Or why economists fail at history.
By and large, I have enjoyed Robert Gordon’s Rise and Fall of American Growth (2016), which is well worth its 700 plus pages. Which is part of the reason why it is so disheartening to find passages such as the following that display profound ignorance over the sources of innovation:
This leaves education and reallocation as the remaining sources of growth beyond innovation itself. However, both of these also depend on innovation to provide the rewards necessary to make the investment to stay in school or to move from farm to city. This is why there was so little economic growth between the Roman era and 1750, as peasant life remained largely unchanged. Peasants did not have an incentive to become educated, because before the wave of innovations that began around 1750, there was no reward to the acquisition of knowledge beyond how to move a plow and harvest a field. Similarly, without innovation before 1750, the reallocation of labor from farm to city did not happen. It required the innovations that began in the late eighteenth century and that created the great urban industries to provide the incentive of higher wages to induce millions of farm workers to lay down their plows and move to the cities.
Gordon, Robert J. (2016-01-12). The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (The Princeton Economic History of the Western World) (p. 569). Princeton University Press. Kindle Edition.
The near universal acceptance of Gordon’s argument does not excuse its incoherence. The variable missing from the argument is the immaterial character of the incentive structure to which eighteenth century innovators were responding. A simple example can suffice: I know when I have enough shoes; one more pair cannot possibly fit in my closet. But how do I know when I have enough zeros? Immaterial value generates innovation because, as WS Jevons pointed out over one and a half centuries ago, the value of any specific good is calibrated to the aggregate value of all goods. Since the efficiency of capital and labor is subject to continuous innovation, any producer that stands still falls behind. So, the question we need to ask is: from where the incentive of abstract value?
Along with nearly every other economist I can think of, including Trump cheerleader Peter Thiel — not an economist, but whose endorsement is placed prominently on the dust jacket of Godon’s Rise and Fall — innovation is ascribed to economic rewards for individual brilliance, suggesting that all we need to do to unleash innovation is to adequately reward innovators; that would be Peter Thiel, Steve Jobs, etc.
Material wealth is insufficient to drive innovation, because, while it can grow very large, it cannot grow infinitely large. The variable missing from Gordon’s account is the shift already in the fourteenth century (1324 to be exact) from variable time and politically negotiated labor to abstract time and abstract labor. The general diffusion of the mechanical clock as the preferred instrument for measuring value in the textile producing regions of western Europe was already complete by 1600. From there it spread to other mass manufactures — glass, clay, and silver ware, and eventually to factors in construction: bricks, nails, lumber. The clock made it clear that value adhered not in the specific substances out of which things were composed, but in the opportunity sacrificed in devoting time and labor to one good or another within a comprehensive market where the value of any goods has come to be calibrated to the same abstract measure of all goods.
In this sense invention is the mother of necessity — the invention of abstract time and value.