Technological Disturbances

A deeper complexity involves technological change, Historical studies show that inventions and discoveries raise the return on capital and thereby affect equilibrium interest rates. Indeed, the tendency toward falling interest rates via diminishing returns has been’ just about canceled out by inventions and technological progress.

Some economists (such as Joseph Schumpeter) have likened the investment process to a plucked string In a world of unchanging technology, the string gradually comes to rest as capital accumulation drives down returns on capital. But before the economy has settled into a steady state, an outside event or invention comes along to pluck the suing
and ‘set the forces of investment in motion again.

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