In writing this paper, i need to focus on a question. The literature is wide, interesting, yet frustatingly rambling. Thats understandable. It is the task of the writer to take all of these elements and tell a cohesive story.
There is one a central fact vital in the history of economic growth:From the beginning of recorded history until the 18th century, output per person in countries in the world [specifically england, but this can be generalized] is negatively related to population. Specifically, this rapid growth appears to start around 1760, but explodes around 1860.
Higher incomes in this period is also associated with the rise of manufacturing and the decline of agriculture in the economy (share of output). This is why this has been called the Industrial Revolution.
Modern Growth theory says that Investment in the stock of production knowledge is the key to ever increasing incomes. The big question is: why did such investment not happen before; or if it did, why did it fail to create increasing incomes we have witnessed for almost 200 years.
This question is one of the most important questions in economics. Tantalizingly, it remains a mystery.
The phrase ‘production knowledge’ is key here — how have societies been able to marshall labor power in ever more productive ways?
This is not the same question that many other people pursue. Other people have asked about the question of incentives: since incentives matter, it is imperative to know how this knowledge generation is incentivized. And if it is knowledge that cannot be completely appropriated, then there must be some sort of externality — what is the nature of this externality?
Out of the first concern come the arguments for intellectual property and innovation, out of the second derive some of the literature on endogenous growth. Needless to say, elements from both concerns might also be operating simultaneously.
My next concern is the nature of one of the major characters in the drama of modern growth: firms. Old treatment of the theory of the firm talk about a black box of despotism in a sea of the free market. [note: whose quote is this? ] A firm is a Cost Function with an assumed shape. A firm is a faceless technology, whose only purpose is to maximize profit. Let this firm interact with other firms, under different conditions – and you get results on prices and outputs in an economy. Larger questions of what the definitions of market and industry are largely ignored. Within an industry, firm dynamics are simple: entry occurs until profits are driven to zero.
One of the major problems of this old literature is that ‘between industry’ dynamics are also ignored. Industries exist by assumption. Industries are different from each other in certain, parameterized ways: i.e. some industries have higher fixed costs than others, some are more regulated, etc. New industries are assumed to be born; they don’t rise endogenously. Much of this stems from the lack of a good definition for industry/market. The absence of a definition implies an inability to model it.
Newer versions of the theory talk about the definition of a firm. This is again a large and voluminous literature, that showcases the firm as a contractual arrangement, from Williamson. this highlights the dangers of opportunism in long-run relationships, and that long-run contracts — firms — are written to circumvent them. A related view of the firm says that a firm is an incomplete contract. The incompleteness of it gives one party the power to influence how resources are allocated and effort incentivized.
There is a less popular approach to defining a firm that neoclassical theory has neglected — the entrepreneur. Again, problems of definitions plague the literature, and the absence of a groundbreaking theoretical technique has stymied its popular use. [note to self: this is kinda similar to one of my conclusions!]
Moving forward, the critical questions to be asked are: what is an entrepreneur? (i.e. definitions by Schumpeter, Kirzner, Baumol, et al.) and how does this agent bring about sustained growth in productive knowledge? In addition, the entrepreneur concept must highlight the dynamics and transitions that characterize economies everywhere. Specifically, a theory of entrepreneurship must be consistent with the stylized fact on growth mentioned at the start.
Another way of stating things is: how do capitalist societies come to be? What are the forces that underlie such dramatic changes in an economies structure? What role do entrepreneurs/firms play in the propagation and the creation of these forces?
Posted by outinfour 
Posted by outinfour 
Posted by outinfour 