How did Domar get the idea that production was proportional to machines? Did not labor
play some role in production? Domar was writing in the aftermath of the Great Depression that
made many people running the machines lose jobs. Domar and many other economists expected a
repeat of the Depression after World War II unless the government did something to avoid it.
Domar took high unemploymernt as a given, so there were always people available to run
any additional machines that you built. The problem of balancing aggregate demand and supply
was Domar's concern. Investment in building new machines had a dual character -- it added to
desired purchases of goods (demand) and it also added capacity (supply). These two effects would
not necessarily be equal, Domar argued, and so the economy would spiral off into either chronic
overproduction or chronic underproduction. This was the Harrod-Domar model. (Roy Harrod
had published in 1939 a similar but more convoluted article, about which the less said the better.)
You can see that Domar's interest was the short run business cycle. So how did Domar's
fixed ratio of production to machines make it into the analysis of poor countries' growth?
The Invention of Development
For centuries, nobody had paid much attention to the economic problems of poor
countries. The League of Nations 1938 World Economic Survey, prepared by the future Nob