Economic Growth Theories – Orthodox and Heterodox

Economic Growth Theories – Orthodox and Heterodox

My humble  attempt to make sense of Economic Growth Theories.


Economic Growth (Trend) and Business Cycles ( Fluctuations)

Growth- Cycles

Economists distinguish between short-run economic changes in production and long-run economic growth. Short-run variation in economic growth is termed the business cycle. Generally, economists attribute the ups and downs in the business cycle to fluctuations in aggregate demand. In contrast, economic growth is concerned with the long-run trend in production due to structural causes such as technological growth and factor accumulation.



Types of Models

  • Economic Cycles Vs Business Cycles Vs Financial Cycles
  • Economic Growth , Business Growth, Financial Growth
  • Equilibrium Vs. Non Equilibrium
  • Deterministic vs Stochastic
  • Linear Vs Non Linear Models


From Introduction to Post Keynesian Economics / Lavoie



Classical and Neo Classical Growth Models

(Equilibrium Models) – Supply Side / No aggregate demand -Say Law

  • Wassily Leontief – Input-Output Linear Models
  • John Von Neumann
  • Cass – T Koopmans
  • Solow Swan Growth Model
  • Ramsey Model
  • Endogenous Growth Theory
    • Robelo – AK Model
    • Uzawa – Lucas Model
    • Romer Model
    • Jones Model
    • Grossman Helpman
    • Aghion and Howitt
    • Barro
  • DSGE Models
  • Real Business Cycles


Classical/Neo Classical /Monetarists/Neo Keynesian  Economists

  • Alfred Marshall
  • Leon Walrus
  • Irving Fisher
  • Paul Samuelson – Multiplier Accelerator
  • John Maynard Keynes
  • Alvin Hansen – IS-LM Framework
  • AW Phillips
  • Robert M Solow – Neo Classical Growth Model
  • Trevor W Swan
  • Paul Romer – Endogenous Growth Theory
  • Robert Lucas, Jr.
  • Milton Friedman
  • James Tobin
  • John G Gurley
  • Edward S Shaw
  • Knut Wicksell 
  • Franco Modigliani
  • James Meade
  • Luigi Pasinetti
  • Piero Sraffa


Keynesian Growth Models

Role of Aggregate Demand

  • John M Keynes Model
  • Harrod Domar Model
  • Hicks – Hansen IS-LM Model
  • AD-AS
  • Tobin’s Model
  • New Keynesian Models
  • Non Walrasion Equilibrium models
  • Phillips Curve






Heterodox Schools

  • Institutionalist
  • Cambridge Keynesians
  • American Post Keynesians
  • Evolutionary Economics
  • Complexity School/Santa Fe
  • System Dynamics
  • Behavioral Economics
  • Austrian Economics
  • Ecological Economics


Cambridge/Oxford Keynesians

(Dynamic/Business Cycles/Non Linear Models)

  • N. Kaldor
  • J Robinson
  • M. Kalecki
  • John Hicks
  • Roy Harrod


Post Keynesians

  • Evsey Domar
  • Hyman Minsky
  • Steve Keen
  • Marc Lavoie
  • Richard Werner
  • Perry Mehrling
  • Morris Copeland
  • Wynn Godley
  • Dirk Bezemer
  • Paul Davidson
  • Mark Setterfield
  • Steve Pressman
  • Basil Moore
  • Tom Palley
  • LP Rochon
  • L Randall Ray
  • Eckhard Hein
  • G C Harcourt
  • G Fontana
  • J King
  • AK Dutt
  • Stephanie Kelton
  • Scott Fullwiler
  • Lance Taylor
  • Geoffrey Hodgson
  • Alfred Eichner


Evolutionary School / Institutionalist School

(Increasing Returns/Circular and Cumulative Causation)

  • Karl Marx
  • R M Goodwin
  • J Schumpeter
  • Ken Boulding
  • T Veblen
  • Gunnar Myrdal


Complexity/Santa Fe

  • Scott Page
  • W Brian Arthur
  • Doyne Farmer


System Dynamics

  • John Sterman
  • Jay Forrester
  • Khalid Saeed
  • M Radzicki
  • K Yamaguchi
  • N Forrester
  • Tom Fiddaman
  • David Wheat
  • Peter Senge


Austrian Economics

  • F Hayak
  • Ludwig Von Mises
  • Murray Rothbard



Heterodox Growth Models

  • Kaldor
    • Dixen and Thirlwall
  • Kalecki
    • AK DUTT
    • Marglin
    • Rawthorn
  • Harris
  • Sweezy


Heterodox / Post Keynesian School – Ideas

  • Debt Deflation of Irving Fisher
  • Financial Stability Hypothesis of Hyman Minsky
  • Credit/Debt Cycles of Steve Keen
  • Stock Flow Consistent (Accounting) Models of Marc Lavoie and Wynn Godley
  • Joseph Schumpeter – Innovation/Creative Destruction
  • Richard Werner – Disaggregated Credit – Financial vs Real 
  • Perry Mehrling / Zoltan Pozsar – Money View
  • Morris Copeland – Flow of Funds
  • Austrian School – Hayak / Von Mises / Rothberg
  • Dirk Bezemer – Money as Credit / Accounting Models
  • Richard Koo – Balance sheet Recession
  • Quadruple Accounting / Interlocking Balance sheets
  • Asset Liability Matrix Analysis – K Tsujimura
  • Financial Social Accounting Matrix (F-SAM)
  • Monetary Circuit
  • Banks as Payment System
  • Banks as Market Makers (Dealers)
  • Liquidity – Solvency Nexus
  • Central Banks as Lender and Dealer of Last Resort
  • Focus on Disaggregated / Operational/Horizontal View of Banks and Central Banks and Financial Markets.



From Growth theory after Keynes, part I: the unfortunate suppression of the Harrod-Domar model

After Harrod and Domar independently developed a dynamic Keynesian circular flow model to illustrate the instability of a growing economy, mainstream economists quickly reduced their model to a supply side-only growth model, which they subsequently rejected as too simplistic and replaced with Solow’s neoclassical growth model. The rejection process of first diminishing the model and then replaced it with a neoclassical alternative was similar to how the full Keynesian macroeconomic paradigm was diminished into IS-LM analysis and then replaced by a simplistic neoclassical framework that largely ignored the demand side of the economy. Furthermore, subsequent work by mainstream economists has resulted in a logically inconsistent framework for analyzing economic growth; the popular endogenous growth models, which use Schumpeter’s concept of profit-driven creative destruction to explain the technological change that Solow left as exogenous, are not logically compatible with the Solow model.


From Institutional Economics, Post Keynesian Economics, and System Dynamics: Three Strands of a Heterodox Economics Braid

A. Lineage of Institutional Economics

In Figure 1, the intellectual lineage leading to the present-day school of institutional economics begins with Quesnay and Smith and follows two principal routes. The first runs through Ricardo and Marx and then through the “American institutionalists” Veblen, Commons, and Mitchell. The last link in this route passes through Clarence Ayres, Galbraith, and Myrdal. The second or “thermodynamics/general systems” route runs through Ricardo and Marx, passes through Schumpeter (1976), and links with Boulding (1970, 1978, 1991), Georgescu-Roegen (1971), and Robert Ayres (1978). This route has also been influenced by the cybernetics of Norbert Wiener (1948). Figure 1 also shows, via two-way arrows, four schools of thought that directly complement institutional economics: Post Keynesian economics, behavioral economics, ecological economics, and evolutionary economics. An argument can be made, however, that a two-way arrow between agent-based computational economics and institutional economics should be included as well.


B. Lineage of Post Keynesian Economics

Figure 1 presents one direct route and two main “directions of flow,” each incorporating several routes, that lead to the modern Post Keynesian school of economics. The direct route simply runs from Quesnay and Marx to Leontieff and then to the Post Keynesian school because input-output analysis is frequently used by Post Keynesian economists. On the other hand, the first main direction of flow runs through the Cambridge Post Keynesians (e.g., Robinson, Kaldor, Passinetti) and the founders of American Post Keynesian school (e.g., Weintraub, Davidson, Eichner, Minsky). This direction is traversed by way of Quesnay, Marx, and Kalecki or via Smith, Malthus, Keynes, Harrod, and Domar. The second main direction of flow runs through those economists who pioneered the “engineering systems” approach to economics such as Tustin (1953), Phillips (1950, 1954,1957), Allen (1955), Goodwin,10 and Leijonhufvud (1968).11 This direction is traversed via: (1) Keynes directly, (2) early Keynesian business cycle theorists such as Harrod, Hicks and Samuelson, (3) Hayek, because Post Keynesians such as Kaldor had their thinking influenced to some degree by Austrian economics, and (4) Schumpeter, because Goodwin both taught, and was taught by, Schumpeter [see Goodwin (1993, p. 305)].


C. Lineage of Ecological Economics


In Figure 1, the intellectual lineage leading to the present-day school of ecological economics begins with Quesnay and Smith and follows three principal routes. The first runs through Malthus and then directly to Costanza and Daly (1992). The second runs through Quesnay and then through Leontieff. The third runs through Ricardo and Marx and then passes through Schumpeter. In terms of complementary schools of thought, both evolutionary economics and institutional economics are linked to ecological economics with a two- way arrow. An argument can be made, however, that a two-way arrow between ecological economics and agent- based computational economics should be added because the emergence and evolution of social structures such as property rights and environmental valuations and norms, that are crucial to avoiding “tragedy of the commons” and other non-sustainable dynamics, can be identified and studied.


D.  Agent Based Computational Economics/Complexity/Santa Fe Institute

In Figure 1, there are several routes that lead to the present -day school of agent -based computational economics. The main route runs from John von Neumann and his work on self-replicating machines during the nineteen forties directly to the agent-based school; via John Nash and then Thomas Schelling [due to Schelling’s (1978) path-breaking agent-based work on the emergence of racially segregated neighborhoods]; or via some of von Neumann’s present-day followers such as John Holland [Holland and Miller (1991)], Stuart Koffman, John Miller (1998), W. Brian Arthur (1993, 1994), and Christopher Langton (1989).20 Leigh Tesfatsion (1997, 2000, 2001a, 2001b, 2002), Robert Axtell, Joshua Epstein, Robert Axelrod and David Lane (1993) would also be legitimately included in this group. Most of these modern day researchers have ties to the Santa Fe Institute, an organization specializing in the study of complex systems.21  One of the leaders of the Sante Fe Institute, W. Brian Arthur (1988, 1990), has written extensively about being influenced by economists who emphasized the importance of positive feedback loops, increasing returns, and path dependency, in explaining evolutionary economic behavior. As a result, in Figure 1 links to Arthur run from Nicholas Kaldor (1981), Gunnar Myrdal, Paul David (1985), and Ilya Progogine (1993).


E.  Lineage of Behavioral Economics

In Figure 1, the intellectual lineage leading to the present-day school of behavioral economics begins with Quesnay, Smith, and Ricardo and follows three principal routes. The first runs through Marx, to Dobb, Baran, Sweezy and Mandel, and then through some more modern-day radical political economists such as Sherman, Weiskopf, Bowles [Bowles, Ginits and Osborne (2001)], Foley (1997), and Marglin (1984). The second runs through Marx and then through Schumpeter, passes through Richard Day (1975) [see also Day and Eliasson (1986) and Day and Chen (1993)], and then through George Akerlof, Richard Thayler, and Robert Frank. The third runs through Veblen, Commons and Mitchell and then through Duesenberry and Simon (1957, 1979, 1984). It continues directly through Ackerlof, Thayler and Frank and also takes a side branch through Cyert and March (1963). This last route emphasizes the contributions to behavioral economics of the “Carnegie School” and the work of Herbert Simon. Indeed, Simon is considered to be the father of the field and frequently wrote that his thinking on bounded rationality was influenced by the work of John Commons [e.g., Simon (1979, p. 499; 1991, p. 87)].


F.  Lineage of Austrian Economics

In Figure 1, the intellectual lineage leading to the present-day school of Austrian economics begins with Quesnay, Smith and Ricardo and works its way to Carl Menger via Say and Mill. This route continues via Menger’s most prominent disciples Böhm-Bawerk and Wieser to Mises and then to his student Hayek.27 From Hayek, the route extends to the more modern-day Austrians such as Israel Kirzner (1987, 1997) and Murray Rothbard and finally to the school itself. A two-way arrow is shown between the Austrians and agent-based computational economics because many of Mises’ and Hayek’s beliefs are in harmony with central tenets of agent-based modeling. Indeed, Vriend (2002) lays out a strong case that Hayek was essentially an agent-based computational economist.


G.  Lineage of Evolutionary Economics

In Figure 1, the intellectual lineage leading to the present-day school of evolutionary economics begins with Quesnay and Smith and follows several routes. The first runs through both Marx and Schumpeter and then through economic historians such as David (1985) and Rostow (1990). The second runs through Schumpeter and the neo-Schumpeterians such as Nelson (1995), Winter (1964), Witt (1992, 1993), Iawi (1984a, 1984b), Eliasson, Silverberg (1988), and Dosi [and Nelson (1994)]. The third runs through Schumpeter and then the far-from-equilibrium thermodynamicists [Prigogine (1993), Nicolis, Allen (1988)] and the punctuated equilibrium theorists [Tushman and Romanelli (1985)], and finally through England (1994), who notes that he was inspired by Boulding (1970, 1978, 1991), Georgescu-Roegen (1971), and Prigogine (1993). The fourth runs through Schumpeter and the classical thermodynamicists [Georgescu-Roegen (1971), Ayres (1978)], and then through England (1994), or directly to the school. Two-way arrows indicating complementary schools of thought are drawn between all of the other evolutionary schools except the Austrians.



Key sources of Research:


A Contribution to Theory of Economic Growth

Robert Solow




On the Concept of Optimal Economic Growth

T Coopmans


Interactions between the Multiplier Analysis and the Principle of Acceleration

Paul A. Samuelson

The Review of Economics and Statistics
Vol. 21, No. 2 (May, 1939), pp. 75-78




Robert E. LUCAS, Jr.



Increasing Returns and Long-Run Growth

Paul M. Romer



‘Growth theory after Keynes, part I: the unfortunate suppression of the Harrod-Domar model’

Van den Berg, Hendrik


The Journal of Philosophical Economics, VII:1



‘Growth theory after Keynes, part II: 75 years of obstruction by the mainstream economics culture’

Van den Berg, Hendrik


The Journal of Philosophical Economics, VII:2



The Neoclassical Growth Model and Twentieth-Century Economics

Mauro Boianovsky and Kevin D. Hoover




Robert W. Dimand and Barbara J. Spencer (née Swan)



The History of Macroeconomics from Keynes’s General Theory to the Present

Michel De Vroey and Pierre Malgrange

June 2011



Keynes and the Cambridge School

G. C. Harcourt and Prue Kerr




Amitava Krishna Dutt

September 2001



A Brief Introduction to Post Keynesian Macroeconomics

J. E. King








The structure of growth models: A comparative survey

Antonio D’Agata

Giuseppe Freni



Major Schools of Economic Theory



Getting rid of Keynes? A survey of the history of macroeconomics from Keynes to Lucas and beyond


Michel De Vroey




Neoclassical Growth Theory and Heterodox Growth Theory: Opportunities For and Obstacles To Greater Engagement

Mark Setterfield

December 2009



Endogenous Growth: A Kaldorian Approach

Mark Setterfield




Financialization in Kaleckian economies with and without labor constraints

Soon Ryoo and Peter Skotty

18th March 2008



Post-Keynesian macroeconomics since the mid-1990s – main developments

Eckhard Hein

Working Paper, No. 75/2016

Institute for International Political Economy Berlin



Aggregate Demand, Aggregate Supply and Economic Growth





A dynamic synthesis of basic macroeconomic theory: implications for stabilization policy analysis

Forrester, N. B.


(Doctoral dissertation, M. I. T., Alfred P. Sloan School of Management).



The System Dynamics National Model

Jay Forrester



Understanding Recent Developments in Growth Theory

Lars Weber



Linking Economic Modeling and System Dynamics: A Basic Model for Monetary Policy and Macroprudential Regulation


Klaus Dieter John



System Dynamics and Its Contribution to Economics and Economic Modeling

M Radzicki



Evolutionary Economics and System Dynamics

M Radzicki

J Sterman



A Post Keynesian Model of Macroeconomic Growth, Instability, and Income Distribution

M Radzicki and K Saeed



Institutional Economics, Post Keynesian Economics, and System Dynamics: Three Strands of a Heterodox Economics Braid

M Radzicki




Was Alfred Eichner a System Dynamicist?

M Radzicki




Mr. Hamilton, Mr. Forrester and a Foundation for Evolutionary Economics

Michael J. Radzicki




Disequilibrium Systems Representation of Growth Models—Harrod-Domar, Solow, Leontief, Minsky, and Why the U.S. Fed Opened the Discount Window to Money-Market Funds

Frederick Betz



An Institutional Dynamics Model of the Euro zone crisis: Greece as an Illustrative Example

Domen Zavrl
Miroljub Kljajić




“Deterministic chaos in an experimental economic system.”

Sterman, John D.

Journal of Economic Behavior & Organization 12.1 (1989): 1-28.









Devil’s staircase and chaos from macroeconomic mode interaction

Larsen, Erik Reimer, et al.

Article in Journal of Economic Dynamics and Control ·

February 1993’s_staircase_and_chaos_from_macroeconomic_mode_interaction/links/5789dd4908ae59aa6676bfe6.pdf



Mode‐locking and entrainment of endogenous economic cycles.

Haxholdt, C., Kampmann, C., Mosekilde, E., & Sterman, J. D.

System Dynamics Review, 11(3), 177-198.





Author: Mayank Chaturvedi

You can contact me using this email mchatur at the rate of AOL.COM. My professional profile is on

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