Technology and Freedom: The Virtuous Circle

Policy Backgrounders | Government | Regulations

No. 158
Friday, January 10, 2003
by James K. Glassman

How Technology Develops

Undirected by the state or any other central authority, technology emerges from a process that encourages variety, spontaneity and discovery through trial and error. For example:

  • Michael Dell started Dell Computer Corp. in his Austin, Texas, college dormitory. Dell sold $31 billion worth of computer hardware and software last year, compared with less than $3 billion in 1993 - none of it was sold through stores.16
  • Bill Gates democratized the computer with Microsoft Corp., which earned $10 billion in profits and had a balance sheet graced with $40 billion in cash and no debt last year - after growing at an average rate of 37 percent annually for a decade.17

Spontaneous Order.

The incentives that motivate this process depend on free minds operating within free markets. William J. Baumol, in his new book, makes the extended argument that societies that are not free, such as medieval China, may be hotbeds of scientific discovery, but without market forces to encourage the actual production of these innovations, technology falters.18

"Medieval China was a hotbed of scientific discovery, but without a market economy to encourage production, technological innovation faltered."

As for the process of applying technology itself, the most articulate description comes from Paul Romer, a Stanford University economist. "Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable,"19 Romer uses the metaphor of the recipe. When ingredients are rearranged, new products and new systems emerge. These creations, which often amount to new technology, spring "from better recipes, not just from more cooking."

What is remarkable is the vast variety of recipes that emerge from a limited number of resources:

To get some sense of how much scope there is for more such discoveries, we can calculate as follows. The periodic table contains about a hundred different types of atoms, so the number of combinations made up of four different elements is 100 x 99 x 98 x 97 or about 94 million. A list of numbers like 1, 2, 3, 7 can represent the proportions for using the four elements in a recipe. To keep things simple, assume that the numbers in the list must lie between 1 and 10, that no fractions are allowed, and that the smallest number must always be 1. Then there are about 3,500 different sets of proportions for each choice of four elements, and 3,500 x 94 million (or 330 billion) different recipes in total. If laboratories around the world evaluated 1,000 recipes each day, it would take nearly a million years to go through them all.20

Virginia Postrel points out that "an ordinary deck of cards can be combined 1068 different ways - one followed by 68 zeroes - which means that any time you shuffle a deck of cards, that particular order has probably never come up before in the history of cards. And...52 is a relatively small number."21

"Hundreds of billions of new combinations can be made from 100 or so elements."

Romer's ideal combination of elements is a chemical refinery that can convert cheap, abundant and renewable resources into a product that humans value. Describing such an ideal refinery, he writes, "it would be smaller than a car, mobile so that it could search out its own inputs, capable of maintaining the temperature necessary for its reactions within narrow bounds, and able to automatically heal most system failures. It would build replicas of itself for use after it wears out, and it would do all of this with little human supervision." Such a refinery exists. It is called a cow. "And if nature can produce this structured collection of hydrogen, carbon and miscellaneous other atoms by meandering along one particular evolutionary path of trial and error...there must be an unimaginably large number of valuable structures and recipes for combining atoms that we have yet to discover."22

New combinations produce new technology. The best example is pharmaceuticals, where atoms and molecules, combined one way, can produce an effective drug; another way, a poison or a dud. Technology advances by trial and error - by making the combinations and seeing if they work as well as they possibly can. Postrel is fond of quoting the engineer Henry Petroski: "Form follows failure."23

It stands to reason that accelerating the formation and testing of combinations will accelerate technology. The question is how to encourage more and more such combinations.

Role of Government.

"The trial and error advancement of technology by dispersed individuals is incompatible with central government planning."

The Inevitably, some will ask if government can successfully regulate technological change. In 1921, Ludwig von Mises famously argued that "economic calculation is impossible in a socialist society." Mises' contention was that knowledge of the production functions of a large economic system could not be acquired, not to mention properly put to use, by a central planning board the way it can by individual dispersed entrepreneurs and managers. In support of Mises, Friedrich von Hayek wrote, "What the planning authority would have to know would not be the mere totals but the distinct, peculiar conditions prevailing in each enterprise which affect the information about values transmitted through market prices but would be completely lost in any statistical information about quantities that might reach the authority from time to time."24

Imagine, however, that technology could make all this data available and collectible. In his essay 20 years ago rebutting Oskar Lange's 1936 criticism of Mises, Hayek described just how complicated the problem of gathering the information would be. "Even today," he wrote, "the solution of 100,000 equations is still an unachieved ambition of the constructors of computers."25 Today, a decent personal computer can zip through 100,000 equations of this sort quite easily, thanks to Moore's Law. Perhaps Joseph Schumpeter was right when he wrote in 1942 that it is "possible to derive, from the data and from the rules of rational behavior, uniquely determined solutions."26 However, Hayek's overall refutation stands. Each entrepreneur acts on the facts separately, through differentiated personal knowledge that, very simply, cannot be aggregated by any planning board.

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