An Explanation of Economic Change and Development

The contribution to the explanation of economic change that this paper sets out is centered on a core of interconnected endogenous variables, mainly innovation, radical uncertainty and entrepreneurship, which current economic analyses consider only in part and separately, sometimes as endogenous but for the most as exogenous. The article (and the formalized model) suppose that the functioning of the economy is not disturbed by the operation of pathological factors mainly concerning public sector, as largely happens in current time, for instance: excessive public debt and public deficit; great inefficiencies and wastes in public sector and administration, and hence high taxation; inefficiencies, slowness and arbitrariness of judicial power; diffused organized criminality; financial capital operating, mainly at the international level, as master instead of servant of production, that is, largely devoted to speculation. A proper and efficient operation of the economy needs that those anomalies are absent. We attempt to explain economic change and development with regard to modern dynamic economies where the above pathologies have been removed. This supposition would be strengthened by the reduction of the model to only ‘necessary’ variables, as devised in sub-section 3.1.2 The theoretical frame of the proposed explanation is a dynamic competitive process: that is, a competition based not merely on prices but also put into action by entrepreneurs’ search for opportunities of profit attached to successful innovations, which generate profits through temporary monopolies and also engender disequilibria and radical uncertainty that will provide additional opportunities of profit. This dynamic competitive process is a great agent of economic change and evolutionary motion. As a first stage approximation, it can be thought of as a combination of Schumpeterian innovative entrepreneurship and action with the neo-Austrian market process and entrepreneurship: a combination describing the advent of innovations and the ...