I got your attention with this one, right? To be completely serious, though, I noticed a reference to the manifesto in an essay by the great innovation scholar Nate Rosenberg. It turns out that, in between paeans to the workers of the world and the laid seeds of future far left infighting, Marx and Engels propose an interesting, and not obviously wrong, explanation for why firms innovate.
Before getting there, though, we should note why firms don’t innovate. A very common argument, which I’ve seen tossed offhand in many economics articles and more general works of social science, is that firms innovate on process in response to the high cost of one of their factors. For instance, firms with high labor costs invest in developing innovations which replace labor with capital; indeed, this (wrong) argument is advanced later by Marx in Capital. If you want to know the efficacy of an argument in economics, though, it’s best to apply the Samuelson Rule: what would Paul Samuelson think of the argument? (You may prefer Arrow Rules or Myerson Rules, of course.) Samuelson actually wrote about this very problem, making a very simple argument. Cost minimization on the part of a firm implies that marginal factor productivity equals marginal factor cost. Because of this, there is no such thing as “relatively expensive” factor inputs. So surely this explanation of innovation is wrong. What’s great is that the argument relies on cost minimization: it is valid even if firms are not profit maximizers, and even if some factor is supplied monopsonistically.
But back to the Manifesto. Marx and Engels argue, of course, that the capitalist system spring up when a class -the bourgeoisie – emerge at the end of Europe’s feudal era; why this happens only in Europe has been discussed, of course, by many authors, from Wittfogel’s Oriental Despotism in the 1950s up to Greg Clark’s recent book. Once that class of capitalists emerges, the interests of the “ruling class” are aligned with developing new technology, rather than with preserving “the old modes of production in unaltered form” as was the case with feudal production. Therefore, technological production in early capitalist Europe was much more rapid that at other locations and times in history.
My knowledge of the history here is too deficient to judge how important was, relatively, the incentive of a capital-owning class vis-a-vis Enlightenment-driven changes in the scientific process, or legal institutions which limited the capriciousness of government; indeed, there is a lot of endogeneity involved in such a question. In any case, I’d like to see a more formal modeling of the link between the industrial revolution and shift in incentives among labor and capital owners.
http://www.gutenberg.org/cache/epub/61/pg61.html (The Communist Manifesto is short, so why not have a glance? The Rosenberg essay I mention is “The historiography of technical progress” from his book “Inside the Black Box”; an incomplete version at Google Books is here: http://books.google.com/books?id=GSyGBicq1NIC&pg=PA3&lpg=PA3.
A Fine Theorem 
Interesting topic. But the Samuelson critique is of the induced innovation hypothesis, i.e. of the idea that technological progress would be labor-saving in labor scarce environments, but the Marx you cite seems to point to technological change in general.
I’ve always understood the marxist idea as follows (crudely). The feudal lord derives income from a land rent and from exploiting attached labor. Lords are interested in keeping labor trapped on their manors and they would rationally oppose technological innovation in cities/manufacturing (as well as relaxation in barriers to mobility) or anything else that would raise the peasant laborer’s opportunity cost of remaining captive. Such innovation would threaten or undermine the “relations of production” (system of property rights) that was in the best interest of the lords and establish new urban interests interested in hiring/exploiting the same labor force.
From the standpoint of the rising Bourgeoisie (owners of capital) the existing relations”of production act as a fetter”” to their advancement. They want to challenge the existing barriers to mobility in order to gain access to that labor force and, Marx would probably emphasize, they’re also interested in stopping the freed peasantry from gaining access to land (hence enclosures of the commons and other general dispossesions).
In short the story would be that technological progress is being held back because it threatens to undermine the interests of the entrenched elites. Where the rising bourgeoisie break through and prevail in their struggle with landlords there should be a burst of new technological innovation.
That’s my crude version, here is Marx famously on (I think) the same point (from Preface to a Contribution to the Critique of Political Economy). My comments in brackets :
“At a certain stage of development, the material productive forces of society [READ: CHANGING TECHNOLOGIES] come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.
http://www.marxists.org/archive/marx/works/1859/critique-pol-economy/preface.htm
In this story technological innovation is partly an autonomous process driving new tensions and struggles as new potential opportunities for some (threats for others) are uncovered but where political struggle leads to new system of property rights better adapted to exploit those new technological revolutions, you might in turn then see a new wave of innovation.
Although modern political economists like Acemoglu and Robinson and others don’t label themselves marxists the ideas in papers such as “Political Losers as a barrier to economic development” seem aimed to capture elements of the above. Or take Moav and Galor’s “Das Human Capital” which though ostensibly claiming to challenge Marx’s ultimate prediction of a confrontation between labor and capital, ends up modeling (with a simple specific factor model) the same basic idea that landlords would oppose the development of public education or any form of technological change or accumulation that would raise demand for labor in the cities, and hence lower the rents to specific land (or other priviliges) in rural areas.
Agreed. I think it’s important, though, that 1848 Marx poses a slightly different argument from Capital Marx and Critique Marx. The argument you discuss above is about what happens when feudalism breaks down. 1848 Marx goes further, and argues that the class of capitalists themselves, even after manors are long gone, still has a motivation to innovate.
“The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society…Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones…All that is solid melts away.” A more complete development of this idea would have been useful, I think.
Interesting passage. I don’t know enough Marx to know the context well enough but isn’t the simplest interpretation just the classical/neo-classical one that diminishing marginal product of capital (***) leads capitalists/entrepreneurs to search for higher returns by investing in new markets and/or technological search.
Of course if the interpretation is this mundane then it doesn’t really point to any major marxist insight on the path of technological change (other than the one I alluded to above which is a very popular/modern one in economics: better institutions (less fetters) give you more accumulation, trade and growth. Of course Marx saw this progress as growing the pie but also leading to a final confrontation between workers and capitalists whereas modern political economy doesn’t see any such grand confrontation looming and simply emphasizes the role of institutions in leading to better or worse economic growth and political outcomes.
*** marxists talk of tendency of the rate of profit to fall” http://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall a concept I never really understood nor was very convinced by.
Glad to know that you are engaged with some grand and classic texts as well as being able to delve into the minutiae of the latest proofs in JET. A rare combination of talents and interests.
If a firm experienced a negative cost shock, its MPK may not equal its MPL, so it would innovate to bring the two in line once again.
In your example, if the cost of capital dropped for some reason then the firm would be wise to innovate toward a more capital-intensive process. Samuelson’s equilibrium analysis is silly.