PATHOLOGY OF NEOCLASSICAL GROWTH

Abstract

Pathology inherent to neoclassical equilibrium growth is diagnosed to reveal its instability by imbedding it in a Harrodian growth process in a disequilibrium dynamics setting. Despite the alleged stabilizing effect of smooth factor substitution it proves to be balanced just on a knifeedge. Once off the dead center the economy eventually suffers from either growth with prolonged inflation or secular depression. The malignancy is due to firms' investment behaviors, that can not be cured even by smooth factor substitution.