Recall that in the Harrod-Domar, Kaldor-Robinson, Solow-Swan and the Cass-Koopmans growth models, we have maintained, either explicitly or implicitly, that technical change is "exogenous". In the Schumpeter version, this was not true: we had "swarms" of inventors arising under particular conditions. The Smithian and Ricardian models also had technical change arising from profit-squeezes or, in the particular case of Smith, arising because of previous technical conditions.
Allyn A. Young (1928) had argued for the resurrection of the Smithian concept in terms of increasing returns to scale: division of labor induces growth which enables further division of labor and thus even faster growth. The idea that technological change is induced by previous economic conditions one may term "endogenous growth theory".
The need for a theory of technical change was there: according to some rather famous calculations from Solow (1957), 87.5% of growth in output in the United States between the years 1909 and 1949 could be ascribed to technological improvements alone. Hence, what is called the "Solow Residual" - the g(A) term in the growth equation given earlier, is enormous. One of the first reactions was to argue that by reducing much of that influence to pure capital improvements, capital-intensity seem to play a larger role than imagined in these 1957 calculations - Solow does go on to argue, for instance, that increased capital-intensive investment embodies new machinery and new ideas as well as increased learning for even further economic progress (Solow, 1960).
However, Nicholas Kaldor was really the first post-war theorist to consider endogenous technical change. In a series of papers, including a famous 1962 one with J.A. Mirrlees, Kaldor posited the existence of a "technical progress" function. that per capita income was indeed an increasing function of per capita investment. Thus "learning" was regarded as a function of the rate of increase in investment. However, Kaldor held that productivity increases had a concave nature (i.e. increases in labor productivity diminish as the rate of investment increases). This proposition, of course, falls short of Solow's insistence on constant returns. asdsadasdasda
K.J. Arrow (1962) took on the view that the level of the "learning" coefficient is a function of cumulative investment (i.e. past gross investment). Unlike Kaldor, Arrow sought to associate the learning function not with the rate of growth in investment but rather with the absolute level of knowledge already accumulated. Because Arrow claimed that new machines are improved and more productive versions of those in existence, investment does not only induce productivity growth of labor on existing capital (as Kaldor would have it), but it would also improve the productivity of labor upon all subsequent machines made in the economy.
In history, it seems inarguably true that when a nation advanced in power and wealth, changes will soon followed. These changes affected the political, economic and social system of that nation, and often came as an advantage for wealthy individuals, while detrimental to others less fortunate. An example of this notion can be seen in American History. After the Civil War and the Reconstruction Era, America quickly surpassed Great Britain in industrial production thus became the leading nation in industrialization. However, great things do not come without a cost; the rapid technological expansion in the US would initiate the crisis of the 1890s. The crisis of the 1890s was the shift from the rural and agrarian society to a modern urban and industrial society.
To begin many theories hold a number of assumptions about the markets, but neoclassical takes this to an extreme. NGT assumes that there is full employment, no externalities or transportation costs and perfect competition just to name a few from the slew of others. This large amount of assumption is one reason why Romer established EGT in his 1986 dissertation (Fine) . These assumption are numerous and rather important in an economy and to assume all of these things it starts to take away from its real world application. Endogenous growth theory seeks to explain many of the assumptions that NGT hold constant. One such assumption is that technology is a constant and steady
This was especially prevalent socially. A prime example would be when Tesla built a hydroelectric plant for Niagara Falls. “Tesla did some things considered impossible for the turn of the century. One such thing was harnessing the power of Niagara Falls. He did so by building a hydroelectric plant, which is simple enough now, but this was a marvel of the time.” People eventually realized from breakthroughs like Tesla’s that we no longer had to be stuck in the positions we were in now, but that there was always more possibilities out there. However, there was more than just the transforming of the human mind that was to be done, but also the transformation of the economy. Before this point, machines were built with mills that would complete a simple task with human intervention, and just human industry. However, the advancements of Tesla and Faraday, mostly inventions and concepts, allowed for a greater economy.The first example would be Faraday. Faraday gave birth to many sciences, even if he hadn’t realized it. One that has affected industry largely has been electrolysis. “A large number of electrolysis processes are employed by industry to refine metals and to produce both inorganic and organic products.” (Lower) In this quote we realize how much we use electrolysis, and not only industry, but also for producing power. We also, of course, must include the impact Tesla has made, which some would say is even greater. Alternating current electricity is the main electricity used today, and much of our industry is Tesla’s legacy being reflected. In A Machine to End War, “‘Were we,' remarks B. A. Behrend, distinguished author and engineer,' to seize and to eliminate the results of Mr. Tesla's work, the wheels of industry would cease to turn, our electric cars and trains would stop, our towns would
Miller, Derek D Essay: Brave New World and the threat of technological growth Vol 3 2011.Print
According to the Neoclassical Solow Model, economic growth arises due to influences outside economy. As an exogenous growth model it focus on four variables: output (Y), capital accumulation (K), Technology (A) and labor or population growth (L) in order to explain economic growth.
In the introduction Mokyr supports the idea of “‘free lunch,’” that is, an increase in output that is not commensurate with the increase in effort and cost necessary to bring it about.”1 He believes that four processes work together to make economic advances; investment, trade, the correct amount of population growth and technological innovations, and he chooses to focus solely on technological advances. There is a “residual” part of economics that cannot be explained by a certain event in time or innovation that was made, it was simply an advance that would be called “free lunch.”2 Francis Bacon actually thought that there were two separate types of invention, one that could have been made any time in history and one that had to happened at
In The Wealth of Nations Smith proposes the concept of economic growth, that it is imbedded in the increasing division of labour. This idea is basically about the specialization of the labour force, actually breaking down each large job into many tiny parts. As a worker spends more time working at one particular job, his efficiency increases. The fact that these workers do not have to switch their tasks during the day not only saves them money but also precious time. This is still being used today as a person who is working in a car repair shop there will be only one specific person fixing the cars and another sweeping/ cleaning up. Thus, separating the jobs to make each individual more efficient and great at their job. Not only does this save time, but it also saves money as they do not have to spend so much time in their jobs as they are more efficient, so it saves the capital. It also promotes full employment, so the economy will also grow. An economist whose theories do not apply in the modern world is Milton Friedman, who argued that the government involvement worsened economy and government should replace welfare programs with guaranteed income. Guaranteed
...people acquired more benefits, and their lives improved substantially. People were now able to spend more time with their loved ones and less time doing monotonous work. These are just a few of the several positive things that came out of the Technological Revolution. As always, the sacrifices and struggles of people led to something far better than they ever thought possible before.
4. Additional innovative divisions of labor, maybe brought on by new machinery, motivate others to invest in more factories. But they must compete to hire more workers. The "law of supply and demand" applies here, too, and wages go up.
Adam states that, “the greatest improvements in the productive powers of labour seem to have been the effects of the division of labor” (Ch. 1). He exemplifies this claim by describing the trade of pin-making, and how, by splitting up the process into specialized jobs, people can make more pins in less time. Smith argues that this increase due to specialization “is owing to three different circumstances; first, to the increase in dexterity…secondly, to the saving of time…and, lastly, to the invention of machines” (Ch.1). By repeating the same task over and over, workers gain skill and speed in their specific trade, allowing them to become experts in their labor. Time is lost when workers switch from one task to another, but with division of labor there is no switching and, therefore, more available work time. After a while, workers look to save effort, which results in the invention of machines that can do the work for them. Smith recognizes these three elements as the effects of specialization, ultimately claiming that the division of labor is a positive and productive
He is known as the founder of laissez-faire economic thought and policy. In his work, he examined the nature and causes of the wealth of nations, he then went further and determined how a nation’s united wealth grows. Smith then classifies characteristics of a growing economy. Some of his ideas were that division of labor increases production, monopolies and regulations stifle productive labor, and that there is an unlimited store of resources. He also believed that social and economic development had four stages. That four stages consisted of human society are hunting and gathering, pastoral or herding, agriculture, and commercial. He believed that humans could use the four-stage theory to understand what social and economic development a group of people was
Bronwyn and Rosenberg, N (2010). Handbook of The Economics of Innovation. Available: http://books.google.co.uk/books?id=4nZTCD_zjN4C&dq=Mowery+and+Rosenberg,+1989+the+second+industrial+revolution&source=gbs_navlinks_s. Last accessed 2th Jan 2014.
According to him, growth is rooted in the increasing division of labor. Smith gives three main reasons as to why this is. His first reason is that by dividing labor amongst various workers, it creates a specialization in knowledge of a particular task. Next, dividing labor saves the workers time by focusing on one task and not having to move from one to another, which will usually mean having to use different tools. The worker is, therefore, able to make the most of his time, which increases productivity. Lastly, by spending more time on one task, the workers are more likely to innovate in the methods used in performing the task, which makes it easier to perform the task and save more
Rostow, Walt W. 1960. The stages of Economic Growth: A Non-Communist Manifesto. Cambridge: Cambridge University Press.
Historically though, the impact of technology has been to increase productivity in specific areas and in the long-term, “release” workers thereby, creating opportunities for work expansion in other areas (Mokyr 1990, p.34). The early 19th Century was marked by a rapid increase in employment on this basis: machinery transformed many workers from craftsmen to machine minders and although numbers fell relative to output – work was replaced by employment in factories (Stewart 1996, p.13).