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The Tale of Two Traverses: Innovation and Accumulation in the First Two Centuries of U.S. Economic Growth (Replaced by 05-022)

Mar 2004
Working Paper
03-024
By  Paul A. David

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 non-neutrality 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.

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paul david
paul a. david