Chapter 10: Classification of Technical Change
Robert Dixon Technical change can be thought of as a situation where the same output can be produced with less of one or more of the inputs or, what amounts to the same thing, where more output can be produced from the same inputs. Since ‘technical progress shifts the entire production function, an index-number type problem arises in deciding which point on the old production function to compare with which point on the new one’ (Hahn and Matthews, 1964, p. 825). This problem has led to the formulation of a number of alternative classifications of technical change. In his study of wages and the functional distribution of income, Hicks (1932, pp. 121–127) followed Pigou (see for example 1932, p. 674f) in making a distinction between labour saving, capital saving and neutral inventions. Hicks writes: If we concentrate on two groups of factors, labour and capital, and suppose them to exhaust the list, then we can classify inventions according as their initial effects are to increase, leave unchanged or diminish the ratio of the marginal product of capital to that of labour. We may call these inventions ‘labour saving’, ‘neutral’ and ‘capital saving’ respectively. Labour saving inventions increase the marginal product of capital more than they increase the marginal product of labour; capital saving inventions increase the marginal product of labour more than they increase the marginal product of capital; neutral inventions increase both in the same proportion (Hicks, 1932, p. 121f). Clearly these definitions are meant to be read...
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