmillan.
,1960. “Second Essay in Dynamic Theory,” Economic
, 1963. “Themes in Dynamic Theory,” Economic Journal,
, 1973. Economic Dynamics, London: Macmillan.
J. R. Hicks, 1949. “Mr. Harrod’s Dynamic Theory,” Economics 56: 106-121.
S. Keen, 2000. “The Nonlinear Economics of Debt Deflation,” in W. Barnett
C. Chiarella, S. Keen,, R. Marks, and H. Schnabl, editors, Commerce,
Complexity and Evolution, New York: Cambridge University Press.
D. M. Wright, 1949. “Mr. Harrod and Growth Economics,” Review of Economics
and Statistics, 31: 322-328.
Steve Keen’s principal interests are in dynamic modeling and Hyman Minsky’s
Financial Instability Hypothesis. He is co-editor of Commerce, Complexity
and Evolution (see references above), to be published this August by
Cambridge University Press. Works in progress include Debunking
(Zed Books) and Finance and Economic Breakdown (Edward Elgar).
Subject: L Geographical Area: not relevant Country/Region: not relevant Time
Period: 8, 9
|Subject(s):||History of Economic Thought; Methodology|
|Geographic Area(s):||General, International, or Comparative|
|Time Period(s):||20th Century: WWII and post-WWII|