State of Innovation

Patents and Innovation Economics

A Short History of Innovation in the United States

            The U.S. has been the most innovative country in the history of world.  “Virtually every major development in technology in the twentieth century – which was far and away the most important century in the history of technology – originated in the United States or was principally industrialized and turned into consumer products here.”[1]  The economic success of the U.S. is due to its technological innovation.  The first colony was only possible because of two new technologies – the full-rigged sailing ship and the joint-stock company.  This inventive spirit has continued to the present with the Information Age, which was founded in the U.S. and based on the internet (ARPANET) invented in 1969. 

            The first U.S. colony, Virginia, was a joint-stock company, the Virginia Company.[2]  In 1607 three ships from England landed in Virginia and formed Jamestown.  The colony almost failed several times before they found a successful product to export in 1612 – tobacco.  By 1618 twenty thousand pounds of tobacco were exported to England assuring the success of the colony.  Virginia became the major producer of tobacco for Europe by 1638.[3]

            During the Constitutional Convention, John Fitch demonstrated one of the first practical steam powered ships on the Delaware River.[4]  Several of the Constitutional Convention delegates witnessed Fitch’s demonstration of his steamboat.  Some people have suggested that this demonstration was in part responsible for the patent and copyright clause of the Constitution.  Specifically, Article 1, section 8

of the U.S. Constitution states: “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”  The clause was unanimously adopted by the Constitutional delegates on September 17, 1787, without debate.[5]

            Oliver Evans, an American farm boy, created the first automatic production line, built the first wheeled vehicle to move under its own power, built the first amphibious vehicle, and designed and manufactured the first effective high-pressure stream engine.[6]  Evans was one of America’s first great inventors, creating the first automated flour mill in 1789.[7]  A flour mill separates wheat from the chaff, then the grain is milled, the ground meal is then spread and dried, and finally packaged.  Each of these steps required a person.  Evans created a mill in which the cut wheat was poured into one end and package flour came out the other end without human intervention.[8]

            Next, Evans turned his attention to the steam engine.  Evans postulated that a high pressure steam engine would be half the weight, use half the fuel and still be more powerful than a low pressure steam engine such as Watts.[9]  Besides using high pressure, Evans’ design used steam to push the piston both up and down, while Watts’ steam engine used a condenser to bring the piston down.  This allowed more cycles per minute.[10]  He built one of his high pressure steam engines in 1803 and it proved highly successful.  The higher pressure created more power for less weight.  Evans then applied his steam engine to an amphibious vehicle.[11] 

            Interestingly, Evans stated, “He that studies and writes on the improvements in the arts and sciences labours to benefit generations yet unborn.  For it is improbable that his Contemporaries will pay any attention to him.”[12]  Unfortunately, this lack of appreciation for inventors appears to still be true today.

            Another farm boy, Eli Whitney, while staying on a plantation spent ten days in a barn and created the cotton gin in 1793.  In 1791, the entire output of cotton in the U.S. was 4,000 bales.  By 1801, the output of cotton was 100,000 bales, over a 50 fold increase.  This increase was only possible because of Whitney’s cotton gin.[13]  You might assume that Whitney made a fortune from his cotton gin given its profound impact on the cotton industry.  However, it proved difficult to enforce his patent and most of the money he received for his invention was awarded by grateful states. 

            Whitney followed up the success of his cotton gin by creating the first interchangeable parts manufacturing system.  Whitney proposed in 1798 to make 10,000 – 15,000 muskets using mass manufacturing processes.  Up to that time, no one had produced more than 1,500 firearms in a single year.[14]  While Whitney was not able to meet his goals, he effectively established the American System of Manufacturing that uses an assembly line with workers – each performing a specific job and interchangeable parts. 

            While the promise of the American System of Manufacturing took years to mature, the U.S. has always been the leader in mass production techniques.  The original concept was first proposed in France.  Small experiments were tried in England, however, it was the U.S. that embraced and perfected the system.  Thomas Jefferson, who proposed that the U.S. should be a nation of self sufficient farmer-philosophers, championed Whitney’s efforts. 

            Although the U.S. was in its formative period, it was already a leading center of innovation: advancing the steam engine, pushing automation into flour mills, agriculture, and mass manufacturing.  The U.S. was never content with just exploiting its large reserves of farmland which had been the major limitation on economic wealth for millennia.  The wealth of the U.S. was tirelessly advanced by it innovators.

            The U.S.’s initial success in technological innovation it did not result in the nation resting on its laurels.  Thomas Edison converted electricity from a laboratory curiosity, with few practical applications, into a viable industry with the invention of the first high resistance electrical light bulb.  Edison was not the first person to work on an incandescent light bulb.  Joseph Swan was an English physicist and chemist and applied for a patent on his light bulb before Edison.  However, Swan’s light bulbs were low resistance light bulbs.  If you attempted to setup an electrical power system to power Swan’s light bulbs, it would have required such large copper conductors as to make the system economically unfeasible.  Edison created the first high resistance light bulb, which made it possible to create a commercially feasible electric light system.  The development of the electrical industry is key to the World’s modern economy and its development was largely driven by U.S. based inventors.

            Another key industry for our modern world is the development of the petroleum.  While Edwin Drake in Pennsylvania may not have been the first to drill for oil, his contributions were critical in securing the U.S. as a major producer and innovator in this vital industry.  By demonstrating that oil could be extracted by drilling and refined for a variety of uses, Drake started the U.S. petroleum industry. 

            Henry Ford combined the American System of Manufacturing with a petroleum based engine to produce automobiles for the masses.  In today’s language, the mass produced automobile was a killer application.  It greatly expanded the demand for petroleum, helping that industry grow exponentially.  Ford did not invent the first automobile or mass production, but he did perfect both so that cars became affordable for the average family.  It was the epitome of the American System of Manufacturing.

            The semiconductor industry was invented in the U.S. in 1947 with the advent of the transistor.  The transistor was the work of John Bardeen, Walter Brattain, and William Shockley while working at Bell Labs.  Transistors are the fundamental building block of modern electronics and the information age.  These inventors received the Nobel Prize in Physics in 1956 for their invention.  Jack Kilby followed this up by inventing the integrated circuit at Texas Instruments in 1958, allowing numerous transistors and other electrical components to be formed on single monolithic block of semiconductor material.  The integrated chip (IC) is the modern embodiment of the transistor and ICs can be found in almost every electronic device.  Jack Kilby was awarded the Nobel Price in Physics for his invention in 2000.   

            The next big breakthrough was the microprocessor, a computer on a chip.  Three groups, all from the US, are given credit for inventing the microprocessor, namely Intel’s 4004, the Texas Instruments (TI) TMS1000, and Garrett AiResearch’s Central Air Data Computer (CADC).  The Smithsonian Institute credits Texas Instruments’ engineers Gary Boone[15] and Michael Cochran for creating the first microcontroller (also called a microcomputer) in 1971.  The microprocessor made the modern personal computer industry possible. 

            The first desktop-size personal computer appeared in 1974; it was offered by Micro Instrumentation Telemetry Systems (MITS).  “The computer, which was called Altair, retailed for slightly less than $400.  The demand for the microcomputer kit was immediate, unexpected, and totally overwhelming.  Scores of small entrepreneurial companies responded to this demand by producing computers for the new market.  The first major electronics firm to manufacture and sell personal computers, Tandy Corporation (Radio Shack), introduced its model in 1977.  It quickly dominated the field, because of the combination of two attractive features: a keyboard and a cathode-ray display terminal (CRT).”[16]  In 1976, Steve Jobs and Steve Wozniak created a homemade microprocessor computer board called Apple I.

            The first killer application for the personal computer was VisiCalc – the world’s first spreadsheet.  Dan Bricklin was the inventor and with Bob Frankston he created Personal Software in 1979 to market VisiCalc which ran on an Apple II.  This propelled the Apple II from a hobbiest toy to a business tool.  The personal computer dominated the technological innovation of the 80s destroying several iconic computer companies in its wake including Digital Equipment, Wang and Apollo. 

            Marc Andreessen and Eric Bina created the web browser Mosaic, which, if not the first web browser, was the first web browser to catch on with the public.  Andreessen went on to found Netscape, which produced Netscape Navigator in 1994.  The web browser is paramount to making the Internet a useful tool for the individual.  The Internet explosion of the 1990s was a period of incredible innovation.  It brought us companies such as Amazon.com, eBay, Netscape, Priceline, Broadcom, and AOL to name a few.  All of which relied on a web browser and HTML (Hyper Text Markup Language).  A number of these companies created business that economist only dreamed of in their models.  For instance, Priceline allowed companies and consumers to set the price of unfilled airline seats or hotel rooms by auction.  This had been postulated as the best way for airlines to maximize revenue and reduce consumer costs.  eBay created a nationwide auction for products that eliminating much of the costs of distribution.  Much of this innovation was funded by venture capital or angel capital.  Without ready access to risk capital and a vibrant public market as an exit strategy, this explosion of innovation would not have been possible. 

            The economic growth of the U.S.is due to its incredible innovation.  From its founding, the U.S. has been blessed with innumerable inventors and innovators that have propelled the U.S. from a backwoods fledgling country to the richest country in the history of the world with unprecedented speed.  When the U.S.has turned away from innovation and not supported its inventors it has suffered economic stagnation and decline.

            Why has the U.S. been so innovative?  Partly the U.S. was the child of England, which was the birthplace of industrial revolution.  This gave the U.S. a head start and provided a culture that was fertile for innovation.  Taking advantage of this head start, the U.S. adopted and perfected policies that encouraged innovation.  For instance, the U.S. Constitution provided for patents and copyrights.[17]  While England had a de facto patent system, the U.S. established the first de jure patent system.  This provided inventors a legal right to a patent as opposed to patents that were granted at the grace of the Crown.  The U.S. experimented with its patent system until it created a system having all the elements of a modern patent system in 1836.  The U.S. patent system was established by statute in 1790.[18]  The statute allowed an inventor to apply for a patent from the Secretary of State, Secretary of War or the Attorney General.[19]  The inventor had to provide a description of the invention, a drawing, and a model.  This information had to be sufficient for one skilled in the art to build the invention.[20]  If upon examination of the patent application the Secretary of State, Secretary of War or the Attorney General found the invention sufficiently useful and important they could issue a patent.[21]  This system was too time consuming for Secretary of State, Secretary of War and the Attorney General, so it was replaced with a registration system in 1793.[22]  However, the registration system for patents resulted in many frivolous patents, some fraud, and ultimately expensive litigation.[23]  The Patent Act of 1836 established the patent office with independent examiners.[24]  These examiners were hired based upon their skill in the technology of the inventions they examined. 

            The patent system was critical to developing an environment that fostered innovation.  The joint stock company and a stock market were also critical to American’s innovation.  The U.S.’s first stock market began operations in 1790 in Philadelphia.  The colony of Virginia was a joint stock company.  While corporate status was tightly control in the early days of the U.S., being able to form a corporation was vital in developing risking technological innovations.  The U.S. embraced financial innovations that encouraged investment in new technologies without the fear of financial devastation to the shareholders.  Another important financial/legal innovation was bankruptcy.  While the U.S. struggled to find a workable bankruptcy law for many years, eventually the U.S. settled on a system, which attempts to maximize the economic value of the assets involved.  These laws are important because they encourage risk taking, which is vital to innovation.  Innovation involves failure as well as success.  The U.S. by adopting policies that did not punish failure allowed people to innovate.

            On top of these legal and financial innovations, the cultural foundation of the U.S. was the philosophy of Natural Law.  The second paragraph of the Declaration of Independence is a restatement of Locke’s natural laws.  Specifically, the second paragraph states:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed

The “pursuit of happiness” was substituted for Locke’s “right to property” because Jefferson, the main author of the Declaration of Independence, was concern that the right to property would be interpreted as the right to slavery. 

            Natural Law is based on reason,[25] which is the basis of science.  Technological progress is based on science – empirical reasoning.  Our legal common law system was inherited from England.  Common law is the application of Natural Law to societal laws.

            The U.S. was blessed to be the child of England at the height of the influence of the Natural Law philosophy.  However, the U.S. did not just adopt the attitudes of its mother country – it fulfilled the promise of its ideals.  The U.S. was truer to England’s ideals of Natural Philosophy than England ever achieved.  The U.S. created the first modern patent system, provided a corporate structure for investing in risky technologies and created a stock market that provided capital to propel innovative companies.

 


[1] Gordon, John Steel, An Empire of Wealth: The Epic History of American Economic Power, Harper Perennial, 2004, p. xiv.

[2] Ibid. p. 12.

[3] Ibid. pp. 15-16.

[4] Evans, Harold, They Made America, Little, Brown and Company, 2004, pp. 23-24.

[5] William F. Patry, Copyright Law and Practice (1994).

[6]  Evans, Harold, They Made America, Little, Brown and Company, 2004, p. 36. 

[7] Evans, Harold, They Made America, Little, Brown and Company, 2004, p. 39.

[8] Gordon, John Steel, An Empire of Wealth: The Epic History of American Economic Power, Harper Perennial, 2004, p. 94.

[9] Evans, Harold, They Made America, Little, Brown and Company, 2004, p. 38.

[10] Gordon, John Steel, An Empire of Wealth: The Epic History of American Economic Power, Harper Perennial, 2004, p. 140.

[11] Evans, Harold, They Made America, Little, Brown and Company, 2004, p. 40.

[12] Evans, Harold, They Made America, Little, Brown and Company, 2004, p. 41.

[13] Evans, Harold, They Made America, Little, Brown and Company, 2004, pp. 49-50.

[14] Evans, Harold, They Made America, Little, Brown and Company, 2004, p. 52.

[15] I have had the good fortune to know Gary Boone personally.

[16] http://www.ideafinder.com/history/inventions/compersonal.htm, 8/7/09.

[17] U.S. Constitution Article 1, Section 8. 

[18] Warshofsky, Fred, “The Patent Wars: The Battle to Own the World’s Technology”, John Wiley & Sons Inc., 1994, p. 38.

[19] Ibid pp. 38-39.

[20] Ibid p. 39.

[21] Ibid p. 39.

[22] Ibid p. 47.

[23] Ibid p. 48.

[24] Ibid p. 48.

[25] Despite numerous claims to the contrary, the U.S. was not based on Judeo Christian principles .  Natural Law is based on reason not faith and the Declaration of Independence is statement of Natural Law.  Judeo Christian principles had existed for over 18 centuries before the innovation explosion associate with the industrial revolution.  There is no evidence that Judeo Christian philosophy encourages innovation or freedom.

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August 9, 2009 - Posted by | -Economics, -History, Innovation | , , , , , , ,

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