Robert Solow on Technical Progress - Dictionary of Arguments

Author	Concept	Summary/Quotes	Sources
Economics Dictionary of Arguments Home


Technical progress: Technical progress in economics refers to improvements in production processes and efficiency, leading to increased output with the same or fewer inputs. It drives economic growth by enhancing productivity, and reducing costs. Technical progress can be embodied in new machinery or disembodied as better methods and organizational improvements. See also Technology, Technocracy, Progress, Economic growth. _____________ Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

> Solow, Robert	> Technical Progress	Robert Solow on Technical Progress - Dictionary of Arguments Harcourt I 69 Technical progress/Solow/Harcourt: Harcourt I 66 Terminology/Harcourt: (…) [we distinguish between] the malleable capital world in which technical progress is disembodied and the vintage world where it is embodied (…). Harcourt I 69 Substitution/Solow/Harcourt: In one paper, Solow [1960]⁽¹⁾ accepted the embodiment hypothesis - technical advance enters only via gross investment - but maintained ex-post the ex ante substitution possibilities on existing vintages. Productivity: Thus the average productivities of labour on vintages when they are manned at their 'optimum ratios', as determined by expectations concerning factor prices when they were installed, are lower, the older (i.e. earlier) are the vintages, but technical variations in the amounts of labour manning each vintage allow these levels of productivity to be departed from and any of the investment-labour ratios of the (then) ex ante production functions to be reproduced ex post. >Expectations/Harcourt. Neoclassical view: Adopting the neoclassical view that full employment of labour is either automatically "assured in the short run, a la Wicksell [1934]⁽²⁾, pp. 111-16, or is contrived by an all-wise government, see Meade [1961]⁽³⁾, Robinson [1961a]⁽⁴⁾, also Robinson 1965b]⁽⁵⁾, pp. 15-29, Swan [1956]⁽⁶⁾ (advised now and then and at the highest levels, by such well-known neoclassical Keynesians as Samuelson and Tobin), the available labour supply is allocated at each point of time over the existing vintages such that the marginal product of labour on each vintage is the same, equals the overall wage rate and total output is maximized. (The older is the vintage, the less labour-intensively will it be worked.) Productivity: This viewpoint allows technical progress to affect the growth of labour productivity only when it is embodied via gross investment expenditure. Harcourt I 72 Selecting plausible orders of magnitude Solow uses the model to perform again his measurement of technical progress exercise and to show that capital accumulation and deepening have a more significant part to play, though the relationship between the pace of investment and the rate at which productivity rises is not a simple one. Growth: Solow also provides a timely warning against being bedazzled by constant exponential rates of growth when doing 'back-of-an-envelope' calculations. Embodied view: Once we adopt the embodied view of technical progress, sudden spurts upwards (or downwards) in the rate of gross investment are more significant than trend rates of growth of the capital stock, as far as the impact on the rate of growth of productivity is concerned. Solow also examines in this paper a one-number value measure of the vintage capital stock which depends crucially on the assumption of perfect foresight and realised expectations (…). Thus, if asset valuations faithfully reflected perfect foresight, the "homogeneous capital" model .. . would be accurate, provided the capital stock were measured not by a count of machines but by the real market value of the stock of capital.' (Solow [1960]⁽¹⁾, p. 100.) But it would be unfair to imply that Solow takes much notice of this result, though he does call it 'remarkable'. In a later paper, Solow, Tobin, von Weizsacker and Yaari [1966]⁽⁷⁾ analysed the case of 'quickening' - that in which there is only one viable 'best-practice' technique at any moment of time (the ex ante production function is a point, not a curve) for which there are no ex post substitution possibilities. No use is made of a generalized capital concept, competitive conditions are assumed and three sorts of technical progress - purely capital-augmenting, purely labour-augmenting and Hicks neutral* - and two types of economy - neoclassical and Keynesian - are examined. Def Purely capital-augmenting technical progress: means that only capital productivity rises over time; Harcourt I 73 Def purely labour-augmenting: means exactly the opposite - that labour alone gets the treatment. Def Hicks neutral: means that factor productivities grow at the same rate so that marginal rates of substitution remain unchanged at given factor ratios. (In the case of 'quickening', however, where only one ratio of factors is relevant at any one time, Hicks neutral technical progress means that the ratio remains the same because the absolute amounts of the factor inputs per unit of output both decline by the same proportion.) Neoclassical view: The neoclassical economy is one in which the full employment of labour is automatically assumed; Keynesianism: the Keynesian economy is one in which effective demand determines the level of output. In both economies, neoclassical modes of analysis are used, quasi-rents on vintages are shown to equal their marginal products, and the wage rate is shown to equal the marginal product (equals the average product) of the vintage on the margin of scrapping (the Salter process). >W.G.E. Salter, >Idealization/Solow. Harcourt I 112 Technical progress/rate of return/Solow/Harcourt: (…) Solow(1) adds (…) the role of technical progress and its effects on the measurement of the rate of return. With technical progress occurring, saving and accumulation are twice blest; not only is society's productive capacity raised by saving, because it provides more capital, but also because it now provides 'better' capital. This applies to the lot if technical progress is disembodied, at the margin if it is embodied. For embodied and disembodied technical progress ((s) e. g., knowledge) see >Terminology/Harcourt. a) With disembodied technical progress (which is illustrated by Cobb-Douglas) there emerges the possibility that the rate of return, especially the oneperiod one, which, in this case, equals the net marginal product of capital at the level ruling in the appropriate period, will get greater and greater, unless capital deepening is occurring at the same time and at approximately the same rate as (neutral) technical progress. >Cobb-Douglas production function. Harcourt I 114 b) Solow's analysis of embodied technical progress ((s) e.g., equipment) uses a model (…), in which both ex ante and ex post substitution is possible. His illustration is Cobb-Douglas – all vintages have the same exponents and retain ex post the substitution possibilities open to them ex ante. However, once installed, the machines are immune to technical progress - it is not catching. Malleability: Solow thus retains malleability - 'butterness' - and embodiment both. >One-commodity model. Expected obsolescence (absent, of course, in the disembodied case, where all capital shares in the dispensation of grace) reduces social and private rates of return below the corresponding marginal products of capital as ordinarily measured but does not disturb, in the cases examined, their own equality one with another. 'The return to current saving is reduced by the fact that current saving adds less to future consumption-potential than next year's saving would.' (p. 62.)(8) 1. Solow, R. M. [1960] 'Investment and Technical Progress', Mathematical Methods in the Social Sciences 1959: Proceedings of the First Stanford Symposium, ed. by K. J. Arrow, S. Karlin, and P. Suppes (Stanford: Stanford University Press), pp. 89-104. 2. Wicksell, Knut [1934] Lectures on Political Economy, Vol. i (London: Routledge). 3. Meade, J. E. [1961] A Neoclassical Theory of Economic Growth (London: Allen and Unwin). 4. Robinson, Joan [1961a] 'Equilibrium Growth Models', American Economic Review, u, pp. 360-9. 5. Robinson, Joan [1965b] Collected Economic Papers, Vol. Ill (Oxford: Basil Blackwell). 6. Swan, T. W. [1956] 'Economic Growth and Capital Accumulation', Economic Record, xxxn, pp. 334-61. 7. Solow, R. M., Tobin, J., von Weizsacker, C. C. and Yaari, M. [1966] 'Neoclassical Growth with Fixed Factor Proportions', Review of Economic Studies, xxxm, pp. 79-115. 8. Solow, Robert M. [1963a] (Professor Dr. F. De Vries Lectures, 1963) Capital Theory and the Rate of Return (Amsterdam: North-Holland). _____________ Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.	Solow I Robert M. Solow A Contribution to the Theory of Economic Growth Cambridge 1956 Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972

Send Link

> Counter arguments against Solow

> Counter arguments in relation to Technical Progress

Authors A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Concepts A B C D E F G H I J K L M N O P Q R S T U V W X Y Z