Eggertsson, Thráinn --- "The Unbearable Lightness of A – Useful Knowledge and Economic Growth" [2011] ELECD 238; in Zumbansen, Peer; Calliess, Gralf-Peter (eds), "Law, Economics and Evolutionary Theory" (Edward Elgar Publishing, 2011)

Book Title: Law, Economics and Evolutionary Theory

Editor(s): Zumbansen, Peer; Calliess, Gralf-Peter

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848448230

Section: Chapter 2

Section Title: The Unbearable Lightness of A – Useful Knowledge and Economic Growth

Author(s): Eggertsson, Thráinn

Number of pages: 14

Extract:

2. The unbearable lightness of A ­ useful
knowledge and economic growth
Thráinn Eggertsson

1. INTRODUCTION

Economists usually sing with the same hymn sheet when they are questioned about the
role of technology in economic growth. They generally agree that sustained long-term
growth in productivity, which began in Western Europe some two centuries ago, could
not have been maintained in an environment of stagnant production technologies.
Whether we consult Karl Heinrich Marx, Joseph Alois Schumpeter or Robert Merton
Solow, the answer is the same: new technologies are the source of long-term economic
growth. Economists, as we know, usually argue that the production and utilization of
new technologies depend critically on appropriate social institutions, such as competi-
tion, decentralized markets, secure property rights, enforceable contracts, and norms of
trust and reciprocity. Yet virtually no one argues that long-term growth in output per
worker is possible in an economy with stationary production techniques.1
In his pioneering contribution to modern (neo-classical) growth theory, Solow (1956;
1957) uses the letter A to represent technology. Specifically, in Solow-type growth models
the letter A symbolizes the stock of technology, which for convenience is assumed to
increase with time at a fixed rate. The exogenous increase in A is assumed to be labor
saving, which means that technical change makes it possible to produce a given level of
output by using fewer labor units than before and the same amount of capital. In equa-
tion (1) y, average output per capita ...