Diffusion of a new intermediate product in a simple ‘classical-Schumpeterian’ model

Abstract

This paper deals with the problem of new intermediate products within a simple model, where production is circular and goods enter into the production of other goods. It studies the process by which the new good is absorbed into the economy and the structural transformation that goes with it. By means of a long-period method the forces of structural transformation are examined, in particular the shift of existing means of production towards the innovation and the mechanism of differential growth in terms of alternative techniques and their associated systems of production. We treat two important Schumpeterian topics: the question of technological unemployment and the problem of ‘forced saving’ and the related problem of an involuntary reduction of real consumption per capita. It is shown that both phenomena are potential by-products of the transformation process.