Economics Dictionary of ArgumentsHome
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| 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. | |||
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Luigi Pasinetti on Technical Progress - Dictionary of Arguments
Harcourt I 168 Technical progress/Pasinetti/Harcourt: Nearness of techniques as assessed by the rate of profits at which they are most profitable may tell us nothing at all about how close (or far apart) are their values of capital or outputs per head. And - most damaging of all for RF2 as a surrogate for a well-behaved physical rate of return, i.e. a marginal product which declines as the value of capital increases - the difference (r - p(r)) may become indifferently positive or negative at any level of the rate of profits, so losing the properties of a physical rate of return. For RF1 and RF2 see >Rate of return/Pasinetti. Harcourt I 159 a) The first is the rate of interest at which two techniques (options, projects, going concerns, economic systems) are equi-profitable, i.e. that rate of interest which when used as the discount factor equalises the present values of two alternative streams of expected receipts (Fisherian incomes) and expenditures - call it RF1. >Irving Fisher. b) The second relates to the ratio of the expected increase in perpetuity in the production of a commodity to the withdrawal from consumption or other uses of the present annual flow of the commodity, the withdrawal or sacrifice being needed to make the investment that will make the increase in production possible. (RF2) >Surrogate production function, >Rate of profit, >Rate of return/Economic theories, >Capital reversing, >Reswitching. Harcourt I 168 These results are as applicable to the industry case as to the economy one, as Garegnani has shown, thus providing an answer (but perhaps not the answer) to Samuelson's plea for an analysis based on microeconomic relationships, (…) . Pasinetti's(1) conclusions led him to add: „Continuity in the variation of techniques, as the rate of profits changes, does not imply continuity in the variation of values of capital goods per man and of net outputs per man [which] seems to reveal capital theory as a field unsuitable to the application of calculus and infinitesimal analysis, and thus of marginal analysis.“ (p. 523.) Depending, as RF2 does, on predetermined prices which are taken as given, it serves as an aid to the choice of technique. But it cannot be used as the base on which to build 'the physical or technical or productivity side' of a theory of the rate of profits itself. And, as we have seen, RFi is an accounting definition which is consistent with but may not (help to) explain any theory of the rate of profits. Solow: (…) [1967](2) analysed the case where RF1 and RF2 coincided, so laying himself open to the charge that he had shown that at the rate of profits at which two economic systems (techniques) are equi-profitable, that is the rate of profits at which they are so: see Pasinetti [1969](1), pp. 525-6. Solow's analysis reflects the fact that at switch points investment in either technique yields by definition a rate of return equal to the switch-point rate of profits, which is also the rate of profits at which prices have been computed. (That is why the techniques are equi-profitable.) RF2 is thus assured in this case of equalling r, as it equals RF1. Harcourt: We might perhaps sum up the argument to this point as follows: at a switch point, dq/dk = r by definition and regardless of the shapes of the w-r relationships involved. However, on Pasinetti's interpretation, dq/dK is not the traditional marginal product of capital. Haarcourt I 169 If we assume that r = dq/dk, we then imply (…) that k = -dw/dr which requires that the vv-r relationships be straight lines. If they are not, dq/dk not = r, essentially because we encounter revaluation puzzles associated with changes in r and relative prices. This is so whether we consider a given w-r relationship, or the change from one to another, i.e. movements along the envelope, each point being the most profitable at its own value of r and therefore associated with its own set of relative prices, with the differences in the values of r being the infinitesimal increment, dr. It is the implications of these revaluations which both the switch-point comparisons and the neoclassical procedure of concentrating on notional changes at a point, with its given constant equilibrium prices, seek to avoid. 1. Pasinetti, L. L. [1969] 'Switches of Technique and the "Rate of Return" in Capital Theory', Economic Journal, LXXIX, pp. 508-31. 2. Solow, R. M. [1967] 'The Interest Rate and Transition between Techniques', Socialism, Capitalism and Economic Growth, Essays presented to Maurice Dobb, ed. by C. H. Feinstein (Cambridge: Cambridge University Press), pp. 30-9._____________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. |
Pasinetti I Luigi L. Pasinetti Structural Change and Economic Growth: A Theoretical Essay on the Dynamics of the Wealth of Nations Cambridge 1983 Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 |
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> Counter arguments against Pasinetti
> Counter arguments in relation to Technical Progress
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