The Science of Economic Growth: Part 5
This is a multi-part post on the science of economic growth. Standard economic theory has failed miserably to define the source of economic growth, which means it is impossible for it to provide rational policies to restore economic growth. This series of posts defines a scientific theory of the source of economic growth.
Natural Laws of Invention
With this in mind I propose the following laws of invention.
Conservation Law of Invention:
All inventions are combinations of existing/known elements.
Conservation of matter (and energy) means that you cannot create something from nothing. As a result, all inventions must be a combination of existing or known elements. For those people who want to point to Americium (94), Curium (96), Berkelium (97), all these chemical elements are made of protons, neutrons, and electrons and all of these were existing elements.
Causality Law of Invention:
Invention precedes production, production precedes consumption.
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.
Set Law of Invention:
The number of potential inventions is infinite.
The total number of inventions 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. However, physics is pretty ambiguous on this point. There may be multiple universes, there may exist energy and matter outside of our event horizon.
There are essentially an unlimited number of potential inventions. 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.
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 inventions often are the basis of future inventions. As a result, the development of an invention acts as node for additional inventions and increases the potential number of inventions rather than reducing the potential number of inventions.
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.
Rate Law of Invention:
The rate of invention is dependent on the number of inventors, the size of the set of elements the inventors can access, and the size of the set of goals.
Inventions 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 invention. 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 solution. Silicon Valleyoften 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. When inventors’ freedom of action is restricted it will decrease their chance of creating something useful.
Inventors as a group will be more successful if each individual inventor is allowed the freedom to pursue their own invention goal. There are at least two problems with restricting the goals of inventions. One, the individual’s 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 invention. This is consistent with both our academic institutions’ policies and with a free market. Invention 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 inventor’s work. This is one of the reasons for a patent system. We do not want people to plagiarize, but inventing around a patent which creates a diversity of inventions is good. The inventor is the first person to create a new technology 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 inventive activities, restricts their freedom.
A corollary is that invention is fostered by wide dissemination of the information on how to build earlier inventions. Without this dissemination, individuals will waste time recreating technologies. This is why patent systems require a description of how to practice the invention.
Commons Law of Invention:
Inventions are not subject to overuse. The creation of inventions is subject to under investment without property rights in inventions. The diffusion of inventions is subject to under investment without property rights in inventions.
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. 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 inventions without property rights in inventions. This will result in an under investment in the creation of inventions.
Once an invention or discovery is made it still costs considerable resources to distribute the invention. 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, theU.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 professionals would be unnecessary if distributing information was frictionless. Distributing information is extremely costly, especially new information.
Without property rights in inventions, most people and institutions will not spend the additional money required to create and distribute inventions. This will result in an under investment in invention.
Income Law of Inventions:
The per capita income of a large group of people can only increase over the long term if their level of technology increases.
Real per capita increases in income can only be the result of inventions. Adding capital without any inventions 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 inventions.
Every living organism has to overcome entropy to stay alive. We defined entropy as biological entropy as opposed to absolute or energy entropy, because living organisms cannot necessarily extract all the energy shown by absolute entropy. Maximum entropy for an organism was defined as when death occurs. This setups up the competition between organisms and between species to extract energy to stay alive or the process of evolution. The unique feature of man is that he invents new technologies to overcome biological entropy. All economic growth is the result of increasing levels of technology. Biological entropy implies diminishing returns. In a technologically stagnant world, diminishing returns ensures that humans will be stuck or fall back into the Malthusian Trap. A technologically dynamic world allows humans to escape the Malthusian Trap permanently and have ever increasing standards of living. This economic growth is an endogenous process and property rights in inventions has been the major catalyst for increasing rates of invention and increases in our level of technology. Perfect competition does not provide the resources or justification to invest in new technologies and is synonymous with a technological stagnant world. The Industrial Revolution was an explosion in new technologies and happened first in England and was quickly followed by the United States because these countries provided the first property rights for inventions for large groups of people. There are a number of natural laws of invention and these can be helpful guides in determining if an economic policy will result in economic growth.
 Bailey, Ronald, “Post-Scarcity Prophet: Economist Paul Romer on growth, technological change, and an unlimited human future”, Reason, December 2001.
 Kelly, Kevin, “Paul Romer: The Economics of Ideas”, http://www.versaggi.net/ecommerce/articles/romer-econideas.htm, viewed July 4, 2009.
 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.
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