On the Reappraisal of Microeconomics

On the Reappraisal of Microeconomics

Economic Growth and Change in a Material World

Robert U. Ayres and Katalin Martinás

The conventional utility-based approach to microeconomics is now nearly a century old and although frequently criticised, it has yet to be replaced. On the Reappraisal of Microeconomics offers an alternative approach that overcomes most of the objections to orthodox theory, whilst offering some unique additional advantages.

Chapter 8: The Drivers of Long-Term Growth: Knowledge, Technological Change and Radical Innovation

Robert U. Ayres and Katalin Martinás

Subjects: economics and finance, evolutionary economics, environment, ecological economics

Extract

8.1 INTRODUCTION In the previous chapters of this book we have articulated in some detail how individuals (and firms) belonging to the subspecies H. Economicus constantly try to increase their wealth, subject to the AAL rule. The last chapter discussed the problem of aggregation, and the transition from a microeconomic focus to a macroeconomic focus on the system as a whole. However, while technical progress is, in some sense, a reflection of additions to human knowledge, and while learning and adaptation, in particular, take place at the level of individual economic agents, it is not possible to treat technical progress at the system level as an aggregation of small increments to knowledge. The core problem is that, in fact, learning and incremental change do not explain radical innovations that change the structure of the economy. Improvements in gas light did not, and could not, explain the advent of electric light. Nor did Edison’s incandescent electric light with its DC generator necessarily bring forth Tesla’s inductive motor and the three-phase power distribution system, the Hall-Heroult electrolytic process for making aluminum, or Moissan’s electric furnace; nor did these breakthroughs necessitate Marconi’s radio-telegraph, the vacuum tube diode, the superheterodyne circuit, TV or the ENIAC electronic computer. These subsequent developments can be regarded, however, as ‘spillovers’ from Edison’s innovation. Similarly, the vacuum tube did not evolve into a transistor, nor did the abacus or the mechanical calculator morph into an electronic computer, and the applications that followed. But the latter are spillovers that...

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