Quarterly Journal of Austrian Economics
Review of The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism by William J. Baumol
Volume 7, No.1 (Spring 2004)
The fundamental idea behind this book, as its title suggests, is that innovation is the driving force behind the remarkable growth miracle of capitalism. Yet, Baumol notes, innovation is at best a peripheral part of the standard theory of the firm and has received only slightly more attention in modern growth theory. Many of the basic ideas in this book are based on Schumpeter’s work, and Baumol cites Schumpeter frequently. Baumol also draws on his first-hand experience in consulting work, and discussions with corporate decision-makers, for insights on the way that firms actually do behave in a competitive environment. The result is a theory of economic growth substantially more insightful than the reigning neoclassical growth theory. Still, Baumol is quite reluctant to find fault with contemporary growth theory. He praises the work of Romer, Lucas, and others, but says that he is interested in different questions.
Cite This Article
Holcombe, Randall G. "Review of The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism by William J. Baumol." The Quarterly Journal of Austrian Economics 7, No. 1 (Spring 2004): 79–84.