Technical Change

A technical change is a term used in economics to describe a change in the amount of output produced from the same amount of inputs. A technical change is not necessarily technological as it might be organizational, or due to a change in a constraint such as regulation, input prices, or quantities of inputs.

It is possible to measure technical change as the change in output per unit of factor input.

In free-market economies, technological advances lead to increases in productivity, but at the expense of older, less-efficient means of production, creating a level of subjective risk for which the compensation (in theory) is the return on capital. This rate or return is a reflection of all of the perceived risks associated with the capital financing of the means of production, including technology risks. From a capital finance point of view, advances in technology are the classic definition of systemic market risk. The outflow of this condition is the "creative destruction" of a portion of the means of production as evidenced by businesses discontinuing the production of obsolete products and/or the cessation of business activities that are no longer profitable. In its purest form, capitalism entails a constant level of creative destruction of a portion of the means of production and the increase in Gross Domestic Product (GDP) of the subject economy reflects the growth after the losses due to economic obsolescence have been reconciled. Accordingly, increases in GDP provides a substantive measurement that demonstrates that capitalism does not in effect create an economic construct where one party can only make a gain at the expense of the other party (i.e.: if one party could only profit at the expense of another party, then it would be impossible to achieve any nominal growth in GDP).

The "natural process" of capitalism (including creative destruction) is the subject of great contention by adherents of other systems of macroeconomic organization who see the end-result of obsolescence as the creation of a permanent underclass that has an unequal level of access to capital investment, educational resources that are not necessarily of their own making, while others seek to create an equal outcome for disproportionate labor or capital inputs that have not as yet been able to demonstrate a viable model that can compete against free-market economies on a near-term or long-term basis.


Other articles related to "technical change, change, technical":

Nobuo Okishio - Some Propositions of Marxian Economics - Technical Change and The Rate of Profit
... In the paper “Technical Change and the Rate of Profit” in 1961 he presented famous Okishio Theorem ... arguments depend on several assumptions (1) the real wage rate is constant before and after the technical change, (2) the comparison is made about the equilibrium rate of ...
National Productivity - Multifactor Productivity - Accounting Procedure
... The formula of the MFP growth is as follows (Schreyer 2005,7) change of MFP = change of output (1.119) minus change of labour input x cost share of labour (1.150 ... above “MFP is often interpreted as the contribution to economic growth made by factors such as technical and organisational innovation” (OECD 2008,11) ... of Solow’s (1957) ”I am using the phrase ’technical change’ as a shorthand expression for any kind of shift in the production function ...
Giovanni Dosi - Economic Analysis - Technical Change
... In particular, he has suggested an interpretation of technical change resting on the concepts of technological paradigm and technological trajectory ... this sense, a technological paradigm entails strong prescriptions on the direction of technological change, that is the direction toward which future technical improvements will converge ... Such interpretation of technological change brings Dosi to identify a limited influence of market signals on the direction of technological change ...

Famous quotes containing the words change and/or technical:

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