At The Freeman, Sandy Ikeda points out that the handy little saying “There ain’t no such thing as a free lunch” is not enough to explain modern prosperity::
Economics teaches us the importance of TANSTAAFL and capital investment. Again, the trouble is they are not the whole truth.
As I’ve written before, however, there is such a thing as a free lunch, and I don’t want to repeat that argument in its entirety. The basic idea is that what Israel M. Kirzner calls “the driving force of the market” is entrepreneurship. Entrepreneurship goes beyond working within a budget — it’s the discovery of novel opportunities that increase the wealth and raises the budgets of everyone in society, much as the late Steve Jobs or Thomas Edison or Madam C.J. Walker (probably the first African-American millionaire) did. Yes, those innovators needed saving and capital investment by someone — most innovators were debtors at first — but note: Those savings could have been and were invested in less productive investments before these guys came along.
As McCloskey, as well as Rosenberg and Birdzell, have argued, it isn’t saving, capital investment per se, and certainly not colonialism, income inequality, capitalist exploitation, or even hard work that is responsible for the tremendous rise in economic development, especially since 1800.
It is innovation.
And, McCloskey adds, it is crucially the ideas and words that we use to think and talk about the people who innovate — the chance takers, the rebels, the individualists, the game changers — and that reflect a respect for and acceptance of the very concept of progress. Innovation blasts the doors off budget constraints and swamps current rates of savings.
[. . .]
Indeed, innovation is perhaps what enables the market economy to stay ahead of, for the time being at least, the interventionist shackles that increasingly hamper it. You want to regulate landline telephones? I’ll invent the mobile phone! You make mail delivery a legal monopoly? I’ll invent email! You want to impose fixed-rail transport on our cities? I’ll invent the driverless car!
McCloskey’s book has shown up a few times on the blog.
