Technical change
Encyclopedia
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.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
to describe a change in the amount of output
Output
Output is the term denoting either an exit or changes which exit a system and which activate/modify a process. It is an abstract concept, used in the modeling, system design and system exploitation.-In control theory:...
produced from the same amount of inputs. A technical change is not necessarily technological
Technological change
Technological change is a term that is used to describe the overall process of invention, innovation and diffusion of technology or processes. The term is synonymous with technological development, technological achievement, and technological progress...
as it might be organizational, or due to a change in a constraint such as regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, 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
Creative destruction
Creative destruction is a term originally derived from Marxist economic theory which refers to the linked processes of the accumulation and annihilation of wealth under capitalism. These processes were first described in The Communist Manifesto and were expanded in Marx's Grundrisse and "Volume...
" 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
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
(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.