Endogenous Forces in 20th Century America

The starting point of this paper is Paul Romer's influential paper, “Endogenous Technological Change” [Journal of Political Economy, 1990]. A basic premise of that paper is that “… technological change arises in large part because of intentional actions taken by people who respond to market incentives. Thus the model is one of endogenous rather than exogenous technological change.”

This paper starts from the same premise as Romer, but it is more radical and it draws upon history rather than model building. In Romer's model, technological change is endogenous but the growth of knowledge remains exogenous. This paper argues that, in the course of the twentieth century, the growth of scientific knowledge was rendered increasingly endogenous. A central reason why scientific knowledge became more endogenous is that certain forces at the level of technology and engineering paved the way. Technological change and the growing sophistication of engineering disciplines raised the private rate of return to research in certain classes of scientific knowledge. A key player in this growing endogeneity was the corporate research laboratory.