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Problems and Conflicts

In: Economic Dynamics

Author

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  • Roy Harrod

Abstract

Warranted and natural rates of growth are entirely different concepts, and they have different determinants. The warranted rate is that at which desired saving is equal to required investment. If one plotted various growth rates along the horizontal axis and desired saving and required investment on the vertical axis, one would get two upward-sloping curves with investment rising above saving at the point of intersection. The reason for this is that a substantial part of investment is a direct function of the growth rate, being needed to sustain increments of production, while saving is for the most part — we need not say entirely — a function of the whole of income. Thus the amount of investment required is more strongly affected by the size of the increments of income than the amount of desired saving. In the determination of the warranted rate the amount of saving that people want to make is, so to say, the lord and master.

Suggested Citation

  • Roy Harrod, 1973. "Problems and Conflicts," Palgrave Macmillan Books, in: Economic Dynamics, chapter 7, pages 100-121, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-01696-9_7
    DOI: 10.1007/978-1-349-01696-9_7
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