More vanilla is consumed than any other flavoring. For a long while, all vanilla was grown in Mexico. The plants could be grown in other tropical locations, but they never bore fruit. Then in 1841 Edmond, a young black slave on Réunion Island off the east coast of Africa, discovered a simple technique for the plants to self-pollinate.1 After Edmond’s discovery, the quantity of vanilla grown increased enormously. But in 1841 Edmond was not free and had no chance to take out a patent or start a vanilla plantation, so he gained little from his invention. His master freed him in 1848, six months before all slaves on Réunion were freed, but at his death at age fifty-one he was “destitute and miserable.”2 The economic system of Réunion Island was not innovative dynamism, so his discovery did not allow him to improve his life or enable him to make new discoveries.
Edmond did at least receive some credit. His former master had some sense of fairness: “This young negro deserves recognition from this country. It owes him a debt, for starting up a new industry with a fabulous product.”3 A statue was erected on Réunion in Edmond’s honor.
We benefit from a system of innovative dynamism when it allows us to pursue more challenging and meaningful life plans by providing us with new goods, price-lowering new processes, new and better jobs, and the chance to become entrepreneurs. But before we endorse innovative dynamism, we need to know if it creates benefits or imposes costs in other aspects of life that we care about. In this chapter, I discuss these spillover effects of innovative dynamism on morality, equality, mobility, culture, and the environment.
Innovative dynamism tends to create environments in which it is easier for people to treat each other well, improving and not corrupting our souls.4 People are more likely to treat others well when they themselves have been treated well, when they have hope for the future, and when they are fully engaged in challenging, achievable, rewarding projects. Those who feel bad, whether from the high heat of midsummer or from the occupational licensing requirements that keep them from working, are more likely to take out their frustrations on others. Crime, and even terrorism, are more likely in societies where jobs are scarce and where the government highly regulates free-agent entrepreneurs.5
To fully make the case that innovative dynamism encourages people to act more morally would first require fully setting out an account of what is moral behavior. That is an important, but surely a multibook-length activity. In the few pages of discussion here, I simply focus on three basic moral virtues that are widely accepted as important: fairness, tolerance, and effective sympathy. I argue that innovative dynamism helps us to achieve more of each of these virtues.
A first important basic moral value is fairness. Consider an experiment that animal behavior expert Frans de Waal conducted on capuchin monkeys.6 Two capuchin monkeys are in adjacent cages. The monkey on the left does a simple task and is rewarded with a cucumber slice, which she happily eats. She then watches as the second monkey does this same task and is rewarded with a grape. The experimenter goes back to the first monkey, who does the task again. The experimenter again hands her a cucumber slice. But this time she looks at the slice, throws it back at the experimenter, and angrily rattles her cage.
The experiment does not merely reveal a behavioral fluke unique to capuchin monkeys. Consider also the photos in Figure 8.1 illustrating the capuchin experiment as replicated with dogs.7 Two dogs who have been trained to shake hands with an experimenter are placed next to each other. (I do not know the dogs’ names, but I like to call the one on the left “Galt.”8) In the first photo, the experimenter shakes hands with Galt. She then rewards him with a piece of dry brown bread. The experimenter then shakes hands with the second dog, and, in the second photo, gives him a piece of juicy prime sausage as Galt watches. In the third photo, the experimenter then extends her hand again to Galt, who turns away without extending a paw (though you can see the second, sausage-rewarded dog, starting to lift a paw to indicate willingness to shake hands again).
Figure 8.1 Dogs know unfairness when they see it. Dog on left (Galt) shakes hand (and then gets dry brown bread); dog on right gets juicy prime sausage after shaking hand; Galt refuses to shake hands after having seen the other dog get a better reward for the same action.
Source: Associated Press 2008, p. 2A. Reprinted by permission of Associated Press.
When I have shown my students a video clip of the capuchin monkey receiving a cucumber slice for doing the same task as the other capuchin who receives a grape, the students so far have universally sympathized with the rage of the capuchin who only got the slice. The moral intuition is that it is fair to receive a roughly equal reward for a roughly equal contribution. The intuition is not just human; it is apparently mammalian! Maybe it goes deeper: the experiment also has been replicated with birds.9
As I later consider in the funding inventors chapter on patents (chapter 10), this intuition is part of the reason many of us agree with philosopher John Locke that those who mix their labor with land have a right to the land, while those who do not mix their labor with the land do not. And in our present discussion, this is part of the intuition that economic systems are fairer where there usually is a rough relationship between the size of a person’s contribution and the size of their income or wealth.
Fundamental to the fairness of a system of innovative dynamism is the sense that generally, what people earn in such a system has some observable relationship to what they have done. A case can be made that inventors and entrepreneurs who work hard, take risks, and create something new that others value, earn their rewards.
The economic Crisis of 2008 led many to view the system as rigged because those on Wall Street who had been complicit in the crisis, raked in huge unearned wealth, and then, to add insult to injury, had their cronies in government bail them out when their risky, opaque investment derivatives caught up with them.10 Harvard economist Greg Mankiw wryly observed that there was an Occupy Wall Street movement but no “Occupy Silicon Valley, Occupy Hollywood, and Occupy Major League Baseball” movements, suggesting that most people view the wealth of Wall Street as unfair, but they accept the wealth of the stars of tech, screen, and stadium as fair.11 The system of crony capitalism that made the Crisis of 2008 possible is very different from the system of innovative dynamism that made Steve Jobs’s iPhone possible.
A second important basic moral virtue is tolerance. Tolerance means that we respect the dignity of others, allowing them to make their own choices and to lead their own lives. In what is a positive feedback loop, tolerance both encourages innovative dynamism, and innovative dynamism encourages tolerance. In this chapter, I discuss how innovative dynamism encourages tolerance. In the next chapter on culture and institutions, I discuss how tolerance encourages innovative dynamism.
A tolerant person respects others by not robbing, assaulting, or murdering them, and by allowing them to be different in their traits and choices. Tolerance is celebrated in a system of innovative dynamism partly because it is usually the outsider and the cognitively diverse who bring us the breakthrough innovations that improve our lives, and partly because most of humanity are our potential customers or our potential collaborators. Tolerance is also celebrated in a system of innovative dynamism because tolerance allows people to have the freedom to choose how to pursue happiness, respecting the rights and dignity of each individual. Those who are immersed in their own projects do not have the time or energy to nurse grudges or plot revenge. So most fundamentally, tolerance is practiced in a system of innovative dynamism because we do not have time for intolerance.
A society of innovative dynamism does not stop at tolerance. Those who are happy and optimistic about their lives and who are pursuing challenging, meaningful projects are more likely than others to have the good will that goes beyond tolerance, allowing them to practice a third moral virtue: “effective sympathy” (actions taken by sympathetic observers that actually save or improve the lives of those who are suffering).
In the next section of the chapter I discuss how a system of innovative dynamism benefits our fellow human beings by encouraging effective sympathy in healthcare, in disaster rescues, and in philanthropic giving. But besides the human beneficiaries, a society that achieves material comfort through innovative dynamism is also more likely to show effective sympathy toward animals.
In his thought-provoking defense of freedom, philosopher Robert Nozick mused that animals feel pain, which matters enough to justify vegetarianism.12 Research in the last few decades shows that a wide variety of animals not only feel pain but also understand our emotions, show sympathy toward each other, and think at higher levels than we had assumed possible.13 Some would even argue that they have souls. Nozick himself for a while practiced the vegetarianism that he preached, but he eventually decided that the personal costs, in terms of health, taste, and virility, were too high.
Fortunately, a main spillover benefit of innovative dynamism is that it enables us to provide a higher degree of effective sympathy toward animals. When we are wealthier, many of us increase what we spend to reduce the pain felt by animals—in the language of economics, the humane treatment of animals is a “normal good.” Google entrepreneur and cofounder Sergey Brin has advanced innovative dynamism by increasing the usefulness of the Internet. With his profits he has funded other ambitious projects, including the $325,000 he spent to fund a process for generating hamburger meat without killing cows.14 If we can efficiently grow meat from raw ingredients, without the cows, then we can have both moral virtue and health, taste, and virility.
Also illustrating the higher moral standards made possible by innovative dynamism are the automated, humane milking machines that adjust milking speed to each cow and allow cows to choose when they are milked based on when their udder is full. This increases the comfort and freedom of the cows at the same time that it increases the amount of milk produced.15 As we work our way up to the higher needs fulfilled by the pursuit of meaningful projects, we can afford to develop finer-grained moral sensitivities. As in the past, economic growth and higher standards of living will allow us to evolve higher standards of sympathetic moral behavior.16 With innovative dynamism, life improves for humans—and for cows too.
Schumpeter believed that innovative dynamism leads people to act more rationally, where “rational” is used in a broad sense of effective thinking without emotion or superstition. The nonprofit and government sectors would function better within a system of innovative dynamism because many of the specific process innovations created within the private sector would be imitated within the nonprofit and government sectors and, more broadly, because many of the “habits of mind” nurtured within the private sector would also improve the efficiency, effectiveness, and creativity of the nonprofit and government sectors.17 Schumpeter specifically gives the example of nonprofit or government hospitals, claiming in 1950 that when, in the near future, “cancer, syphilis and tuberculosis” would be cured, the cures would be achievements of the system of innovative dynamism.18 Schumpeter’s rationalizing spillover effect seems plausible, though in the case of cancer, it sadly turned out to be smaller than he hoped.
In natural disasters, the good will created within innovative dynamism increases our sympathy, and the rationalizing spillover effect increases the effectiveness of that sympathy. The actions of trained “first responders” are often credited with saving most lives in disasters. But in many disasters, many victims die before the trained first responders arrive. In those common cases, the lives of victims are saved or lost due to the action or inaction of regular people, of random passersby, not the actions of trained first responders.19
When the victims of disaster are more resilient, nimble, and resourceful, they are more likely to survive.20 When the passersby are more resilient, nimble, and resourceful, they are more likely to save lives. Note that these are exactly the traits that are encouraged in a system of innovative dynamism. On April 18, 1906, the day of the great San Francisco earthquake and fire, entrepreneur Amadeo Peter Giannini headed into the burning city to rescue the money that was stored at his young bank.21 He located the bank’s money in the rubble, hid it under orange crates, and transported it back to his home in San Mateo, where he hid it in the fireplace. The very next day he took some of the money back into burnt-out San Francisco and started making loans to average citizens to help them rebuild the city.
We often think of natural disasters as random events over which humans have no control. In one sense, this is true. We do not know, and may never know, how to control and stop many common disasters, such as earthquakes, volcanic eruptions, hurricanes, and tornados. But we can improve our ability to predict and prepare for such events, and we can improve our ability to deal with such events when they occur. As society grows and progresses, what is considered a natural disaster contracts because of our increasingly greater control of more of nature. In cases where disasters cause large damage in developed countries, it is not always easy to tell how much of the disaster is attributable to nature and how much to humans. For instance, Hurricane Katrina would have been a much smaller disaster if the Army Corps of Engineers had effectively built and maintained the protections that it had been funded to provide for New Orleans.22
With economic growth within a system of innovative dynamism, buildings are designed better and built with stronger materials. Earthquakes and hurricanes cause more deaths, per affected persons, in the developing world than in the developed world, largely because buildings in the developed world can better withstand the trembling and the winds. Better communication, logistics, and medical services in the developed world also help. Earthquakes of similar magnitude occurred in 1994 in Northridge, California and in 2005 in Pakistan. Sixty-three people died in Northridge; around 100,000 people died in Pakistan.23
Our best strategy to survive and prosper in the face of natural disasters and other crises is not to bury our heads in a system of rules and stagnation, but to enable and encourage everyone to develop the nimble resilience and resourcefulness of the innovative entrepreneur. Not only will we have more innovation, but as a spillover effect we will also have more citizens ready to effectively assist during disasters.
A related spillover effect, based on similar reasoning, is that the effective habits of mind that entrepreneurs develop in pursuing their innovations make them more effective philanthropists. Entrepreneurs are impatient for results,24 which has led many of them to contribute to philanthropy while they are still alive, including Andrew Carnegie, John D. Rockefeller, and Bill Gates. There is some evidence—and it is growing—that many wealthy entrepreneurs eventually take philanthropy seriously, and they apply some of the same skills and intensity to the task of effectively giving their money away that they applied to creating it in the first place.
One might also expect that the results-orientation of entrepreneurs would lead entrepreneurial philanthropists to rely less on credentials in allocating their funds. For example, when Carnegie funded a scientific research institution in Washington, DC, he intended that it “discover the exceptional man in every department of study whenever and where found.”25 Of course, it is an open question how often this sort of donor intent is realized in actual practice.
As I documented in the chapter on new goods (chapter 4), John D. Rockefeller by some measures was the richest American in US history. In the huge, most complete biography of Rockefeller, roughly half the pages are devoted to how hard Rockefeller worked to create Standard Oil, and roughly half the pages are devoted to how hard he worked to effectively give his money away.26 A few examples: Rockefeller’s money founded the University of Chicago; his Rockefeller University was the first institution devoted exclusively to medical research; and his money financed a major effort to wipe out hookworm disease in the South.
The range of goals of entrepreneurial philanthropists is very wide, and often very ambitious. Entrepreneurs Richard Branson, James Cameron, and Eric Schmidt each separately funded minisubmarines to explore the ocean’s deepest depths.27 Entrepreneurs in growing numbers “are playing a crucial role in archeology.”28 Jack Horner’s Montana dinosaur digs have been financed by entrepreneurs Wade Dokken, Klein Gilhousen, George Lucas, and Nathan Myhrvold.29 Entrepreneurs have made many large donations aimed at curing diseases such as cancer.30
Today, entrepreneurs such as Bill Gates are increasingly impatient to get results with their philanthropic dollars and are taking a more active role than previous generations of entrepreneurs (and than the government) in monitoring how their money is spent, sometimes reallocating it when it is being spent ineffectively. A plausible case can be made that innovative entrepreneurs have the knowledge and skills to be more effective philanthropists than do nonentrepreneurs.
But this does not imply that entrepreneurs should donate all of their wealth to philanthropy, for a plausible case can be made that entrepreneurs do more good in the world when they invest their wealth in new entrepreneurial ventures than when they give their wealth away in philanthropy. Consider Steve Jobs, who near the end of his life was criticized for not taking the giving pledge of his friend and rival Bill Gates.31 Jobs had a record of finding even bigger and better ways to make a ding in the universe through his entrepreneurial innovations. With his stockpile of wealth, he could nimbly act on his famous and often on-target intuitions without having to articulate his reasons in order to raise funding from others.
When Thomas Edison was asked what his goal was in life, he answered that his goal was not philanthropy but the making of inventions whose usefulness would be proven by their selling well.32 Once, when he made only a small donation to a YMCA, he explained that his money would be put “to greater advantage for all the people in conducting experiments.”33 It is an open question when the effective sympathy of inventors and innovative entrepreneurs is best realized through philanthropy and when it is best realized through further innovations.
Abraham Lincoln has often been ranked as the best American president. He was the uncommon common man who freed the slaves and defended other common men. When he was a young man he was paid to do chores for neighbors, but he had to turn over his pay to his father—he felt as though he knew something about what it was like to be a slave.34 A little later Lincoln built a small boat and became an entrepreneur, ferrying passengers from the shore to larger riverboats. An incumbent ferry wanted this business for themselves, so they rigged the system by having “him arrested and taken to Kentucky for operating a ferry without a license.”35
In his first campaign for the presidency, Lincoln accepted inequality of outcomes as long as everyone had the chance to succeed. He said he did not believe that laws should prevent people “from getting rich,” but he did believe that the “humblest” should have “an equal chance to get rich.”36 Something of Lincoln’s sense of fairness is shared by many of us, and it may even be built into us just as it is built into dogs and capuchin monkeys to see it as fair for roughly equal actions to receive roughly equal rewards. In a system of innovative dynamism, those who get the grape instead of the cucumber slice tend to be those who have made a contribution that others value, whether it be novels that raise our spirits (J. K. Rowling), cars that capture our imagination (Elon Musk), or pocket-sized iPhone computers that exponentially expand our capabilities (Steve Jobs).
At least in the United States, a majority cares much more about having an equal chance than they care about equal income or wealth.37 A system of innovative dynamism comes closer to providing that equal chance than the rigged systems where privilege is based on noble birth or crony connections. Where innovative dynamism has flourished, success has depended more on what you know and what you can do, and less on who you know.
Privilege can limit the poor’s chances in a couple of ways. One is when all the tools to achieve success are so expensive that only the privileged can afford them. The other is when the privileged can command or buy government actions to protect their wealth and power from the leapfrog innovations of outsiders.
Since the Crisis of 2008, citizens of the United States, as consumers, have benefitted from declining prices in most categories of consumption, but as workers, too many are frustrated by declining access to the means to succeed. They feel, with good reason, that the system is increasingly rigged against them. But it would be a mistake to see this as an indictment of innovative dynamism. As Nobel Prize-winner Edmund Phelps has extensively shown, the United States, at least since World War II, has been a mixture of innovative dynamism with crony capitalism. His warning is that in recent decades crony capitalism has become more prominent and innovative dynamism less so, bringing the United States much closer to the ennui and stagnation of most of Europe.38
A key cause of the Industrial Revolution was the shift from rewards based on bribes and personal ties to rewards based on merit.39 In a system of innovative dynamism, success depends on what you can do, not who you know. For example, billionaire entrepreneur Larry Ellison described how success in programming depends mainly on how well you program.40 Crony capitalism is thus a step back in time to a system where success depends on who you are related to, who you know, and who you are willing to pay off. Crony capitalism is inconsistent with innovative dynamism because an incumbent firm’s cronies in government provide subsidies, monopolies, tariffs, and other special privileges to protect the incumbent firm, making it difficult to impossible for the innovative entrepreneur to create and grow a startup.
An especially malicious and unfair form of inequality is unequal enforcement of regulations.41 As a huge and increasing number of obscure and complicated regulations are added to the books, it becomes easier for the government to punish those who refuse to play the crony game by finding some regulation, among the multitude of regulations, that the entrepreneurially disruptive noncrony has violated.
Complicating the situation, sometimes entrepreneurs themselves resort to crony capitalism, seeking to protect their firms from the leapfrog innovations of other entrepreneurs.42 For example, Andrew Carnegie claimed that the 1870 tariff on foreign steel had encouraged him to become a steel entrepreneur.43 Steel was viewed as an infant industry that needed protection. But “by the mid-1880s that infant had become a strapping, abrasive youth.”44 Still, Carnegie argued for continued tariffs because “the steel industry was not yet fully grown.”45 In 1884, Carnegie donated $5,000 to pro-steel-tariff Republicans.46 (Before you allow the Carnegie story to turn you into a cynic, please know that only some entrepreneurs resort to crony capitalism. Remember from the first chapter that the Hartford brothers of A&P refused on principle to hire lobbyists.)
In our current mixed system, the parts that are innovative and dynamic have increased the poor’s access to the means to succeed. For example, fracking is one recent important process innovation. Some have argued that success increasingly requires higher education, but many of the less-educated poor have done very well working hard for fracking firms in places like North Dakota.47 So while some episodes of innovative dynamism especially favor the highly educated, that is not always true. Some favor the less-educated, like the fracking episode.
The perceived necessity of higher education is partly fueled by the role of higher education in obtaining the licenses that are increasingly required for many occupations. While many jobs and entrepreneurial ventures require knowledge beyond basic literacy, it remains an open question if that knowledge is better learned in college or better learned in apprenticeships, on-the-job training, reading, or online tutorials. PayPal entrepreneur Peter Thiel has famously offered substantial grants to budding young entrepreneurs who pledge not to go to college.
Just as land was a key tool for the poor to have a chance in Locke’s day, access to information is a key tool for the poor to have a chance in our day. In the 1990s there was considerable concern about the “digital divide,” which meant that the world was divided between the well-off who had access to computers and the Internet and the less well-off who did not. But the natural course of new goods diffusion, in a system of innovative dynamism, has quickly solved the problem: prices have hugely declined, giving digital access to almost everyone who wants digital access.48 Color televisions in the United States are widely owned, even among the poor. Now, computers can be purchased for the price of a low-end color television. By 2011 over 60 percent of households with income of $30,000 or less had broadband Internet at home, and broadband Internet is freely available in many locations, including McDonalds.49
The Internet is one of the major process innovations of recent times. At low cost, it gives everyone equal access to a wide variety of books, YouTube tutorials, Wikipedia entries, and other forms of information. One example is that the greatly increased access to books, journals, and data sets available through the Internet increasingly allows academics at nonelite universities a more equal chance to perform cutting-edge research.50 Another example is that low-cost massive open online courses (MOOCs) on the Internet are expected to increasingly give serious students, without regard to their income or location, a more equal chance to learn from the best professors.51
In the past, gatekeepers were able to restrict access to the resources needed to pursue various entrepreneurial projects. Publishing a book required approval by the editors at a press; creating a physical prototype required access to expensive equipment and materials. Now Internet-enabled sites such as Amazon’s self-publishing platform allow authors a more equal chance to publish without first receiving permission from a publishing house gatekeeper. Also, the rising quality and falling price of 3-D printers allow inventors and entrepreneurs a more equal chance to cheaply create prototypes without first receiving permission from a manufacturing firm gatekeeper. Jeff Bezos has observed that “even well meaning gatekeepers slow innovation,” so one result of bypassing gatekeepers is quicker innovation.52 Another important result is greater opportunity and mobility for outsiders. More people have a chance to pursue their dreams without receiving permission from the gatekeepers.
During much of the Golden Age of innovative dynamism (1830–1930), one way that everyone had open access to the means to succeed was through the patent system. Before Lincoln ran for president, he sometimes was asked to deliver a speech he had prepared that explained how new goods make life better and how the patent system encourages new goods. He himself had received a patent for a device to help riverboats rise above obstacles, making him the first, and so far the only, president to have been issued a patent as an inventor. He knew that patents could provide one way “to allow the humblest man an equal chance.”53 In the chapter on funding inventors (chapter 10), I will discuss at greater length how the past patent system once allowed everyone to improve their lives through invention and how the current patent system can be reformed to do so again.
We can also implement a system for assigning property rights to the creators of content on the web, such as blog entries, webpages, and video clips, as advocated by information technology entrepreneurs such as Bill Gates, Tim Berners-Lee, and Jaron Lanier.54 Currently, almost all of the gains from individuals posting web content are appropriated by a few large “siren server” companies such as Google, Facebook, and Amazon, which is unfair, inefficient, and increases inequality.55 Some of the early entrepreneurs of the web had devised and considered implementing processes for collecting micropayments for web content, such as blog postings. Marc Andreessen, entrepreneur of the early Netscape browser and now venture capitalist, says that they tried to implement such a system, but they gave up because “it was cosmically painful” to deal with the incumbent banks and credit card firms.56 He and web founder Berners-Lee believe that it is time to try again. Few content creators will directly become rich from micropayments. But it can be a way for some of the poor and middle class to improve their lives and can contribute to self-funding their entrepreneurial projects.
Some ridicule Horatio Alger’s fictional rags-to-riches stories, suspecting that in the real world such stories never happen and never have happened. But from 1830 to 1930, when innovative dynamism most flourished in the United States, such stories could be seen in the real stories of living people. In the first chapter we met John Jacob Astor, who carried a bag of flutes as he arrived in a vibrant New York City. After selling the flutes, he earned his living for a while as a street vendor, selling bread and cakes out of a basket.57 Cornelius Vanderbilt, John D. Rockefeller, and Andrew Carnegie all rose to riches from humble beginnings.
John D. Rockefeller’s father was frequently absent from the family during John’s childhood. His father, it turned out, was a con man and a bigamist.58 Growing up poor, John raised turkeys, dug potatoes, and made small loans to farmers in order to help support his mother and siblings.59 He was frugal and responsible, so he also saved a little and tithed at his church. After high school, he studied bookkeeping for ten weeks at Folsom’s Commercial College,60 and at the age of sixteen he used his bookkeeping knowledge to serve a sort of apprenticeship in a small produce commission firm.61 John’s job as an apprentice merchant provided a common path for young men of the period to achieve enough upward mobility to enter the middle class.62 Some, like John, did even better.
After a few years he cofounded his own produce commission firm, which, after a few more years, diversified into oil refining. He continued to be frugal and to work long and hard. He was attentive to the processes in his business and found ways to implement major (as well as minor) process innovations.63 His process innovations greatly reduced the price of kerosene and oil, which energized industries, fueling innovations in lighting and transportation. He ended up the wealthiest person in US history,64 donating much of it to worthy projects such as founding a major research university in Chicago and fighting hookworm disease in the South. He is proof that in a system of innovative dynamism, rags-to-riches mobility was possible.
Even today, it is still possible. Billionaire Harold Hamm, one of the innovative entrepreneurs who created fracking, grew up dirt poor as the last of thirteen children born to Oklahoma sharecroppers.65 Steve Jobs’s parents were not as poor as Harold Hamm’s, but both parents lacked college degrees, and their means were modest.66 When WhatsApp was sold to Facebook for over $19 billion, cofounder Jan Koum could remember his immigrant mother supporting her family by babysitting and sweeping grocery store floors. Rags to riches still happens today, in our mixed system of partial innovative dynamism, but it does not happen as often as it should.
Elaborating a simile of Schumpeter’s, the rich in a system of innovative dynamism are like the guests staying in the top concierge floor of a hotel—the floor may always be full, but with an ever-changing set of guests.67 Schumpeter contrasted the immobile rich nobility of medieval Germany with the mobile rich entrepreneurs of innovative dynamism. Mobility is common among the entrepreneurs because the “position of the industrialists is rapidly dissipated unless it is constantly marked by the same kind of success that created it.”68
My mentor Ben Rogge rooted for the little guy, but he also sometimes defended the big guy. Was he a seriously conflicted economics professor, talking out of both sides of his mouth? No, his sometimes defending the big guy grew out of his rooting for the little guy. He believed that everyone should have a chance to improve themselves and improve the world. Sometimes when the little guy works hard, has some good ideas, and enough luck, she may grow into a big guy. That is fair, and it provides the former little guy the funds to make the world even better in even more ambitious ways. But with bigness comes power, and with power comes the temptation to use the government to hold back the new little guys who are working to rise, working to bring their leapfrog innovation into the world. Rogge defended the little guys who grow big by innovating and stayed big by continuing to innovate. But Rogge urged us to be vigilant against the formerly little big guy who wants to pull the ladder up behind her as soon as she herself has finished the climb.69
The poor and working class can better their lives through more and better jobs, and through free-agent or innovative entrepreneurship. But as we saw in the chapter on easing the pains of labor (chapter 6), the poor and working class often must struggle with regulations that protect crony incumbents and hereditary wealth—regulations that restrict the entry or growth of outsiders. As we will see in the chapter on unbinding regulations (chapter 12), a less-regulated, flexible labor market encourages upward mobility not only through more and better jobs, but even more through greater opportunities for free-agent end innovative entrepreneurs. If we adopt policies friendlier to entrepreneurs, we will see more earned mobility based on hard work and innovation, and less unearned inequality based on crony capitalism and hereditary dynasties.
Why did philosophy originate in the trading center of Miletus? Historically, many of the leading centers of culture have also been leading centers of commerce and innovation—think of Venice, Amsterdam, and Florence during their prime. We still admire the cultural achievements of Renaissance Florence in the 1400s and 1500s, but sometimes we forget how much Florence was “a really vibrant, flexible, and free-market city.”70 This was no coincidence.
Whether modern innovative dynamism produces better culture than other systems depends crucially on how we measure culture. In 1942, for instance, Adolf Hitler granted that the citizens of the United States had a higher standard of living than the citizens of the German Reich as measured by cars, clothes, food, houses, and refrigerators. He sneered that “this sort of thing does not impress us.”71 What did impress him was that the German Reich had 270 opera houses. Assuming that he was right that the German Reich had more opera houses—does that mean they had better culture? Who gets to decide that as of 1942, German opera was culturally superior to American jazz or to American motion pictures (or even to American refrigerators)?
George Mason economist Tyler Cowen and political and social theorist Virginia Postrel have shown that innovative dynamism has received a bum rap when it comes to its effects on culture.72 If we value choice and variety, and the opportunity to experience and create music and art and literature and theater, then the societies with higher standards of living are better. And this is especially true as innovative dynamism has created new goods and process innovations that allow cheap and easy access to a vast variety of music and drama and literature.
Many have observed that process innovations allow us to produce more material objects, with greater efficiency, freeing time and resources to be spent on the intangible, often cultural, goods and services of what is often called the “knowledge economy.”73 A case also can be made that process innovations made through innovative dynamism have permitted a sleekness and elegance of design that make parts of our world more beautiful and exciting.74 Examples include the skyscrapers of architect Louis Sullivan and the iPhones of designer Jony Ive and entrepreneur Steve Jobs.75
Process innovations in communication media have long been accused of degrading culture. In the dialogue Phaedrus, Plato has Socrates worry that with the introduction of writing, the bards soon would no longer be able to recite from memory the great epic poems.76 In recent times, many have worried that television has degraded culture. Steven Johnson has replied that we should make fair comparisons. Did the quality of the average drama available to the average person decline when movies replaced vaudeville and melodramas or when television partly replaced movies? In the chapter on new goods (chapter 4), I summarized Johnson’s argument that average quality did not decline.77 Possibly another positive effect of television on culture has been identified by Matthew Gentzkow, winner of the prestigious John Bates Clark Award in economics, who found that high school students scored better on standardized tests if they had greater exposure to television as young children.78
The effects of video games on culture have been widely criticized, but the positive effects may be greater. One of the appeals of a good game, such as Minecraft, is that it has “a coherent, consistent set of rules.”79 Such games provide challenges that are not so easy the player quits out of boredom and not so hard the player quits out of frustration.80 In this way, they can provide what psychologist Mihaly Csikszentmihalyi calls a “flow” experience and may serve as a therapeutic refuge from a real world that too often bores or frustrates. They also can serve as a proof of concept or model for what the world can and should be like.
Proficient computer programmers have often noted the similarities between programming and playing a good game.81 Computer programmer Seth Bling’s reason for liking Minecraft is the same as his reason for liking programming: “I have full control of the world and can shape it exactly as I choose.”82
Psychologists have found that those who play video games have larger ventral striata in the brain. Whether that is a cause or an effect of the game playing is still in question, and more needs to be learned about whether having larger ventral striata provides benefits for other activities.83 Whatever the effect on the brain, playing video games increases a game player’s ability to solve problems by roughly the same amount as engaging in standard educational activities.84 A version of Minecraft has been designed specifically to enhance classroom teaching,85 because video games that engage children’s attention have beneficial spillover effects on skills such as reading.86
If cleanliness and hygiene are part of culture, then new goods and process innovations have brought us improvements here as well, including advances in soaps, bathtubs, and showers. We are on the cusp of further advance here, with more sophisticated toilets including bidet-like features to bring us cleaner, healthier, and sweeter smelling derrières.87
Episodes of innovative dynamism have changed the environment, often for the better. One of our great new goods innovations is the car, which has often been accused of being a cause of increased pollution. But cars put an end to the pollution from huge quantities of horse manure in city streets, a pollution that was not only unpleasant to walk in and smell but was also unhealthy. Cars can produce noise, but clanking horse hooves were not quiet.88 So replacing horses with cars reduced horse manure in cities, just as replacing gas lighting with electric lighting reduced soot in homes. One cause of air pollution has been city drivers who must drive in circles to find free parking spaces. Innovations in information technology and communications now allow variable pricing in parking meters, so that the price will increase when most parking spaces are occupied, reducing the quantity demanded and assuring that spaces will always be available without pollution-causing circling.89
The many computer and communication innovations of recent decades have allowed us to produce goods digitally that previously required material versions. Books, videos, music, and mail are increasingly digital rather than material.90 This dematerialization allows us to produce more goods while at the same time making use of less resources and energy.91
Some have worried that under a system of innovative dynamism, our natural resources will soon be exhausted. This worry misunderstands the nature of natural resources. What is a resource depends on what we have figured out how to use. Since there is no limit to human inventiveness, as we create uses for the previously useless, our stock of natural resources increases. For example, the exhaustion of oil and gas had long been predicted, and as the twentieth century became the twenty-first, was predicted with increasing urgency.92 But with increased scarcity came higher prices, which created the funding and incentives for innovative entrepreneurs to develop the fracking process innovations that now allow us to cheaply recover oil and gas that was thought to be beyond our reach.
With innovation, old resources lose value, and new resources gain value. Whale oil was growing scarce until the little-used gunk percolating up through the oil seeps of Pennsylvania could efficiently be turned into kerosene by innovators such as John D. Rockefeller.93 More recently there have been fears about limited supplies of rare earth metals and of China monopolizing the known supplies. As prices rose, mine investors located new sources of supply, and some users of rare earth metals found substitute materials to use in place of them.94
As I mentioned earlier in the chapter, many of us living in a system of innovative dynamism want to increase our effective sympathy toward nonhuman animals. So it is good news that just as humans have proven resilient in increasing the supply of natural resources, so too has nonhuman life often proven surprisingly resilient in the face of changes in the environment. We are beginning to understand that part of the reason for the greater resilience of life may be the “variable genetic expressivity” that allows an organism’s genes to respond more flexibly to changes in the organism’s environment.95 Although there is more resilience than we fear, there is less resilience than we desire—not enough to save all species from extinction. But the other good news is that if we decide that humans treated the mammoths or the passenger pigeons unfairly, or if we decide the benefits of their presence is greater than the costs, then it appears increasingly likely that continued innovations in biology and chemistry will allow us to bring the mammoths, the passenger pigeons, and some other extinct species back from extinction.96
Harvard evolutionary biologist Steven Jay Gould long ago noted that all our genomes contain currently inactive sequences that code for traits of our ancestors that we no longer possess. Sometimes mutations accidentally activate these strands, resulting in horses with toes and hens with teeth.97 If we could control these accidental activations we would have another way to increase the diversity of species, or at least a way to bring back some of the traits (if not the species itself) of species that are now extinct. Inexpensive technology to recombine pieces of DNA is already within the reach of breeders and inventors, suggesting to Princeton physicist and futurist Freeman Dyson that we will enjoy “an explosion of diversity of new living creatures.”98
More than the exhaustion of resources and the extinction of species, the threat that most energizes environmentalists is global warming caused by our use of energy from fossil fuels. We have already seen some of the ways that gasoline-powered cars and electricity-powered machines have helped us to satisfy our basic and higher needs. Whatever our life plans, many of us increasingly want to guard against lapses in our electricity. We are buying home generators to protect us against lapses in electric utility service that would deprive us of the safety and productivity of our lights, the freshness of our refrigerated food, the comfort of our air conditioning, and the knowledge and human connections of our computers and smartphones.99 The question now is whether those innovations also have harmed the environment and, if so, how much. The main concern is that the production of energy increases global warming.
Science is not a body of doctrine; it is a process of tolerant, skeptical inquiry. When a distinguished Princeton physicist like Freeman Dyson argues that the earth is mainly a self-equilibrating system in which increased carbon dioxide is largely absorbed in more lush vegetation, we should tolerate his deviation from the current opinion of the majority of scientists.100 But while inquiry continues, we should prudently ask how a system of innovative dynamism would respond if global warming continues to develop as the mainstream scientific orthodoxy currently suggests.
As of this writing, there is wide agreement that global temperatures have risen by about one and a half degrees Fahrenheit since 1880.101 The United Nations Intergovernmental Panel on Climate Change’s fifth, and most recent, assessment provides a likely range of temperature increase of from 2.7 to 8.1 degrees Fahrenheit by the end of this century.102 Few doubt that increases at the high end would do significant harm. The harm from increases at the lower end, especially with several decades to adapt, are less clear.103 And there is even less agreement on what can and should be done.
The economy in a system of innovative dynamism flourishes by allowing innovative entrepreneurs to nimbly adapt to and make use of unexpected changes in their economic environment. The flourishing economy can be sustained in the face of global warming by similarly allowing innovative entrepreneurs to adapt to and make use of changes in their natural environment. For example, global warming allows the nimble to reduce the costs of shipping over,104 communicating in,105 and retrieving oil and minerals from the Arctic,106 and to increase agriculture and animal husbandry in places like Britain107 and Greenland.108 Global warming allows the nimble to build golf courses in Alaska,109 grow grapes for sparkling wine in England,110 and survive winters in Chicago.111 Dyson even suggests that the benefits from global warming may exceed the costs.112
Humanity can survive and thrive if the global climate warms by a few degrees, so long as we do not abandon the policies and institutions that made McCloskey’s Great Fact possible. Preindustrial Icelanders who had fewer modes of adaptation substantially reduced their population growth rates in response to global cooling.113 Economic historians who have studied the past adaptability of US agriculture to climate changes are generally optimistic about the ability of the US economy to adapt.114 Consider an illustrative example. The maple sap tapping season consists of the range of days when nights are freezing, and daytime temperatures are higher than 40 degrees Fahrenheit. In Vermont, the average tapping season is about five days shorter than it was fifty years ago, possibly due partly to global warming. In response, maple syrup entrepreneurs have developed tubing process innovations to more efficiently pull sap from the trees, with the result that even with a shorter tapping season, they can now pull in roughly double as much sap as they could fifty years ago.115
Maple syrup entrepreneurs are not the only ones who will flourish. Two kinds of cities also will flourish: those that adapt, and those, like Minneapolis and Detroit, that become more appealing as the climate warms and so attract in-migration.116 Major adaptive cities such as Rotterdam, Tokyo, and St. Petersburg have designed defenses against encroaching water, and such defenses could also be deployed in cities such as New York, if the threat increases.117 In terms of individual comfort and productivity, individuals in the United States have increasingly protected themselves against the costs of hot weather, for example through the adoption of air conditioning, which has reduced heat-related mortality.118 And in terms of our effective sympathy toward other species, we can take some comfort in the evidence that many other species also will be able to adapt to—and some even thrive with—global warming.119
Adaptations such as shipping in the Arctic and innovations such as new tubing for pulling maple sap illustrate that under a system of innovative dynamism, the number and importance of adaptations and innovations related to global warming are diverse and hard to predict, and so the extent to which the costs of global warming exceed the benefits must likewise be hard to predict. The current mainstream social science forecast is that the costs will exceed the benefits. But you should weigh the forecast in the light of economics Nobel laureate Robert Fogel’s evidence that social science forecasts are systematically overly pessimistic because they cannot take account of as-yet-unknown future adaptations and innovations.120 If we nurture institutions and adopt policies that allow more and faster adaptations and innovations, the future can be much brighter than forecast.
But what if, despite Fogel’s evidence, the pessimists are right and the changes from global warming overwhelm humanity’s and nature’s ability to adapt and innovate? Even then, the solution would not be to shut down innovative dynamism but rather to crank it up. One way to crank it up would be by geoengineering either a way to sequester carbon dioxide from the atmosphere or else to counter carbon dioxide’s effects by partly blocking the sun’s heating of the Earth. Another way to crank it up would be to transition to forms of energy that release less carbon dioxide.
A variety of geoengineering solutions are in various stages of development.121 Physicist, information technologist, inventor, and entrepreneur Nathan Myhrvold has developed a proposal to benignly simulate the earth-cooling effects of past major volcanic eruptions.122 Dr. Olaf Schuiling, a retired geochemist, is exploring the use of the mineral olivine, which naturally absorbs carbon dioxide from the environment.123 Ants naturally break down other minerals into olivine through a process that may be emulated by humans.124 Another approach is the development of algae that absorb carbon dioxide and produce oil.125
Besides innovations to sequester carbon dioxide, other innovations can create energy with less release of carbon dioxide. If the efficiency of wind and solar energy are increased enough, we may be able to transition to them. If not, an obvious alternative is nuclear energy. Nuclear energy generates minimal carbon dioxide, allows us to continue to benefit from new goods and process innovations, and has risks that are lower than often thought (and can readily be reduced even further). Inventors such as Nathan Myhrvold, with support from innovative entrepreneurs such as Bill Gates, have designed nuclear reactors that are smaller, cheaper, more efficient, and safer than those currently in operation.126 Because they are smaller, they can be more widely distributed and reduce the land needed for long distance electricity transmission wires.
In a system of innovative dynamism, creative inventors will find ways to reduce global warming, and innovative entrepreneurs will find ways to adapt to it. Besides the risks of global warming, there are other countless risks that are conceivable—for example, the collision of a large asteroid with Earth. Many of the conceivable risks seem unlikely in the short term, and in any event we do not know how, or currently have the resources, to counter them all. Whatever small subset of the conceivable future risks actually occur, we should trust our future selves, and our descendants, to have the entrepreneurial nimbleness to deal with them. In addition to our trust in their entrepreneurial nimbleness, they will also have the new goods and process innovation tools that we will have created for them.
The economist Reverend Thomas Robert Malthus and the economist David Ricardo once warned of a sad fate for humankind. To feed a growing population, increasingly less fertile land would be planted. Subsistence and starvation would loom. As it turned out, innovations in farm implements allayed the gloom for a while, but by 1898, the future of food again seemed dim.127 After decades of growing crops, the fertility of the land could only be retained by applying fertilizer. But fertilizer was scarce and quickly getting scarcer. Manure was best, and guano (bird manure) was the best of the best.128 Caves or islands with concentrated supplies of guano were mined as if for gold. For soil fertility, the key ingredient of guano was nitrogen. Chile and Peru fought a war over nitrogen-rich land.129
Ironically much of the air is nitrogen, but no one knew how to transform the nitrogen in the air into a form that could be made into fertilizer. No one—until German chemist Fritz Haber invented a way to do it. His miracle process solved the technical challenge. (Earlier in life, in defense of his native country in World War I, Haber had found a form of gas warfare more deadly than that previously used by the English and French.130) To scale Haber’s process for turning air into fertilizer and make it commercially practical required the innovation of entrepreneur Carl Bosch. Innovative project entrepreneurs are usually willing to learn from anyone (regardless of race, religion, or creed) who can help them make their project a reality. Bosch was willing to learn from Haber. Bosch’s innovation made it possible to revitalize the land, increasing food production per acre, which allows more of our land to remain in or return to the prairies or forests of an uncultivated “green” state.131 Guano returned to being just guano.
Haber was Jewish; Bosch was not. But Bosch had the courage to argue with Hitler that he should not persecute Jewish scientists such as Haber. He told Hitler that Jewish scientists had made crucial contributions to physics and chemistry in Germany. Before dismissing Bosch from his office, Hitler ranted back that if Jewish scientists were so important, “Then we’ll just have to work one hundred years without physics and chemistry!”132 Haber managed to escape Germany, but after a few years he died, a poor and broken man. Those who want a greener planet owe much to the inventor Haber and the innovative entrepreneur Bosch.