Let’s assume that what we want in economics is first and foremost an improvement in our standard of living. We try to measure that by GDP per capita, or the total value of goods and services consumed, plus spending on investment, plus government expenditures, all divided by the population number. As we’ll explore in later posts, this is the best measure we can come up with, but it has some significant drawbacks. This post will try to demonstrate the fundamental importance that innovation has to the increase in standard of living, and the next post subsequent will explore why the U.S. is good at it, and what the government can do to encourage it.
Our earliest, pre-modern ancestors discovered the first innovation, the division of labor. Nature had made some stronger and faster, and thus more adept at hunting, and others, without those attributes, became gatherers. Teamed together, they were more productive then if each individual tried to do it all. Tool-making was also a very early innovation to enhance productivity, whether of wood for spears to aid hunting, of bone to sew garments, or of stone to make other tools. About 400,000 years ago man discovered how to safely use fire, thus harnessing energy other than his own, which provided safety for campsites, warmth, the ability to cook food, and a host of later innovations.
The discovery of farming and the domestication of livestock, around 7-10,000 years ago vastly improved standards of living. The discovery that firing clay hardened it for pottery, and that weaving of reeds made baskets or ropes, improved productivity. The invention of the wheel and the harnessing of draft animals to it was an incredible boost to transportation, and thus trade. Trade led to improved division of labor and specialization. The discovery that firing certain ores led to metals– first copper, then bronze, then iron and still later, steel–made an incredible wealth of new and useful products available.
The standard of living has been increasing over the decades, centuries, and millennia. And the time spans where it did not improve, and may have gone backwards, occurred when generations forgot the innovations their predecessors had made. An example would be the Dark Ages in Europe, when people lost the engineering of the Romans in building aqueducts, bridges, housing, etc. Medical practitioners lost the teachings of Galen, and lives were lost prematurely for centuries. The lack of innovation in the Dark Ages and Early Middle Ages was a root cause of the stagnation of betterment in the standard of living in Europe in those years. Standards of living began to increase again with innovations in shipbuilding, sailing and navigating, leading to increased trade and cross-fertilization from Eastern cultures.
Think of the advances that came from inventing a steam engine to do work. Can we imagine life before the harnessing of electrical energy? What did we do before automobiles and air travel? Life today without telephones, computers, and cell phones might be quieter, but I think we can all agree they have increased standards of living. Many productivity enhancing innovations are technological, but some are not. Think of the business process innovation brought about by Federal Express.
The United States’ economy has grown enormously since the end of World War II. Yes, it started at a low baseline for comparison, because of the Great Depression which preceded it. And yes, it grew because other nations were far more weakened by the devastation of war. But there were other more important causes, as well, one of which was our innovation. The outpouring of innovation in the U.S. in the past 70 years is unmatched in human history.