Stability of a Dynamic Input-Output System

Cumulative processes of inflation and changes in relative prices have been almost entirely neglected in discussions of the theory of economic growth. The neglect of relative prices may be attributed to the restriction of theoretical analysis to models involving only a single commodity, national output The neglect of inflation and deflation is a consequence of confining analysis to equilibrium situations such as Harrod-Domar1 steady growth equilibrium or the Cassell-vonNeumann evenly progressing economy.2 While a study of the behavior of an economic system in equilibrium must be part of any complete theory of economic growth, the analysis of the inter-relationship of inflation and growth requires in addition a theory of disequilibrium describing the cumulative processes of expansion and contraction, inflation and deflation, which characterize the behavior of decentralized economic systems.