The Dynamics of Capitalism – Harvard University Working Paper

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The Dynamics of Capitalism Faculty Research Working Paper Series F.M. Scherer Harvard Kennedy School January 2010

Two centuries of extraordinary economic growth in capitalist societies are outlined in a compelling Harvard Kennedy School Working Paper authored by Professor emeritus F.M. Scherer.

“The Dynamics of Capitalism” offers an historical perspective of the roots and consequences of free market economic systems in the United States, the UK, France, Japan and other nations where public policy has promoted classic capitalist principles.

On the macroeconomic level Scherer argues that capitalistic societies in general have achieved sustained increases in their annual gross domestic products (GDPs) as innovation begat efficiencies in production which, in turn, transformed a primarily agricultural economy into a manufacturing and service economy.

Improved technologies, Scherer argues, have resulted in increased product supply, subsequently leading to increased consumer demand, fueling further economic growth and increased prosperity for workers.

“The average U.S. manufacturing worker of 2005 enjoyed a real wage 4.3 times that of his 1890 counterpart,” Scherer writes. “Nor did a reserve army of the unemployed allow employers to extract longer working hours from their workers. Between 1890 and 2005, the average work week in manufacturing dropped from 54 to 40.7 hours.”

Scherer concludes that while capitalism is “not without problems… it is hard to conceive of a practical economic system exhibiting superior dynamic performance, notably, in the opportunity and incentive free markets provide to capitalistic entrepreneurs for technological innovation — more efficient production processes, new products conferring superior consumer utility, and better methods of business organization — which in turn has raised living standards by astonishing amounts.”

F.M. Scherer is professor of public policy and corporate management in the Aetna Chair emeritus at Harvard Kennedy School. From 1974 to 1976, he was chief economist at the Federal Trade Commission. His research specialties are industrial economics and the economics of technological change.

The Dynamics of Capitalism – LINK TO WORKING PAPER

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