Technology and Growth in a Fixed Physical World

In the conventional neoclassical growth model, technical change is generally characterized as “purely labor-augmenting,” a restriction that limits modern civilization to super-humans living in the Stone Age. As a novel and radical departure from conventional growth theory, the model developed in this paper seeks to remedy this “disturbing” state of affairs. Acknowledging the Earth's fixed supply of physical matter, thereby requiring both physical and human advance to build on upon a fixed physical platform – the Earth – the model creates a pathway for economic growth to transpire through both physical- and human-augmenting technical change. Technical change in a fixed physical world, in turn, requires Schumpeterian creative destruction in which new vintages of technology-augmented matter displace obsolete vintages, both physical and human, one-for-one. The model endogenizes technical change by engaging savings and investment as the key drivers of human invention and its diffusion across the stocks of both human and physical capital. In addition to contributing to growth theory, this paper serves to bridge structural divides between growth theory, development economics, and growth accounting