Harrod and the ‘Time-lag Theories of the Cycle’

Abstract

In all his writings on dynamics, Harrod was eager to stress the points of departure of his own conception from the alternative approaches to the study of economic change. At an early stage he disapproved of the psychological theories of the cycle; in The Trade Cycle he criticized the ‘time-lag theories of the cycle’, particularly Robertson’s lagged relationship between income and saving; he rejected Lundberg’s method of period analysis, and subsequently refuted Hicks’s definition of dynamics as requiring variables to be dated. Finally, from 1939 onwards, he concentrated his efforts in trying to emphasize the difference between his approach and the new orthodoxy in dynamics represented by Ragnar Frisch’s notion, which was quickly gaining widespread acceptance among economists¹. The range of Harrod’s arguments was as broad as the spectrum of his critical targets: he countered the merits of instantaneous vs. period analysis; he compared lags to ‘frictions’ and claimed that they are of secondary importance for a proper explanation of the cycle and indeed misdirect attention from its ‘true causes’; he stressed the irrelevance of lags to the analysis of equilibrium movement, and proposed a definition of dynamics based on the presence of a rate of growth among the unknowns to be determined in the fundamental equation.