wasting their time. But certainly not all, and the number of scientists and engineers is multiplying at an exponential rate.
Watt was able build his engine precisely because he was (1) building on significant research in a dozen different arenas (including metallurgy, fabrication, and mechanics) and (maybe more importantly!) (2) funded by an entrepreneurial investor who saw the potential for income from the invention. But the steam engine did not really take off until it was introduced to John Wilkinson, who immediately adapted his techniques for boring cannons to creating the cylinder for the steam engine, ultimately enabling the engine to increase its power by orders of magnitude.
Other scientists and engineers tinkered, modified, adapted, improved, and collaborated until we had railroads and steam turbines and so on. The steam engine was not just one invention but a series of inventions. Watt was not really the creator of the steam engine, as the concept had been around for decades. He was simply the first to make an effective, commercially viable apparatus.
The real sources of intellectual fuel and entrepreneurial oxygen that fired the Industrial Revolution were the cumulative mass of information available to scientists and inventors and the ability of entrepreneurs to profit from their own risk-taking ventures. Notice that for the vast bulk of human history up to the industrial age, feudal lords and dictators held tight control over the means of production and the ability to truly profit from personal endeavor.
Let me employ a crude analogy but one that I think illustrates the point. If one inch were added to the circumference of the standard ping-pong ball, I think most of us could immediately tell the difference. A competent player could tell the difference if you added one inch to the circumference of the tennis ball. It would take a professional to tell the difference if you added one inch to the circumference of a regulation basketball.
If you added one inch to the circumference of the earth, who would know? Or really even care? Think of the steam engine as adding one inch to the circumference of a tennis ball: the steam engine made a difference that competent inventors and manufacturers of the day definitely noticed! Are there likely to be innovations today that will have similarly profound effects, but on a global scale? I can think of a few, though they are mostly only discussed in science fiction novels now.
Killer Robots
Let’s look at one small latter-day innovation, a rather trivial one in the grand scheme of things. Two centuries ago, 90% of American workers labored on farms. Today we are vastly more productive, with only 1.6% of American workers engaged in what we think of as the quintessential American activity, farming. And while agriculture has become highly mechanized, there is still shortage of labor for many activities.
Lettuce has to be thinned. When you grow lettuce, you have to plant a large number of seeds close together and then come back after they germinate and thin them out. This is a labor-intensive process that typically takes 50 workers two days in a 15-acre field. Except now there is a new machine called Cesar that can do the entire process in three hours for a fraction of the cost. (You can watch a fun five-minute video on Bloomberg at Killer Robots.)
In his famous work The Wealth of Nations, Adam Smith marveled at the technological innovation and manufacturing skill that it took to make a pin. The combination of technology and the division of labor made the cost-effective production of pins possible.
Now think of the killer robot that thins lettuce. It is a remarkably complex and ingenious device that performs a very simple activity. How many thousands of inventions were required to make a machine that is so simple in its basic concept? The real-time pattern recognition that lets the machine instantly decide which plants live and which die is itself a technology that required numerous precursor inventions. And yet all this technology and performance is brought to fiscally conservative lettuce farmers at a cost that is compelling.
Is the robotic lettuce thinner a fabulous invention? Absolutely. Will that robotic machine change civilization? No, of course not. It will simply make lettuce a little cheaper for you and me, and I doubt we will even notice the difference.
But this is just one of a thousand innovations that are springing up in every tiny niche of the human experiment every day! We’re talking about 10 million entrepreneurs waking up around the world every day trying to figure out how to deliver better products, how to be a little bit more productive, how to create something interesting that people will pay for. Most changes are so tiny or unimportant that they go largely unnoticed or are not even adopted.
There were not many intellects on the level of James Watt’s when he seized his opportunity in the mid-1700s. Today there are tens of thousands of James Watt-level minds tinkering in all sorts of fields. I would argue that their cumulative output is adding at least 10,000 inches to our “innovation globe” every day.
Today the cost, per lumen of light, of illuminating an LED bulb is one millionth of what it was in the time of James Watt. And it will be 10 (or will it be 100?) times less expensive in 10 years as we shift to silicon-based LEDs. I’ve done business in Africa and understand the value and the cost of light. What happens when the production of light consumes miniscule amounts of solar power? How much more productive does Africa become? How do we measure that in terms of the quality and creative capacity of human experience?
It is not just robotics. It is nanotech and biotech and telecommunications and artificial intelligence, all driven by the burgeoning and increasingly important field of information technology. It is the cumulative information from hundreds of thousands of inventions, innovations, and discoveries that allows for the individual creations developed by each of those 10 million entrepreneurs. And as more and more budding Einsteins, Newtons, and Watts gain access to education and information through the internet, the innovations will continue to compound and accelerate.
The end of growth? Hardly. In 100 years we will look back and see the next 20 years as simply the beginning of the real acceleration of growth.
However, classical economics as it is currently formulated will miss the story that is unfolding. With its focus on models and measuring, with its physics envy, economics persistently misses the real story. As George Gilder notes in his groundbreaking book Knowledge and Power:
The central scandal of traditional economics has long been its inability to explain the scale of per capita economic growth over the last several centuries. It is no small thing. The sevenfold rise in world population since 1800 should have attenuated growth per capita. Yet the conventional gauges of per capita income soared some seventeen-fold, meaning 119-fold absolute increase in output in 212 years. And this is only the beginning of the story.
The leading economic growth model, devised by the Nobel laureate Robert Solow of MIT, assigned as much as 80% of this advance to a “residual” – a factor left over after accounting for the factors of production in the ken of economists: labor, capital, and natural resources. In other words, economists can pretend to explain only 20% of the apparent 119-fold expansion.
Earlier in his book, Gilder highlights the source of this mystery of the failure of economics.(all emphasis mine):
The passion for finding the system in experience, replacing surprise with order, is a persistent part of human nature. In the late eighteenth century, when Smith wrote The Wealth of Nations, the passion for order found its fulfillment in the most astonishing intellectual achievement of the seventeenth century: the invention of the calculus. Powered by the calculus, the new physics of Isaac Newton and his followers wrought mathematical order from what was previously a muddle of alchemy and astronomy, projection and prayer. The new physics depicted a universe governed by tersely stated rules that could yield exquisitely accurate predictions.
Science came to mean the elimination of surprise. It outlawed miracles, because miracles are above all unexpected. The elimination of surprise in some fields is the condition for creativity in others. If the compass fails to track North, no one can discover America. The world shrinks to a mystery of weather and waves. The breakthroughs of determinism in physics provided a reliable compass for three centuries of human progress. Inspired by Newton’s vision of the universe as “a great machine,” Smith sought to find similarly mechanical predictability in economics. In this case, the “invisible hand” of market incentives plays the role of gravity in classical physics. Codified over the subsequent 150 years and capped with Alfred Marshall’s Principles of Economics, the classical model remains a triumph of the human mind, an arrestingly clear and useful description of economic systems and the core principles that allow them to thrive. Ignored in all this luminous achievement, however, was the one unbridgeable gap between physics and any such science of human behavior: the surprises that arise from free will and human creativity. The miracles forbidden in deterministic physics are not only routine in economics;they constitute the most important economic events. For a miracle is simply an innovation, a sudden and bountiful addition of information to the system. Newtonian physics does not admit of new information of this kind – describe a system and you are done. Describe an economic system and you have described only the circumstances – favorable or unfavorable – for future innovation….
Flawed from its foundation, economics as a whole has failed to improve much with time. As it both ossified into an academic establishment and mutated into mathematics, the Newtonian scheme became an illusion of determinism in a tempestuous world of human actions. Economists became preoccupied with mechanical models of markets and uninterested in the willful people who inhabit them.
Economics in general uses tools to measure growth that are inadequate at best and misleading at worst. As I’ve written elsewhere, the simple concept of inflation, except in a general sense, is so convoluted and so fraught with assumptions as to render any precise definition laughable. In economics as it is constructed today, we pay attention only to that which we can measure. If we can’t measure it, surely it must be meaningless. We cling to our models and theories much as religious fanatics do to their understanding of the workings of God, as if somehow we can understand either.
Some economists become obsessed with market efficiency and others with market failure. Generally held to be members of opposite schools – “freshwater” and “saltwater,” Chicago and Cambridge, liberal and conservative, Austrian and Keynesian – both sides share an essential economic vision. They see their discipline as successful insofar as it eliminates surprise – insofar, that is, as the inexorable workings of the machine override the initiatives of the human actors. “Free market” economists believe in the triumph of the system and want to let it alone to find its equilibrium, the stasis of optimum allocation of resources. Socialists see the failures of the system and want to impose equilibrium from above. Neither spends much time thinking about the miracles that repeatedly save us from the equilibrium of starvation and death.
The Primacy of Human Capital
It is not just that Gordon and others miss the importance of information and entrepreneurial effort in industrial revolutions, missing the forest for the trees. It is that they miss the most important factor of all: capital. But not capital in the sense of money. I am thinking of capital in the more important way that Nobel laureate Gary Becker describes it: as human capital.
It is the investments we have made in ourselves that have been the true source of economic growth. Education, training, information
