Modeling the interaction of cycles and growth in the fifties: two schumpeterian attempts

In post-war macroeconomics, economic dynamics generally refers to two distinct phenomena, economic growth and business cycles, which implies the existence of a strict dichotomy between short run and long-run analysis. In this paper we focus on two original exceptions to this prevailing view during the fifties: the attempt made by A. Smithies using ratchet effects, and the nonlinear approach initiated by Goodwin. Both explicitly refer to Schumpeter’s view on cyclical growth combined with postwar macroeconomic advances. However, they did not really succeed to overcome the major difficulties of a unified analysis of cycles and growth, stressed notably by Pasinetti in 1960. On the one hand, the introduction of ratchet effects into consumption or investment functions does not provide, contrary to Smithies’s claim, an endogenous explanation of cycles and growth. On the other hand, Goodwin’s nonlinear approach provides a promising perspective, but, in the fifties his attempt to connect a Keynesian framework with Schumpeterian insights remains rather tentative.