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NOTE Technology and Social Change

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It's a pleasure to be here. Doug always tries to disorient me by mentioning my book on Catholic

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music. It always shakes me up a little bit. I never know how to turn that into a joke

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or anything. But anyway, it's true. I do have a book on music. That's not what we're talking

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about today. I'm curious, how many of you have worked in a business enterprise yet in

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your life? Have worked in some sort of shop or, yeah, been on the producer side of things?

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To me, my beginning of my own personal economic understanding began when I got my first job,

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which is more difficult now than it was when I was young. We had a little tactic when you

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were 14 or so in those days for getting a job, for subverting the child labor laws.

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You would simply lie about your age. Now it's not as easy to do that anymore, but back in

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those days, the boss would ask you, how old are you, son? And you'd say, 16. However old

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One of my first jobs was working for a department store. The boss wanted me to work in returns.

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This is where people bring back their products and you sort of deal with them. So the first

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The first return I got was the first day on the job and a guy walks in with, I still remember,

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there was a time when everybody wore these little sort of silky running suits, I don't

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know, like guys would wear them, they would sort of be silky and I don't know, everybody

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wanted them, I guess that's not true anymore, but in those days, so we used to sell these

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silky running suits, I mean, very strange, they had stripes on the sides, vibrant blue

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or something, and he walked in and he said, look, I just have to return this thing because

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it fell apart.

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I looked at this running suit and it was clear that he ran like 200 miles in this thing.

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It was just disheveled and falling apart and it had, like the polyester had sort of like

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those little peels on it, you know, when the legs would rub together or something like

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this.

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It was horrible.

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I didn't want to touch the thing.

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I thought, why didn't you get it cleaned before you brought it in?

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It was terrible.

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And he said, well, look, it's got this little tear over here on the side.

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And I said, you know, I'm sorry, this just looks like a used piece of clothing.

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I mean, how can you possibly bring this back to us?

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And he said, well, you sold it to me, you have to stand behind your product.

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So I was a little confused, you know, so I went to the boss and he said, well, of course

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we have to take it back.

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And, you know, I remember just being appalled by this, you know, what?

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And I said to my boss, I said, what are we, slaves to these people or something?

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This is nuts.

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He said, yes, in fact, we are, we're slaves to these people, they're called our customers.

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And I never quite got over that, you know, working from the producer angle, you do get

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It's sympathetic with the point of view of business enterprise. I think many of us walk

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around as consumers all the time. We only think about our rights and our choices in

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life and we don't think about it from the point of view of the producer or the business.

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Part of thinking about economics involves thinking about the way the world works from

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the point of view of the producer. I hope to talk about a little of that today.

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My second job, by the way, was working in that same shop. He took me out of returns

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and put me in the business of cleaning the bathrooms. Yeah, that really made me sympathetic

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with the department, from the department store point of view. And I developed a radical anti-consumer

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attitude, which I think actually all businesses would if they weren't utterly and completely

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dependent on the consumers for their very lifeblood. So my third job was working in

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in the Catering Service. So I got to see how consumers aren't always well treated, you

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know, but anyway. So often, my subject today concerns technology. The picture I put up

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here on the board, I don't know if you can see it very well, it's kind of regrettable.

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What you see are several ships and everybody on the ship is killing each other. They're

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killing the other people on the other ship and the people on the other ship again, they're

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That is not an example of productivity. That is wealth destruction.

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So if you can remember that when you see people on boats and they're all killing each other and blowing each other up, that's wealth destruction.

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That's not a good thing for a civilization when that sort of thing happens.

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This book I have here is on life in the Middle Ages and basically there are two kinds of pictures.

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In one set of pictures people are killing each other and the other set of pictures people

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are producing things, you know. So I thought it was interesting because there's two great

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forces in the history of civilization, you know, on the one hand there's coercion, on

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the other hand, voluntary cooperation and production and that's the essential divide

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in life, you know, between the activity we might call politics on one hand and the other

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we might call just markets on the other. Yeah, so that's the great dividing line in world

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History, Rothbard called it power and market, we could call it politics or technology, whatever

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you want to call it. Let me switch this to a much more beautiful picture. Here's a much

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nicer picture here. You see that? These people sort of hammering stones and carrying them

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around. That's probably about the 13th century. A fantastic number of pictures in this charming

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in a book are about technology and to a large extent we define ourselves as people according

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to the tools we use and the technology we use. I remember, I'll never forget the first

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time one of my children asked me, Dad, were you born before the internet? Yeah, I remember

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when the internet first came along and I reminisce about these old days and they're just sitting

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I hardly remember myself, I mean, so we did things like we would take out this paper stuff

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and you'd write things on it, you know, and then you'd fold it and put it in an envelope

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with a special sticker and give it to a government employee, you know, who would get in a car

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We define ourselves as the digital age. It's a very exciting time to be alive. I would

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encourage you to look back in history and remember that this digital age hasn't always

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A wonderful novel I would encourage you all to read is by Garrett Garrett. It's called

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The Cinder Buggy. What he does is chronicle the switch between the age of iron and the

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advent of steel in the 19th century in America and all of the attendant social upheavals

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that are associated with that change of technology, the vast productivity that came about, the

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The enormous risk that entrepreneurs and businesses took to bring about this social transformation.

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It all involved, of course, business enterprise and the profit and loss system.

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And it led to dramatic cultural and social upheaval that benefited civilization.

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And you can look back at history and see that this happens again and again throughout history.

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Mankind has always been struggling to improve his lot in life.

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In this little picture we see here, we see people carrying around stones and using various tools to do it.

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And this one, I thought this was very interesting. We have a fancy little 16th century machine here for crushing rocks, you know.

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One of the most famous inventions in human history, you probably all know, is the printing press.

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with the first Gutenberg Salter in 1450 which led to a total upheaval in dramatic ways especially

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in the culture of the monasteries. This gentleman you see right here is a scribe and there are

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Before the age of the printing press, most of the works of the scribes were devoted entirely

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to preserving works. That was the main thing. Today we have print-on-demand printing so

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So everybody can be an author. Back in those days, to be a new author you had to have a

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lot of social standing or be particularly brilliant because it would take a whole team

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of scribes many years to complete your original manuscript. You had to be St. Thomas Aquinas

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or Cardinal So-and-so or Bishop So-and-so. Then you could get your book published, but

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typical workers and peasants did not get new books published. Most of the works of the

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was devoted to preserving great manuscripts. For example, the great book by St. Isidore

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of Seville of the 8th century which sought to compile all human knowledge in one great

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treatise called Etymologiae, continued to be reprinted by scribes over the centuries

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and in fact it was one of the first books that was printed in the age of movable type.

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And you can imagine what kind of effects printing had from the producer point of view.

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The scribes worried very much that they would be out of business and in fact they were.

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They were an exalted class especially within the monasteries to be a scribe was a much

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coveted position.

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And some heads of monasteries actually resisted the printing press because they feared that

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it was going to lead to widespread unemployment of their smartest people.

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And it took about 50 to 100 years for monasteries of Europe to reconcile themselves to the printing

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press realizing that it was actually a good thing if they could print their own things

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that it would be able to, this gentleman who is obviously very wise and very smart, would

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The innovation actually led to a more economical use of his own time and talents. So it was

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up and down the entire monastery. We can always expect some kind of transition difficulties

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anytime there are new technologies. If you look back at the history in the first millennium,

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The first, I think Tom Woods points this out in his wonderful, wonderful book on, I think

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it's called, it was the How Catholic Church Saves Civilizations, something like that, yeah.

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But he talks about technology in the first millennium and points to the fact that the

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largest, the first large-scale capitalist enterprises in Europe actually dated from

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the eighth and ninth centuries, they occurred in monasteries.

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And here's the way it would work, it's very interesting, the new monastery would be founded

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with some ideal that everybody would share in the workload.

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So some would go out and tend to the livestock, others would do woodworking, work out in the

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fields and so on, and everybody would share equally in these tasks.

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But as the years would go on, they also discovered that there were peasants and other workers

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that were not monks out in the community who needed jobs.

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So they would hire them.

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industrial hiring techniques, some monks needed to turn their attention away from tending

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livestock to running the books in the monastery, so they would come from the outdoors to the

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indoors, and the tools would improve and become ever more efficient and people would have

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to specialize in using the tools and making the tools, well over several hundred years

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The monastery would completely change, instead of a place of perfect equality where all monks

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would work hard out in the fields and then pray when they weren't working, you developed

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a kind of a class system where the monks would all stay indoors doing sort of indoor intellectual

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work while the workers and peasants were all outside doing the hard manual labor.

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Some one monk would come along and say, look, look at this system we've created, this is

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This is just contrary to our founding ideals and would break off and start a new order

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of monks and every new order of monks that was founded was ever more dedicated to stricter

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and stricter rules concerning what people had to do in terms of their work.

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So the new monastery would be founded and in my monastery nobody is going to be even

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allowed to wear shoes or you're not going to own any property at all, you're only going

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to be allowed to have a bed and a crucifix and that's it.

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were more strict and part of this was having to do with having to crack down on the prosperity

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that would come about from the development of these large-scale capitalist enterprises.

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That always leads to some kind of upheaval. And every age can be defined according to

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the technology that comes about and I'm sure you all in this room will define yourselves.

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I mean there will be a common time when you have children and you'll be talking about

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What was it like when you were kids?

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We can't even imagine what it's going to be like in the future

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and you'll talk about what it was like to use the World Wide Web

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or when you first held your first iPod

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and these kinds of things will reminisce with you

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and say, well, that's amazing, what was that like?

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You know?

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So it has been...

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There's a picture hanging in my own house

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and I love this picture, it tells you so much.

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It was taken about in 1923

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and has my, you know, great-great,

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I don't know, ancestors there, cousins.

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So on the front row, you've got

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We've got these old guys in beards with war medals on from the Civil War and they're sitting

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there very crabby and annoyed about something, probably the photographer. And then next to

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them are their wives and then you've got the second generation behind them and then behind

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them on the back row is a long row of young men. They look like they're about 17, 18 or

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something. And they're all looking there sort of disdainful, like why am I having to be

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Macro are driving a car now for the first time. They're the first driving generation.

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They define themselves that way. We drive, they don't. They're really cocky. So that's

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the way it is. Every new generation has this attachment to the technology they use. It

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was true in the Middle Ages and it's true in our own time.

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The term technology itself, it didn't come into popular usage, you won't believe this,

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until after World War II. It's not the common term. It's the term we use now. I found a

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little bit about the etymology of the term itself. It comes from the Indo-European root

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of the, called, the word is tex, T-E-K-S, and it means to fabricate or to weave. Very

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nice imagery there. The Greek word tectron, referred to as a carpenter or a builder. Before

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The 20th century, back in the 19th century, 18th century, the word technology was usually

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replaced with, which I think is a much nicer term, called the practical arts. The practical

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arts. That's what technology used to be called back then. And it referred to the fact that

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technology is really about a creative process of generating something that's truly artistic.

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requires human ingenuity and skill and testing really with the consumer base to try new things

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out to achieve certain practical ends in life, the practical arts.

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And the focus on the practical arts helps us understand that so much of the world we

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live in and have always lived in, as far back as we look, is human built.

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You know, nature gives us raw resources, but nature is itself an extremely dangerous place

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and unpleasant. Everything else that we experience and everything we strive to live for is made

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with human hands. This is, and we're going to hear a little bit more about this later,

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this is to me the absurdity of the environmentalist vision to herald the natural environment beyond

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that which people made. Nobody in this room would be alive if we had the pure environmentalist

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Dream Achieved. The world that we experience and that we want to experience and that we've

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always experienced is largely made by human hands. So the great question from an economic

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point of view is whether or not, what are the means that lead to the ever greater perfection

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of this human built world? And traditionally, there are two ways to understand the means

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by which this comes about. One is the theory of collective innovation and the other is

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is the theory of individual innovation. I would like to talk about both those points

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of view. In the collective view, the idea is that the government or society at large

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has to be responsible for making great innovations. This view is still with us whenever you hear

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presidents, whether it's Obama or Bush or anybody else talking about the need to invest

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as a society in something. Invest in large-scale infrastructure. You know, in World War II,

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government fought the war, built the bomb, you know, so there's a great explosion in

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technological advance and it comes about collectively that we need to invest in arts and sciences

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or whatever the case may be. The problem with that method of collective innovation is that

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There's really no market test to find out whether or not that's a good use of social

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resources or not. In the market economy, there's constantly a test. In the collective economy

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of government-built things, there is no test to find out if the resources are being used

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efficiently or not. One example that people point to as a great case of collective entrepreneurship

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would be the invention of the Internet, which everybody knows was built by the government.

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Well, it was built back by the government, but the government never did anything with

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it.

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It was private enterprise that turned it into a productive, useful thing for us.

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Government technology can come too soon, it can come too late, quite often.

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Government constantly funds old technologies or funds them too soon before society is ready

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for them.

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And let's be clear about technology, it has to come around at the right time.

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Let's say you lived in the age of the scribe and a monk walked in and said to the scribe,

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Listen, I've got a great new innovation. It's called one-click ordering.

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Well, what would anybody be able to do with a one-click method of ordering things on the internet in the age of the scribe?

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It doesn't make any sense, right? So it's not just about the ideas or the notion.

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It's about its usability and its economic viability.

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Now, the other theory of innovation is that it's entirely individual and it's about

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great individuals. I think we have to be careful about this interpretation as well. This theory

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of entrepreneurship or the theory of innovation and development that it all comes down to

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the great individuals and their great ideas really developed in the Gilded Age in the

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late 19th century when there was a new class of capitalists that came along that wanted

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I wanted to replace the traditional view that the great figures in human history were politicians

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and war makers and wanted to replace it with a view that the industrial captains of industry

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were really the people we need to be celebrating. I have no problem with that, but it led to

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certain exaggerations. Let me just give you a couple of cases in point. I think we're

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We're all taught in school that Eli Whitney invented the cotton gin. I think I was taught

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that. And I had a vision of everybody taking these lumps of cotton off the ... I grew up

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in Texas, so you take the lump of cotton off the plant there and sort of have to pick out

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the seed all the time. And that's the way people built with cotton until the great Eli

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Whitney genius came along and invented a machine where you sort of stuff the cotton in the

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machine that sped out the seeds on one end and then out came the cloth or whatever. I

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Well, you know, if you look at the details of this history, it turns out this is an amazing

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myth. It turns out cotton ginning has been around since about the 5th century and with

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great improvements and innovations made from the 12th to the 14th century and long before

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Eli Whitney, all throughout the American South, cotton was always ginned, usually with roller

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pens or some other machine. And there have been continual innovations throughout history.

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It wasn't just that Eli Whitney came along with one brilliant idea and changed history.

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No, it's not at all true. What happened is that Eli Whitney took an existing machine and

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thanks to a suggestion made to him by a friend of his, who was a woman by the way, he added

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a small brush technique to the machine. Why we know about Eli Whitney versus everybody

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else involved in the long 2,000 year process of coming up with the modern cotton gin is

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The truth is that he got to the patent office first before anybody else did, and then turned

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around and used his patent to beat up all the competition, and went around the South

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suing everybody.

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He was ginning cotton, claiming that they owed him money.

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Okay, so this is the truth about our friend, Eli Whitney.

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A similar story can be told about Alexander Graham Bell, who did not invent the telephone,

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and those rotten Wright brothers.

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I'm just fed up with hearing about the Wright brothers.

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The Evil Wright Brothers, you know, they were running a little scam outfit that was really

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just a, I mean, they paid more lawyers than they did anybody else, and their goal was

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to, of course, to get the first patent, you know, on the first in flight. There were about

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20 competitors for the title first in flight. They made one little improvement in the wing,

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raced to the patent office, and then demanded that the U.S. government buy their airplane

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and spent the next 15 years suing everybody who was really trying to make real improvements

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in the Airplane, and succeeding. So by the time World War I rolled around, the U.S.

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was so backward in its air technology that we had to buy our planes from France, you

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know, that didn't actually have any patents on airplanes, flying technology. So fortunately,

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during World War I, U.S. government suspended patent enforcement on the airplane and then

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advances could be made. So anyway, my point is that the history of innovation is not really

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the history of great men or great women doing amazing things out of nowhere. You know, one

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One minute everybody is talking on like cups of strings and then Alexander Graham Bell

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and the iPod or whatever, I don't know, but it doesn't happen like that. What happens

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is a series of small steps and this is the way it happens in our world today. You know

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every day you go online you find some small improvements. Somebody takes an existing technology

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and improves it just slightly a little bit and markets it. In order to understand how

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How that works though, you need to understand something about the way the process of market

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competition works. And it works like this. An entrepreneur sees a need. For example,

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in Auburn for many years we didn't have any donut shops. So one guy opens up a donut shop

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right over here in college and he's making enormous profits with this donut shop. I mean,

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you can tell it. You go in there and I talk to him all the time, how much do you make

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by selling that 50-cent doughnut. Well, you know, I don't know, it cost me about 10 cents

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to make. Okay, he's making 40 cents a doughnut, but he's still got to pay people, got to pay

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taxes. Nonetheless, the profits are there. This serves as a signal to other possible

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entrepreneurs in town that this is a profitable enterprise. That signal, that profit signal

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is like broadcasting out to every entrepreneur, every owner of capital in Auburn, look, this

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This is a possible way that you can make money by selling donuts.

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So the guy, so a possible entrepreneur, goes into the donut shop and examines how they

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do things and he's over there taking mental pictures, you know, of everything he sees

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and so he copies, he copies the behavior of the donut shop down there.

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It's a process of emulation and I hope you write down that word, emulation, because this

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is the essence of entrepreneurship, this is how it begins.

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It begins with copying what other people are doing, but it's not just enough just to copy

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What you have to do is improve it just slightly, because you have to get the customers to come

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to you as opposed to him.

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Or your innovation may consist of better marketing, promoting the doughnuts in a better way than

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the other guy did, so you get ever more customers, or it could consist of saving in the costs

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associated with doughnut making.

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Whatever it is, you've got to make an improvement on the existing profitable enterprise down

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So you open up your business, you've made the improvement, you've reduced cost, you've made

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the donuts even better tasting, you've got a better process for making them, you've rented

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a spot that has lower rents, possibly.

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So then what happens?

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You get customers and that guy's losing customers, his profitability goes down or he has to compete

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with you, adopt new technologies, new designs, cut costs, whatever the case might be, it's

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going to reduce his profit margins.

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So on one hand the guy over here is this profitable, you've opened up your shot, you're becoming

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this profitable, but look, his profits begin to go down. Right? All through this process

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of emulation first and competition second. Then a third doughnut shop opens up. Everybody's

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profits are pushed further and further down. This is the way the process works. In the

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competitive market process, everybody copies everybody else and improves just slightly

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on the margin. Just a little bit enough to solicit more traffic, customer contact with

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with himself, and profits are eventually driven down to what level? In an ideal world, if

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you construct this thing out, profits are driven down to zero. And I always like to

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tell people this as a way of addressing some of the socialists who are under the impression

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that capitalism is a big conspiracy to protect the rights of profit makers. It strikes me

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that capitalism is nothing but a gigantic conspiracy to reduce all profits in the world

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0. It's a disaster for producers. You have to constantly stay alert and constantly innovate

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or else you die. That's the way the truth of the market works.

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Some of you are probably going to be looking into business in the future and I would urge

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you as you look into this not to try to be a Wright Brothers, one of the Wright Brothers

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or an Eli Whitney or an Alexander Graham Bell or these other guys, but rather to look for

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and more successful behaviors in the market, emulate them, copy them and improve them just slightly.

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That's how people make money in a market economy, through slight improvements on the margin.

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It's true in our day and it was true in the 12th century, it was true all the way back to the beginning of time.

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So I reject this model that entrepreneurship is collective or that innovation occurs collectively

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and neither is it occurred through just great man, it occurs through people just like yourselves who are out there just trying to improve the world a little bit at a time.

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What this depends on most fundamentally, it depends on the freedom to save and build capital.

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It depends on the freedom to try and fail since not every experiment in the business

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world is successful. Far more businesses fail than succeed. And you need the freedom to

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constantly improve without interventions like high regulations or patents or other restrictions

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on what people can and cannot do. You need a free flow of information precisely so that

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people can learn from each other and emulate the success of other people. That's the way

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we are going to progress as a society. You notice that government does none of these

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things. It's only markets that do this. So my final advice to you in this short talk

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is that as you pursue your lives, I hope that you all at some point go to work for a small

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I'm a small producer of some sort so you can get a picture of what it's like to be on the

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other side of the aisle.

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It can drive you crazy.

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I know my children hate to go shopping with me because I'll walk into something like Dick

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Sporting goes over here in Tiger Town and I open the door and I'm overwhelmed at the

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sheer volume of inventory, the inventory and I'll start calculating costs, you know, I'll

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look up that ship on the wall and there's the fishing poles over there, the footballs

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over there and the huge machines over there and I think, God, there's 20 million, there's

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Probably 30 million, it's probably 50 million dollars worth of inventory in this place.

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You realize kids, that this place had to buy all that stuff, and here we are, who do we

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think we are? We can walk in, just kind of cruise around, look at these machines, go

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well like that, kind of like that, we're not going to buy anything, and walk right out

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of here again. And there's nothing these people can do about it. I mean, it's a terrifying

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thing for me to walk into a store with a large amount of inventory. But it's good for you

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Thank you to be able to think about the way the economy works from the point of view of

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the producer. If you want to be one of these producers, get good at copying, get good at

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emulating, get good at improving and perfecting and never rest until the day you die and then

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you will leave something spectacular for the next generation. Thank you very much.