Invention, Profit and Economic Growth

The Real Mother of Invention

by Elaine Schwartz    •    Oct 21, 2012    •    1134 Views

Saying that profitnot necessity is the mother of invention, economic historian John Steele Gordon starts his column in this week’s Barrons. His focus was the 18th century clipper ships that earned people like John Jacob Astor $50,000 for a single voyage between the US and China. Furs went to China, tea returned and, because of the invention of the clipper ship, the voyage was faster than ever before.

More speed, more trips, more profits.

The Gordon column reminded me of a book I always enjoy rereading. In How We Got Here, Andy Kessler looks at a history of technology and markets. Echoing Gordon, Kessler takes the reader through the history of the steam engine. He begins with 18th century English coal mines that flooded because they were below water level. Realizing miners needed something better than their vertical bucket brigade, Thomas Savery invented the Miner’s Friend, a steam powered mechanized pump.

Here we can fast forward, from the first steam engines to the steamboat (yes, there is lots in between). But that gets us back to the clipper ship and again, how the quest for profits leads to invention. When steam power became cheap enough, because of their speed and cargo capacity (10 times more than sailing vessels), steamboats replaced clipper ships. Merchants, whose transport costs could run as high as three-quarters of the price of an exported good, saw their opportunity.

Again, more voyages, higher volume, lower prices, bigger profits and soon, the next invention.

Wouldn’t Adam Smith (mass production) and David Ricardo (free trade) both be smiling?

Sources and Resources: Happily, here you can easily take a look at the Kessler book (my source for steamship stats) while the Gordon article is here. For good brief bios on Smith and Ricardo, the econlib library, here and here, is a handy link.

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