Dynamic Keynesian economics: cycling forward with Harrod and Kalecki

Abstract

In the 1950s the plethora of existing business cycle theories gave way to a Keynesian-type theory based on Hicks’ (1950) book. However, the first two expositions of Keynesian-type business cycle theory had no direct influence on Hicks’ model. This paper examines the business cycle theories of Harrod and Kalecki. This is done mainly for its own sake—both of these theories are very important in the history of economic thought. But it is also of interest to see that constituent parts, which Hicks ignored, gave a richness absent in the Hicksian theory. In the case of Harrod aspects of the role of money and the explicit incorporation of imperfect competition in the micro foundation were important. While in the case of Kalecki it was imperfect competition and an emphasis on the contradictory nature of investment as both creating effective demand and capacity.

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