Emphasis on structural change as an essential element of long-run growth in capitalist economies since the Industrial Revolution is a main characteristic of Pasinetti’s scientific work. Technical progress is the main driver of structural change and economic growth. Pasinetti integrates structural change in economic analysis by considering the double-sided nature of technical change and the interaction between the supply side (growing productivity) and the demand side (increasing per-capita income) and the evolving structural dynamics of employment and consumption. The analysis is conducted on the basis of vertically integrated sectors which may differ in the growth rates of productivity and demand. In order to maintain full employment over time, an effective demand condition and a capital accumulation condition must be satisfied. In his modern theoretical analysis of Ricardo’s machinery problem Pasinetti shows that a continuous process of structural change is a precondition to avoid technological unemployment. Furthermore, full employment has to be actively pursued by an economic policy raising effective demand and promoting research and development thus combining the insights of Keynes and Schumpeter.

Capital, growth, and unemployment

Throughout his professional life John Hicks maintained a deep interest in capital theory, as is shown by his famous trilogy Value and Capital (1939a), Capital and Growth (1965), and Capital and Time (1973a). In his view, ‘[C]apital … is a very large subject, with many aspects; wherever one starts, it is hard to bring more than a few of them into view’ (1973a: v). In the third volume on capital the unemployment consequences of new technologies are at the very center of Hicks's analysis. Implicit in Capital and Time is the concept of the impulse, which is developed in his 1973 Nobel lecture ‘The Mainspring of Economic Growth’ (1973c), and particularly in the essay on ‘Industrialism’ (1977a: chap. 2). The mainspring of economic progress is invention, which causes an impulse that works its way through the profit mechanism. The investigation of the macroeconomic consequences of such impulses on output and employment is at the focus of the traverse – i.e. the analysis of an economy whose initial equilibrium is disturbed by a change in one of the determinants of growth, such as technical progress. The necessary adjustment path requires both time and costs; in other words, in traverse analysis it is historical time, and no longer logical time, that is decisive.

By the late 1960s Hicks had become fascinated by the Ricardo machinery effect – i.e. the employment consequences of a different, more mechanized method of production.

the americanization of economics

The growth of economics as an academic discipline following World War II was marked by an increasing internationalization that was simultaneously in large part a process of Americanization. Richard Portes has even asked “whether there is now any economics outside and independent of the United States. All the data confirm American leadership.” Although one could still speak of an Anglo-American leadership position for the period up to the end of the 1960s because of the enormous influence of John Maynard Keynes, post-Keynesian economists such as Roy Harrod and Nicolas Kaldor, as well as other English economists such as Sir John Hicks, James Meade, and Richard Stone, the influence of British economists has since shrunk to such an extent that America's leadership in economics is now beyond debate. The Nobel Prize for Economics, which has existed since 1969, has been awarded to American economists in twenty-eight out of forty-two cases. Recently, this has raised questions about the independence of European economic thought as well as about the similarities and differences between American and European economics.

Introduction

Within the analysis of multisectoral growth models emphasis has in the last two decades shifted to problems of structural change and technological unemployment. The analysis of an economy which originally has been in a steady-state equilibrium but which was disturbed by a change in one of the exogenous determinants of growth, such as technical progress, the supply of labour or natural resources, is one of the most challenging problems in economics. The investigation of the macroeconomic consequences of such disturbances and of the conditions that have to be fulfilled in order to bring the economy back to an equilibrium growth path, is at the centre of traverse analysis, which ‘is the easiest part of skiing, but the hardest part of economics’. Although traverse analysis is linked with equilibrium growth which it takes as a starting point, in contrast to long-run balanced growth analysis it is a short- or medium-run analysis which marks an important step forward in coping with the dynamic nature of the problems and thus rejuvenating growth theory by liberating it from the overall preoccupation with steady-state growth paths. Pioneers in the field of traverse analysis are Adolph Lowe (1976) and John Hicks (1965, 1973) who in chapter 16 of his Capital and Growth was the first to formally define a traverse.