Note to p. 9. "fully half of economic growth... comes from technological and organizational progress..."

The classic studies of the amount of economic growth due not to more workers or more capital are Moses Abramovitz (1956), "Resource and Output Trends in the United States Since 1870," American Economic Review 46:2 Papers and Proceedings (May), pp. 5-23: http://www.jstor.org/stable/1910656; Robert M. Solow (1957), "Technical Change and the Aggregate Production Function," Review of Economics and Statistics 39:3, pp. 312–320.

Back before technological and organizational progress was a first-order factor in economic growth--back before the start of the nineteenth century, say--you could argue with a straight face that decentralized competitive markets would indeed produce the best of all possible economic worlds. The "system of natural liberty" that provided individuals with complete legal title to all chattel and real property and allowed them to trade with each other without hindrance would perform the triple functions of (a) making sure that the goods produced went to those who valued them the most, (b) making sure that everything produced would be valued at more in expectation than its resource cost, and (c) making sure that cost-effective ways of boosting society's productive capabilities would be profitable, hence likely to be undertaken. See Adam Smith (1776), An Inquiry into the Nature and Causes of the Wealth of Nations (London: Strahan and Cadell). (With distortions produced by an unequal distribution of income being the principal fly from a utilitarian standpoint in the system-of-natural-liberty soup.)

But once technological and organizational progress becomes the first-order factor in economic growth--accounting for two-thirds of long-run growth in incomes, productivity levels, and living standards in the U.S. today--this theoretical congruence and harmony between private profits and public utility evaporates. See, for example, Paul Romer (1990), "Endogenous Technical Change," Journal of Political Economy.

As a historical curiosity, there are some signs that Adam Smith knew or should have known that the spread of ideas and inventions was about to become a key factor in economic growth, and Smith certainly knew about and was very interested in John Roebuck's local Carron Ironworks, in Falkirk, Scotland. See Michael Perelman (2000), The Invention of Capitalism: Classical Political Economy and the Secret History of Primitive Accumulation (Durham, NC: Duke University Press: 9780822324911); Charles Kindleberger (1976), "The Historical Background: Adam Smith and the Industrial Revolution," in Thomas Wilson and Andrew S. Skinner (1976), The Market and the State: essays in Honour of Adam Smith (Oxford: Clarendon Press); Gavin Kennedy (2005), Adam Smith’s Lost Legacy (London: Palgrave Macmillan).

Comments

[Bill]

Shouldn't this read Endogenous Technological Change?