Technology: The wealth of nations

Abstract

The paper addresses a rather important question: What is wealth and how is it created? Until relatively recently in history, wealth has been considered to be “a gift of nature,” even by philosophers. It follows from this idea that, once all such gifts are known, the economic system must be a “zero-sum game.” The interesting theoretical questions then concern the existence and nature of equilibrium, and the major sociopolitical issues must be distributional in nature. Indeed, mainstream economics has continued to build theories based on static equilibria until past the middle of the twentieth century. The starting economic growth that took place over the two-plus centuries from 1750 to the present time really connat be explained by “classical” economics. Since the 1950s it has been realized that economic growth can only be explained by introducing the notion of technological progress. This idea has attracted increasing attention since then. Nevertheless, mainstream theory has been extremely slow to incorporate—still less explain—this important phenomenon. The paper concludes that most wealth in existence today originates in technological innovation. Labor and capital play a role, but while wealth has material aspects, it is essentially a form of “condensed” useful information, or knowledge. Its ultimate origin is the human mind. In other words, wealth is not a gift of nature, nor is it derived from “labor” in traditional Marxian terms. Nor is it a simple consequences of the law of compound interest as applied to money in the bank. Money is a convenient measure of relative wealth, at least for some purposes, but money by itself does not create new wealth. The theoretical and philosophical implications of this proposition are interesting and nontrivial, but they are not pursued further in the paper. The major point made is the obvious one: If the major source of societal wealth today is technology, it is of vital importance to learn more about the underlying processes. The U.S. became rich by being good at technological innovation, but other countries that were once good innovators have slipped, and our own technological lead is slipping now. We do not know nearly enough about the determinants of invention, innovation, investment, adoption or, diffusion of technology.