Economic Theory Discussion on Embodied vs. Disembodied Growth

investment. A policy to increase investment would thus lead not only to higher capital intensity, which might not matter much, but also a faster transfer of new technology into actual production, which would. Steady-state growth would not be affected, but intermediate-run transitions would, and those should be observable. That idea seemed to correspond to common sense, and it still does. By 1958 I was able to produce a model that allowed for the embodiment effect. ... If common sense was right, the embodiment model should have fit the facts better than the earlier one. But it did not. Dension (1985) , whose judgment I respect, came to the conclusion that there was no explanatory value in the embodiment idea. I do not know if that find should be described as a paradox, but it was at least a puzzle. Edward Denison was another leading growth economist Solow consulted. Remember that Solow had defined disembodied growth to mean better use of existing assets, as when ships carrying coal to Newcastle are inspired to reverse the business plan. It is easy to see how disembodied growth could come more or less for free. But Solow puzzled how embodied growth, which needs “new and different capital equipment,” could arrive without “ a policy to increase investment.” It can for the same reason that Achilles can overtake the tortoise. Solow’s problem, | think, may have been that new and different capital equipment stands to embodied novelty as a new and different chicken laying a new and different egg. We can see how the different capital might come first through saving from consumption deferment. And it seems clear that the embodied novelty could not. But one of the beauties of calculus is that it allows chicken and egg to evolve simultaneously. Neither novelty precedes the other at the instant of first embodiment. This time it is Newton and Leibnitz to the rescue, along with the trusty Gunnar Myrdal, if 1 guess right about Solow’s misgivings. Since he understands calculus and Myrdal far better than I do, I may guess wrong. So let me try another way. It seems to me that embodied growth is still disembodied growth at a finer and more basic Chapter 4 Mill’s Idea 1/11/16 24 HOUSE_OVERSIGHT_011015