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Technology and Economics. Three main resources are required for most types of production: 1. Natural Resources (forests, oceans, land, minerals, etc.) 2. Labor Resources (physical and intellectual capacities of human beings) 3. Technological Resources (tools, instruments, machines).

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Technology and Economics

Three main resources are required for most types of production:

1. Natural Resources (forests, oceans, land, minerals, etc.)

2. Labor Resources (physical and intellectual capacities of human beings)

3. Technological Resources (tools, instruments, machines)

  • Technology seems to be as old as humankind.
  • Every society and civilization seems to have utilized technology to some degree.
  • The use of technology is one defining characteristic of the human species, and one important way in which economic systems differ.

Technology and Economics, Part 1


Technology in Modern Society

art: canvas, paints, cameras, film.

graphical design: computers, design software, color laser printers.

music: instruments, recording gear, written music itself.

industry: assembly lines, robotic technology, computer clusters

food processing: ovens, microwaves, appliances.

medicine: life support systems, advanced monitoring equipment, laser-based surgery.

agriculture: irrigation systems, advanced farm equipment, genetically modified seeds.

  • Human beings use their physical and intellectual abilities together with technology to produce some type of creation, whether art, music, clothes, cars, food, health, agricultural produce, and so on.
  • Almost any human activity today seems to depend in some way on technology.

Technology and Economics, Part 1


Technology in Modern Society

The underlying issue seems to be not so much whether technology should be used in modern society, but to what end and purpose.

  • Even a small technological change can have a giant impact upon human life and social organization.
  • Example: air conditioning
  • One small change can set in motion important consequences in the rest of society: the Butterfly Effect.
  • What will be the ultimate societal impact of Genetically Modified (GM) foods or nanotechnology or neuroscientific brainscans?

Technology and Economics, Part 1


Modern Technology Defined

  • In modern society, technology often takes on a specialized and particular meaning: The practical application of science and scientific material to industrial or commercial objectives. In short, applying science to industry.
  • Science deals in part with understanding the external world, including the physical and chemical properties of matter, energy, and space. Technology thus involves applying these scientific understandings to modern industry and industrial pursuits.

Technology and Economics, Part 1


Technology and Economic Theory

  • Adam Smith really did not examine technology in Wealth of Nations.
  • Smith completes most of the Wealth of Nations by 1765, before the emergence of the British Industrial Revolution. Smith therefore missed most of the unprecedented technological advance that would define the next two centuries, and indeed modern society.
  • Malthus neglected technological change as well when he introduced his Malthusian Doctrine; Ricardo neglected technological change in his theory of Comparative Advantage.

Adam Smith creates a particular understanding of society and markets, called perfect competition:

(1) Large number of small firms in each industry.

(2) Each firm produces the same exact product: homogeneous output.

(3) No firm is large enough or powerful enough to control price: firms are price takers, not price makers.

Technology and Economics, Part 1


Technology and Economic Reality

  • In the real world, technology not only exists, it seems to be a central component of most economic activity.
  • Today, firms use new technology in the development of new products. They also use new technology to produce products in different and more efficient ways in order to gain market share and market power.
  • In short, firms seek to use new technology in part to gain a monopoly position in markets.
  • Most industries today are defined by innovation and technological change, and what has been called imperfect competition, where a small number of producers dominate industries: monopoly and oligopoly
  • Music Industry: Warner Music, EMI Group, Universal Music Group (UMG), Bertelsmann Music Group (BMG) and Sony.
  • Gasoline: BP, ExxonMobil, ChevronTexaco, Royal Dutch Shell, and ConocoPhillips
  • Carbonated Soft Drinks: Coca Cola, Pepsi, and Cadbury-Schweppes
  • Food Processing: ConAgra, Cargill, Archer Daniels Midland, Farmland

Technology and Economics, Part 1


Technology and Economic Theory

  • In the 1940s, Joseph Schumpeter begins to criticize the neoclassical understanding of technology.
  • Schumpeter argues that technology is an inherent part of modern society, and that technological change is an integral component of the modern economic system of industrial capitalism.
  • Technology is a source of change in modern society, a creative force that tends to destroy older ways and means of producing, as well as old and inefficient firms.
  • Schumpeter calls this process the 'perennial gale of creative destruction.'

Technology and Economics, Part 1


Technology and Economic Theory

  • Schumpeter, influenced by Marx, argues that competition between producers in modern society creates the underlying drive and impetus for new technology development.
  • (1) Driven by profit, firms constantly seek to create new products for consumers. This drive animates technological change in consumer markets and modern society itself.
  • Example: record playeràcassette playerà8-trackàCD playeràMP3 playeràiPod
  • (2) In addition, firms seek new methods or ways to create goods during the process of production in order to gain cost advantages and market power.
  • Example: manual labor à mechanized productionà assembly line à advanced robotics
  • Technological advance thus marks both CONSUMPTION and PRODUCTION in modern society.

Technology and Economics, Part 1


Technology and Economic Theory

  • Schumpeter and Marx argue that technological change can create concentration in industries, securing monopolies and oligopolies.
  • Companies that introduce new technology often realize an advantage over competitors. First, they can sell existing products for a cheaper price. Second, they can introduce entirely new products for which there is no existing competition.
  • Kleenex, Xerox, Jello, iPod
  • For Schumpeter and Marx, the economic system itself produces technological change and advance. Rapid technological change therefore has certain economic dimensions; it results in part from the operation of the modern economic system.
  • In short, rapid technological advance results from competition and the drive for profit that help define capitalism.

Technology and Economics, Part 1


Technology and Economic Theory

  • Thorstein Veblen also believed that technology lay at the heart of modern society.
  • Veblen argues that human beings are inherently creative, showing an inner desire to create something new. They desire to solve problems and realize objectives.
  • For Veblen, innovation and creative thinking are part of what it means to be human. Technological advance is not so much a product of the environment of industrial capitalism; in a way, modern industrial society is the product of innate technological advance and human creativity.
  • Example: Open-Source Movement: Linux
  • Veblen introduces new and interesting questions: Is technological change a result of the market system of profit-seeking, or the result of an inherent need that humans have to create?
  • Could profit-seeking even thwart human creativity? Some companies buy out competitors in order to keep their technology from reaching the market. Or develop technology that is then kept from the market. Others attempt to sabotage the technology of competing companies.
  • FUD (Fear, uncertainty and doubt). Microsoft and Google.

Technology and Economics, Part 1


Technology and Economic Policy

  • Technological advance seems to give some nations an economic advantage over other nations. Most modern nations therefore attempt to promote technological development via economic policy.
  • The encouragement of technological development is an important part of economic nationalism and the modern nation-state. The Internet.
  • Every society must obtain technology somehow, even societies that see technology as producing negative social outcomes.
  • Soviet Union and the Five Year Plan
  • North Korea and reverse engineering.

Technology and Economics, Part 1



Some sources of modern technological change:

1. Schumpeter. Creative Destruction: market competition induces technological change, creating new types of consumer goods, and new ways of producing goods. Advanced technology and technological change are products of industrial capitalism.

2. Veblen: Technological change is the result of innate human creativity, which at times may conflict with the activity of profit-maximization. Technological advance and pecuniary gain are two different processes.

3. Hamilton and List: State power and economic policies must seek to promote technological development. Economic policy provides needed support and guidance to technological change, thus securing national economic growth.

Technology and Economics, Part 1


The Social Impact of Technology

  • Feudalism begins to break down in part because of technological advance in medieval towns, and in agriculture.
  • By the 1450’s, technological change begins to reach other parts of European society
  • Gutenberg’s printing press provides an impetus for the scientific revolution that would follow.
  • The ideas of the new philosophers depended on the technology of Gutenberg’s printing press. And their new books and ideas were disseminated using the printing press, that is, a particular form of technology.

Technology and Economics, Part 1


Technology and Economic History

  • The Industrial Revolution itself begins in Great Britain with a technological breakthrough.
  • Production of clothing required introduction of the spinning jenny. Within that one invention, British industry could produce clothing in 1/374th the time that it took competitors, creating a great cost advantage for British producers.
  • This type of technological advance would mark the Industrial Revolution in Europe, the US, and Japan, including such examples as the assembly line and mass production. Such technological advance marks nearly all industries today.
  • Why are technological advances so effective in modern society? Often, new technology is labor-saving, and provides a way to reduce labor cost. Technology can be used to replace workers (or lower the wages of workers, as demand for skilled labor falls). Deskilling.

Technology and Economics, Part 1