HARROD'S KNIFE-EDGE AND CONSUMPTION FUNCTIONS

This paper reconsiders Harrod's knife-edge instability of the capitalist economy. An investment function of the type used by Harrod is combined with a consumption function of the relative income hypothesis type. It will be shown that, even under such an investment function, knife-edge instability can be ruled out if a part of consumption behaves steadily and capitalists do not change their expectations very rapidly.