Economic Theory and Technical Progress

The Economist profession's interest in technical progress follows upon a widespread feeling of inadequacy of current economic theory. The paper traces the origin of this inadequacy back to the historical circumstances that led an influential group of English economists in 1815 to put forward the 'law of diminishing returns' to land cultivation, jointly with the theory of rent. It shows how technical progress, though not denied in principle, was eliminated by assumption for analytical purposes. That choice arose from historical circumstances specific to a particular country in a particular time. Yet, it influenced the development of economic theory ever since. The paper argues in favour of going back to the origin and reversing the Classical choice. [Given as the "Economic Issues Lecture" to the Royal Economic Society Annual Conference, Nottingham, England, March 31, 1999]