I’ve mentioned this paper by the legendary Nate Rosenberg before on this site, but I’ve recently reread it and want to discuss in slightly more depth. The problem is the following: why do firms and inventors choose to invent what they do? A classic argument appearing throughout the 1800s and early 1900s is that firms try to invent labor-saving technology when labor is dear, and likewise when capital is dear. But Samuelson (aka the GOAT), among others, points out that this argument is wrong. In equilibrium, factors are used until the price of the factor equals marginal factor productivity, so there is no sense in which a factor can be “more expensive” than any other factor. Even out of equilibrium, firms increase by profits by lowering costs, full stop, and it does not matter how those costs are lowered.
Problematically, both (wrong) intuition and many, many statements by inventors…
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