Endogenous Technical Progress in the Theory of Economic Growth

It is shown that substitutive work, which can be defined as work of production equipment (capital stock) replacing the efforts of workers in production processes, can be considered as a measure of technical progress. The methods of estimation of substitutive work are discussed. The theoretical results are illustrated on the data for the US. economy. 1. Introduction The theory of economic growth tries to connect the magnitude of gross domestic product (GDP), which is a measure of current achievements of an economy as a whole—a money measure of a multitude of things and services—created by society for unit of time [1], with some universal, basic factors, called production factors. In other words, one can say that the aim of the theory is to separate original sources of wealth. The most important production factor is labour, which, in our days, is considered as the sum of the efforts of all workers, participating in the production of things and services. The labour theory of value, due to Adam Smith, Karl Marx, and David Ricardo, considered labour as the only production factor, but it has appeared that, to account for the effect of the enlargement of output with introduction of production equipment, about which we think as a collection of animals, machines, buildings, roads, harbours, pipelines, and so on, something else ought to be added into the theory. In the beginning of the last century, it was a fundamental problem of economic theory, which has required a generalisation of labour theory of value. A hypothesis was declared: the amount of capital stock itself is a source of enlargement, so that output can be considered as a function of two variables: labour and capital : This simple approach appears to be a foundation of the conventional neoclassical interpretation of economic development [2, 3]. Capital stock is measured in money units, whereas labour is measured as a number of workers or a number of working hours per year. Having an energy estimate of efforts, which are spent by a worker for a unit of time, it is possible and convenient to count labour in energy units per year. The fundamental property of the approach (1) is that the two production factors: labour and capital , can substitute for each other without limit during the development of production system. To the middle of the last century it was recognised that the theory in the simple classic form, independent of the specific form of the function (1), leaves no place for technical progress, which, nevertheless, was believed to be the ultimate source of economic growth in developed