Wednesday, September 2, 2009 - The Progress & Freedom Foundation Blog

George Gilder's Microcosm: How Entrepreneurial Capitalism Creates & Uplifts

A few gems from George Gilder's 1990 masterpiece Microcosm: the Quantum Revolution in Economics & Technology as I work my way through the book:

Predatory Pricing. Gilder details how early microchip manufacturers created wholly new markets put Say's law into action: supply creating its own demand. Not only did these companies introduce new technologies, but they created demand by slashing the prices of those technologies by multiple orders of magnitude (10-10,000x) even before they figured out how to lower production costs enough to make even a small profit. While such practices would later give rise to charges of "predatory pricing" and "dumping," Gilder explains:

Selling below cost is the crux of all enterprise. It regularly transforms expensive and cumbersome luxuries into elegant mass products. It has been the genius of American industry since the era when Rockefeller and Carnegie radically reduced the prices of oil and steel. (122)

The Learning Curve: Gilder explains the dynamic by which prices drop so consistently in innovative new industries:
Early in the life of a product, uncertainty afflicts every part of the process. An unstable process means energy use per unit will be at its height. Both fuels and materials are wasted. High informational entropy in the process also produces high physical entropy.

The benefits of the learning curve largely reflect the replacement of uncertainty with knowledge. The result can be a production process using less materials, less fuel, less reworks, narrower tolerances, and less supervision, overcoming entropy of all forms with information. This curve, in all its implications, is the fundamental law of economic growth and progress. (125)

The Curve of the Mind: Gilder explains the broader implications of the Learning Curve to the competitiveness of the market economy, and how easily yesterday's giants can become tomorrow's easy prey:

Firms that win by the curve of mind often abandon it when they establish themselves in the world of matter. They tight to preserve the value of their material investments in plant and equipment that embody the ideas and experience or their early years of success. They begin to exalt expertise and old knowledge, rights and reputation, over the constant learning and experience of innovative capitalism. They get fat.

A fat cat drifting off the curve, however, is a sitting duck for new nations and companies getting on it. The curve of mind thus tends to favor outsiders over establishments of all kinds. At the capitalist ball, the blood is seldom blue or the money rarely seasoned. Microcosmic technologies are no exception. Capitalism's most lavish display, the microcosm, is no respecter of persons. (113)

Socioeconomic Empowerment. As Gilder explains, the revolution of the Microcosm drew on, and empowered, the a diverse array of the downtrodden, both native-born and foreign:
The United States did nor enter the microcosm through the portals of the Ivy League, with Brooks Brothers suits, gentleman Cs, and warbling society wives. Few people who think they arc in already can summon the energies to break in. From immigrants and outcasts, street toughs and science wonks, nerds and boffins, the bearded and the beer-bellied, the tacks' and uptight, and sometimes weird, the born again and born yesterday, with Adam's apples bobbing, psyches throbbing, and acne galore, the fraternity of the pizza breakfast, the Ferrari dream, the silicon truth, the midnight modem, and the seventy-hour week, from dirt farms and redneck shanties, trailer parks and Levittowns, in a rainbow parade of all colors and wavelengths, of the hyperneat and the sty high, the crewcut and khaki, the pony-railed and punk, accented from Britain and Madras, from Israel and Malaya, from Paris and Parris Island, from Iowa and Havana, from Brooklyn and Boise and Belgrade and Vienna and Vietnam, from the coarse fanaticism and desperation, ambition and hunger, genius and sweat of the outsider, the downtrodden, the banished, and the bullied come most of the progress in the world and in Silicon Valey. (114).

posted by Berin Szoka @ 9:54 PM | Antitrust & Competition Policy , Philosophy / Cyber-Libertarianism , What We're Reading