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.