Vikas's Reviews > Knowledge and the Wealth of Nations: A Story of Economic Discovery

Knowledge and the Wealth of Nations by David Warsh
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Oct 26, 2007

bookshelves: to-read

In October 1990, Paul Romer, a 36-year-old University of Chicago economist, published a 32-page article, ‘Endogenous technological change’ in the Journal of Political Economy. Now, here is a whole book about that paper: Knowledge and the Wealth of Nations by David Warsh ( ).

The first paragraph of Romer’s paper had this sentence: “The distinguishing feature of… technology as an input is that it is neither a conventional good nor a public good; it is a non-rival, partially excludable good…” A sentence that initiated a far-reaching conceptual rearrangement in economics, writes Warsh.

For starters, governments usually supply ‘public’ goods, while the market participants provide ‘private’ goods. The rival-nonrival distinction is about “goods whose corporeality makes possible their absolute possession and limited sharing (an ice-cream cone, a house, a job, a Treasury bond), and goods whose essence can be written down and stored in a computer as a string of bits and shared equally by many persons at the same time practically without limit (a holy book, a language, the calculus, the principles of design of a bicycle).” Rival goods are objects, while the non-rival ones are ideas, existing as atoms and bits. Where you can control the access to goods, they become excludable.

To Warsh, the paper by Romer had won a race of sorts: “A race within the community of university-based research economists to make sense of the process of globalisation at the end of the twentieth century, and to say something practical and new about how to encourage economic development in places where it had failed to occur.”

As a consequence, we now have a new economics of knowledge, concludes Warsh. Governments have understood that it is in their interest ‘to subsidise the production and diffusion of knowledge, to support the useful arts, to extend education, to protect intellectual property, and to promote free trade’.

For instance, the German central bank decided to ‘sell much of its gold and invest the money in German universities’; the UK government ‘offered a large contract to the successful developer of a malaria vaccine, much as once it had offered a substantial prize for the invention of a reliable means of finding longitude at sea’; in Singapore, ‘higher education is practically a state religion’; and ‘in India and China university systems are training engineers and PhDs at a furious rate and thinking rigorously about how to improve their universities to a point at which they too can compete for international students’…

Exciting economics.

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