Knife-Edge Instability and the Rate of Surplus Value: Theory and Empirical Evidence

The Harrodian “knife edge” instability is a salient feature characterizing the inner nature of capitalism, usually explained by the Keynesian notion of “animal spirits.” In this article, we argue that the movement of the rate of surplus value is the variable that conditions the turbulence around the economy’s hypothetical steady growth path. We further show that the notion of the rate of surplus is not restricted to income distribution, but it is much more general and lurks behind the Harrodian knife-edge growth problem, relating to the fundamental contradictions of capitalist production that become apparent in the transition to an economic downturn. JEL Classification: E11, E12, E32