1. The purpose of this paper is to examine the problems raised by Harrod's theory of economic growth. As Harrod himself emphasized, there is an inherent instability in the trend movement which he considers.1 From this the conclusion is drawn that there will be cyclical fluctuations around the trend line, and that the theory thus provides an explanation both of the economic growth and the business cycle. It has never been proved, however, that the fluctuations started by the instability of the growth do occur around the trend line and not around a horizontal line.
I shall argue that the 'Harrodian' rate of growth is ephemeral in the sense that any deviation from the path determined by it renders the system stationary--i.e. subject to cyclical fluctuations but no trend. In fact, it appears that to any theory of the business cycle of a fairly broad category there corresponds an unstable rate of growth which is devoid of practical significance.
Harrod observes, rightly, that his theory exhibits the basic 'antinomy' of the system; he thinks that 'antinomy' leads to fluctuations around the trend line. I believe that the antinomy of the capitalist economy is in fact more far-reaching: the system cannot break the impasse of fluctuations around a static position unless economic growth is generated by the impact of semi-exogenous factors such as the effect of innovations upon investment. It is only in such a case that cyclical fluctuations do occur around the ascending trend line.
It should be noted that several attempts have been made to lend stability to the Harrodian trend movement by introducing additional specific assumptions. These assumptions appear to me highly artificial and unrealistic. In fact, they obscure the problem which was so acutely posed by Harrod, instead of solving it.____________________