The Harrod-Domar model suggests that “economies should spend most of their time experiencing either prolonged episodes of increasing or falling unemployment rates and/or prolonged periods of rising or falling capacity utilization … [but] … that is not what the record of the main capitalist economies looks like” (Solow 1994, p.46).
Robert Solow (1956, p.66) was uncomfortable with the knife-edge instability proposal derived by Harrod. Solow attacked Harrod for assuming fixed factor proportions and tried to show that growth does converge to the economy’s balanced growth path (Thirlwall 2003, p.142).
If capital grows faster than labour then gw > gn, the price of capital will fall and economies, via the price mechanism, will switch to more capital intensive techniques and long-run economic growth will return to gn (Solow 1994, p.47).
Let’s take the aggregate production function: