State of Innovation

Patents and Innovation Economics

Natural Laws of Innovation – 2

Conservation Law of Innovation:

All innovations are combinations of existing/known elements.

Conservation of matter (and energy) means that you cannot create something from nothing.  As a result, all innovations must be a combination of existing or known elements.

Causality Law of Innovation:

Invention precedes production, production precedes consumption and discovery precedes invention.

In order to consume an item it first has to be produced.  Production may just be the act of finding food for a hunter gatherer, but this has to be done before it can be consumed.  With the possible exception of some very simple things, mother’s milk and air for instance, things have to be invented before they can be produced.  The elements of all inventions are made of known items, so they had to be discovered before they could be incorporated into an invention.

Set Law of Innovation:

The number of potential innovations is essentially infinite.

There are essentially an unlimited number of potential innovations.  Paul Romer, a professor of economics at Stanford uses the following example to illustrate this point:

On any conceivable horizon — I’ll say until about 5 billion years from now, when the sun explodes — we’re not going to run out of discoveries. Just ask how many things we could make by taking the elements from the periodic table and mixing them together. There’s a simple mathematical calculation: It’s 10 followed by 30 zeros. In contrast, 10 followed by 19 zeros is about how much time has elapsed since the universe was created.[1]

Someone might object that Paul Romer has overstated the number of possible chemical inventions, since not all elements are able to chemically bind to each other.  On the other hand, this calculation only includes one of each element.  Some of our most important chemical compounds contain long chains of carbon and silicon atoms.  In addition, the elements can bond to each other in multiple ways, ionic bonds, covalent bonds, polar covalent bonds and hydrogen bonds.  Elements may also have double, triple and quadruple bonds.  When you add in all these variations, Dr. Romer probably underestimated the number of possible chemical inventions.  This calculation is only for chemistry.  When you consider computer networks or electronic circuits with millions of transistors or nodes the number of different possible connection is n(n-1)/2 or easily equal to the number of combinations described for chemistry.  This does not begin to name all the possible number of inventions.  Previous innovations often are the basis of future innovations.  As a result, the development of an innovation acts as node for additional innovations and increases the potential number of innovations rather than reducing the potential number of innovations.

Another example that Romer uses to illustrate the unlimited number of possible combinations is all the possible bitstreams you can turn into a CD-ROM.  The number is something in the range of 10 to the power of 1 billion, which virtually ensures that we will never run out of software to discover.  He notes that there is not enough mass in the universe to make that number of CDs.[2]

The total number of innovations may be limited by the total mass and energy of the universe and the laws of entropy that limit how many elements can be combined.

Rate Law of Innovation:

The rate of innovation is dependent on the number of innovators, the size of the set of elements the innovators can access, and the size of the set of goals.

Innovations are combinations of elements and connections, but an individual has to put together these combinations.  If more individuals are involved in the process of trying out combinations, then there is a greater likelihood they will find a useful combination or innovation.  In a rough analogy, the more samples or children in an genetic algorithm, assuming they are diverse, the more likely or sooner you will find an acceptable solutions.  Silicon Valley often creates many companies in a particular space, which function like a large population in a genetic algorithm, and results in an optimized solution (company) more quickly than only having a few companies in the space.  Individuals create these sample combinations and test them against a selection criteria.  If more people are creating these samples then you increase your probability of inventing a useful product of service.  The corollary is that you have more “failures” than you have success.

A successful solution to a particular selection criteria or fitness criteria has an increased probability if the creators (inventors) have access to the complete set of elements available in the world.  When the inventors are limited in their selection or application of existing elements, then it reduces the potential number of combinations.  It is possible in this case, that many solutions meeting the fitness criteria will not be part of the search space.  This deceases the probability of finding a solution that fits the selection criteria.  When innovators’ freedom of action is restricted it will decrease their chance of creating something useful.  This is consistent with the tenet of academic freedom and consistent with the principles of a free market.

Innovators as a group will be more successful if each individual innovator is allowed the freedom to pursue their own invention goal.  There are at least two problems with restricting the goals of innovations.  One, the individual talents and interests may fall into a forbidden area.  Two, unexpected results may fall into a forbidden area and therefore not be pursued.

As a result, we see that freedom fosters innovation.  This is consistent with both our academic institutions’ policies and with a free market.  Innovation is not encouraged by plagiarism.  Plagiarism results in wasted resources, because the plagiarizer is reinventing the wheel and they erode the valve of the original innovator.  Innovators are the first person to develop an innovation because they add to the store of human knowledge.  Even innocent copycats do not add to the store of human knowledge.  Note that freedom as used herein applies to everyone.  Forcing someone to support your innovative activities, restricts their freedom to innovate.

A corollary is that innovation is fostered by wide dissemination of earlier innovations.  Without this dissemination, individuals will waste time recreating innovations.

Commons Law of Innovation:

Innovations are not subject to overuse.  The creation of innovations is subject to under investment without property rights in innovations.  The diffusion of innovations is subject to under investment without property rights in innovations.

Although there are unlimited number of potential inventions, this does not mean that creating them is free.  The U.S. spends over $300 billion a year on research and development to discover inventions.[3] Just like real property conceiving inventions takes scarce resources.  The number of researchers, research facilities, and research equipment are all limited.  Each researcher’s ability to pursue various inventions and discoveries is limited.  It will always cost less for a copier to produce existing items than create their own innovations without property rights in innovations.  This will result in an under investment in the creation of innovations.

Once an innovation or discover is made it still costs considerable resources to distribute the innovation.  For instance, scientific principles are not subject to intellectual property rights and therefore can be freely disseminated.  Calculus was discovered over 300 years ago and is not the subject of intellectual property rights.  Despite this, only a small percentage of the population understands it even in the most advanced economies.  Those people that do understand calculus generally paid an instructor to learn this area of math even though books on the subject can be reviewed for free at many libraries.  Almost everything a student learns through formal education, even in graduate school, is information that is readily available.  Even if the text book is copyrighted, the information is usually available in a non-copyrighted form or available for free from a library.  In spite of this, the U.S. spends over $500 billion a year on all forms of education.  Clearly, adopting and distribution ideas including inventions is not free.

According to venture capitalists, most start-ups will spend 2-10 times the amount on marketing their inventions than on developing them.  If the distribution of ideas was free, not subject to scarcity, this would clearly be unnecessary.

University professors, doctors, lawyers, engineers, judges, marketers, sales people and computer scientists are mainly in the business of distributing or implementing known information.  Most of these professional would be unnecessary if distributing information was frictionless.  Distributing information is extremely costly, especially new information.

Without property rights in innovations, most people and institutions will not spend the additional money required to create and distribute innovations.  This will result in an under investment in innovation.

Income Law of Innovation

The per capita income of a large group of people can only increase over the long term if their level of technology increases.

If we had exactly the same technology now as we did in 1800, Would we be any better off per capita than the people of 1800?  You might think that we would live longer.  But, why would we live longer.  We would have the same nutrition, sanitation, and medicine as them.  We would have no advantages over our ancestors if we were limited to their technology.  Our per capita income would be the same as the people of the 1800s.

Modern economists have studied this issue and found that increases in capital goods are not nearly as likely to result in economic growth as innovation.[4] Robert Solow won the Nobel Prize in Economics because of his work on the causes of economic growth.  His model suggests that fourth fifths of the economic growth of the U.S. is the result of technological progress.  The other one fifth of growth was due to increasing population.

Real per capita increases in income can only be the result of innovation.  Adding capital without any innovation associated with the capital will result in elevating every worker to a certain efficiency level, however never above that level.  Once every worker has the all the capital resources they can use in their job they have hit a maximum output without innovation.


[1] Bailey, Ronald, “Post-Scarcity Prophet: Economist Paul Romer on growth, technological change, and an unlimited human future”, Reason, December 2001.

[2] Kelly, Kevin, “Paul Romer: The Economics of Ideas”, http://www.versaggi.net/ecommerce/articles/romer-econideas.htm, viewed July 4, 2009.

[3] Kao, John, Innovation Nation: How America is losing its Innovation Edge, Why it Matter, and What We Can Do to Get it Back, Free Press, 2007, p. 39.

[4] Clark, Gregory, A Farwell to Alms: A Brief Economic History of the World, Princeton University Press, 2007, p. 197.

July 16, 2009 - Posted by | -Economics, Innovation | , , , , ,

13 Comments »

  1. Interesting blog.
    A lot of naive ideas, but intersting nonetheless.

    Are you familiar with Nassim Taleb’s book, The Black Swan and more particularly with his concept of the “Narrative Fallacy”? I suspect your ideas about the “cause” of “innovation” fall into the narrative fallacy hole. Conservation of mass and of energy? Come on, give us a break. Was it not Einstein who said that there are only two things in the universe that can grow exponentially, namely, compound interest on money and human stupidity; and he was not all that sure about the first one?

    Certainly innovative “ideas” spring forth from the human brain. But then how does that organ work? Do you know? How about the other you, does it know? Just kidding (not). Be careful what questions you ask. You might not like the answers.

    Cheers.

    Comment by step back | July 17, 2009 | Reply

  2. “A lot of naive ideas”

    To say the least. Can you believe that this guy is an attorney irl? I get the feeling he’s just joshin us.

    I see his website

    http://www.hallingip.com/halling_biography_page.htm

    but he just sounds loco.

    Maybe the software work got to him?

    Comment by 6 | July 17, 2009 | Reply

  3. I’m a little confused, are you suggesting “conservation of mass and energy” is naive? Or are you suggesting that something can be created out of nothing?

    “The Black Swan” theory is about rare events that are hard to predict. Innovation, correctly defined, is not random or rare in a free society.

    Comment by dbhalling | July 18, 2009 | Reply

  4. “As a result, all innovations must be a combination of [pre-]existing or [publicly] known elements.”

    In physics, conservation of mass and conservation of energy (excluding conversions of the E=mc^2 kind) means that the whole of the output (as measured in mass or as measured in terms of input energy versus output energy, EROI) never exceeds the sum of its inputted parts.

    On the other hand, the purpose of innovation is to output more than what you came in with. If it were otherwise, knowledge would never grow.

    So the logic of the assertion, “all innovations must be a combination of existing or [publicly] known elements” is flawed from the get go.

    Also according to basic physics (thermodynamics to be more specific), all interactions lead to a greater degree of disorder (higher entropy). On the other hand, growth of knowledge comes from creating greater degrees of order (lowered entropy). So innovation operates in direct opposition to some of the basic laws of physics.

    It is naive to believe that the laws of physics directly apply to the way that new information (innovation) is created by the human mind. The universe is much more complex than a small set of rules.

    p.s. “The Black Swan” theory is about a lot more than the notion that some events are hard to predict. Reading the Cliff notes is not the same as reading the book. “Narrative fallacy” is a term that author Taleb applies in the book to a number of ideas including the idea that the human brain likes to make up cause-and-effect stories when in fact the causes of an observed event are unknown and often unknowable. More to the point, when economic pundits tell you the market went up or down today because of event 1 or event 2, they are usually making up a bullsh*t story. When academic pundits tell you that “true” innovation (whatever that is) is caused by environment A or B, they too are usually making up bullsh*t stories.

    Let’s see how long “innovation” continues after the oil begins to run out. Sadly, we humans are not much smarter than yeast in a Petri dish.

    p.p.s. I suspect you mean well with the ideas you put forth. Don’t stop. But do learn how to critique your own logic. One can easily be fooled by the “soundness” of the noises one puts out. ;-)

    Comment by step back | July 19, 2009 | Reply

    • Innovations, when actually implemented, are built of tangible items. These physical items are subject to the laws of physics – namely, when building something it has to be built from existing items. Thus the conservation of matter does apply and physic has direct relevance to innovation. This is not naive it is straight forward logic.

      Entropy only applies to closed systems. The Earth is not a closed system. There is no contradiction between laws of entropy and innovation. Clearly, you are either naive about physics or naive about innovation.

      Black Swan theory: Yes I understand that the theory covers post hoc explanations for events. I completely agree that chaotic events such as the stock market’s performance on a day to day basis are rarely can be explained, despite the pundits attempts to do so. On the other hand, physics can explain and predict many linear events.

      When oil runs out, humans will be fine as long as we are allowed to innovate. Oil is really, solar energy that has been stored in plant matter and then converted by heat and pressure into oil. It is very likely that we will be able to skip the fossilization stage and just grow are chemical energy sources in the next century – assuming we don’t pass laws that inhibit innovation.

      Your pessimism has caused you to be a cynic instead of a skeptic. Skepticism is healthy, cynicism is destructive.

      Comment by dbhalling | July 20, 2009 | Reply

      • Hey there db,

        The personal attack hack (last paragraph) is an old and useless tactic.

        However, I do encourage you to further explore the concept of “innovation”.

        “Innovation” is a nominalized form of the dynamic action, “to innovate”. When one is in the act of innovating, one is not necessarily manufacturing a final product out of a finite amount of mass. One can be in the middle of an ideas-generating process where mass of the final product is irrelevant. So it all boils down to what specifically you mean by the ambiguous word, “innovation”. Do you mean the act of innovating or do you mean only the final, “actually implemented” mass produced product? Can coming up with a new method be a form of “innovation”? What is the mass of an innovative method? I’m not asking these questions as a sophomoric exercise, but rather in hopes of getting you to think more critically about what the word “innovation” means and where its roots lie. :-)

        Comment by step back | July 28, 2009

  5. Hey Step Back,
    Thanks for your input. Innovations are the recipe for building something, not the physical embodiment. However, innovations that cannot be realized are fantasies. Fantasies have value, for instances, Jules Verne’s fantasies of going to the moon. Thus, I would characterize an idea that cannot be built because it uses more matter than is available in the universe as a fantasy.
    I received a comment that Conservation Law and the Set Law were in contradiction. Specifically, since innovations are combinations of existing elements then the number of innovations could not be infinite. I decided that the comment had a point and added the limitation that number of innovations are limited to all combinations that include less than all the mass of the universe and that even these combinations are limited because entropy would not let you order all the mass of the universe. However, it is possible that the mass (and energy) of the universe is not limited and the universe may not be a closed system subject to entropy. As a result, I believe that the number of all the potential innovations is essentially infinite.

    Comment by dbhalling | August 3, 2009 | Reply

  6. […] Neutrality rule limits how many variables or elements that innovators have to innovate.  See the Laws of Innovation  for more information.  All the major engineers who developed the internet are opposed to the […]

    Pingback by Does Net Neutrality Inhibit Innovation? « State of Innovation | October 22, 2009 | Reply

  7. […] residents, the CO2 emission goals set by the President will limit economic activity.  According the Rate Law of Innovation, any limitation on the goals or means of innovation reduces the rate of innovation.  A weaker […]

    Pingback by Climate Change and Innovation « State of Innovation | December 7, 2009 | Reply

  8. I enjoy your blog very much. Thank you.

    Where do these laws come from? Are they your own creation? I haven’t found them mentioned anywhere else.

    When you say “The per capita income of a large group of people can only increase over the long term if their level of technology increases.” Do you mean to say that if they have increased technology their income has no choice but to go up? Or do you mean to say their income “can” go up “only if” they have increased technology?

    Comment by Matthew Artero | May 9, 2011 | Reply

    • Matthew, thanks for the nice comments. These laws are my own thoughts based on first principles.

      Good question: I mean to say their income can go up only if they have increased their level of technology.

      Comment by dbhalling | May 9, 2011 | Reply

      • You cite Nobel Prize winner Robert Solow as showing that 80% of USA economic growth is due to advances in technology. I noticed that coincides with Ocean Tomo showing the market value of intangible assets of S&P 500 companies is also at 80%. Probably not a direct corrolation but definately related.

        I told my Governor it means patents are not just part of the economy they ARE the economy. Talk about too big to fail; if we are smart we don’t dare let our patent system fail. No matter what we invest in, we are ultimately investing in the inventive ability of someone because their innovations set the pace of our economy and hence the value of everything else.

        Now I see that judging schools according to test scores is a low standard. We would be better off if we judge them according to how many inventors they produce.

        Comment by Matthew Artero | May 9, 2011

  9. Matthew,

    Agreed. I actually think the 80% number is incorrect as do many economists. Most if not all capital purchases are increases our level of technology – we are buying someone else’s invention. Even simple things like cement had to be invented by someone.

    Increases in labor (number of people working) does not increase per capita income, but it will increase the GDP of a country.

    Increases in land use to be critical to increasing the nations wealth, but only per capita income if you can farm more efficiently (inventions) or people in the country are no longer in the Malthusian Trap.

    Comment by dbhalling | May 9, 2011 | Reply


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