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The Tale of Two Traverses: Innovation and Accumulation in the First Two Centuries of U.S. Economic Growth

  • Paul A. David

    ()

    (Stanford University & the University of Oxford)

Both the macroeconomic and the microeconomic evidence from U. S. economy’s experience over the past two centuries leads to a view of technological change (broadly conceived) as having not been “neutral” in its effects upon growth. The specific meaning of “non-neutrality” in this context is that technical and organizational innovation had effects upon the derived demands for factors of production, and these tended to alter the relative prices of the heterogeneous array of productive assets in the economy. By directly and indirectly impinging on relative real rates of remuneration established in the markets for particular types of human labor and skill, and for the services of specific tangible and intangible capital, “technological change” altered key conditions governing the absolute and relative growth rates of the various macroeconomic factors of production. On the other hand, because innovation exhibited strong cumulative features reflecting the influence of “localized learning,” past domestic factor market conditions exerted a persisting influence upon the globally non-neutral trajectory of American technological and organizational development. This essay thus explores two broad and related historical themes. Firstly, the nonneutrality of the impacts of innovations on the demand side of the markets for productive inputs implies that “innovation” should be understood as contributing to complex interactions among all the proximate “sources of growth.” Even though the latter are usually presented by exercises in “growth accounting” as distinct and separate dynamic elements contributing to the rise of labor productivity and per capita real output, the identification of the total factor productivity “residual” as the “contribution” of technological change is mistaken in ignoring the quantitatively important effect of successive capital-deepening “traverses” to the growth of labor productivity. The second theme underscores a fundamental contrast between the twentieth and the nineteenth century growth processes, in regard to the impacts of the predominant “bias” of the direction of innovation: the relative shift away from the accumulation of stocks of tangible reproducible capital and towards the formation of intangible productive assets by in investments in education, training and the search for new scientific and technological knowledge.

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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 05-022.

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Date of creation: Dec 2005
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Handle: RePEc:sip:dpaper:05-022
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