ABSTRACT
The understanding of the endogeneity of technological change is the primary element of the classical legacy. Adam Smith and Karl Marx analyse technological change and technological knowledge as the cause and the consequence of the economic process. Technological change is generated within the economic system and is determined by economic action. Technological change is one of the main types of economic action. In turn technological change has effects on the economic process. The interaction between all changes in product and factor markets in terms of quantities and prices and all changes about the state of technological knowledge and the introduction of new technologies is the prime engine of a restless dynamics (Day, 1983). The classical legacy provides three different and yet consistent models about the working of the endogenous change of technology. Adam Smith puts the emphasis on the role of demand, as the pulling factor of the division of labour and hence of the generation of new technological knowledge and the eventual introduction of new technologies. Karl Marx stresses the role of factor prices and more broadly of substitution mechanisms in inducing technological change. The classical legacy is further enriched by the contributions of Joseph Schumpeter and Alfred Marshall so as to form a dynamic legacy. Alfred Marshall develops the approach of Adam Smith in the analysis of technological change as an endogenous process that is the cause and the consequence of the division of labour, with two important contributions: the role of knowledge in determining the variety of firms that confront each other in the marketplace; and their intrinsic complementarity with respect to the generation and exploitation of technological knowledge. Joseph Schumpeter calls attention to the dual relationship between innovation and competition, stressing both the role of innovation in the working of competition among heterogeneous firms in the markets for products and the role of competition in inducing a continual flow of innovations. These mechanisms deserve careful examination.
