Imagine that a new idea comes along which cuts costs by 20%. What happens? Some companies are quicker than others to adapt the novel approach. They make bigger profits than their competitors, they cut prices, they sell more, they attract investors, they hire additional workers, and their business expands. But unless the new idea can be monopolized, any high profits are transitory. After some years of recapitalization the economy returns to equilibrium. In the new situation prices are lower, consumers are happier, and the net rate of return on investment settles down to the average in other business sectors (modulo small adjustments to compensate for risk).

In other words, there's no magic formula for making money. If there were, others would recognize it, exploit it, and thereby neutralize it. Generations past saw this with the printing press, steam-powered shipping, railroads, telegraphy, electrical power, and radio. In a smaller way, they saw it with new resource discoveries like gold rushes, oil booms, and the opening of new lands for settlement. We're seeing it now with the Internet and computing technologies. Capital, like water, flows toward an optimal distribution. When a new channel appears --- when a river finally erodes through a ridge, or when an idea finally comes to maturity --- then older paths dry up and more efficient routes take over. Change happens, and stability returns until the next shift.

So in spite of what some silly pundits say, we're not witnessing the biggest discovery since fire, not by a long shot! We're just seeing a marginal economic change. The really key inventions are social and organizational ones that we rarely think about and that nobody makes instant profits from. Things like universal access to education ... high social mobility ... limited government ... the shared culture of art, science, and literature --- those sorts of changes are what make us infinitely wealthier than our ancestors. That's the real fire, and it's a fire that all humans can warm themselves by.

Saturday, April 29, 2000 at 18:49:52 (EDT) = Datetag20000429


(correlates: RipTide, InvestInPeace, IdiocyAmelioration, ...)